US-China Conflict Sparks Concerns... SK Hynix Partners Also 'On Edge'

SK Hynix's Advanced Modernization at Chinese Factory Stalled... Partners 'Watch Closely'
Concerns Over Korean Companies Being 'Sandwiched'... Possible Expansion of Investment in Yongin Cluster
Experts Say "Corporate Efforts Alone Are Insufficient... Public-Private Joint Response Needed"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jun-hyung] As SK Hynix's plan to modernize its semiconductor factory in China faces setbacks due to U.S. opposition, tension is rising among domestic small and medium-sized semiconductor companies. The intensifying semiconductor hegemony battle between the U.S. and China raises concerns that the fallout could spread to domestic partners following SK Hynix. Experts warn that if the Korean government does not intervene, not only SK Hynix at the top of the semiconductor supply chain but also domestic partners could become victims of the U.S.-China conflict.

According to industry sources on the 20th, SK Hynix's first- and second-tier partners are on high alert regarding the impact of the U.S.-China conflict on the domestic semiconductor ecosystem. This concern has become a reality as Korean companies face direct damage from the U.S.-China hegemony competition. Earlier, the Biden administration in the U.S. blocked SK Hynix's plan to introduce extreme ultraviolet (EUV) lithography equipment, a core technology in semiconductor fine processes, to its Wuxi factory in China. The reason cited was that China could use advanced semiconductor equipment to strengthen its military capabilities. It is also reported that KOTRA’s local trade office is closely monitoring the situation while communicating with SK Hynix.

"Short-term Impact Inevitable"...Concerns Over Reduced Investment in China

Representatives from partner companies unanimously stated, "If SK Hynix's investment in China is delayed, short-term repercussions are inevitable." Considering that expanding production capacity is one of SK Hynix's goals for modernizing its Chinese factory, orders for semiconductor equipment from domestic partners could decrease. A representative from semiconductor equipment company A, a partner of SK Hynix, explained, "From the perspective of a company with SK Hynix as a client, this cannot be seen as a positive signal at the moment," adding, "The longer the production capacity expansion is delayed, the more the supply contracts for partners are postponed."

Biden and Xi Jinping Holding a Summit via Video Conference
(Washington AFP=Yonhap News) U.S. President Joe Biden (left) is holding a summit with Chinese President Xi Jinping via video conference on the 15th (local time) in the Roosevelt Room of the White House in Washington DC. This summit is the first to be held in 10 months since President Biden took office in January. 2021.11.16
Photo by Sungok@yna.co.kr
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This incident raises the possibility that the trend of avoiding investment in China could spread not only to SK Hynix but also to the domestic semiconductor industry. The U.S.-China conflict itself has already become an investment risk. Moreover, depending on the Chinese government's response, the repercussions of the hegemony battle could escalate uncontrollably. Lee Jong-ho, director of the Semiconductor Joint Research Center at Seoul National University, analyzed, "It seems the U.S. aims to prevent progress in advanced DRAM memory technology in China," adding, "It also appears to send a message to increase investment in the U.S. instead of China." Lee further explained, "China has high demand for DRAM memory semiconductors from companies like Huawei and Xiaomi, so if it cannot establish its own supply chain, it will respond accordingly," and "It may reduce benefits provided to domestic companies or impose additional tariffs."

There is also anxiety that domestic semiconductor companies could become caught in a "sandwich situation" between the U.S. and China. There are concerns that either the U.S. or China might indirectly pressure the other side by holding domestic companies hostage. Reuters also reported that "SK Hynix, the world's largest supplier of DRAM memory chips, could be the next victim in the geopolitical dispute between the U.S. and China."

Domestic U-turn May Accelerate... "Government Intervention Needed"

On the other hand, some opinions suggest that the domestic semiconductor ecosystem could benefit indirectly. It is analyzed that SK Hynix might strengthen the domestic supply chain centered around the Yongin semiconductor cluster as a result of this incident. A representative from semiconductor equipment company B, another SK Hynix partner, said, "If SK Hynix cannot secure the planned production volume in China, it will have to increase production capacity somewhere else," adding, "Since there was an initial plan to make the Yongin semiconductor cluster the center of front-end processes, domestic investment could accelerate or expand." A representative from semiconductor materials company C said, "The more production plants are built in multiple locations, the higher the maintenance costs and the risk of technology leakage," and added, "If SK Hynix judges that the U.S.-China conflict will prolong, there is a strong possibility that a domestic U-turn will be fully initiated."

Experts emphasized the need for government intervention, pointing out that efforts by a single company are insufficient. Noh Min-seon, head of the Future Strategy Research Group at the Korea Institute for Small and Medium Enterprises and Startups, stated, "The U.S.-China conflict is a complex issue involving economic and diplomatic matters such as hegemony," and suggested, "Policy monitoring should be strengthened, and the public and private sectors should actively seek joint response measures."

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