China's Chip Self-Sufficiency Drive Threatens South Korean Supply Chain
Beijing's aggressive push for indigenous semiconductor equipment and talent is eroding South Korea's market share and technical edge.
China is aggressively accelerating its semiconductor self-sufficiency to mitigate risks from U.S.-led export controls, creating a structural threat to South Korea's semiconductor ecosystem. This strategic pivot combines mandatory domestic procurement with the targeted recruitment of foreign technical expertise.
Beijing has implemented mandates requiring chipmakers to use a significant portion of domestic equipment for new capacity, with some reports indicating a requirement of at least 50%. This policy is driving a rapid surge in localization. While estimates for overall semiconductor self-sufficiency in 2024 vary between 22% and 33%, the equipment sector has seen a more dramatic leap, with self-sufficiency rates reaching approximately 35% by late 2024 or early 2025. Long-term ambitions are even more aggressive, with China aiming for 80% self-sufficiency by 2030 and attempting to build a domestic lithography ecosystem to reduce its critical dependence on ASML.
The Shift in Regional Dynamics
Historically, the regional division of labor saw South Korea dominating high-value memory chips while China focused on mature process nodes and packaging. However, U.S. restrictions on advanced chipmaking tools have forced Beijing to pivot toward total indigenous production. This shift is particularly perilous for South Korea, which remains heavily reliant on China as its largest semiconductor market. The transition from a customer to a competitor in the Materials, Parts, and Equipment (MPE) sector threatens to decouple the two economies in a way that favors Chinese domestic makers.
Economic and Technical Risks
The consequences for South Korea's MPE firms are twofold: the loss of a primary export market and a critical "brain drain." As China localizes its supply chain, Korean firms providing the essential inputs for chip fabrication face a shrinking customer base. Simultaneously, Chinese firms are employing "industrial absorption" strategies to recruit skilled Korean engineers. This aggressive recruitment of experts with high-level skills is designed to bridge remaining technical gaps and accelerate the transition to indigenous hardware.
The Path Forward
Industry observers are now watching whether South Korea can diversify its export markets quickly enough to offset the loss of Chinese demand. While the trajectory of China's localization is consistent across analyst reports, the speed at which Beijing can successfully integrate a homegrown lithography system remains a key uncertainty. For now, the South Korean MPE sector remains vulnerable to a strategy that seeks to replace foreign expertise and hardware with indigenous alternatives.