South Korean semiconductor equipment exports to China surge

South Korean semiconductor equipment exports to China have been on the rise, with early-year export figures surpassing those from two years ago when the semiconductor industry was thriving. The primary factor influencing this trend is the industry’s overall improvement and China’s increased focus on legacy semiconductors amid intensifying U.S. sanctions.

According to the General Administration of Customs of China (GACC) on April 30, China’s imports of domestic semiconductor equipment (HS Code 848620) reached US$149.69 million in January and US$148.99 million in February. This is higher than the same January-February period in 2022 when the semiconductor industry was booming. Compared to two years ago, January imports increased by 7.8% and February imports rose by 20.2%.

Last year, China steadily expanded its equipment imports from domestic companies. Imports worth US$49.05 million in January surged by 206.4% to US$150.3 million in December. This growth rate is comparable to that of Japan, one of China’s main sources of semiconductor equipment imports, which saw a 154.7% increase over the same period. Given that Japan, alongside the United States, hosts some of the world’s leading semiconductor equipment companies, China’s growing interest in domestic equipment manufacturers is apparent.

Industry experts attribute this export growth primarily to the improvement in semiconductor industry conditions and domestic companies upgrading their processes in China. The artificial intelligence (AI) boom has revived demand as companies increase their purchases of semiconductors optimized for AI computing, which has subsequently boosted semiconductor equipment purchases. Naturally, China’s semiconductor equipment imports, as a major player in the global semiconductor equipment industry, have significantly increased.

A significant portion of domestic equipment companies’ sales comes from leading semiconductor companies such as Samsung Electronics and SK hynix. Observers believe that these companies’ efforts to upgrade their Chinese factories likely contributed to the export increase. For example, SK hynix is converting its C2 fab at its Wuxi plant in China to a 10 nm-class, 4th-generation (1a) DRAM process. The Wuxi plant is a key facility that accounts for 40% of SK hynix’s DRAM production.

Analysts also believe that the recent expansion of China’s legacy semiconductor industry is a favorable factor for domestic equipment companies. In October 2022, the U.S. government imposed export controls on equipment and technology for logic semiconductors below 16 or 14 nm, NAND flash memory above 128 layers, and DRAM below 18 nm. The scope of the sanctions has since expanded to include semiconductor equipment components and related software. Unable to sit idly by in the face of U.S. pressure, China is turning to legacy semiconductors. While they have lower added value compared to advanced semiconductors, legacy semiconductors are essential for weapons systems, automobiles, aircraft, and robots, accounting for up to 75% of total semiconductor demand.

Despite the domestic industry’s perceived lag in competitiveness compared to leading semiconductor equipment powerhouses like the U.S., Japan, and the Netherlands, domestic equipment manufacturers have found clearer opportunities as the competitive landscape widens to include legacy equipment. An industry insider noted, “Legacy equipment faces less competitive pressure than advanced equipment, giving domestic equipment manufacturers more breathing room. While individual contracts may vary, there is ample room to demonstrate competitiveness in terms of pricing.” They added, “Since the U.S., Japan, and Europe are self-sufficient in equipment, with limited markets outside of China, the industry’s expansion towards legacy semiconductors in China is a welcome development.” Business Korea