Drama plays out as China calls for ‘cooperation’ in chip industry to overcome U.S. sanctions
“Korean chip industry authority.” “Master of yield.” “Top expert in memory production engineering.”
A South Korean tech industry veteran, once lauded with these titles for his innovation, hands-on approach, and round-the-clock dedication, is back in the news. This time, the government that honored him as a national tech hero is accusing him of industrial espionage on a grand scale.
Meanwhile, China last weekend called for “openness” and “cooperation” in its chip industry in order to overcome U.S. tech sanctions.
High Profile Theft Dealt with National Core Technology
On June 12, South Korean prosecutors charged the former Samsung Electronics executive with allegedly stealing design data from a Samsung Electronics semiconductor factory and attempting to build a replica factory in China.
He is charged under South Korea’s Industrial Technology Protection Act and Unfair Competition Prevention Act with leaking trade secrets to foreign countries.
The theft is high profile because it dealt with data that had been designated national core technology. The special status refers to highly valuable technology that could adversely affect South Korean national security and economic development if it falls into the hands of other countries.
Because of the scale of the crime—the suspect attempted to replicate and build an entire semiconductor factory in China—the prosecution said it is “difficult to compare this case with individual semiconductor technology leakage cases.” The extent of the loss is staggering, with the damage to Samsung estimated in hundreds of millions of dollars.
“It’s a grave crime that could deal a heavy blow to our economic security by shaking the foundation of the domestic chip industry at a time of intensifying competition in chip manufacturing,” the prosecutors’ office said.
The defendant has denied the allegations.
From Chip Superstar to Accused Traitor
Due to local privacy laws in South Korea, defendants aren’t usually named. The Suwon district prosecutor’s office, however, provided detailed information about the defendant, a 65-year-old former employee of what it called “Company A.”
South Korean authorities said the defendant worked at “Company A”—”the world’s number one market share holder in the memory and semiconductors field”—for about 18 years and then served as vice president of another firm, referred to as “Company B,” for about 10 years.
Based on the information given by prosecutors, “Company A” and “Company B” were identified as global chip giants Samsung and SK Hynix, their chief rivals.
Prosecutors described the defendant in a statement as an “undisputed top domestic expert in semiconductor manufacturing.”
The defendant later created chip manufacturing companies in China and Singapore with the backing of Chinese and Taiwanese investors and lured more than 200 chip experts from Samsung and Hynix with higher pay before arranging to smuggle out crucial technologies from Samsung, prosecutors said.
His most damning crime, however, was an attempt to replicate a semiconductor plant in Xi’an, China, just a mile away from a Samsung plant, using blueprints and engineering secrets stolen from Samsung.
How did a South Korean chip guru—in essence, a national hero—become an industrial spy for China?
An Industry Legend
Citing “people familiar with the case,” the Wall Street Journal said the unnamed defendant is a former Samsung executive surnamed Choi.
Choi was once known as the top expert in memory production engineering in South Korea’s semiconductor industry. He worked in the memory semiconductor division of Samsung for 18 years and served as its managing director, during which time he won several internal awards, said the Wall Street Journal.
In 2001, he moved to Hynix Semiconductor (now SK Hynix).
SK Hynix is now the world’s second-largest chipmaker. At the time, however, it was under the management of creditors due to a liquidity crisis, lagging behind Samsung Electronics in terms of technology.
By improving equipment, reengineering, and sheer hard work, Choi turned around Hynix’s technical capabilities, revitalizing the dying company and setting it on the path to today’s position as global number two in the semiconductor industry.
His achievements earned him a promotion to Chief Technology Officer. However, he resigned as vice president of Hynix in 2010, after losing out on the company’s top job.
Choi was honored by the South Korean government for his efforts. In 2009, he received the nation’s Order of Industrial Service Merit for his contributions to semiconductor chip production.
After leaving Hynix, Choi spent several years working at other South Korean manufacturing companies.
Turning to China
The indictment alleges that the defendant then established a Singapore-based company, with long-range plans to pursue the construction of a chip factory in Xi’an, China. Although the indictment does not name the Singapore-based company, it is known that in 2015, Choi established a chip technology consulting firm, Jin Semiconductor, in Singapore.
