Analysis: Huawei ban puts S.Korea in a familiar place - caught between the U.S. and China

LG Uplus

29/05/2019 04:26

* Huawei bought 17% of S.Korean electronics parts exports to
China
    * Samsung has many factories in China; Huawei is key chip
client 
    * Memories of China retaliation fresh in S.Korea after THAAD
row 

    By Ju-min Park and Heekyong Yang
    SEOUL, May 29 (Reuters) - Less than a week after Huawei
Technologies  HWT.UL  was blacklisted by the United States, more
than a hundred South Korean politicians and business leaders
toured the Chinese tech giant's headquarters and its lavish new
campus outside Shenzhen.
    Executives from firms such as Samsung Electronics
 005930.KS  watched demonstrations of high-speed robotics and
smart city simulations powered by Huawei's next-generation 5G
network equipment. The event was part of a Seoul-backed forum
aimed at building tighter tech links between China and Asia's
fourth-largest economy.
    But the gathering was overshadowed by the U.S. decision
early this month to ban American tech and telecom firms from
doing business with Huawei, and a push to get companies around
the world to follow suit. 
    The campaign against Huawei, and the broader U.S.-China
trade war, have landed export-driven South Korea in a familiar
bind, caught between its crucial security ally and biggest
trading partner.
    Key global tech companies are suspending sales of parts and
software to the Chinese firm and several mobile carriers are
delaying the launch of new Huawei handsets. But in South Korea,
business executives and politicians said they see few
alternatives to conducting business with China as normal.
    For Samsung, South Korea's national tech champion, any
advantages it could gain from Washington's move against Huawei 
would be outweighed by the pain of lost business, experts said.
    Samsung could increase share at Huawei's expense in
smartphones and telecom network equipment, and its stock has
ticked up modestly since the U.S. ban was announced. The broader
trade war could also blunt the rise of new Chinese rivals in
chips and smartphone screens.
    But Huawei is also one the biggest customers for Samsung's
memory chips, and the South Korean firm has multiple factories
in China serving a plethora of customers. Samsung Vice Chairman
Yoon Boo-keun was among those who took part in the Huawei tour.
    "They compete, but they are important partners too," said
Min Byung-doo, a South Korean ruling Democratic Party member of
parliament who was part of the tour, referring to Huawei and
Samsung. He told Reuters that South Korean companies had "no
simple alternative" to maintaining business relationships with
Huawei.
    Samsung declined to comment. 
    
    'MOMENT OF TRUTH' 
    South Korean government officials and tech company
executives say there is plenty to worry about in the long run. 
    China is South Korea's largest trading partner, accounting
for 26.8% of the country's exports in 2018, compared with 12%
for the United States. 
    Huawei alone bought $10.7 billion worth of South Korean
products last year, accounting for about 17% of the country's
electronics parts exports to China, according to data from the
South Korean government and Huawei.
    South Korea's SK Hynix  000660.KS , the world's No.2 memory
chip maker, counts Huawei as its top customer.
    Some experts believe South Korea will not be able to walk
the line between the two powers amid an intensifying tech trade
war.    
    "South Korea has to face the moment of truth - choosing the
United States or China," said Han Suk-hee, a professor of
Chinese studies at Yonsei University and a former South Korean
consul general in Shanghai.
    "What if the U.S. is not only asking not to use Huawei
products but also not to export South Korean semiconductors to
China? The government needs to prepare for that worst-case
scenario."
    Washington has warned allies that adopting Huawei technology
in 5G networks could lead the U.S. to curtail intelligence
sharing. 
    South Korea's presidential office said it cannot comment on
discussions with Washington. 
    A South Korean government source close to the situation said
there are no easy answers.
    "Sorry, we are not the United States, and can't just do the
same as what the U.S. is doing to China," he said when asked
whether the country will join the U.S. campaign against Huawei. 
"We can't jump to a simple conclusion." 
    LG Uplus Corp  032640.KS , the only South Korean telecom
firm to use Huawei equipment for its 5G network, declined to
comment.
    For its part, Huawei said it plans to open a 5G lab in South
Korea on Thursday as a sign of its commitment to partnership.
    "Huawei has an 'In Korea, for Korea's advancement'
philosophy," Huawei's head of Asia-Pacific, Tian Feng, was
quoted as saying by South Korean officials who took part in the
tour.
    
    CHINA'S CLOUT
    Memories are still fresh in South Korea of how damaging
retaliation by Beijing can be. 
    Angry over Seoul's decision to deploy a U.S. THAAD
anti-missile defense system in 2016 to counter North Korea,
China informally banned group tours to South Korea and suspended
construction projects by retail giant Lotte.
    Samsung's smart phone market share in China halved in 2017
from a year earlier, according to Strategy Analytics. Hyundai
Motor's  005380.KS  sales plummeted by one-third as a result of
the missile dispute.
    At some South Korean companies, officials grumble that their
government is powerless to counter China and has not done enough
in the face of what they see as unfair subsidies and other trade
practices.
    "We feel as if we are left alone to fight to survive, not
being able to get any government support when the Chinese
government is all out there to advance their high-tech
industries," an official at a major South Korean display maker
said, asking for anonymity due to the sensitivity of the matter.
    "Our government was in disarray without any pre-emptive
plans in the THAAD situation, while our companies kept bleeding
in China," said the chief executive of a South Korean firm that
supplies parts for Huawei smartphones, who also declined to be
named.
    "This time around, I hope our government can provide a clear
vision and protect our companies."

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Huawei has become one of Korea Inc's top customers 
(interactive)      https://tmsnrt.rs/2W7oVHU
Huawei has become one of Korea Inc's top customers     https://tmsnrt.rs/2W7oWLY
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 (Reporting by Ju-min Park and Heekyong Yang; Additional
reporting by Hyunjoo Jin; Editing by Jack Kim, Jonathan Weber
and Edwina Gibbs)
 ((ju-min.park@thomsonreuters.com; +82 2 3704 5650; Reuters
Messaging: ju-min.park.thomsonreuters.com@reuters.net))