China and South Korea talk about strengthening cooperation

The world of semiconductors is heating up, and it's becoming a high-stakes battleground between the US and China.

China and South Korea talk about strengthening cooperation
Employee walk past the logo of SK Hynix at its headquarters in Seongnam, South Korea, April 25, 2016. Reuters/Kim Hong-Ji/File Photo

The backstory: The world of semiconductors is heating up, and it's becoming a high-stakes battleground between the US and China. These tiny chips are the brains behind our smartphones and self-driving cars, and both these superpowers are competing to be the best in the biz.

So last year, the US, along with its buddies in Japan and the Netherlands, slammed restrictions on exporting chipmaking gear and advanced chips to China. And guess what China did? It hit back with a cybersecurity investigation into Micron, a big-shot US chipmaker. This was a big deal because Micron gets about 11% of its revenue from sales in China.

Now, here comes South Korea playing a pivotal role in this drama. Believe it or not, around 40% of South Korea's chip exports zoom straight to China. So, you can imagine why South Korea finds itself in a real pickle. On one hand, it can't afford to upset its crucial relationship with the US, a major semiconductor player that has tech and equipment South Korean chipmakers rely on. But, on the other hand, it can't turn its back on China either, especially with all the Micron drama going down.  

More recently: Last week, China threw a curveball by accusing Micron of being a security threat. So, the country basically kicked Micron's products to the curb when it comes to key infrastructure. This move didn't sit well with the US, and it expressed "serious concerns" about China's move. US officials even went on record saying that China's actions don't exactly show that it’s "open for business." In this tit-for-tat back and forth, Representative Mike Gallagher also suggested that the US Commerce Department should hit Changxin Memory Technologies, a Chinese memory chipmaker, with some trade restrictions.

Also, South Korea asked the US to review some of the rules in its new CHIPS act. The thing is, South Korea invests a lot in the US chip industry, but it’s also got some pretty huge factories in China. So, basically, the country doesn’t want the leash on its chip companies to be too tight, considering they’ve already established these factories in China before the US came up with its new rules.

The development: China has said it’s teaming up with South Korea to give their semiconductor industry supply chains a boost. The announcement came after China's commerce minister, Wang Wentao, and South Korean Trade Minister, Ahn Duk-geun, met at a conference in Detroit last week. According to China, they had a heart-to-heart about keeping the industrial supply chain stable and joining forces in all sorts of ways, from bilateral to multilateral cooperation. China's Ministry of Commerce even released an official statement to make it crystal clear how committed China is to this dynamic duo. Wang also mentioned that China is keen on strengthening its trade and investment ties with South Korea.

On the other hand, a South Korean statement about the convo didn't even mention chips. Instead, it said the talks focused on urging China to ensure a stable supply of crucial raw materials and create a predictable business environment for South Korean companies operating in China. Basically, an insider familiar with the chat told Reuters that South Korea said the two need to work together across all industries, not just when it comes to semiconductors.

Key comments:

"The South Korean side expressed that communication is needed between working-level officials over all industries", not just for semiconductors, a source with knowledge of the matter told Reuters. The source stayed anonymous because they were not authorized to speak to the media.

"Potential CHIPS Act funding recipients have numerous existing legacy facilities in China," said an industry group, the Semiconductor Industry Association. "It is critical for these companies to be able to protect their past investments in these facilities by ensuring they remain commercially viable."

"The Republic of Korea believes 'guardrail provisions' should not be implemented in a manner that imposes an unreasonable burden on companies investing in the United States," said South Korea.

"We firmly oppose restrictions that have no basis in fact," said a spokesperson from the US Commerce Department last week about China’s decision on Micron. "This action, along with recent raids and targeting of other American firms, is inconsistent with (China's) assertions that it is opening its markets and committed to a transparent regulatory framework."