[Chip Talk] China's Semiconductor Self-Reliance Has Changed Remarkably... From 'Financier' with Negotiation Power to 'Player'

Solid Industrial Fundamentals Built with Design Capability
Government's 'Ssangsunhwan Strategy' Major Support... Presence Highlighted

The SMIC booth at the "International Semiconductor Exhibition 2020" held in Shanghai, China, in October 2020. (Image source=Reuters Yonhap News)

[Asia Economy Reporter Moon Chaeseok]

'Korean semiconductors caught between choosing U.S. technology and the Chinese market.'

This topic has emerged as Korea joined the U.S.-led Chip4 alliance (Chip4: Korea, U.S., Japan, Taiwan). One missing point in this proposition is that China is not only the largest consumer but also has a semiconductor industry self-sufficiency level that cannot be ignored. China is steadily building a next-generation system semiconductor ecosystem, including foundry services where Korea is weak, and it is said that China could catch up with Korea in market share, including memory semiconductors, Korea's strength, in the long term. This means China is gaining presence not just as a 'source of funds' but as a 'player' in the industry.

Taiwan market research firm TrendForce announced last October that China's foundry market share was 6%, trailing Taiwan's 65% and Korea's 16%. Key players include SMIC, Hua Hong Group, and Nexchip. The combined revenue of these companies in the first quarter reached $3.329 billion (approximately 4.321 trillion KRW).

Despite U.S. equipment import restrictions, China is developing design technologies and other capabilities, leading to opinions that Chinese semiconductors cannot be ignored. It is considered threatening because China holds the 'design' capabilities in the lucrative system semiconductor sector where Korea is weak.

Chinese fabless companies' revenues have nearly doubled over the past three years. Additionally, venture capitalists are knocking on the doors of Chinese semiconductor companies with large sums of money. This is threatening news for Korea. Korea's invitation to the U.S.-led Chip4 was largely due to its 'manufacturing capability.' However, Korea lacks design capabilities, and news about memory semiconductor manufacturers like Samsung Electronics and SK Hynix pursuing large-scale mergers and acquisitions (M&A) of fabless companies such as the UK-based ARM continues. This indicates relatively low self-sufficiency.

Chinese semiconductors are increasing market share while having solid industrial fundamentals. Therefore, China is growing its presence not only as a 'consumer' of Korean semiconductors but also as a 'supplier' that could take market share from Korean companies. Credible institutions such as the U.S. Semiconductor Industry Association (SIA) and Boston Consulting Group recently forecast that by 2030, China's semiconductor market share will rise to 23%, surpassing Korea's 19%.

What is even more concerning is that this growth is not merely a result of the semiconductor industry but a product of China's government-led 'dual circulation strategy,' which involves national security. Since last year, China has announced the '14th Five-Year Plan' aiming to rapidly advance engineering levels by 2025. This plan includes raising semiconductor self-sufficiency to 70% by 2025. Although U.S. regulations may slow progress, China's long-term national economic development strategy, including achieving the 100th anniversary of the founding of the People's Republic of China in 2049 as a 'socialist modernized power,' is expected to continue. This goal is impossible without semiconductor industry success. The Chinese government is likely to pour indiscriminate subsidies into semiconductors, a strategy that helped China dominate solar power, displays, electric vehicle batteries, and electric vehicles worldwide.

China has 2,810 fabless companies, 23 times the 120 in Korea. The scale has grown too large to be stopped by equipment import restrictions alone. The issue is that fabless companies can increase self-sufficiency in producing mid- to low-end semiconductors. China has secured a structure that can self-supply to some extent even without the current cutting-edge 14-nanometer (nm; 1 nm = one billionth of a meter) or smaller processes used in automotive semiconductor manufacturing and AI semiconductor design. Continuous inflow of talent, strong human resources, and diplomatic and security networks also contribute to high potential.

Except for memory semiconductors, it is difficult to use the term 'super-gap' to describe Korean semiconductors' reality. Experts emphasize that Korea must at least maintain the current technological gap with China to secure next-generation growth engines such as artificial intelligence (AI) semiconductors. China has many ways to ease pressure, including using cloud services, developing substitutes, and securing sales through low-cost cutting-edge products. Kim Hyukjoong, a senior researcher at the Korea Institute for International Economic Policy, a national research institute in trade, said regarding U.S. containment of China, "In the short term, it may disrupt China's AI technology development, but in the mid to long term, China can circumvent regulations by using substitutes or cloud services, so it is unlikely to have a significant impact on China's AI technology development." He advised, "In preparation for China's self-sufficiency efforts, Korea needs to actively support process miniaturization and next-generation semiconductor development while preventing the outflow of high-level talent to maintain the technological gap."

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