According to the indictment, in 2018 Choi signed an 8 trillion won (about $6.3 billion) investment agreement with a Taiwanese electronics manufacturer in order to finance his plans, which included hiring professionals away from South Korea with large salary increases.
The prosecution alleges that Choi hired 200 key semiconductor industry professionals away from Samsung Electronics and SK Hynix.
According to the Wall Street Journal, Choi established Zhenxin Semiconductor in China in 2019. Chinese company filings reveal a connection between the Singapore-based company and the Chinese company, said the Journal, listing the Jin Semiconductor home page as the Zhenxin Beijing Semiconductor website.
Zhenxin Semiconductor then became a major investor as Choi worked with the municipal government of Chengdu, China, to establish a semiconductor joint venture company, Chengdu Gaozhen Technology. The venture began test production of semiconductors this year, said prosecutors.
The defendant is charged with actively ordering employees of his Singapore-based firm to procure technology from Samsung.
Copycat Chip Factory
Choi’s most audacious plan was the construction of the chip factory in Xi’an, located just 1.5 km from a Samsung factory, which it was to copy closely.
According to prosecutors, the new plant employed BED (Basic Engineering Data) from the nearby Samsung factory, together with process layout drawings, blueprints, and other trade confidential information.
BED is a core semiconductor technology that creates an optimum manufacturing environment by preventing impurities in the manufacturing space (clean room). The stolen technology included manufacturing technology for DRAM and NAND flash memory under 30 nanometers, including mobile phone manufacturing.
Six former employees of Samsung Electronics and its partner companies were charged with illegally obtaining design materials from Samsung’s semiconductor plant under Choi’s instructions and using them without permission.
The project fell through when it failed to obtain promised funding from its Taiwanese backer.
Although the scheme did not come to fruition, industry sources believe that key information could have already been leaked to Chinese companies, according to JoongAng Daily, since Choi had operated the Chengdu-based CHJS since 2020.
“The data, which Samsung Electronics obtained through more than 30 years of research and development, is worth 300 billion to trillions of won (about $200 million to billions). It is not only a company’s trade secret, but also a national core technology,” prosecutors said.
China’s Hunt for South Korean Talent
As the United States has stepped up its efforts to curb the Chinese semiconductor industry, China’s hunting for high-tech talents in South Korea has become more aggressive.
The Chinese semiconductor industry not only uses high annual salaries as a lure, but also establishes research and development centers in South Korea, encouraging senior semiconductor talents to quit their current jobs by promising them they won’t have to move to China.
For the past few months, South Korean police have been conducting a special crackdown to uncover industrial technology leakage. On June 11, South Korea’s Yonhap News Agency reported 77 arrests in connection with 35 industrial espionage cases. An interim investigation showed that eight of the incidents were related to the leaking of technology abroad, including to China.
Seoul takes the issue so seriously that it is creating a database of chip engineers working for South Korean companies in order to monitor their travel in and out of the country, said the Financial Times in a May 16 article.
According to South Korea’s National Intelligence Service, the estimated loss of industrial technology leaks from 2018 to 2022 totaled about 25 trillion won (about $19.6 billion).
The primary target of China’s technology theft remains the United States, Li Jixin, a Japan-based electronics engineer told The Epoch Times on June 15.
However, the United States has been pushing back, causing China to turn to easier targets.
“When the United States began to realize that [its] technology is seriously stolen and began to strictly scrutinize, the main target of theft began to extend to Europe and Japan; when Europe and Japan began to guard against [it], the target of technology theft became South Korea, which still has a lot of investment in China and no strict prevention,” he said.
Li said South Korea’s semiconductor companies have been investing heavily in China and relying on China for their exports, so “they have been turning a blind eye to China’s technology infringement, which has made China even more reckless.”
South Korea “must warn and scrutinize as the United States and Japan have done in order to put an end to China’s technology theft crimes.”
Meanwhile, a Chinese semiconductor expert told an industry forum that China needs to increase “openness” and “cooperation” in its chip industry to overcome U.S. tech restrictions and sanctions.
“Our goal is to shatter the blockade and containment to achieve self-sufficiency, but it has to be noted that self-sufficiency doesn’t mean to close ourselves off,” Wei Shaojun, director of the Institute of Microelectronics of Tsinghua University, told an industry forum in Guangzhou last weekend.
Reuters contributed to this report.