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Korea mulls $7.3 bn chip support package

Deputy Prime Minister Choi Sang-mok, tours HPSP‘s semiconductor production line in Hwaseong-si, Gyeonggi Province, with CEO Kim Yong-woon on May 10, 2024. [Photo provided by Ministry of Economy and Finance]

According to Pulse by Maeil Business News Korea,

As the competition among major countries to attract advanced industries escalates, the South Korean government is planning a semiconductor industry support package worth 10 trillion won ($7.3 billion) or more, focusing on support for the materials, components, equipment, and fabless sectors.

Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok unveiled the support measures during a meeting with chip exporters on Friday. Highlighting an “ecosystem” to enhance the competitiveness of the semiconductor industry, Choi unveiled the 10 trillion won program to support investment and research and development (R&D) “across all chip sectors,” from materials, components and equipment to fabless.

Given the limited financial resources, the government plans to channel funds via various means, including financing through policy financial institutions and private sector investment, rather than offering subsidies. Measures currently under consideration include expanding loans and guarantees to chip-related companies through capital increases at the Korea Development Bank. The government is also considering cost-sharing measures with private companies when they form special purpose vehicles to build factories with government support, and the extension of the sunset clause of the tax incentive law is also underway. Under the current law, investors in facilities for national strategic technologies such as semiconductors, secondary batteries, and electric vehicles can receive 15 to 25 percent tax refunds.

While welcoming the government‘s moves, industry insiders also expressed concerns on Sunday. While the support is focused on sectors that are considered weak, industry insiders believe that it could be difficult to gain an edge in the global semiconductor battle without additional support for core areas such as memory and foundry.

They are taking particular note of the disparity between Korea and other major economies. “Korea’s support is limited to tax deductions in return for integrated investments in national strategic technologies, with almost no subsidy programs, while countries such as the United States and Japan use both subsidies and tax deductions, with the latter in the form of refunds, making them much more practical,” a chip industry insider said.

According to recent data from the Korea Semiconductor Industry Association (KSIA), assuming an investment of 20 trillion won in advanced semiconductor production facilities such as memory and foundry, companies investing in Korea receive only 1.2 trillion won in investment incentives. In comparison, the same amount of investment in the United States or Japan could receive incentives that are 4.6 and 6.7 times higher respectively.

A 15 percent investment tax credit does not include infrastructure investments, including clean rooms, which are essential for semiconductor manufacturing. The Rural Special Tax Law also requires 20 percent of the tax savings to be paid as a special rural tax. The United States, on the other hand, offers 27.5 percent of total investment, with subsidies of 5 to 15 percent of investment and tax credits of 25 percent of investment tax credits. Japan offers direct subsidies of up to 50 percent of the investment.

Of particular concern to semiconductor companies, in addition to the high investment costs, are the significant differences in infrastructure usage costs compared to competitor countries. In particular, water usage fees are seen as burdensome and in need of improvement. Because the semiconductor industry relies heavily on water for various processes, including manufacturing, gas purification, and cleanroom maintenance, current water usage fees, which account for 74 percent of utility costs according to KSIA, are considered excessively high. Meanwhile, advanced strategic industries such as semiconductors are not charged water usage fees in the United States and Japan, according to industry stakeholders.

By Kim Jung-hwan, Lee Hee-jo, Oh Chan-jong and Chang Iou-chung

Copyrights Pulse by Maeil Business News Korea. All Rights Reserved.

Source: Pulse by Maeil Business News Korea (May 13, 2024)

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