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China’s semiconductor challenge

June 06,2018
Semiconductors are what has sustained exports of Korean products and the economy. The chip front is shaking amid challenges from Chinese rivals backed by Beijing’s ambition to master and localize the semiconductor production industry. China’s antitrust agency embarked on a price-fixing probe into Korea’s three dominant chipmakers — Samsung Electronics, SK Hynix and Micron.

The probe is a clear nationalistic effort to victimize foreign makers and promote China’s local industry.

China has been obsessively pursuing semiconductors. The Beijing government has set up a fund in the scale of 300 billion yuan ($47 billion) to promote the semiconductor industry, according to a Wall Street Journal report. China is the world’s biggest consumer of semiconductors but imports make up nearly 90 percent, resulting in a deficit of $200 billion a year for that category alone.

China envisions upping its localization level to 70 percent from its current 10 percent by 2025. To meet its 2025 initiative to make the country a technology and innovation powerhouse, semiconductors are essential. President Xi Jinping is encouraging the government and corporations to recruit as many top-caliber brains and engineers as possible.

If China succeeds in localizing its semiconductor production, Korean exports could feel the effects. Last year, China was responsible for a fourth of Korea’s outbound shipments, of which nearly 80 percent were intermediary goods like semiconductors, displays and chemicals. In chips alone, 40 percent of Korean exports head to China.

To make matters worse, the Trump administration is flagging trade tariffs on imported automobiles, which could result in hefty tariffs of up to 25 percent as it did on steel imports.

Yet, there is no export replacement that can compensate for the expected loss in our mainstays of semiconductors and automobiles. While the domestic economy has been losing its vitality due to conflicting and experimental policies, dangers are building up fast on the Korean trade front.

JoongAng Ilbo, June 5, Page 30