Seoul weighs ‘Chip 4’ alliance as ties with China hang in balance

President Yook Suk-yeol speaks to reporters at a doorestepping session Monday at the Presidential Office in Seoul. (Yonhap)

South Korea is poised to join a working-level meeting of government officials involving major chipmaking nations along with the United States, Taiwan and Japan, amid mounting concerns over China’s retaliation.

Seoul has had to tread carefully around Beijing, as memory chip giants such as Samsung Electronics and SK hynix fear that its chipmaking base in China might be affected by Seoul‘s decision to join the so-called “Chip 4” alliance.

President Yook Suk-yeol told reporters Monday that what the nation could benefit from would be a deciding factor regarding Korea’s participation in Chip 4‘s upcoming preliminary meeting, scheduled for no later than September this year.

“As for the issue of Chip 4 participation, all ministries involved in it are examining the matter closely through the lens of the national interest,” Yoon told reporters Monday during a doorstepping session at the Presidential Office in Seoul.

“We don’t need to worry too much. We will take a closer look at the issue for the benefit of the nation.”

Industry Minister Lee Chang-yang told a separate press conference Monday that Korea "does not intend to be involved in an exclusive group that ostracizes certain countries like China," adding Korea's attendance to Chip 4 meeting is "purely an economic matter."

Also, Foreign Minister Park Jin on Saturday told reporters that he was scheduled to hold talks with his Chinese counterpart, Wang Yi, during his visit to Qingdao, China starting Tuesday over a range of issues, including chips, during a three-day visit to China. It would be the first such visit since Yoon took office.

The ties between China and Korea have come under immense strain as Seoul considers joining the prospective alliance, which comprises powerhouses of logic chips, advanced materials, memory chips and foundry services.

In the meantime, the US has upped the ante over the US-China rivalry in securing the semiconductor chip supply chain.

The $52 billion US CHIPS and Science Act, which passed US Congress in late July and awaits the final approval of US President Joe Biden, will restrict the beneficiaries of the act, including Samsung and SK hynix, from spending in China over the next decade.

Moreover, US House Speaker Nancy Pelosi‘s visit to Taiwan, Korea and Japan- all prospective Chip 4 members- stoked China’s military actions. China starting Thursday, fired missiles into the waters surrounding Taiwan during its military drills. This was followed by China‘s announcement to halt dialogue with the US in the areas of military and climate change, among others.

During Pelosi’s tour of the three East Asian countries, President Yoon was the only leader to have not met Pelosi.

All eyes are on how the chip cooperation talks between the US, Korea, Taiwan and Japan will unfold and how this would affect Korea‘s pursuit of strategic ambiguity between the US and China.

Analysts say Korea will likely be a target of Chinese retaliation nonetheless.

“Korea will undeniably join Chip 4 alliance,” noted Jay Kim, an analyst at Sangsangin Investment & Securities.

“Considering 30 percent of memory chip exports go to China, the retaliations will hit Korea very, very hard if they become a reality. But, on the other hand, given that 70 percent of Chinese chip imports are from Korea, retaliation against Korea‘s chipmaking industry is unlikely. ... Instead, we cannot rule out the possibility of retaliation against Korea’s other industries or Korea‘s advanced material industry crucial for the chip supply chain.”

Samsung Electronics produces 40 percent of its NAND flash memory chips at its Xi’an plant in Central China, while SK hynix’s DRAM plant in Wuxi, eastern China, takes up 50 percent of its total DRAM production.

Another analyst said both the US CHIPS Act and the Chip 4 alliance are meant to “hold China in check” amid intensifying tech competition between the two superpowers.

“Both Samsung and SK hynix must take into account the geopolitical reality and the increasing cost of the US chip manufacturing factories, putting them under more difficult circumstances,” Kim Dong-won of KB Securities noted.

(consnow@heraldcorp.com)