China's chip offensive

DUV breakthrough, CXMT's IPO signal a new challenge for Korea

China's semiconductor industry is making an alarming leap forward.

According to foreign media reports on July 27, a Chinese state-backed company in Shanghai has begun mass-producing domestically developed immersion deep-ultraviolet (DUV) lithography machines, a key piece of equipment used in semiconductor manufacturing.

The equipment is used to print circuit patterns onto silicon wafers, and Dutch company ASML dominates the global market for semiconductor lithography systems.

The technology China has developed is said to lag one generation behind ASML's cutting-edge extreme ultraviolet (EUV) lithography equipment, over which the Dutch company holds a monopoly.

Moreover, the Chinese company reportedly aims to produce only five DUV machines this year and 20 next year, nowhere near ASML's annual production capacity of 130 machines.

More surprising, however, is the very fact that the company managed to develop the DUV tool on its own despite stringent US export controls on semiconductor technology and equipment. The repercussions of Chinese startup Moonshot AI's recent release of Kimi K3, an artificial intelligence model comparable to leading US systems, are still rippling through the US-China AI race.

Although developing EUV systems is a far greater technological challenge than developing DUV equipment, China's success in producing its own DUV machines despite US restrictions suggests that it will undoubtedly step up efforts to develop EUV systems as well.

Coincidentally, on the same day, China's major memory chipmaker, ChangXin Memory Technologies, made its debut on the Shanghai Stock Exchange's Nasdaq-like STAR market. The company raised a staggering 66.61 billion yuan ($9.8 billion) through its initial public offering, and its shares soared on the first day of trading, making it the most valuable company listed on a mainland Chinese stock exchange by market capitalization.

CXMT is reportedly capable of mass-producing memory chips using a 16-nanometer process. One nanometer is one-billionth of a meter. The Chinese company trails South Korean chipmakers by two to three years technologically, and it is not yet a competitor in high-bandwidth memory technology.

However, backed by the Chinese government's full support and the massive capital it raised through its IPO, CXMT could quickly narrow the technology and production gap, potentially shaking up the "big three" structure of the global memory chip market dominated by Samsung Electronics, SK hynix and Micron Technology.

Global demand for semiconductors is expected to exceed supply by a wide margin for the foreseeable future, but that could change if Chinese companies accelerate their efforts to catch up with industry leaders.

Korea is building a massive semiconductor industrial complex in Yongin, Gyeonggi Province, and plans to develop another in the country's southwestern region. But unless construction is accelerated, the projects could fall out of sync with market supply and demand.

China does not yet appear capable of easily catching up with Korean companies in high-performance memory chips such as HBM, and it also faces US export restrictions. But Korea must not let its guard down. China's DUV machines and Kimi K3 have shown that no one truly knows what dramatic turn of events is unfolding within the country.

China, pursuing its drive for semiconductor supremacy, is marshaling comprehensive state support on every front. On the other hand, Korea is now reveling in the memory chip boom. Trade unions wield the threat of strikes to demand excessive performance bonuses, while the government talks about "excess profits" and "dividends for the people," while thinking only about spending money.

Now is not the time to be preoccupied with distributing profits. At least for high-tech industries such as semiconductors, the government must relax regulations, including the rigid 52-hour workweek, which undermines competitiveness in research and development. Political considerations should not factor into decisions about where to build semiconductor factories.

As China tries to catch up, Korea has no choice but to pull further ahead through more advanced technology. In the high-tech industry, a moment's lapse in focus can send a company into free fall.

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