S. Korea vows to build world’s largest semiconductor belt

Posted on : 2021-05-14 17:07 KST Modified on : 2021-05-14 17:07 KST
The government’s plan shows its commitment to help the South Korean semiconductor industry overcome its weaknesses
Samsung Electronics’ semiconductor plant in Pyeongtaek, Gyeonggi Province, is pictured.
Samsung Electronics’ semiconductor plant in Pyeongtaek, Gyeonggi Province, is pictured.

Amid concerted efforts by the US, China and other countries to build their semiconductor industries, the South Korean government announced its “K-Semiconductor Belt Strategy” Thursday.

The extensive support measures encompass the areas of taxation, finance, infrastructure and human resources, including the establishment of a “K-Semiconductor Belt” as the world’s largest and most advanced supply chain, along with major expansions in tax deductions for semiconductor industry research and development (R&D) and facility investment.

Deductions of up to 40-50% for R&D

Minister of Trade, Industry and Energy Moon Sung-wook held a joint public and private “K-Semiconductor Belt Strategy report meeting” Thursday at the Samsung Electronics plant in Pyeongtaek, Gyeonggi Province, with Samsung Electronics Co-Vice Chairman Kim Ki-nam and SK Hynix Vice Chairman Park Jung-ho in attendance.

Perhaps the most attention-grabbing aspect of the announcement that day was the bold plan for tax support. The measures included deduction benefits of up to 50% for semiconductor R&D and 20% for facility investment.

While the current tax deduction system includes two tiers, the plan would create a new category for “core strategy technology,” with R&D cost deductions of 30-40% for large and middle-market enterprises and 40-50% for SMEs.

Deduction rates would also be adjusted or newly created for facility investment costs, reducing corporate tax rates by 10-20% of the investment amount according to company size.

Also included in the plan was the creation of a “special fund for semiconductor and other facility investment” amounting to over one trillion won (US$885.82 million), as well as ten years’ worth of water supplies for semiconductor complexes in locations such as the Gyeonggi Province cities of Yongin and Pyeongtaek.

“The public and private sectors have come together to develop a strategy to respond to a critical moment when semiconductor supply difficulties have been intensifying and the international situation with regard to semiconductors has been rapidly changing,” Moon said.

“We plan to establish a ‘good country to do semiconductor business’ through support in terms of taxes and infrastructure,” he added.

An additional plan was announced for a “K-Semiconductor Belt,” which would be the world’s largest and most advanced semiconductor supply chain. This strategy would focus on new semiconductor production facilities — as well as facilities for materials, components, equipment and packaging — in a K-shaped region connecting Yongin with Pangyo, Giheung, Hwaseong, Pyeongtaek and Onyang to the west and Icheon and Cheongju to the east.

For this effort, Samsung Electronics and other businesses plan to invest 41.8 trillion won (US$37 billion) this year, and over 510 trillion won (US$451 billion) through 2030. In response to strong industry demand for the development of a specialized workforce, the South Korean government announced plans to increase the semiconductor industry workforce by 36,000 jobs over 10 years starting in 2022 through support at all stages of the cycle, including higher university admission caps, undergraduate and graduate programs, and practical education.

The government further announced plans to loosen restrictions on semiconductor manufacturing facilities, including the use of chemicals, high-pressure gas, greenhouse gases and high-frequency application equipment.

Benefits would also be provided through a 50% reduction in the permit/approval procurement periods for facilities handling chemicals, waived testing on imported containers and looser standards for protective wall construction.

Additionally, semiconductor water supplies would be guaranteed for 10 years in places such as Yongin and Pyeongtaek, with up to 50% of costs to be shared with the Korea Electric Power Corporation when building electricity infrastructure for semiconductor manufacturing facilities related to “core strategy technology.”

How will the “K-Semiconductor Belt” be built?

For over 20 years, South Korea has ranked first in the world in memory semiconductors. But behind that success are many lurking weaknesses.

As a large-scale process industry, memory semiconductors are sensitive to changes in business conditions, undergoing fluctuations at roughly two-year intervals due to discrepancies between supply and demand.

It’s a situation illustrated by the experience of Samsung Electronics, which rose to the top spot in the world semiconductor market for sales during a semiconductor supercycle with the 2018 boom, only to slip to second last year after memory prices declined.

Many observers have remarked on South Korea’s continued late starter issues in the field of system semiconductors. In the fabless sector – specializing in design – its market share is below 2%, with a level of 1.5% recorded in 2020. Behind the “K-Semiconductor Belt” project is a strong commitment to overcoming the weaknesses of the current memory-centered domestic semiconductor industry.

The South Korean government plans to establish a specialized complex for materials, components and equipment in Yongin, while building the world’s first semiconductor factory-linked testbed.

Other elements of the plan include encouraging the Dutch company ASML, which dominates supplies of high-tech extreme ultraviolet equipment, to set up a training center, and developing Pangyo into a “Korean fabless valley” specializing in design.

Industry and experts laud “first high-intensity measures”

“It looks like they got it right this time,” Hanyang University electronic engineering professor Park Jea-gun said of the government’s plan in a telephone interview with the Hankyoreh on Thursday.

“There really hasn’t been anything much of substance in past government measures related to semiconductors,” he said. “This plan would lift the level of tax deductions [for semiconductor investment] up to the same levels they have in Taiwan.”

Ahn Ki-hyun, senior executive director of the Korea Semiconductor Industry Association, said, “It appears as though the industry got most of what it was asking for.”

“The human resource development part, including the increased university admission caps, was especially groundbreaking,” he said.

Yoon Hyuk-jin, an analyst at SK Securities, singled out the plans for water and electricity infrastructure support in the government’s support measures.

“It looks like they’re providing what is most necessary and important at the present juncture,” he said.

His remarks highlighted the importance of water and power supplies in the semiconductor industry, as seen with issues involving drought conditions in Taiwan and power outages in the US.

Samsung Electronics and SK Hynix also shared announcements Thursday welcoming the measures and announcing plans for large-scale investment.

By Kim Young-bae, senior staff writer

Please direct comments or questions to [english@hani.co.kr]

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