S. Korea, Taiwan affected by growing U.S.-China high-tech tensions

Competition heating up to corral chip technologies

Nov. 21, 2022

When SK Hynix Vice President Kim Jin-hyock visited Dalian, China, in late September, the local Communist Party chief had a clear message for him: The South Korean memory chip maker should "deepen cooperation with the party by expanding investment and business without letting up."

The U.S. and Chinese flags fly at an Intel plant in China purchased by SK Hynix. (Photo taken in Dalian, Liaoning province, in October.)

SK, the world's fourth-largest chipmaker, purchased Intel's NAND flash memory chip plant in Dalian in late 2021 and is now building an additional factory there. While cooperation with the party is indispensable for almost any foreign company in China, the party's calls for "collaboration" are starting to take on a more political tinge.

Chinese President Xi Jinping, who recently began a historic third term as party leader, has vowed that China will "win the battle in key core technologies." Beijing, he said, will accelerate programs related to "independence and self-reliance" over the next five years in order to compete with the U.S. in the field of high technology.

Xi's choice of phrase – independence and self-reliance – echoes a favorite slogan of Mao Zedong, the founding father of modern China. During the country's years of rivalry with the Soviet Union, Mao often spoke of "regeneration through one's own efforts."

Under Xi, China has put semiconductors at the very heart of its efforts to build up its tech capabilities. It is little surprise, then, that officials like the Dalian party chief are keen to encourage more cooperation and engagement from South Korean companies like SK.

SK, which also has a DRAM chip plant in Wuxi, Jiangsu province, produces 40% of its semiconductors in China. This, some say, could leave it vulnerable to pressure from Beijing.

"South Korean chipmakers will face difficulties if China harasses them," said a diplomatic source in South Korea, which has maintained a delicate balance between Washington and Beijing.

The situation has already become complicated.

On Oct. 7, Washington announced new restrictions on exports of advanced semiconductor technologies to China. KLA of the U.S. subsequently warned SK Hynix and others that it would not be able to ship its chip making tools to China without approval from the U.S. government.

Without such equipment, SK would struggle to upgrade its massive chip plants in China.

Seoul negotiated with the U.S. government for a compromise solution, on behalf of SK and Samsung, according to people concerned. Eventually, Washington gave it a grace period before the export restrictions will be enforced, but just for one year.

International Business Strategies of the U.S. said China's self-sufficiency in semiconductors is expected to reach 26% in 2022. While that is a rise of 16 percentage points from 2015, when China announced its goal of becoming a "powerful manufacturing nation," the country continues to rely on overseas technologies.

Advanced technologies such as sixth-generation (6G) telecommunications, artificial intelligence and supercomputers need cutting-edge chips. Their production is almost completely controlled by Taiwanese and South Korean chip manufacturers, and competition for access to their technologies is intensifying between the U.S. and China.

Taiwan in particular has grown wary of China's interest in its technological skills and resources.

The Taiwanese prosecutorial authority raided places linked to S2C, a leading Chinese company in the field of electronic design automation (EDA) software, in Hsinchu, northern Taiwan, on suspicion that the company had opened a local office without going through necessary screening and hired some 30 workers away from other companies.

The recruitment was reportedly aimed at engineers well-versed in EDA software, which is needed to design semiconductors. American companies command an overwhelming share of the global EDA market, giving the U.S. government an advantage in dealing with China. However, Taiwan also has a large number of engineers trained in the field.

"The balance between Taiwan and China will collapse if Taiwan loses its technological superiority," warned Lin Chih-Chieh, a professor at National Yang Ming Chiao Tung University in Hsinchu.

To protect its edge, the Taiwanese government has amended its national security law to toughen scrutiny against industrial espionage and has also begun investigating some 100 Chinese companies over various issues.

China, meanwhile, has been busy improving its domestic know-how.

The country released 7,379 research papers on semiconductors in 2021, roughly double from a decade earlier and well ahead of the 3,114 published by the U.S., according to British analytics company Clarivate. China surpassed the U.S. as the world leader in the number of such papers for the first time in 2014 and has been expanding its lead since.

China has also filed a massive number of semiconductor patents, which could have implications for economic security in the years ahead. China filed 30,130 such patents in 2020, much larger than the 7,749 from second-ranked South Korea.

The U.S. has been watching these and other developments with concern. Former Google Chairman Eric Schmidt has been warning for years that the country is at risk of falling behind China in the race for tech dominance, and in September, the nonprofit organization that he chairs said bluntly that the U.S. is no longer the world's sole technological superpower.

Beijing shows no sign of curbing its tech ambitions, while Washington appears just as determined to rein them in. For South Korea and Taiwan, the tug-of-war over their technological resources and expertise may be far from over.