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SK Hynix Faces Sudden Setback in China Investment Amid US-China Conflict

SK Hynix's DRAM Factory in Wuxi, China

[Asia Economy Reporters Choi Dae-yeol, Kim Heung-soon, Yoo Je-hoon] Domestic companies such as Samsung, SK, and LG, which have production lines in China, are on edge as foreign media reports suggest that the U.S. government may block SK Hynix's plan to deploy extreme ultraviolet (EUV) lithography equipment at its Wuxi plant in Jiangsu Province, China. This is because key items essential for industrial activities, including semiconductors, raw materials, and components, could be caught in the trade conflict between these major powers and suffer damage.

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According to industry sources on the 18th, the prospect that the U.S. government may oppose SK Hynix's plan to install EUV lithography equipment at its Wuxi plant is ultimately seen as an attempt to curb China's efforts to advance its semiconductor industry.

An industry insider said, "It is interpreted as an effort to hinder SK Hynix's production of advanced process semiconductors planned at its Chinese plant and to focus only on legacy (older) processes, thereby reducing competitiveness within China." Major foreign media also supported this expectation by quoting an official who said, "The Joe Biden administration remains firm in its stance to prevent the use of U.S. and allied technology in developing cutting-edge semiconductors that could be used for modernizing the Chinese military."

Earlier, SK Hynix had planned to introduce EUV lithography equipment to produce semiconductors with processes below 10 nanometers (nm; 1 nm = one billionth of a meter), but with the U.S. aiming to check China, this plan is expected to face difficulties.

The EUV lithography equipment, exclusively produced by the Dutch semiconductor equipment company ASML, is extremely expensive, with a unit price around 200 billion KRW, but it is essential for advanced processes, so major semiconductor companies are focusing on adopting it.

To produce semiconductors, circuits are drawn on wafers (semiconductor discs) as a blueprint. Previously, circuits were drawn using argon fluoride (ArF) processes, but for more precise work, EUV lithography equipment with a shorter wavelength than ArF light is preferred. Using this equipment shortens the repetitive circuit engraving process and improves product productivity, providing price competitiveness to both manufacturers and customers. It is mainly used in DRAM manufacturing and foundry (semiconductor contract manufacturing) processes.

SK Hynix first introduced EUV at its M16 fab (manufacturing plant) in Icheon Campus, Gyeonggi Province, completed in February. Subsequently, at a board meeting, it decided to invest a total of 4.7549 trillion KRW in EUV adoption by December 2025. The number of units is expected to be between 10 and 20. Since 2006, SK Hynix has been producing DRAM in Wuxi and plans to apply EUV there as well.

As of the third quarter this year, SK Hynix holds the second-largest global DRAM market share (27.2%). It produces about half of its DRAM chips at the Wuxi plant, accounting for 15% of global DRAM production. Samsung Electronics, the world's number one memory semiconductor company, is also closely watching the U.S. government's moves. Although Samsung does not currently operate DRAM production lines in China, the intensifying U.S.-China conflict could affect the entire semiconductor industry. Samsung currently has a NAND flash plant in Xi'an, China, and a packaging (post-processing) plant in Suzhou.

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As the technological hegemony competition between the U.S. and China spreads its impact to individual companies, Korean companies operating in China are closely monitoring how the situation will unfold. For Korean companies, both China and the U.S. are the largest markets and places with active local presence, making it practically difficult to side with either. In particular, batteries, which President Biden also focuses on along with semiconductors, are among the fields where Korean companies are actively investing in China.

With no sign of easing in the U.S.-China competition, experts point out that if SK Hynix's Chinese investment fails to materialize, the damage to domestic companies could be significant, so preparations must be made in advance.

According to KOTRA, as of the first half of this year, Korean companies made 399 new investments in China, established 118 new corporations, and invested over $2.4 billion. Although investments slowed down due to COVID-19 through last year and early this year, the industry expects a gradual recovery to pre-COVID-19 levels by the end of this year.

LG Energy Solution and Samsung SDI also entered China early and are operating battery plants. In the past one to two years, they have invested thousands of billions to trillions of KRW locally to expand facilities or upgrade to advanced equipment. Batteries, along with semiconductors, are fields that President Biden declared he would inspect supply chains after taking office. The reason is that the battery value chain, a key component for expanding electric vehicle adoption, is heavily influenced by China.

China holds a significant share of finished battery cell production as well as key raw materials such as cathode materials and separators, accounting for 60-70%. When considering upstream raw material procurement, the share exceeds 80%. If the Chinese government deliberately tightens control, the electric vehicle ecosystem could be shaken. LG, SK, and Samsung's increased battery investments in the U.S. are seen as efforts to smoothly supply local customers and to respond to the U.S. administration's battery ecosystem development.

Kang Gu-sang, a member of the Economic Security Task Force at the Korea Institute for International Economic Policy, said, "The U.S. has a relative advantage in high value-added areas such as semiconductor design and core technologies, but manufacturing and packaging are centered in emerging markets including China." He added, "Biden's inspection of semiconductor and battery supply chains aims to create an environment where final production stages can be done domestically. It is interpreted as an effort to induce large-scale investment in the U.S. while minimizing new investments in China."

Jung Yoo-shin, dean of the Graduate School of Technology Management at Sogang University, said, "The U.S.-China hegemony competition will continue for a considerable period, and it has long been foreseen that we could be caught in a sandwich position. Companies should use this opportunity to reduce dependence on China and diversify production and export bases to find win-win solutions even amid disputes."

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