US allows Samsung and SK hynix to keep making chips in China

Investments protected, diplomatic rift averted … even Beijing likes it

The office of South Korea's president yesterday revealed that the US has allowed Samsung and SK hynix to continue their chipmaking operations in China indefinitely.

The two Korean giants operate semiconductor plants in China, and therefore need to ship chipmaking kit into the Middle Kingdom. But the United States government requires exports of such goods to be licensed if they allow the manufacturing of certain chips – Washington does not want China to have access to high-end semiconductor manufacturing tech.

South Korea is one of the US's 18 Major Non-NATO Allies, which means sanctions that hurt two of the Asian nation's most important businesses are a delicate matter. South Korea lobbied hard for an exemption to sanctions, fearing orphaned or degraded chipmaking assets in China would be bad for its champion companies – and perhaps, by extension, its wider economy.

Those lobbying efforts appear to have succeeded. Senior presidential secretary for economic affairs Choi Sang-mok yesterday announced Washington has approved ongoing exemptions for Samsung's and SK hynix's China operations. Both will be allowed to ship chipmaking kit into China, and to keep their facilities open.

The two chip shops welcomed the decision in statements that suggested it will stabilize silicon supply chains.

That's not an enormous immediate concern, given demand for semiconductors has slumped in recent months. Industry expectations suggest that as the world economic outlook improves, semiconductor sales (for kit other than GPUs) will again surge, making all available sources of product important. More supply from China should, in theory, be good for all Regi readers, as it means significant factories can continue to churn out product, and more supply seldom means higher prices.

This decision also has diplomatic repercussions. In recent months s the US has forged stronger ties to South Korea and Japan, to show China that it won't have things its own way in the region. Had South Korea been displeased with the impact of US policies on two of its star industrial champions, it could have weakened regional alliances.

Chinese media has reported the decision enthusiastically. And as it happens, the decision was revealed on the same day that several US senators – including Senate majority leader Charles Schumer – visited China and met with president Xi Jinping. Rumors are swirling about a November face to face meeting between Xi and US president Joe Biden – an event seen as potentially signalling a thaw in Sino-US relations. ®

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