South Korean Foreign Minister visits China for the first time, "Chip Quad Alliance" is the key

According to a report by Reference News citing Yonhap News Agency, South Korean Foreign Minister Park Jin left for Qingdao, China from Seoul Airport on the afternoon of August 8, starting his first visit to China since taking office. This is the first time that the Yoon Seok-yeol government has sent a senior official to visit China since its establishment.

Before leaving, Park Jin said in an interview with reporters at the South Korean Ministry of Foreign Affairs building that during his visit to China, he will have in-depth exchanges of views with China on security and economic issues such as North Korea's denuclearization and supply chain stability.

The so-called supply chain stability issue actually refers to South Korea's decision to participate in the preparatory meeting of the US-led "Chip 4 Alliance". South Korean media reported that on August 7, the South Korean presidential office revealed that South Korea had informed the United States of its intention to participate in the Chip 4 preparatory meeting. Park Jin's visit to China will focus on communicating with China on this matter.

South Korea has not yet decided whether to participate in Chip 4

Although South Korea has decided to attend the Chip 4 preparatory meeting to be held in late August or early September, this does not mean that South Korea has decided to participate in Chip 4.

According to South Korea's "Daily Economy" report on the 7th, the internal plan formulated by South Korea's presidential office, the Ministry of Planning and Finance, the Ministry of Trade, Industry and Energy and other government agencies is to first participate in the Chip 4 preparatory meeting as a "rule participant", put forward their own plans at this meeting, and decide whether to join Chip 4 in the future depending on whether the plans can be supported.

It is reported that South Korea has decided to propose two major principles to the United States: one is that the "one China" principle should be respected; the other is not to mention imposing export restrictions on China.

In fact, South Korea has always avoided using the term "Chip Quad Alliance" and instead called it the "Semiconductor Supply Chain Negotiation Body."

The original agenda of Chip 4 was to establish a council, give it a formal name, and negotiate a balance between the demands and levels of participation of all parties involved.

But from the current situation, compared with the United States, Japan and Taiwan, South Korea's attitude is much more cautious. This also indicates that there will be bargaining at the so-called Chip 4 preparatory meeting, and if South Korea's proposal is not passed, the establishment of Chip 4 will be delayed.

Why is South Korea cautious about building Chip 4?

Why is the Yoon Seok-yeol government so cautious about planning Chip 4?

On the one hand, the Chinese market cannot be ignored. 60% of South Korea's chips are exported to the Chinese market. In 2021, the trade volume reached US$76 billion, accounting for one-fifth of the trade volume between China and South Korea that year, and is the main source of South Korea's trade surplus with China.

In addition, Samsung invested up to 15 billion U.S. dollars in the two phases of its Xi'an plant in China. Through this expansion, Samsung Electronics' computer flash memory device (NAND) production capacity will account for more than 10% of the world market. At the same time, South Korean semiconductor giant SK Hynix has invested more than 20 billion U.S. dollars in its Wuxi, Chongqing and Dalian plants.

It can be inferred that if Chip 4 follows the provisions of the US Chip Act, it will not be allowed to build high-end chip factories in China or export high-end chips to China in the next 10 years, and the investment of Korean chip manufacturers in China will be damaged. Last year, SK Hynix's plan to increase investment and expand production in China and import ASML lithography machines was blocked by the United States, which frustrated SK Hynix's capacity expansion plan.

On the other hand, South Korea's chip industry is heavily dependent on China's upstream product supply, with its import dependence on China for discrete semiconductor components, memory chips, metal materials and diodes exceeding 40%.

What is particularly ironic is that since the United States began to use various means to set up barriers to chip exports to China in 2020, the market share of South Korean chips in China has dropped sharply, while Taiwan's chip exports to the mainland have increased significantly. This has caused Korean companies to suffer.

Chip 4 is unlikely to succeed

In fact, even if Chip 4 was built, it would not be successful.

The United States' plan for building Chip 4 is to provide chip design technology, Taiwan will be responsible for foundry, South Korea will be responsible for memory chips and foundry, and Japan will be responsible for materials, components, and equipment applications. They will collaborate with each other to establish a closed semiconductor alliance targeting China.

However, the operation of such an alliance requires the prospect of benefits. The International Semiconductor Industry Association estimates that by 2025, China's chip demand will exceed that of the United States. How far can this alliance go if the largest Chinese market is excluded?

Moreover, China's chip self-sufficiency rate is constantly increasing. According to data, by 2024, China will build 31 mature process (7NM and above) chip factories, while the United States will only have 12 during the same period, and most of them are invested by foreign chip giants. Some people worry that China's chip industry is overheated, but they ignore the strategic competition behind it.

On August 4, the South Korean Ministry of Foreign Affairs issued a statement saying that it has always adhered to the "One China Principle". Now Park Jin is visiting China to inform China of South Korea's position on the Chip 4 issue. The strategic vision demonstrated by these two things is worthy of recognition. At the same time, this also reflects a certain adjustment in the foreign policy of the Yoon Seok-yeol government.

All parties are also clearly aware that respecting China's interests and economic security is not only necessary for maintaining a healthy China-ROK relationship, but also a necessary prerequisite for negotiating other issues on the Korean Peninsula.