China Proposes Supply Chain Cooperation... Government at a Crossroads

Demand for Participation in Supply Chain Expansion from the US Side

Seo Hoon, Director of the National Security Office at the Blue House (left), and Yang Jiechi, Member of the Political Bureau of the Communist Party of China in charge of foreign affairs, are taking a commemorative photo before the start of their talks at a hotel in Tianjin, China, on the 2nd.
[Image source=Yonhap News]

[Asia Economy Reporters Inho Yoo and Heungsun Kim] The governments of South Korea and China are expected to engage in full-scale discussions to strengthen cooperation in supply chains for semiconductors, materials, and raw materials. Observers suggest that the choices made by the South Korean government, amid demands from U.S. President Joe Biden to participate in expanding the global supply chain, will impact the situation on the Korean Peninsula and the economy.

According to diplomatic sources on the 3rd, during the meeting on the 2nd in Tianjin, China, between Suh Hoon, Director of the Blue House National Security Office, and Yang Jiechi, member of the Political Bureau of the Chinese Communist Party responsible for foreign affairs, both sides presented their cards using a declaration of the end of the war as a medium. The South Korean government requested strong support from China for a declaration of the end of the war within President Moon Jae-in’s term, and in response, China proposed discussing strengthening supply chain cooperation with South Korea to counter the U.S.-led expansion of the global supply chain.

The reason China officially proposed strengthening supply chain cooperation to the South Korean government is to counter the U.S., which is actively promoting participation by the South Korean government and companies to expand the global supply chain, especially in semiconductors. In fact, the U.S. is urging major South Korean companies with high global competitiveness in key industries such as semiconductors and electric batteries?Samsung Electronics, SK Hynix, LG, among others?to actively participate in strengthening the global supply chain.

Moreover, the U.S. has indicated that starting next year, it will actively promote strengthening the global supply chain centered on allies such as South Korea and Japan. Since President Biden mentioned a new Indo-Pacific economic cooperation framework last October, U.S. Secretary of Commerce Gina Raimondo recently announced that official procedures for this cooperation framework will begin early next year.

"Careful Tug-of-War Needed Between the Two Countries"

Accordingly, concerns are rising in the business community that the calculations for South Korean companies will become much more complicated. In the semiconductor sector, the U.S. government is demanding investments and submission of customer-related information from South Korean companies and others to reorganize the supply chain centered on the U.S., encouraging exclusion of China.

Despite the U.S.’s tough stance, South Korean companies cannot help but be cautious in their relations with China due to market influence. According to the Korea International Trade Association, in October, China accounted for the largest share of South Korea’s semiconductor exports by country at 41.4%. Of the total $11.173 billion, $4.623 billion worth of semiconductors were purchased by China. Currently, Samsung Electronics operates a NAND flash factory in Xi’an, China, and a packaging (semiconductor back-end process) factory in Suzhou. SK Hynix produces DRAM in Wuxi and has a NAND flash back-end process line in Chongqing. SK Hynix especially requires approval from the Chinese government for its merger and acquisition (M&A) of Intel’s NAND business division, and its plan to introduce extreme ultraviolet (EUV) lithography equipment at the Wuxi plant has faced opposition from the U.S. government, making it necessary to closely monitor the U.S.-China conflict structure.

Kim Yang-pyung, a senior researcher at the Korea Institute for Industrial Economics & Trade, said, “From the perspective of the semiconductor industry, China is a major market for South Korea, and without U.S. technology, it is difficult for us to manufacture semiconductors. Fortunately, both the U.S. and China need South Korea for their supply chains, so a careful tug-of-war between the two countries is necessary.” Lee Won-seok, team leader of the Trade Support Center at the Korea International Trade Association, also said, “While complying with specific sanctions or guidelines, it is necessary to move cautiously to gain practical benefits without leaning toward either the U.S. or China.”

In diplomatic circles, there is an analysis that South Korea is caught between the U.S. and China amid the intensifying conflict over supply chain leadership. The South Korean government is at a crossroads in choosing between the U.S. and China regarding supply chain participation. If the government makes the wrong choice, it could trigger not only major issues on the Korean Peninsula such as North Korea’s denuclearization but also an economic crisis.

A diplomatic expert said, “As the U.S.-China divide deepens, the frequency and scope of economic sanctions by China may increase. Just as Australia, which took a leading role on the U.S. side, faced retaliation from China, if our government fails to respond promptly, it could face crises both diplomatically and economically.”

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