Samsung Electronics, the world’s No.1 memory chipmaker, is set to receive a subsidy of $6 billion (around 8 trillion won) from the U.S. to build a local semiconductor factory, nearly triple the expected amount. While this is good news for Samsung Electronics, it raises concerns for the Korean economy if the subsidy is provided on condition of “additional investment in the U.S.,” as reported by foreign media. Samsung’s recent proposal to build 11 semiconductor factories in the U.S. with an investment of 250 trillion won over 20 years also suggests a potential shit of its primary semiconductor manufacturing base to the U.S.
Rival countries, including Japan, China, and countries in Europe, are also vying to attract semiconductor companies by subsidizing 40 to 70 percent of factory construction costs, not to mention land allocation, tax breaks, and drastically reduced red tape are the standard benefits. South Korea, in contrast, offers no government subsidies but only a tax credit for 15 percent of expenses related to semiconductor investment, slated to expire by the year’s end.
In addition, South Korean semiconductor companies face a host of political and judicial risks, along with anti-business regulations such as the rigid 52-workweek limit and laws hindering R&D activities and production line expansion. Samsung’s Pyeongtaek semiconductor plant took five years to install a power transmission line, while SK hynix’s Yongin plant faced a four-year delay in construction due to land compensation and approval issues. Meanwhile, competing countries are expediting the construction process. TSMC’s plant in Japan was completed in just a year and ten months, while Intel announced to mass produce 1.4-nanometer semiconductors within three years.
Korean corporations are lagging in technological competition as well. Samsung Electronics trails behind in the race for high-bandwidth memory (HBM), while the gap with TSMC in system semiconductors is widening. Given that the semiconductor industry accounts for over 10% of Korea’s total exports, such a delay could lead to a crisis in the Korean economy.
In last March, the government unveiled plans to establish the world’s largest system semiconductor cluster in Yongin, Gyeonggi Province. Unconventional tax incentives and subsidies must be introduced to attract many Korean and foreign semiconductor-related corporations. Most importantly, the 22nd National Assembly should prioritize adopting laws supporting semiconductor companies to ensure Korea remains competitive in the global subsidy competition.
