Korea needs more generous perks to chip makers to keep lead

[Photo by MK DB]

South Korea, home to global chip giants Samsung Electronics Co. and SK hynix Inc., is urged to come up with more aggressive and generous financial benefits to chip makers to bring in more investments in the semiconductor sector amid intensifying global competition for chip supremacy.

The chip war started between the world’s two biggest economies the United States and China as part of their heated trade war, and then other major economies like Japan and Europe have joined the race to become a global hub for semiconductors.

Among them, the United States has been taking the most active steps. Last August, the U.S. government under President Joe Biden signed an executive order called Chips and Science Act (CHIPS Act), which includes a 25 percent of tax credit and financial subsidies worth $52 billion to semiconductor manufacturing and research investments in the country over five years.

In response to the new law, Taiwan Semiconductor Manufacturing Company (TSMC), Taiwan-based world’s No. 1 foundry company, recently upped its investment in the U.S. It announced to invest $40 billion in Arizona, a figure nearly tripling the initial plan. American chip giant Intel Corp. also vowed to invest $20 billion in Ohio and Arizona, respectively.

Global memory leader Samsung Electronics has invested $ 17 billion in building its new chip fab in Taylor, Texas. In Texas, the state government provides all the resources necessary to operate the chip plant including water and electricity facilities.

TMSC has picked Germany as its new chip hub in Europe. [Photo by MK DB]

Europe, which was hit hard by automotive chip shortages in the past few years, has also joined the chip race. The European Union (EU) late last year agreed on a bill called the European Chips Act (ECA), which provides 43 billion euros ($45.6 billion) for domestic investments in chip industries with an aim to double the region’s advanced chip market share to 20 percent from the current 9 percent. In response, Intel Corp. and TMSC have picked Germany as their new chip hub in Europe. Intel announced an investment worth 17 billion euros to build its chip plant in Magdeburg, Germany.

As part of efforts to restore the glory of the world’s chip powerhouse, the Japanese government last month set aside a budget of 1.3 trillion yen ($9.9 billion) to attract global chip makers’ investments. Japan’s state subsidies worth 617 billion yen have played a significant role in attracting TSMC investment to the country.

China has set a national goal to bump up its chip production self-sufficiency rate to 70 percent with 1 trillion yuan ($145.1 billion) investments in the chip sector by 2025. It also provides a broader range of tax credits and exemptions for chip makers.

South Korea is also urged to provide more generous perks to chip makers to maintain its chip lead.

The Korean government recently proposed to increased the tax credit rate on chip facility investments to 15 percent from 8 percent for large companies.

Last month, the National Assembly passed a law to increase tax credits on chip investments for large companies to 8 percent from the previous 6 percent. But Korean President Yoon Suk-yeol ordered to increase the level of tax credits further.

If the revised proposal to up the rate to 15 percent is passed at the National Assembly, Samsung Electronics and SK hynix, the country’s two leading chip manufacturers that are also global leaders, could be granted tax credits worth up to 7 trillion won ($5.5 billion) and 1 trillion won ($786.16 million), respectively.