U.S. Blacklisting SMIC of China Expected to Reverberate around Korean Foundry Industry
By Michael Herh
December 7, 2020
U.S. pressure on China has both positive and negative impact on Korean companies and the Korean economy.
The United States is expanding its economic sanctions on China. In particular, the nation continues to impose sanctions on the Chinese electronics industry producing semiconductors, smartphones and telecommunication equipment which China is focusing on as future growth engines. Experts say that the mounting U.S. pressure on China has both positive and negative impact on Korean companies and the Korean economy.
The U.S. Department of Defense classified four Chinese companies as those owned or controlled by the Chinese military and added them to its blacklist on Dec. 3, industry sources said on Dec. 6,.
The blacklists contained SMIC, China's largest semiconductor foundry company, CNOOC, an Chinese oil giant, and CIECC, an electronics company. As a result, a total of 35 Chinese companies were blacklisted by the U.S. Department of Defense.
Among them, SMIC is at the center of the Chinese government’ policies for the rise of the Chinese semiconductor industry. China with low self-sufficiency in semiconductors has been implementing policies to foster its semiconductor industry by investing astronomical budgets. However, experts say that China's semiconductor business is having a hard time due to U.S. sanctions.
Many Chinese electronics companies including Huawei already subject to U.S. sanctions are receiving semiconductors through SMIC, so the U.S. sanctions may force them to find other foundry companies in the future, analysts say.
Chinese electronics makers are already diversifying their supply lines through Taiwanese and Korean foundry companies, foreign media outlets say. As a result, experts say that the U.S. sanctions on SMIC could have some positive effects on Korean foundry companies.
"As the U.S. sanctions on SMIC grow, SMIC's customers are likely to leave SMIC to go to other foundry companies in the mid- to long-term," said an official of the semiconductor industry.
Given the fact that the foundry industry cannot meet increased demand, there is a possibility that customers will leave SMIC faster. Top foundry companies such as TSMC and Samsung Electronics are responding by expanding their plants as the foundry industry has grown significantly every year thanks to rushing orders from corporate customers in recent years. As a result, it also means that the U.S. sanctions on China may offer opportunities to foundry companies in other countries.
However, the U.S. sanctions on China can have a negative impact on the Korean economy as well. As China is Korea's largest exporter, it will have a significant negative impact on the Korean economy if the Chinese economy deteriorates.
In fact, Huawei's smartphone sales slid as the United States imposed sanctions on Huawei, which greatly reduced Huawei’s imports of Korean displays. As a result, the market for organic light-emitting diode (OLED) panels for smartphones has slumped in 2020 compared to 2019.
Conflicts between the U.S. and China will not only affect the Korean semiconductor industry but also the Korean industry as a whole. The Bank of Korea and research institutes such as the Korea Development Institute (KDI) predicted that Korea's GDP growth rate will slow down as the U.S.-China trade conflict escalates.
"As the U.S. sanctions on SMIC grow, SMIC's customers are likely to leave SMIC to go to other foundry companies in the mid- to long-term," said an official of the semiconductor industry.
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