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Workers at ASML inspect a semiconductor lithography tool at the company’s plant in the Netherlands. (Reuters/Yonhap)

A new report is predicting that South Korean chipmakers will be negatively affected in their competition with Chinese firms by China’s accelerating self-sufficiency in semiconductor manufacturing equipment.

The Korea Institute for International Economic Policy (KIEP) said in a report titled “Impact and Implications of US Expansion of Semiconductor Export Sanctions,” that the US’ decision to expand export controls on semiconductor equipment and technology to China will have major ramifications for China’s fast-growing artificial intelligence industry.

On Oct. 17, the US Bureau of Industry and Security significantly expanded the list of items necessary for the manufacture of semiconductors subject to controls on exports to China with the aim of preventing China from circumventing existing export controls, while also adding 13 Chinese AI chipmakers to its entity list.

However, the bureau has decided to allow Samsung Electronics and SK Hynix to import US-made equipment into their chip plants in China without requiring a separate authorization.

So far, China has been responding to the US’ existing export controls by utilizing cloud services, using chips outside export control parameters, establishing chip manufacturing bases outside the US’ surveillance network, and encouraging semiconductor self-sufficiency.

“As AI chips, which are subject to export controls, are used for machine learning at massive data centers, China is projected to actively pursue self-sufficiency in chip manufacturing equipment in response,” predicted the report.

China will soon be announcing a fund worth US$40 billion in order to boost its competitive edge in manufacturing equipment, a weakness of Chinese chip manufacturers.

Moreover, the report argued that while the market monopoly of Chinese chip foundry Semiconductor Manufacturing International Corp (SMIC) will intensify due to stronger US export restrictions, the Chinese fabless industry will become more competitive due to fabless companies across the world being unable to enter the Chinese market. As a matter of fact, the localization ratio in China’s chip manufacturing equipment sector is quickly rising, and Naura Technology Group and ACM Research boast advanced technology in the etching and deposition sectors.

“Compared to the US, the Netherlands, and Japan, which enjoy monopolistic statuses in each sector, the rise of Chinese chip manufacturing equipment can pose a larger threat to South Korean chip manufacturing equipment companies,” commented Yeon Won-ho, the head of KIEP’s economic security team. “Since the US is pushing for semiconductor export controls based on real performance in order to block China from bypassing its restrictions, the US’ cautious attitude regarding high bandwidth memory chips, which are crucial for high-performance AI calculations, should be paid attention to.”

The KIEP report also pointed out that the problem of South Korean chip companies bringing cutting-edge equipment into factories in China has yet to be completely resolved. The report noted, “While the US deferred export controls on South Korean companies by authorizing them as validated end-users, this was limited to existing export controls announced in October last year.” It emphasized, “Considering that export controls on China regarding cutting-edge and core equipment like extreme ultraviolet exposure equipment will be applied without exception, the problem hasn’t been solved completely yet.”

By Kim Hoe-seung, senior staff writer

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