ANALYSIS Amid US-China rivalry, Seoul on high alert over tech theft
Flags of China and the U.S. are displayed on top of a printed circuit board with semiconductor chips, in this photo illustration made Feb. 17. Reuters-Yonhap
Law enforcement agencies plan to strengthen punishment for economic espionage
By Kim Yoo-chul
A few weeks ago, a 66-year-old semiconductor expert, who previously worked at Samsung Electronics and SK hynix, was indicted and eventually detained by South Korean prosecutors for allegedly stealing top industrial secrets worth millions of dollars to set up a “copycat” semiconductor-making facility in China.
The expert, described as a “master in production yields,” was formerly a senior executive at Samsung Electronics, the world's top memory chip manufacturer. He was a three-time winner of Samsung's annual “proud Samsung men” awards. After 18 years at the electronics powerhouse, in 2001 he joined Hynix Semiconductor, which later became SK hynix, Samsung's toughest competitor in the global memory chip sector. There, he was a “hidden force” in improving SK's chip production yields.
When he was named chief executive of a company invested in by a regional Chinese government in 2020, Seoul's intelligence agencies raised the alarm about economic espionage and technology theft.
Local prosecutors said the former executive hired some 200 ex-Samsung and SK engineers, and allegedly stole Samsung's key factory specifications as well as clean-room designs.
While the prosecutors have said the suspect “unsuccessfully tried to establish” a copycat chip line in the Chinese city of Xi'an, where Samsung operates advanced chip facilities, sources said millions of data sets had already been stolen.
“This case is an alarm bell to major South Korean tech companies and South Korea itself. Technicians, researchers and engineers at Samsung and SK are being targeted by Chinese agents. The main concern is that understanding the whereabouts of skilled workers and knowledge is much harder than controlling the movement of products through restrictive measures and tightened export controls,” said a former senior executive at Samsung, who has also been approached by Chinese agents to work at a Chinese semiconductor company.
A Samsung Networks 5G Anechoic Chamber which is a special facility used to conduct various inspections and tests of radio equipment, is seen during a media tour at Samsung Electronics' headquarters in Suwon, Gyeonggi Province, June 13. AP-Yonhap
“Because semiconductor- and battery-related technologies, viewed as crucial for defense and backbone industries, have become much more difficult to steal or even acquire via acquisition deals, I would presume efforts by the Chinese government to scout skilled semiconductor and battery engineers will accelerate,” he added.
As South Korea is home to world-class memory chip and battery manufacturers including LG Energy Solution and Samsung SDI, the country is situated to better protect tech intellectual property. Data provided by the National Intelligence Service (NIS) showed 93 cases of suspected industrial espionage were detected from 2018 to last year. The semiconductor, display and battery industries were the prime targets.
The impact on the country's economy through the loss of intellectual property is one of the main concerns among South Korean officials. According to estimates by the Federation of Korean Industries (FKI), a leading business lobby, the annual costs of intellectual property theft for the country are somewhere between 56 trillion won and 60 trillion won. China is responsible for at least 85 percent of that figure.
“Industrial espionage has already become a major flashpoint in U.S.-China relations, and will be the same for Seoul's relationship with Beijing,” said Park Hyeong-kwan, a professor in the department of police administration at Gachon University. He added that China's growing business intelligence targeting of U.S. officials and experienced U.S. business executives has become a major justification for U.S. technology restrictions.
Potential security threats
Government officials contacted by The Korea Times said the country is acknowledging the possible and potential security threats posed by China-based industrial espionage activities.
Chinese President Xi Jinping is trying hard to advance Beijing's display, battery and more importantly semiconductor industries as he views the U.S. as its chief competitor, especially in advanced sciences and military capability.
A man passes by a display of surveillance technology equipment made by Huawei, one of the Chinese tech companies sanctioned by the U.S. government for its role in Beijing's suppression of China's far western Xinjiang region, during its Security China 2023 review, June 7. AP-Yonhap
But in semiconductors, considered critical for use in all data science, China has so far failed to actualize its ambitious goal of hugely increasing domestic chip supplies. Beijing still lags two to three generations in terms of chip efficiency behind Taipei and Seoul.
Plus, it still needs Samsung and SK hynix's continued help to improve its chip self-sufficiency rate, which remained at around 27 percent as of 2022. By 2025, China aims to reach a self-sufficiency rate of 70 percent.
One high-ranking government official said that government agencies are on track to launch concerted efforts to better handle economic espionage activities, though the official, who spoke on condition of anonymity due to the sensitivity of the issue, admitted the government is unable to impose wider restrictive measures aimed specifically at China. “It would be a wise approach for South Korea to stop any attempted illegal technology transfers to China,” he said.
Officials at the Korea Intellectual Property Office (KIPO) said the state agency plans to increase the scope of its investigations into overall technology theft and increase the number of investigators. “KIPO is set to closely team up with the country's law enforcement agencies, in addition to the NIS and the U.S. Department of Homeland Security to ferret out (industrial) economic espionage. Plus, we will double fines and penalties, but also benefits for whistleblowers,” one KIPO official said.
Only 47 people in 445 economic espionage cases were sentenced to prison during 2019 to 2022, according to local prosecutors.
Despite China's decision to bar Micron Technology of the U.S. from selling its semiconductors locally, all major U.S. chip companies including NVIDIA, AMD, Qualcomm and Intel in addition to leading chip equipment makers have a strong interest in selling their chip products to China.
As artificial intelligence (AI) in China is at an “inflection point,” and with the U.S. grappling with potential threats from this, unnamed intelligence officials said Beijing will be attempting to scout both U.S. and South Korean chip experts.
“Moving to another company is a business decision, yes it really is. But as the Washington-Beijing rivalry goes on, and because chips, displays and batteries have become geopolitical issues, the National Assembly Advanced Strategic Industries Committee will ask the NIS, KIPO and law enforcement agencies to seek to increase the length of prison sentences for economic (industrial) espionage cases,” a lawmaker from the ruling People Power Party (PPP) said.
China's efforts to gain technological advancements will continue as long as its leader Xi Jinping remains on his current ideological path. China recently stressed the importance of improving its overall technology industries in terms of national security. In comparison, the U.S. CHIPS and Sciences Act illustrates how Washington will mobilize the necessary resources again in terms of helping “techno-democracies” win against authoritarian states, as it had done successfully during the Cold War.