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Washington has signalled to South Korea’s leading chip companies that it will extend permission for them to send US chipmaking tools to China, a concession to an ally that is key to curbing Beijing’s access to cutting-edge semiconductors.
The Biden administration in October gave Samsung Electronics and SK Hynix, two of the world’s leading producers of memory chips, a one-year reprieve from export controls designed to reduce China’s ability to develop high-end chips.
Four people familiar with the situation said the US had now sent a clear message that the Korean producers would be given another waiver for their plants in China for at least another year.
Since Washington imposed the export controls last year, US and South Korean officials have held intensive talks about how, and under what conditions, the chipmakers could continue to operate in China. Samsung and SK Hynix rely on US tools for part of their operations in China.
It remains unclear exactly what mechanism the US will use to allow them to continue to transfer American tools to China. One option would be to provide the companies with an open-ended “verified end use” certification, which would remove the need to seek repeated authorisation.
Even with the waiver, South Korean chipmakers will not be able to import extreme ultraviolet (EUV) machines required to produce the world’s most advanced memory chips.
The decision on the waiver, which has not been formally approved by the Biden administration, underscores the difficulties the US faces as it tries to enlist countries such as South Korea, Japan and the Netherlands — whose equipment makers are all-important in the global chip supply chain — to slow China’s drive to secure advanced semiconductors, while not harming allies’ economic interests.
President Joe Biden last week rejected criticism that his China-related export controls were hurting South Korea. “It’s creating jobs in South Korea, and not just with SK [Group] but . . . with Samsung,” Biden said at a joint press conference with South Korean president Yoon Suk Yeol, who was making a four-day state visit to Washington. “It’s a win-win.”
An effective extension of the one-year waiver, in addition to other measures under discussion, would help the Korean companies maintain their technological edge over their Chinese competitors, according to several people familiar with the discussions. That would help address concerns that disruption to their Chinese operations would benefit their Chinese competitors.
“If the waiver is not extended, it would disrupt their chip production in China,” said Kim Yang-paeng, a researcher at the Korea Institute of Industrial Economics & Trade. “For example, if chipmaking equipment breaks down, they need to replace some parts, but this will not be possible if they can’t renew the waiver.”
The semiconductor industry accounts for about 20 per cent of South Korea’s exports. Samsung’s semiconductor business recorded a $3.4bn loss on Thursday last week, amid a sharp downturn in the global memory chip sector.
The FT reported last year that Samsung and SK Hynix were re-evaluating their investments in China as a result of the US Chips and Science Act, which offers billions of dollars in subsidies to chipmakers in exchange for commitments not to expand their facilities in China.
Korean officials have chafed at several of Washington’s demands. The FT recently reported that the White House had asked South Korea to urge its chipmakers not to fill any market gap in China if Beijing banned US competitor Micron from selling chips there. Beijing is conducting a national security review of the Idaho-based memory chipmaker.
The US commerce department and Samsung Electronics declined to comment. SK Hynix said in a statement: “Given that the talks between the US and the Korean government are still ongoing, we are not in a position to comment.”
Additional reporting by Song Jung-a in Seoul
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