China Shows Claws Toward the US... South Korea's Semiconductor Tightrope Becomes Even Harder

China, which had been holding its breath amid the ongoing US semiconductor crackdown since last year, has launched its first counterattack. Although the domestic semiconductor industry, caught between the US and China, faces high uncertainty, experts advise continuing to walk a tightrope by asserting the domestic position as much as possible. Gradual diversification of production bases to mitigate China-related risks is also necessary.

On the 3rd, the semiconductor industry is closely monitoring the situation as China announced it would conduct a cybersecurity investigation against Micron. This is the first time China has taken a full-scale response against the US. With the US building semiconductor supply chains centered on its allies, the industry is carefully watching whether this issue will affect the domestic market as well.

Earlier, on March 31 (local time), the Cyberspace Administration of China (CAC) announced it would conduct an internet security review of Micron's products sold in China. While the review was said to be aimed at protecting national security, specific review methods and responses to future outcomes were not disclosed.

Inside and outside China, this sanction is interpreted as a warning to the US. This is because it resembles the regulatory approach the US has taken against China. Previously, the US targeted the Chinese company Huawei to curb China. The US announced various regulations, claiming Huawei's telecommunications equipment posed a national security threat, leading many countries to ban the use of Huawei equipment.

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There is also an assessment that China has shown its claws toward neighboring countries like South Korea and Japan, which are aligning with the US. On the same day China announced the Micron review plan, the Japanese government announced plans to control exports of 23 types of equipment necessary for advanced semiconductor production and previewed amendments to related laws. Although China was not specifically named, this effectively supported the US sanctions. Earlier, in October last year, the US regulated exports of equipment necessary for advanced semiconductor production to China and requested cooperation from Japan and the Netherlands.

Experts believe that China's recent move will not immediately expand to the domestic industry. This is because domestic companies have a greater local influence than Micron. Micron operates a DRAM back-end (packaging) plant in Xi'an, China. Samsung Electronics and SK Hynix operate multiple DRAM and NAND flash front-end and back-end plants in several regions including Xi'an and Wuxi, China. If production issues arise for domestic companies, it could affect local demand in China.

Kim Jun-hyung, former president of the Korea National Diplomatic Academy (professor at Handong University), said, "China could sanction South Korea, but considering the impact locally, it is not an easy choice for them," adding, "Both the US and China need us, so we should fully leverage this." "We need to thoroughly explain the domestic situation to China and clearly secure what we can gain from the US."

However, the China risk is expected to continue in the long term. Recently, the US announced detailed guardrail provisions of the Semiconductor Support Act allowing technological upgrades, giving the domestic industry some relief, but as US-China competition continues, business uncertainties are expected to increase.

Yeon Won-ho, head of the Economic Security Team at the Korea Institute for International Economic Policy, said, "There is an interpretation that domestic companies could benefit from China's sanctions on Micron," but added, "If the US and China engage in a full-scale fight, the situation will definitely be unfavorable for the domestic industry." He further predicted, "If the US continues to control semiconductor equipment, it will be inevitable for domestic companies to withdraw from China."

Park Jung-ho, Vice Chairman of SK Hynix, said at last week's shareholders' meeting regarding this issue, "It will be fundamentally difficult to change this situation (US sanctions on China)," and added, "We will not see the current situation only as a crisis but turn it into an opportunity to expand global operations."

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