General

The US Department of Commerce recently announced that 36 Chinese high-tech enterprises and R&D institutions including China Changjiang Storage were included in the US export control "entity list". It claims that "without permission, American enterprises shall not supply American goods, technologies and services to the enterprises on the list". It is worth noting that among the 36 Chinese entities on this latest list, 21 enterprises in the AI chip industry are also included in the list of "Foreign Direct Product Rules", and relevant entities will be prohibited from importing products of non US companies that contain US technology.

On December 16, South Korea's "Seoul Economy" reported that, as the US government further increased its sanctions on Chinese semiconductor and artificial intelligence enterprises, the Korean semiconductor industry was worried that the accelerated US containment of China might cause damage to Korean enterprises. Moreover, the South Korean Economic News reported on December 17 that Lee Changyang, the head of the South Korean Ministry of Industry, Trade and Resources, said at the South Korean Economic Millennium Forum held in Seoul a few days ago that there was no need for Seoul to reject the four chip alliances led by the United States (the United States, Japan, Taiwan, China, South Korea). This is the first time that the Korean government has expressed its willingness to join the Quartet of Chips. Some Korean experts believe that the four party alliance of chips centered on the United States will have more negative effects than positive effects on the Korean semiconductor industry.

Some data also show that this year, the United States adopted the Inflation Reduction Act, the Chip and Science Act and other measures to support its strategic industries and suppress China's semiconductor industry, which has significantly impacted the pillar industries that South Korea is proud of. According to the import and export data of the Korean Customs Office, in the first 10 days of December, the export volume of Korean semiconductors fell by 27.6% year on year. In November, South Korea's ICT exports plunged by nearly 23% year on year, representing the fifth consecutive month of negative growth. The semiconductor industry is most affected by the decrease in ICT exports. Samsung Electronics' DRAM sales in the third quarter of this year fell 34.2% month on month. SK Hynix, the second largest semiconductor company in South Korea, had a sales volume of 5.246 billion US dollars, down 25.3% month on month.

According to the statistics released by the Korea Trade Association, South Korea's semiconductor exports to China in the first nine months of this year amounted to 42.025 billion US dollars, accounting for 40.6% of the total exports to China, up 1.3 percentage points year on year. The dependence on China's semiconductor exports has deepened. In South Korea's trade with China, semiconductor exports accounted for 44.2% of the total exports in 2015, dropped to 38.9% the following year, and have been hovering around 40% since then.

South Korean insiders judge that the high dependence of semiconductor exports on China is the main reason for the overall decline of semiconductor exports this year. The import and export data show that since this year, the export growth of Korean semiconductor in a single month has continued to decline, turning to negative growth from August. The accumulated semiconductor export volume in the first nine months has decreased significantly by 19.1% year-on-year, including the semiconductor export volume to China, which decreased by 16.3%. According to statistics, South Korea's semiconductor exports in 2021 will reach 128.7 billion US dollars, accounting for 39.7% of the total exports, including 59.7% of exports to China.

The sharp decline in the export of semiconductor products has greatly increased the inventory of enterprises. According to the LeadersIndex data of Korea Enterprise Analysis Institute, the inventory of 195 large semiconductor enterprises in South Korea increased from 1214922 trillion won (about 647.7 billion yuan) at the end of last year to 1654432 trillion won at the end of the third quarter of this year, an increase of 36%.

Not only the semiconductor industry, but also many industries in South Korea are not optimistic about the expected export growth next year. On December 19, the "2023 Export Outlook Survey" conducted by Mono Research, a market research organization entrusted by the All Korean Federation of Economists, for 150 export enterprises among the top 1000 enterprises in terms of sales volume, showed that the respondents generally predicted that their exports would grow by only 0.5% on an average year-on-year basis next year. By industry, the export of electrical appliances and electronics decreased by 1.9%, petrochemical products by 0.5%, steel by 0.2%, automobiles by 1.9%, general machinery and ships by 1.7%, and biology and health care by 3.5%. According to the import and export data, even 39.3% of enterprises believe that exports may decline year-on-year next year. As for the reasons, 45.7% of enterprises believed that the rising price of raw materials led to the decline of export competitiveness, while 33.9% believed that the economy of the main export targets was weak.

Smartphones, chips and cars are affected by the current and expected decline in exports next year, and the Korean economy is currently facing severe challenges. The latest import and export data shows that South Korea's export shipments in November fell 14% year on year, the second consecutive month of year-on-year decline, and the first consecutive two months of export decline since 2020. According to the latest import and export data released by the South Korean Customs Office, from December 1 to 10, South Korea's exports fell 20.8% year on year, imports fell 7.3% year on year, and the trade deficit was 4.923 billion dollars. The accumulated trade deficit of South Korea this year has reached 47.464 billion US dollars, the highest in history.

Under the influence of weak export reality and expectations, the Bank of Korea has recently lowered its economic growth forecast for 2023 to 1.7% from 2.1% previously. The South Korean government warned that the economic slowdown in the first half of next year may be far greater than expected. On December 14, according to the supplementary data of Asian economic outlook for 2022 released by the Asian Development Bank, the Asian Development Bank lowered the economic growth forecast of South Korea next year by 0.8 percentage points from 2.3% in September this year to 1.5%.