108646 123871 5223
U.S. President Joe Biden (far left) and South Korean President Yoon Suk Yeol (second from left) visit Samsung Electronics in Pyeongtaek on May 20, 2022.

The ongoing global semiconductor war started in the second half of last year, when the United States enacted the CHIPS and Science Act in July, and further announced a ban on semiconductor equipment exports to China in October.

According to the act, companies in the semiconductor industry that received incentives from the U.S. government cannot expand their high-tech semiconductor facilities in China for 10 years. This seriously affects Samsung Electronics and SK Hynix in that both are manufacturing a lot of products in China. The NAND flash production in China accounts for approximately 40 percent of Samsung Electronics’ NAND flash production. Although some exceptions are stipulated along with a grace period of one year, the period is of no use given that semiconductor manufacturing requires long-term investments. Both are edgy about whether they will be able to continue with their business in China.

In addition, the United States is trying to keep China in check by working more closely with South Korea, Taiwan and Japan through the so-cold “Chip Four Alliance.” The United States is the powerhouse of the world in the field of chip design, equipment and source technologies and South Korea is a memory chip manufacturing and foundry leader. Taiwan is home to TSMC, which accounts for half of the global foundry production, and Japan excels in semiconductor materials and equipment. Although action plans of the alliance are yet to be made, it is likely to dominate global semiconductor supply chains in the near future.

South Korea, however, is in a dilemma. China is the most important client for South Korean semiconductor companies. In 2021, more than 39 percent of South Korea’s semiconductor exports went to China. The amount is approximately US$50 billion, and further increases to US$76.8 billion when exports via Hong Kong are included. In short, South Korea’s participation in the alliance entails burden that cannot be avoided. The essence of this issue is whether to choose the Chinese market or U.S. technologies.

In 2021, 32.5 percent of South Korea’s system semiconductor exports went to China. The ratios were as high as 43.6 percent, 54.6 percent and 44.7 percent when it comes to memory chips, equipment and materials, respectively. This shows the magnitude of the challenge that the U.S.-China rivalry presents to the industry. South Korea has to stay way ahead in the memory chip sector and surpass Taiwan, more specifically, TSMC, in foundry while accelerating export diversification.

In this context, the National Assembly of South Korea passed a similar bill late last year. However, in the act, tax deduction expansion for capital expenditures in the industry stood at just two percentage points, from 6 percent to 8 percent. In other words, lawmakers are completely failing to recognize how critical this moment is. President Yoon Suk Yeol is demanding the tax benefits similar to those of the United States and Taiwan. The ruling and opposition parties should put their heads together and discuss on securing far more incentives necessary for the semiconductor industry of South Korea not to fall behind.

4 caviale royal 2 300x300 1


Leave a Reply