November 24, 2024

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(123rf)

As governments around the world fiercely compete to boost their semiconductor industries by distributing large subsidies, South Korea is pointed out as falling behind other chip powerhouses, raising concerns about the gap widening in the future.

On Tuesday, the Japanese Ministry of Economy, Trade and Industry approved subsidies of up to 590 billion yen ($3.9 billion) for chip foundry venture Rapidus, adding to its promise earlier to provide funds worth some 330 billion yen into the chip project.

Japan has also announced support programs to provide subsidies for foreign firms building chip facilities on its land with the intention to revive its domestic industry, joining other chip powerhouses in the subsidy war.

The US announced the Chips and Science Act to allocate some $52 billion in subsidies over five years, while the member nations of the European Union are gearing up to invest 43 billion euros through 2030.

On the other hand, South Korea, home to the world's two largest memory chipmakers Samsung Electronics and SK hynix, has been pointed out as lacking such direct support programs.

The biggest benefit the country provides chipmakers is a corporate tax break for facility investment of 15 percent for large corporations like Samsung and SK. The maximum tax deduction rate of 25 percent is given to small- and mid-sized enterprises.

"One of the biggest hurdles is that such subsidy plans are met with strong oppositions, arguing it is unfair to offer large subsidies to one single industry," an industry official said under the condition of anonymity.

Instead of providing direct funding, government support in Korea leans more towards granting permits for smooth operation and loosening regulations, the official explained.

"The global trend is now in support of subsidies to boost domestic industries, but Korea is slow in embracing the new trend."

Amid rising concerns over Korea losing its edge in the critical chip market, the Korean government said March 27 it will review plans to offer subsidies and incentives for chip firms.

"The subsidy competition is intensifying among rival countries. Aside from the existing support measures, we will review ways to strengthen incentive programs to support investments," Prime Minister Han Duck-soo said at a meeting.

Government subsidies appear to be effective in attracting major chipmakers to move their operations to new countries, boosting local production and securing chip supply chains.

The world's leading chip giants Samsung Electronics, Intel and TSMC are all building chip facilities in the US and Japan, spending billions of dollars and receiving subsidies from the respective governments.

Samsung, for instance, is spending 40 billion yen to build a chip development facility near Tokyo, and is expected to receive up to half of the cost from the Japanese government.

It is also investing $17 billion in building a chip fabrication plant in Taylor, Texas, and the US government is reportedly preparing to offer a subsidy of about $6 billion.

TSMC, the world's top foundry firm, is opening the first manufacturing plant in Kumamoto, Japan and is expected to receive more than 632 billion yen from the Japanese government.

"Semiconductors have become strategic arsenals, and government subsidies are now seen as critical for not only strengthening the domestic edge but also in establishing cooperative business ties," an industry official said.

By Jo He-rim (herim@heraldcorp.com)
The Korea Herald