As the United States imposes strict conditions on subsidy applications as a means to curb China's rise in the semiconductor industry, South Korea's semiconductor equipment industry is also facing a crisis in exports.
The South Korean semiconductor industry is concerned that its equipment industry may suffer a huge blow if their tech giants such as Samsung Electronics and SK Hynix, which have established factories in China, would decide to withdraw from or reduce their investment in the Chinese market to obtain US subsidies.
Citing the South Korean Trade Association's import and export statistics, Aju Business Daily, a South Korean media outlet, reported that South Korea's exports of semiconductor equipment to China were about US$140 million in January 2023, marking a decrease of nearly 40% in the same period of the year. In terms of past annual exports, South Korea's exports of semiconductor equipment to China were about US$4.65 billion in 2021, achieving an annual increase of nearly 30%. However, it took a nosedive and dropped to US$3.47 billion in 2022, marking a decrease of 25% in the same period of the year.
South Korean semiconductor equipment exports to China have decreased by roughly US$100 million in January for the past two years in a row, ever since the US began to hinder China's development of the semiconductor industry. The exports were US$330 million in January 2021 and sank to US$230 million in 2022, which further dropped to US$140 million in 2023.
Looking closely at equipment exports by sectors, the exports of front-end manufacturing equipment to China were about US$32.92 million in January 2023, a year-on-year decrease of roughly 67%. In terms of past annual exports, the exports of front-end equipment to China were US$2.26 billion in 2021, which drastically dropped to US$1.37 billion in 2022.
In terms of back-end manufacturing equipment, the exports to China were about US$23.11 million, marking a decrease of about 38% in the same period of the year. In terms of past annual exports, the exports were about US$940 million in 2021, which dropped to US$660 million in 2022. Given that South Korea's exports of both front-end and back-end processing equipment to China made up more than 50% of the total in 2022, the decrease in exports to China may deal a huge blow directly to South Korea's equipment industry.
In October 2022, the US Department of Commerce announced that exporters of products and manufacturing equipment, such as DRAM memory chips of 18nm half-pitch or less, NAND flash memory chips with 128 layers or more, and logic IC of 16/14nm or below must first obtain a license from the US Department of Commerce before exporting to China.
South Korean equipment manufacturers' key clients are overseas plants of South Korean semiconductor manufacturers. Therefore the US restriction on semiconductor equipment exports to China is instrumental to the severe drop in South Korea's exports of semiconductor equipment to China.
Responding to the restrictions imposed by the US, China, on the other hand, is becoming increasingly self-sufficient in terms of semiconductor equipment, which is also a burden on South Korea's equipment industry. As China promotes the onshore production of semiconductor equipment, Chinese companies' purchase of domestic equipment accounted for 32% in the first half of 2022, which has increased from 21% in 2021.
China predominantly focuses its onshore production of semiconductor equipment on mature manufacturing processes. However, South Korea still holds an advantage over China in terms of advanced manufacturing processing equipment, namely 14nm or below. However, in terms of front-end manufacturing equipment, where the technical barrier to entry is lower, fierce competition between South Korean and Chinese companies is expected.