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[Editorial] China’s big bet on chips

S. Korea must accelerate investment and pass bills to stay ahead in global chip race

By Korea Herald

Published : May 30, 2024 - 05:27

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China has ratcheted up its plan to pour a massive amount of money into the semiconductor industry to better compete with the US. China’s aggressive move has alarmed South Korea, whose crucial chip industry is now stuck with a stalled bill and other troubling issues.

China has set up its third state-backed investment fund valued at 344 billion yuan ($47.5 billion), marking the largest-ever fund aimed at strengthening the global competitiveness of Chinese chipmakers.

The third fund, expected to be used for R&D and chip manufacturing equipment, came after China implemented the first phase of the fund worth 138.7 billion yuan in 2014 and then the second phase with 204 billion yuan in 2019. The combined total of the three phases is now nearly double the amount of the investment that the US government has earmarked for its own chip industry.

China’s accelerating commitment to its chip industry not only reveals Chinese leader Xi Jinping’s push to elevate the stature of the Chinese tech industry on the global stage but also underscores a state-led policy to establish an independent supply chain of semiconductors.

China’s policy to achieve self-sufficiency in the chip industry is deemed a response to the export control measures taken by the US. Citing concerns that Beijing might use advanced chips to step up its military capabilities, the US has tightened sanctions exports on chip exports to China, while putting pressure on its allies including Korea, Japan and Germany regarding China’s access to semiconductor technology.

Thanks to the large-scale investment policy for its chip industry, China has been making visible progress in chip manufacturing, design, equipment and materials. Particularly notable is the pace of growth. China’s chip export has been growing by about 20 percent on average in recent years, expanding its global share from a mere 1.5 percent in 2000 to 18.1 percent in 2021. Experts speculate that China’s technology in fabless chipmaking design has advanced to rank third after the US and Taiwan.

China’s rise in the semiconductor sector poses a significant challenge to Korea, which depends heavily on chips for its export drive. Last year, Korea’s memory chip exports to China plunged 37.9 percent to $20.7 billion, one of the key factors behind the first deficit recorded in trade with China since 1992.

There are concerns about the much-dreaded possibility that China might overtake Korea in the global DRAM market, which could undercut the competitiveness of the Korean chip industry, at a time when governments in other countries are speeding up investment in their local semiconductor sectors.

It is regrettable that Korea’s response to the dizzying pace of the global chip race has been largely disappointing. The Yoon Suk Yeol administration recently unveiled a plan to nurture a better ecosystem for the semiconductor industry. But it is far from sufficient. The lawmakers are urged to work on the long-stalled “K-Chips” bill that aims to extend the sunset of tax credits for chipmakers from this year to 2030 and a special act designed to address electricity supply for the new chip cluster in Gyeonggi Province.

On Tuesday, local media reported that a former employee of SK hynix was arrested and is now being tried on the charge of allegedly stealing key semiconductor technology. The woman, a Chinese national in her 30s, is accused of passing the stolen data to Huawei, marking the latest in a series of Korean chip technology leaks to Chinese firms. Samsung Electronics and other Korean chipmakers are also confronting similar technology thefts.

Both the government and lawmakers must recognize that it is a critical time to implement more effective policies and pass necessary bills to help bolster the country’s embattled chip industry.