chip Photo:VCG

A report issued on Sunday by the Korea Chamber of Commerce and Industry (KCCI) showed that the proportion of Chinese purchases of South Korean semiconductor products to the country's overall chip exports increased 12.4 times from 3.2 percent in 2000 to 39.7 percent in 2021, the Yonhap News Agency reported.

The KCCI report also suggested that "the government should come up with plans to prevent China from weaponizing South Korea's dependence on China." 

One does not need extensive knowledge of the complex global chip supply chain to understand the real intention and geopolitical considerations behind such a report, given the timing of its release and the fear-mongering tone of its content.

The report comes at a delicate moment for South Korea, as the country is under intensifying pressure from the US to join the latter's so-called Chip 4 alliance, which is widely believed to be another Washington geopolitical gambit against China. In the latest development, South Korea's foreign minister reportedly said the country is expected to attend a preliminary meeting for the so-called Chip 4 alliance. 

However, South Korea understands perfectly well any decision to aid the US' containment strategy of China won't bode well for its massive trade relationship with China, its biggest trading partner. Many in South Korea's business community are already realizing this and are concerned about damages to bilateral trade ties, especially after South Korea recorded the first trade deficit with China in almost thirty years in May. 

That's why the Korea Trade-Investment Promotion Agency has been holding and plans to hold more meetings and exhibitions in a bid to boost South Korean exports to China. Given such a background, it is even more puzzling for the KCCI to suggest a potential reduction in South Korean chip exports to China.  

It is common for any country to be worried about widening trade deficit and to seek ways to address it; however, allowing geopolitics to dictate trade issues is never the proper solution.   

In the chip sector, it is natural that South Korea's chip exports to China skyrocketed in recent years, given the world-leading chip industry in South Korea and the massive Chinese market - in another word, the strong trade complementarity between the two countries. To put it simply, China needs South Korean chips and South Korean chips also need the Chinese market. How can that be "weaponized"? How does "weaponizing" such a win-win trade benefit either side? Who is actually "weaponizing" the chip industry? These are not hard questions to understand for any fair-minded person, let alone the KCCI, a professional organization.   

If anything, the development of South Korea's chip industry should not be misled by such fear-mongering rhetoric about the "China dependence theory," or the consequence could be dire. 

The so-called dependence on China represents nothing but a distorted rhetoric based on the ignorance of economic laws and market rules. As South Korean semiconductor companies have made huge profits from the Chinese market and developed a "dependence" on China, from another perspective, Chinese businesses have also been dependent on supplies of South Korean chips, which is basically an example of mutually beneficial cooperation.

As the world's largest chip market, China imported more than $400 billion worth of chips in 2021, accounting for about 60 percent of the global chip market. Moreover, the resilience of the Chinese manufacturing sector indicates that the chip demand in China will remain strong for a long time to come, which actually means that the world's major chipmakers will continue to be dependent on the Chinese market. Then do they all need to give up businesses in China just to reduce the so-called risk of "over-independence?" Or, is it just South Korean companies that need to reduce their dependence on the Chinese market?

The semiconductor industry is a highly globalized sector, where highly concentrated downstream industrial chain determines the market pattern of chip order concentration in China. But now as the US tries to squeeze China out of the global semiconductor industry by roping in allies and taking various containment measures, it complicates corporate decision-making with geopolitical tensions. For companies, a deviation from the basic market rules is highly risky in the fiercely competitive market, which will not only consume their hard-won market share advantages, but may also lead to revenue losses and less investment in R&D, ultimately resulting in weaker competitiveness.

If South Korean companies start to reduce their reliance on China now by giving up market share, one very likely outcome could be to ceding market share to other competitors. Is such an outcome beneficial to the South Korean economy?

In the run-up to the preliminary meeting for Chip 4, the South Korean industry is advised to have an objective understanding of their cooperation with China so as to avoid being carried away by the US-led "Cold War" mentality.