[Chiptalk] Semiconductor Companies Escape China Due to US Threats: "Heading to Southeast Asia"

[Asia Economy Reporter Jeong Hyunjin] Southeast Asian countries are actively moving amid a semiconductor investment boom driven by the US-China conflict. Global semiconductor companies, which need to reduce their dependence on China due to the Biden administration's semiconductor restrictions on China, are relocating to Southeast Asian countries and presenting investment plans, thereby increasing the importance of Southeast Asia in the semiconductor supply chain. Major Southeast Asian countries such as Singapore, Malaysia, and Vietnam are dreaming of becoming semiconductor production bases that can replace China.

◇US Semiconductor Company Employees Moving from China to Southeast Asia

Japan's Nikkei Asia recently reported that US semiconductor equipment companies such as Applied Materials, Lam Research, and KLA have been relocating non-Chinese employees from China to Singapore and Malaysia since October last year and expanding production capacity in Southeast Asia. According to the report, many non-Chinese employees within these companies were offered the choice to relocate to either their previous work region or somewhere in Southeast Asia.

This change began at the end of last year. It was due to the semiconductor restriction policy on China announced by the Biden administration in October last year. The US government requires American companies to obtain special permission if they sell advanced semiconductor manufacturing equipment to Chinese companies producing semiconductors above a certain level. This policy also restricts US companies, US citizens, and US permanent residents from supporting Chinese companies. As a result, it was anticipated that US semiconductor companies operating in China would be negatively affected.

Since it has become difficult for US semiconductor equipment companies to operate in the Chinese market as they did in the past, the movement of personnel from China to Southeast Asia is expected to continue for the time being. A representative from a company providing services to Lam Research and KLA said, "Our clients have requested us to increase support in the Southeast Asian region over the past few months," adding, "They themselves have also increased their workforce there."

[Image source=Reuters Yonhap News]

The US semiconductor industry first turned its attention to Southeast Asia in the 1960s. At that time, companies placed relatively less complex assembly, packaging, and testing operations in Asia to reduce costs. Singapore and Malaysia were the notable locations then.

Since Swiss company STMicroelectronics entered Malaysia in 1969, German Infineon, US Micron, Texas Instruments, and Japanese Renesas have established bases in Malaysia. A source explained, "All these companies already have bases in Southeast Asia, so the movement of personnel from China to Southeast Asia was a natural development."

◇Southeast Asia Smiles at Investment Attraction...Expectations for Role Change

Southeast Asian countries receiving semiconductor investments are smiling. Singapore attracted fixed asset investments of 22.5 billion Singapore dollars (about 21.5 trillion KRW) last year, double the previous year. Beh Swan Gin, Chairman of the Singapore Economic Development Board (EDB), explained in an interview with Bloomberg News that this was due to an "unprecedented semiconductor supercycle." He said that the Biden administration's policies have sparked investment competition and that Singapore will do its best to secure market share.

Vietnam also appears excited about investment news from global semiconductor companies. According to Bloomberg, Ho Chi Minh City, Vietnam's capital, announced on the 7th that Intel might make $7.4 billion in foreign direct investment (FDI) this year but corrected the figure to $4.5 billion a day later. Foreign media explained that the announcement included investment plans that were not yet finalized, as Vietnamese government officials recently met to discuss an additional $3.3 billion investment in existing factories. Subsequently, a major foreign media outlet reported that Intel is considering investing $1 billion over the next few years in its existing Vietnam test and packaging plant. It is also reported that investment possibilities in Singapore and Malaysia remain open.

Malaysia is known as a strong player in the semiconductor back-end process sector within Southeast Asia. According to an article contributed by Ko Young-kyung, a research professor at Korea University ASEAN Center and adjunct professor at Sunway University in Malaysia, to KOTRA in November last year, Malaysia holds a 13% market share in the back-end process segment of the global semiconductor supply chain. Malaysia's electrical and electronics export volume increased by 30%, from 455.7 billion ringgit (about 133 trillion KRW) in 2021 to 593 billion ringgit last year.

Southeast Asian countries are also making efforts to upgrade semiconductor processes beyond the back-end level, leveraging this semiconductor boom. Singapore and Vietnam provide policies such as tax incentives to companies introducing programs to train highly skilled workers essential for semiconductor production. However, some opinions suggest that since China's semiconductor industry has rapidly grown in recent years, increasing its importance and share in the semiconductor supply chain, it will not be easy for Southeast Asian countries to fully replace it.

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