[ANALYSIS] China's ban on Micron tests Washington-Seoul alliance

President Yoon Suk Yeol shakes hands with U.S. President Joe Biden as Japan's Prime Minister Fumio Kishida watches on ahead of a trilateral meeting on the sidelines of the G7 Summit in Hiroshima, May 21. AP-Yonhap

US seeks cooperation with Korea on Micron issue: Washington think tanks, intelligence officials

By Kim Yoo-chul

Security experts in Washington and Seoul do not question whether the Joe Biden administration's detailed and aggressive moves in technology and semiconductors are important as the U.S. is facing an inflection point with China's rise in the sector.

Washington doesn't want to stop at chips as the administration is heading to go down a list of high-profile, potential, and emerging technologies that could possibly define the next decades of the global economic and technological landscape.

The U.S.' moves for tighter restrictions on the export to China of manufacturing equipment for advanced semiconductors vital to power military assets, driverless vehicles, artificial intelligence (AI) and other types of surveillance technologies, and its "unofficial request" to top like-minded allies in East Asia including South Korea to upgrade their export control policies, are considered as a key fulcrum in terms of constraining Beijing's capabilities.

The U.S. sees the restrictions as a necessary but dramatic decision by the administration and top Washington policymakers as this is really a point of "no short-term return," at least, for its relationship with Beijing ― as the current contest between the world's largest economies is already baked in ― China is hitting back at U.S. by putting a block on Micron Technology's memory chips.

Given Samsung Electronics and SK hynix's substantial presence in China, this latest move is putting the chip duo in a complicated spot as cashing in on Micron's problems there, which is also the world's largest semiconductor market, will not be easy for Seoul or the two companies, officials and experts said.

The questions are: What are the stakes in China's action on Micron? And can Samsung and SK develop applicable action plans?

White House National Security Council (NSC) spokesman John Kirby clarified that the ban on Micron won't hurt U.S.' efforts to restore high-level communications including between President Biden and his Chinese counterpart Xi Jinping.

"South Korea must navigate between a potentially profitable business opportunity to expand its market share as a supplier to China, and U.S.-government led efforts to restrict the supply of sensitive hi-tech products to China," Scott A. Snyder, director of the program on U.S.-South Korea Policy at the U.S. Council on Foreign Relations (CFR), told The Korea Times.

Flags of China and the U.S. are displayed on a printed circuit board, in this illustration created Feb. 17. Reuters-Yonhap

The CFR senior fellow went on to say that he understands the Micron ban is China's "retaliation for U.S. export controls or at least adoption of the same perspective as the U.S." on how to address imports of high-technology products from rivals. Representatives at Samsung and SK headquarters said they have no official comment on this issue.

Seoul has been maintaining a low-key stance regarding the issue after the White House "quietly asked" the government to urge the country's chip duo to hold back from increasing sales to China if the sale of Micron's memory chips were restricted or even banned by Beijing.

"I believe the U.S. has discouraged South Korean backfilling of supply to China, but the South Korean government has suggested it is a decision to be handled by the private sector on a case-by-case basis. Samsung and SK will have to consider their respective business relationships and future prospects with both China and the United States," Snyder responded.

A former Samsung official, who previously worked at the company's research-related division, said he expects the Chinese ban on Micron "could affect" the U.S. chipmaker's exposure there; however, he added it's unlikely this issue will hugely benefit the South Korean chip duo, which have massive production facilities in several Chinese cities.

No punitive measures seen against Samsung, SK

It's not far-fetched to say the worsening geopolitical tensions in East Asia are casting a shadow over the semiconductor industry as the three market leaders ― Samsung, SK and Micron ― need to explore measures amid rising uncertainties that could impact investment and supply chain management.

But it's unlikely the Chinese government will expand its "punishment" to the South Korean chip duo as building a cutting-edge technology sector is a critical part of Xi's strategy. This means Beijing needs continuous assistance from Samsung and SK to accelerate efforts in improving its chip self-sufficiency rate.

China aims to lift this to 70 percent by 2025. The rate, which includes the production of semiconductors by foreign companies there, remained at just 25 percent last year, data provided by International Business Strategy showed. Both Samsung and SK asked Washington to extend waivers to sell competitive chip equipment to China, allowing the companies to ship equipment to their facilities, there.

Zack Cooper, a former White House NSC official and a senior fellow at the American Enterprise Institute (AEI), claimed Micron was an "easy target" because Beijing knows that the memory chip market is suffering from a glut. "Micron is primarily being punished for allegedly pushing to get restrictions placed on a Chinese company called YMTC," the former U.S. official said.

YMTC is Micron's chief rival in the NAND-type memory chip segment. Micron earlier warned in a filing that the Boise, Idaho-based firm could be restricted from participating in the Chinese market.

Traffic passes a Samsung Electronics' digital billboard in the Times Square area of Manhattan, New York City, March 2. Reuters-Yonhap

While the South Korean chip firms are positioned to extend their lead over the global memory chip market at China's expense as Washington's export restrictions shift the core dynamics of semiconductor supply chains, CFR's Snyder said both Seoul and Washington are advised to jointly take on the Micron issue rather than moving forward with plans to gain more market share.

"China is sending a signal that it too can adopt a security-centric framework for regulating the chip industry. Since Samsung and SK hynix are foreign businesses with operations in China, it will be important for both countries to read the tea leaves clearly, including through consideration of the likelihood that over the long term China will seek to have its companies expand their share of the domestic (and international) markets to the extent possible," according to him.

For example, the iPhone designer Apple, one of the top clients of both Samsung and SK, has revealed that it has agreed with Broadcom to invest billions of dollars in the U.S. to jointly develop the latest components for 5G devices in manufacturing facilities on U.S. soil.

Cooper at AEI assessed the Micron issue raise the general question of how South Korea and the U.S. should work together when China practices economic coercion against U.S. companies. "It would be best if Washington and Seoul could form a united front. But I think that it will?take time to build agreements about how to handle these issues, because there are real economic costs," he noted.

China's crackdown on Micron, the world's third-largest memory chipmaker, will ask Samsung and SK to pay a price. "But I don't think we have those mechanisms in place yet for a united response, so this should be a high priority for alliance managers moving forward," the AEI fellow said.

Last week, U.S. Commerce Secretary Gina Raimondo had a meeting with her Chinese counterpart Wang Wentao in Washington to discuss "concerns" related to bilateral trade. The U.S. side raised worries about U.S. companies operating in China and the Chinese side raised the same over Washington's policies on semiconductors, and export restrictions. Both sides said the two had candid discussions and agreed to keep communication channels open for potential cooperation.

The Cyberspace Administration of China (CAC) recently launched a probe into Micron's products in China on the grounds of "safeguarding supply chain security of critical information infrastructure." This move is viewed as Beijing's response to Washington's strategic curbs on China's technology development.