Korea to pump in W8.8tr in 2025 to contend in global chip race

Revision pending to offer heftier tax breaks for semiconductor industry

Finance Minister Choi Sang-mok (center) speaks during a meeting with economy-related ministers including SMEs and Startups Minister Oh Young-ju (left) and First Vice Science Minister Lee Chang-yune (right) at the government complex in Seoul, Wednesday. (Yonhap)

The South Korean government will inject 8.8 trillion won ($6.45 billion) next year to advance the country’s semiconductor ecosystem through low-interest loans while accelerating infrastructure construction and nurturing talent.

Finance Minister Choi Sang-mok announced a slew of plans for comprehensive support for the chip industry while presiding over a ministerial meeting Wednesday, with firms in the sector clamoring for more concrete measures to catch up to global rivals.

“We will provide solid support to secure global leadership, including providing 8.8 trillion won in support to the semiconductor industry by next year,” Choi said.

This is a detailed follow-up to the 26 trillion won package to support the chip industry unveiled by President Yoon Suk Yeol in May, which was mainly designed to provide cheaper borrowing costs with more generous terms than market loans.

According to Wednesday’s announcement, the government will complete the offering of low-interest loans with a total value of 4.7 trillion won next year.

In detail, the plan is to invest 250 billion won of capital in the state-run Korea Development Bank next year to secure low-interest loans of 4.25 trillion won.

Since the launch of the loan program on July 1, a total of 824.8 billion won in facility investment funds has been loaned to 17 semiconductor companies, according to the Finance Ministry.

Interest rates on borrowings will be further trimmed. The KDB has been providing rates 1.4 percentage points lower than its typical loan products.

Ministers decided to create a new semiconductor ecosystem fund of up to 800 billion won by 2027 and consider further expansion depending on future corporate demand. The government plans to raise 420 billion won by creating a new fund of 120 billion won through an investment of 30 billion won next year.

The first company to benefit from the fund was CoAsia SEMI, a foundry design service provider that secured 20 billion won in investment to recruit more workers and expand overseas sales.

Efforts to offer tax breaks to chipmakers and other firms in the sector will be continued.

In the 2024 tax revision bill drawn up by the government in July, it was proposed to extend the applicable period for research and development tax credits and integrated investment tax credits for national strategic technologies, including chipmaking, by 3 years until the end of 2027.

The government will support the tax code amendment bill to clear the last parliamentary hurdle and revise the ordinance and rules in March next year, including expanding the scope of application of tax credits for national strategic technologies and R&D.

Some 2.4 trillion won will be allocated to build the infrastructure needed for an envisioned semiconductor cluster in Yongin, Gyeonggi Province.

Preparations for constructing a highway that will pass through the Yongin Cluster, which will be built on a site of 4.15 million square meters, are underway to open the roads in 2030.

Regarding power supply, detailed measures for power supply and cost-sharing will be prepared within the year amid growing concerns that Korean chipmakers face power shortages.

In the Yongin semiconductor cluster, 16 semiconductor production facilities, led by Samsung Electronics and SK hynix, will be built by 2047. Although a vast amount of electricity must be provided, detailed measures for cluster operation for mid- to long-term electricity supply have not yet been prepared.

“Going forward, we will support the rapid implementation of a comprehensive support plan for the semiconductor ecosystem and continue to make improvements by identifying difficulties at each stage of investment,” the ministry said in a statement.

Despite growing calls for more extensive government support for Korean chips to compete with the United States and Taiwan, some lawmakers have also been criticizing the government for offering special treatment to certain firms in the form of tax breaks.

Kim Beom-seok, a vice finance minister, said that competition for global semiconductor leadership is fiercer than ever.

“Semiconductor tax benefits, such as the extension of the national strategic technology tax credit, are not just a simple corporate tax cut, but support for substantial investment expansion,” he said while visiting the site of the Yongin cluster on Tuesday.

By Park Han-na(hnpark@heraldcorp.com)