Why hasn't this industry collapsed after being sanctioned by Japan for four years?
In July 2019, Japan announced export controls on three key electronic chemicals from South Korea. With the complete lifting of export controls in July 2023, we are once again moving towards cooperation.
Now that a year has passed, how is the Korean semiconductor industry, which has been choked for four years, doing? What can we learn from it?
Cause of the event
Firstly, let's review the cause of the situation. After entering the 21st century, the historical and other contradictions between Japan and South Korea gradually escalated, affecting the economy and other fields.
On July 1, 2019, the Japanese government announced controls on three electronic chemicals exported from South Korea: hydrofluoric acid, photoresist, and fluorinated polyimide.
Before implementing export controls, South Korea's semiconductor industry heavily relied on these three chemical materials. To what extent did it rely? In 2018, the proportion of three chemicals imported from Japan was as follows: hydrofluoric acid (32%), photoresist (85%), and fluorinated polyimide (21%).
Why cut off the supply of these three materials?
Photoresist includes photo initiators (including photo sensitizers and photo acid generators), photoresist resins, monomers, solvents, and other additives, which are used to transfer the required fine patterns from the photomask (mask) to the substrate to be processed. It is one of the key materials in the wafer manufacturing process. Companies such as Tokyo Applied Chemicals (TOK), JSR, and Shin Etsu Chemical hold a 77% market share in the global photoresist market.
High purity hydrofluoric acid is used for cleaning and corrosion of integrated circuit (IC) and very large scale integrated circuit (VLSD) chips, and is one of the key materials in the manufacturing process of the microelectronics industry. Japanese companies dominate the global high-purity hydrofluoric acid market, with Rising Chemical, Daikin, and Morita Chemical holding a combined market share of over 93%.
Fluorinated polyimides are widely used in fields such as electronics, power, OLED, aerospace, precision machinery, etc. due to their advantages of corrosion resistance, radiation resistance, high and low temperature resistance, superior mechanical properties, and good adhesion. Currently, over 90% of fluorinated polyimides worldwide come from Japanese suppliers such as Shin Etsu, JSR, and Sumitomo Chemical.
The result caused
The following month, South Korea's imports of hydrofluoric acid from Japan plummeted sharply until they were completely cut off. The changes in photoresist and fluorinated polyimide were not significant, but there were also noticeable fluctuations.
This sanction triggered an earthquake in the South Korean semiconductor industry, and at that time Samsung stated that the remaining high-purity hydrofluoric acid in its inventory was only enough to last for a few weeks.
The fire has burned to the eyebrows, and the top priority for the South Korean government now is to find alternative products.
In August 2019, the South Korean government designated 100 products (including the three types of controlled materials mentioned above) as strategic products and will invest 7.8 trillion Korean won over 7 years to promote localization. The goal is to ensure the supply of three designated items through domestic production and imports from third countries within one year.
As a policy support, the South Korean government significantly increased its research and development budget in 2019. Former South Korean President Moon Jae-in also called on South Korea to get rid of its dependence on Japan. Mainly using materials with low purity, some semiconductor manufacturing processes have started using Korean products.
In September of the following year, Samsung also announced the introduction of domestically produced hydrofluoric acid in some manufacturing processes.
The policy support has brought many results, and some South Korean semiconductor equipment manufacturers have seized the opportunity to improve their technology and production capacity, some even reaching the international leading level. PSK and PSK Holdings have achieved significant success in the field of front-end and back-end process equipment, especially occupying the first global market share in the field of photoresist stripping applications; Samsung, SK Hynix, and Micron focus on technological innovation, significantly expanding production capacity and driving demand for related equipment.
In addition, the localization of equipment, diversification of the supply chain, strengthening international cooperation, and independent development are all efforts made by the South Korean government to reduce its dependence on Japan.
It is worth mentioning whether Japan has been affected after temporarily losing the large market of South Korea? According to production data from the Japanese Ministry of Economy, Trade and Industry, the output and export volume of the three products mentioned above did not decrease during the period of 2017-2022, and even increased. On the other hand, Japanese semiconductor companies in South Korea have also expanded their production scale to replace and seize the market lost due to export controls.
Korean semiconductor industry with a focus on science
The semiconductor industry in South Korea started in the 1980s, only ten years later than Japan. Why did Japan seize control of key materials? There are two main issues:
The Korean semiconductor industry has always been dominated by Samsung, and as the big brother, Samsung has not driven the development of the entire Korean semiconductor industry. This is reflected in the semiconductor equipment and materials industry. According to statistics, the localization rate of semiconductor equipment in South Korea was 18% in 2004, only 20% in 2021, and has only increased by 2% in the past 20 years.
The industrial structure of South Korea's semiconductor industry is dominated by manufacturing, which leads to a high degree of external dependence on core equipment, materials, and components. Among them, the external dependence of semiconductor materials reaches 50%, and more than 70% of related equipment needs to be imported from the United States, Japan, and the European Union.
Our country's measures
Now let's review the outcome of this incident:
The unilateral export control implemented by Japan on South Korea has led to a significant decrease in the export of hydrofluoric acid, while the export of photoresist and fluorinated polyimide has not been significantly affected. South Korea imported Japan's hydrofluoric acid from the United States in a circuitous way, and increased imports from Belgium, the United States and Taiwan, China, China. In addition, South Korea has increased its exports of semiconductor manufacturing equipment to China, gradually shifting its production capacity to China.
All the results indicate that the effectiveness of unilateral export controls is limited in the current global economy.
On the contrary, after this battle, South Korea realized its shortcomings in the semiconductor industry. Although it has not completely rid itself of its dependence on Japan, it can be certain that when facing the next sanctions, South Korea has more trump cards and the sanctions authorities need to consider more issues.
In May 2015, the first ten-year plan of China's manufacturing power strategy, "Made in China 2025," was officially written.
The "Made in China 2025" clearly proposes to enhance China's position in the global value chain and vigorously develop the mid to high end technology manufacturing industry.
More importantly, the plan provides very specific self-sufficiency goals, especially in achieving high levels of independent manufacturing capabilities in key foundational materials and core components.
In April of this year, some media compiled official and other authoritative data and materials, and analyzed in detail the implementation of the "Made in China 2025" plan:
Overall, over 200 of the 10 key areas covered by "Made in China 2025" have achieved more than 86% of the targets, and it is expected that the remaining targets will be achieved later this year or next year. The progress in fields such as electric vehicles and renewable energy production has greatly exceeded expectations.
In May of this year, the National Development Fund Phase III was officially established with a registered capital of 344 billion yuan. The first two major fund investments mainly focused on the upstream and downstream of the semiconductor chip industry chain. This capital injection has reached a new high, undoubtedly reflecting the country's support for key industries such as semiconductors.
Looking back at the history of China's technological development, there have been Western countries such as the "Batumi" embargo on China, as well as the recent 2018 US China trade war and chip export controls. Our country's cutting-edge technology has grown step by step under the containment of Western countries.
