South Korea's Semiconductor Export Controls Spark Trade Tensions with China

Seoul Restricts Advanced Chip Equipment Sales to Chinese Firms

South Korea's Ministry of Trade, Industry and Energy announced new export restrictions on advanced semiconductor manufacturing equipment on October 25, 2025, aligning more closely with controls imposed by the United States, Japan, and the Netherlands. The measures restrict sales of extreme ultraviolet lithography tools and advanced etching equipment to Chinese chipmakers, effective January 1, 2026.

The announcement came after months of diplomatic pressure from Washington and represents a significant shift for Seoul, which had previously maintained a more ambiguous position on chip export controls to protect its massive trade relationship with Beijing.

Industry Impact

Samsung Electronics and SK Hynix, which together control approximately 60% of the global DRAM market and 35% of NAND flash production, had lobbied against the restrictions. Both companies operate major fabrication facilities in China — Samsung's Xi'an NAND plant and SK Hynix's Dalian DRAM facility — and rely on equipment transfers for maintenance and upgrades.

The Ministry granted both companies three-year waivers for their existing Chinese operations, allowing equipment needed to maintain current production levels but not to expand capacity or upgrade to more advanced process nodes. Samsung's Xi'an plant produces 128-layer NAND flash; the waiver prevents it from upgrading to 176-layer or beyond.

Beijing's Response

China's Ministry of Commerce called the restrictions "discriminatory and politically motivated," warning of "necessary countermeasures." China is South Korea's largest trading partner, with bilateral trade reaching $301 billion in 2024. Chinese state media suggested potential restrictions on rare earth exports critical to Korean battery and electronics manufacturing.

Cheng Xiaohe, a professor of international relations at Renmin University, said Beijing's response would likely be calibrated. "China doesn't want to escalate with South Korea the way it has with the U.S., but it needs to signal that there are costs to joining the containment coalition," Cheng told Asia Insider Daily.

Market Reaction

Samsung shares fell 3.2% on the Korea Exchange following the announcement, while SK Hynix dropped 4.1%. The Korea Semiconductor Industry Association estimated that the restrictions would reduce Korean chip equipment exports to China by $4.7 billion annually, approximately 18% of the total.

Analysts at Morgan Stanley maintained an overweight rating on both Samsung and SK Hynix, noting that the waivers protected existing operations and that rising AI-driven demand from non-Chinese markets would more than offset lost China revenue by 2027.