How can China, South Korea avoid the trap of low-end semiconductor competition?
Published: Dec 05, 2023 10:55 PM
Illustration: Chen Xia/Global Times

Illustration: Chen Xia/Global Times

New data released by South Korea deserves attention as it adds to hopes of a global semiconductor market recovery. More evidence is showing that the chip glut has been alleviated. If the trend continues in the coming months, it could have a profound impact on every participant in the global semiconductor supply chain.

It is understandable some people in South Korea may want to take advantage of this opportunity to further open China's semiconductor market, alleviating the pressure faced by South Korean chipmakers. But perhaps more importantly, South Korea should focus more on high-end chip technology cooperation with China, rather than low-end semiconductor exports. 

The best way to avoid the trap of low-end semiconductor competition is to open up a new path to form a more sustainable high-end semiconductor supply chain between the two countries.

Some good news lies in the fact that the global semiconductor market is shifting, making South Korea an early beneficiary. South Korea's economy grew 0.6 percent in the third quarter of the year, on the back of reviving exports and domestic demand, the Yonhap News Agency reported on Tuesday, citing data from the country's central bank. 

The chipmaking sector, one of the pillars of the South Korean economy, appears to be on a recovery track. The drop in prices eased, while exports and production rose for the second consecutive quarter, the report said.

South Korea's semiconductor exports rose by 12.9 percent in November, in an indication that the slump in chip demand may be bottoming out. The semiconductor industry is a highly cyclical one, subject to a boom-bust cycle. 

The chip shortage that affected everything from cars to smartphones at the height of the COVID-19 pandemic turned into a glut in the second half of last year, but now the global semiconductor industry is undergoing subtle changes, amid which the chip surplus has started to ease. Some industry insiders predict that the world could see an end to the chip glut in 2024.

Due to continuous US meddling, China-South Korea economic relations - in particular related to South Korea's chip exports to China - have encountered difficulties and challenges in 2023. South Korea's status as a world-leading chipmaker and its high dependence on the Chinese market for chip exports make its semiconductor industry the victim of Washington's ill-intentioned chip war.

With the chip surplus starting to ease, some South Korean companies may want to take the chance to increase exports to China. But China-South Korea competition is increasing at the low end of the semiconductor industry, which may add uncertainty to the recovery of South Korea's chip exports.

After the US restricted chip sales to China, the country invested heavily in chip self-sufficiency in response. As reported by some Western media outlets, China's investment in the production expansion of legacy chips has drawn expressions of concern in the US and Europe over the "potential dumping" of Chinese chips in overseas markets. The emergence of these concerns may be a variant of Western anxiety about Washington's ill-intentioned chip war, but it is noteworthy that China's pursuit of chip self-sufficiency has accelerated the growth of its semiconductor industry.

For South Korean semiconductor companies, although China's chip self-sufficiency rate has increased, the vast Chinese market still represents a major opportunity, but competition is increasing, especially at the low end of the manufacturing process. 

Some people predict that the global chip sector's recovery may last for years, but there is uncertainty about whether South Korea's chip exports to China can continue to recover. China's chip manufacturing technology and capabilities are improving, and its competitiveness has continued to rise, at least in the low-end chip field. As for NAND flash chips and DRAM chips, the technological gap between China and South Korea is limited.

In the field of low-end chip manufacturing, competition between China and South Korea is intensifying. If South Korea hopes to continue enjoying the dividends of China's semiconductor market, then this means South Korea should strengthen cooperation with China in high-end chips, forming an industry chain with China in this area, and only in this way can it continue to earn money. 

If South Korea does this, it will inevitably face pressure from the US. This will test South Korea's political wisdom: it will have to deal with pressure from the US while striking a balance between cooperation and competition with China's chip industry, striving to gain maximum benefits from global industry chain restructuring.

The author is a reporter with the Global Times.