Semiconductor Supply Chain Isolation Operation in China... South Korea Faces Growing Concerns Amid 'Chinexit' Pressure

G7 Summit Discusses Semiconductor Supply Chain Consortium
Korean Companies Highly Dependent on China Face Burden...Experts Urge Active Participation in US-Led Supply Chain Restructuring

[Sejong=Asia Economy Reporters Haeyoung Kwon, Heungsun Kim] The establishment of a semiconductor supply chain consortium by the Group of Seven (G7) is interpreted as a signal accelerating the U.S. plan to restructure the global supply chain concentrated in China and to curb China's rise through cooperation with allied countries based on a value alliance. As the pressure for 'Chinexit' (a portmanteau of China and Exit, meaning decoupling from China) intensifies between the U.S. and China, the burden on Korean companies, which find it difficult to choose either side, is also expected to increase. However, considering the Korea-U.S. relationship based on a value alliance and cases such as the U.S. thwarting China's telecommunications rise through Huawei eavesdropping allegations, advice is emerging that Korea should actively participate in the U.S. movement to reorganize the global supply chain centered on advanced industries.

◆ U.S. drives 'China isolation' with G7 semiconductor supply chain consortium = The discussion of establishing a semiconductor supply chain consortium at the G7 summit scheduled for next month from the 11th to 13th in the UK is seen as a strategic move by the U.S. to isolate China through global supply chain restructuring. As China rapidly pursues a shift from exports and investment to domestic consumption, and from simple assembly and production to a technology-based economy, the U.S. perceives this as a national security threat and is responding accordingly. Previously, China declared its pursuit of major countries through strategies like 'Made in China 2025,' focusing on nurturing semiconductors, displays, and electric vehicle batteries. To counter China, the U.S. has begun excluding China from the global supply chain centered on advanced industries such as semiconductors, secondary batteries, artificial intelligence (AI), and 6th generation (6G) networks, with the first target being China's 'semiconductor rise.'

Professor Insu Kang of the Department of Economics at Sookmyung Women's University said, "The U.S. has started preliminary work for supply chain restructuring through summit meetings with Japan and South Korea, and this time it has expanded and solidified this movement with allied countries. The U.S. perceives the restructuring of the global supply chain concentrated in China as a security issue and is emphasizing value alliances to allied countries while demanding participation in supply chain restructuring, making European participation inevitable."

◆ Korean semiconductor companies likely to face stronger 'Chinexit' pressure = The focus is on the impact on the Korean economy, which is under pressure from Chinexit. China is the world's largest market and has a significant influence on Korea due to geographic proximity. Especially if the situation develops toward restructuring the semiconductor supply chain centered on the G7 and excluding China, domestic companies will inevitably face difficulties. Currently, Samsung Electronics and SK Hynix, which hold the first and second largest market shares in the global memory semiconductor DRAM sector, have a very high export dependence on China. According to the Korea International Trade Association, Korea's semiconductor exports over the past year from January last year amounted to about $107.9 billion (approximately 119 trillion KRW), with China accounting for the largest share at about $43.3 billion (approximately 48 trillion KRW). An industry insider said, "China accounts for about 50% of Samsung Electronics and SK Hynix's export share, showing its significant influence." He added, "China's IT companies have grown rapidly, creating enormous semiconductor demand, and its influence on the global economy is substantial, so for domestic companies, it is a market they cannot afford to lose. They must carefully weigh investment and exchanges to avoid losing this market."

There are also concerns within the government and companies that various countries may flood Samsung Electronics, SK Hynix, and other Korean semiconductor companies with SOS calls. Following the White House's summons to Samsung Electronics to request investment, Europe may also demand cooperation in establishing a stable supply chain after the establishment and operation of the G7 semiconductor supply chain consortium. Since Europe is a major electric vehicle market, Korean companies producing electric vehicle batteries cannot ignore Europe's supply chain expansion demands.

◆ "Must actively participate in U.S.-led supply chain restructuring" = Experts unanimously agree that the path Korea must choose is the U.S., and that Korea has already begun walking that path. At last week's Korea-U.S. summit, both sides agreed to strengthen cooperation in advanced manufacturing sectors including semiconductors, electric vehicle batteries, biopharmaceuticals, and next-generation mobile communications (6G). Samsung, SK, LG, and Hyundai Motor, the four major domestic companies, announced investment plans worth about 44 trillion KRW. This is interpreted as a declaration to participate in the U.S.-led supply chain restructuring rather than China's.

Professor Kang said, "China is pushing for semiconductor self-reliance, but its technology is lagging, so it cannot arbitrarily reduce its export dependence on Korea." He added, "We must consider that while our companies produce semiconductors, most semiconductor equipment depends on Europe and the U.S." If Korea's participation in supply chain restructuring remains lukewarm, the U.S., which has outsourced everything except semiconductor design, may internalize semiconductor production, which is also a concern.

Professor Kang advised, "The U.S. will restructure the global supply chain centered on advanced industries and cooperate with allied countries based on value alliances to outpace China's pursuit. Korea should actively participate in the U.S. supply chain restructuring to secure a leading position in the market where the future landscape will change."

This content was produced with the assistance of AI translation services.