South Korea's $10bn Chip Boost Amid The Global Tech Race

The global semiconductor industry is at the heart of technological advancement, powering everything from smartphones to AI systems. 

As nations vie for dominance in this critical sector, South Korea, a long-standing leader in memory chip production, is making moves to remain competitive.

This move comes amid increasing competition from China and uncertainties surrounding future US trade policies.

The semiconductor industry, which forms the backbone of modern electronics, has become a focal point of geopolitical tensions, with countries worldwide seeking to secure their supply chains and technological sovereignty.

As a result, the South Korean government's recent announcement of a substantial financial package for its semiconductor industry is part of a broader global trend.

Countries such as the US, China and members of the EU are all implementing strategies to strengthen their domestic chip production capabilities.
This intensifying competition reflects the growing importance of semiconductors in advanced technologies, particularly in areas like AI and 5G networks.

Meanwhile, South Korea's finance ministry has announced plans to provide 14 trillion won (US$10bn) in low-interest loans to support its semiconductor industry starting in 2025.

This substantial financial package is part of a broader strategy to bolster the country's position in the global chip market and respond to rapid advancements in China's semiconductor capabilities.

Loan allocation and infrastructure support

The loan programme will be administered through state-run banks and includes a significant allocation for critical infrastructure.

Of the total amount, 1.8 trillion won (US$1.29m) is earmarked for the installation of power transmission lines at a new chip manufacturing complex.

This investment in infrastructure is crucial for supporting the operations of chip manufacturers and related companies.

South Korea is also developing what it describes as the world's most advanced chipmaking hub in Yongin and Pyeongtaek, areas south of Seoul.

This complex is designed to attract chip equipment manufacturers and fabless firms – companies that design chips but outsource their production.

Simultaneously, the government's financial support is aimed at enhancing the attractiveness of this hub and fostering a comprehensive ecosystem for semiconductor innovation and production.

Global context and competitive pressures

The South Korean government's decision to increase support for its semiconductor industry comes at a time of heightened global competition and potential shifts in international trade dynamics.

The finance ministry has noted the rapid progress of China's semiconductor sector and expressed concerns about the policy direction of the incoming US administration under President Trump.

Samsung Electronics and SK Hynix, two of South Korea's largest chip manufacturers, are also facing increased competition from Chinese rivals.

This has already impacted earnings, with Samsung reporting that rising supplies of traditional chips from Chinese competitors affected its third-quarter results.

In response to these challenges, the South Korean government plans to "to mobilise all available resources and actively support companies in overcoming the industry's crisis and achieving a renewed leap forward," Reuters reports the ministry said in a statement.

The ministry also anticipates significant changes in the global trade and industrial environment following the inauguration of the new Trump administration.

There are concerns about potential reductions in incentives for investments in the US if changes are made to policies such as the Inflation Reduction Act and the Chips and Science Act.

Comprehensive support package

The US$10bn loan package is part of a larger, more comprehensive support plan for the semiconductor industry unveiled by the South Korean government.

In May 2024, President Yoon Suk Yeol announced a 26 trillion won (US$19bn) package of government support for the country's semiconductor industry.

This broader initiative encompasses various forms of assistance, including financial support, infrastructure development, research and development funding and backing for small- to medium-sized enterprises (SMEs) in the semiconductor ecosystem.

The government also aims to create a robust and diverse chip industry, moving beyond its traditional strength in memory chips to become a major player in system semiconductors and foundry services.

The comprehensive package includes plans to establish a semiconductor ecosystem fund valued at 1 trillion won (US$715m), which will provide support to promising fabless companies and materials, parts and equipment makers.

This fund is designed to help these companies evolve into global entities, strengthening South Korea's overall position in the semiconductor value chain.

President Yoon Suk Yeol of South Korea emphasised to The Korea Times the critical importance of the semiconductor industry: "Countries' fates now depend on who can first produce cutting-edge semiconductors with highly advanced information processing capabilities.

“Korea should provide robust support for the semiconductor industry to ensure that we do not fall behind other rival countries in semiconductor development.”

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