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(EDITORIAL from Korea Herald on June 7)

All News 06:57 June 07, 2018

Clouds over chips
China weighs on Korean chipmakers; next promising products nowhere in sight

China has launched an investigation into South Korea's Samsung Electronics and SK Hynix, as well as Micron Technology of the U.S.

The three companies are the biggest suppliers of DRAM chips -- integrated circuits that go into and power everything from smartphones to the most advanced super computers and driverless cars.

China was reportedly probing price-fixing allegations, as DRAM prices have risen sharply, the first such investigation by China.

Memory chips are one of a few export items propelling the South Korean economy.

But the future of this industry is hard to predict, as China is chasing South Korea and the US persistently to realize its ambitious dream of dominating the global semiconductor market.

Other major industries of Korea, such as shipbuilding, carmaking and information technology, are losing out to competitors in the world markets.

Korea is trailing China in the areas of the "fourth industrial revolution" such as artificial intelligence and drones. In this situation, China's antitrust investigators are probing price-fixing allegations against the chip makers.

Samsung Electronics and SK hynix cannot but feel daunted by the investigation itself, even if they will be cleared of the allegations later. The three companies, if they are found to have fixed prices, will be fined a maximum of US$8 billion.

It is presumed that the investigation was triggered by complaints from Chinese technology companies, such as PC and smartphone makers, which find themselves pressured by the rising prices of DRAM chips.

If the investigation intends to ease such pressure, that is not too bad.

But there is a great deal of concern that Beijing may aim to keep the three leading chipmakers in check outright with a view to beefing up its semiconductor industry. The investigation could jolt Korean semiconductor companies, which exported as much as 42 trillion won ($39.2 billion) worth of chips to China last year alone.

China is accelerating a national effort to catch up in the global semiconductor race.

Back in 2014, the government in Beijing led efforts to set up the China Integrated Circuit Industry Investment Fund, dubbed the Big Fund. It raised 138.7 billion yuan ($21.8 billion) in its first financing round in 2014.

The goal of the fund is to help China become self-sufficient in chips that are used by the country's vast manufacturing supply chain.

Even though China is the largest consumer of semiconductors in the world, its chip self-sufficiency is at a lowly 15 percent, contributing much to its trade deficit in the industry, which reaches about $200 billion a year.

China aims to raise the self-sufficiency rate to 70 percent by 2025.

The biggest obstacles on the path to the goal are Korean companies, which take up 75 percent of the world memory chip market.

In fact, China was expected to a certain degree to take action to contain them, considering it has already tried every possible means to catch up with them.

The recent rise in memory chip prices is a consequence of rising demand from Chinese IT enterprises rather than suppliers' collusion to fix prices.

Nevertheless, if China ignores this reason and opts to weigh on the competitors and boost its semiconductor industry, it amounts to disturbing a normal trade system.

If China succeeds in raising its chip self-sufficiency, it will undoubtedly damage the Korean economy. Semiconductors account for 20 percent of Korea's exports and a quarter of the total operating profits of Korean companies. China receives 40 percent of Korea's semiconductor exports.

To make matters worse, the U.S., one of Korea's two biggest export markets, is considering imposing a 25 percent tariff on imported cars. If that comes to pass, a breakthrough will be needed.

But items that will follow the examples of semiconductors and automobiles are nowhere in sight.

Yet the administration pursues an income-led economic growth tenaciously despite its side effects, while figuring out no solid industrial policies. Meanwhile, Korea's major exporting industries see their standings eroded steadily in the world market.

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