A close-up of a silicon wafer on display during SEMICON Taiwan, at Nangang Exhibition Center in Taipei, Sept. 4. EPA-Yonhap

Korean chipmakers' reliance on raw materials imported from China deepened last year, despite the escalating global supply chain uncertainties fueled by growing U.S.-China tensions.

Industry officials voiced concerns about the risks of relying heavily on a single country, emphasizing the need to diversify sourcing channels. However, they also acknowledged that Chinese materials remain cost-competitive, urging the government to better prepare for potential supply chain disruptions.

According to a report by the Export-Import Bank of Korea, the country's reliance on Chinese imports of five out of six key raw materials for making semiconductors increased last year.

The reliance on Chinese imports for silicon used in silicon wafers rose from 68.8 percent in 2022 to 75.4 percent in 2023, while that of germanium, a key material for next-generation compound semiconductors, surged by 17.4 percentage points to 74.3 percent during the same period.

Only fluorite, a key material for hydrofluoric acid, showed a slight decrease from 49.9 percent to 47.5 percent during the same period.

In the wake of the war in Ukraine and growing trade conflicts between the U.S. and China, Korean chipmakers have been making efforts to diversify their sourcing channels, but the data showed that they are critically relying on China for key raw materials.

The report also showed that Korean chipmakers are also relying heavily on Chinese manufacturing.

Samsung Electronics' Xi'an plant accounted for 29 percent of the company's total NAND flash production in 2021, but the number rose to 36 percent in 2022, 37 percent last year and is expected to reach 40 percent this year.

The ratio of SK hynix's DRAM production at its Wuxi plant declined from 49 percent in 2021 to 42 percent last year, though it is expected to remain significant at 41 percent this year, underscoring China's continued importance in their semiconductor manufacturing.

The numbers are worrisome for the Korean chipmakers, as the U.S. is slapping more bans on trade related to improving China's chip manufacturing capabilities. As well, Korea's trade dependence is feared to leave it vulnerable to Beijing's economic retaliation in the event of any potential future political disputes.

Bloomberg reported on Sept. 2 that China has warned of severe economic retaliation against Japan if it further restricts sales and servicing of chipmaking equipment to Chinese firms, and Toyota Motor told Japanese officials that Beijing could react to the curbs by limiting Japan's access to minerals required for automotive production.

With over a month remaining before the U.S. presidential election, businesses are expecting Washington to tighten regulations against China and stronger pressure on its allies to fall in line, regardless of the election result.

“In the wake of the tensions between Washington and Beijing, businesses have been making efforts to diversify sourcing channels for raw materials to avoid supply chain disruptions stemming from political risks,” a semiconductor industry official said.

“However, it is also true that Chinese raw material imports still maintain cost competitiveness, backed by its solid mining infrastructure and natural reserves. This means that diversifying sourcing channels will incur higher costs, forcing companies to keep their reliance on Chinese imports to a certain level.”

Another semiconductor industry official also said that lowering dependence on Chinese imports is “not always the answer,” and that firms will have to expect assists from the government in the event of supply chain disruptions.