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[Editorial] Cutthroat competition

Korea should further beef up local chip sector given intensifying threats from overseas rivals

Aug. 5, 2022 - 05:30 By Korea Herald
The ruling People Power Party has proposed a package of two bills to strengthen the country’s semiconductor industry with key countries intensifying competition to stay ahead in this important tech sector.

One of the proposed bills is aimed at raising the tax deduction rate to a range between 20-30 percent, depending on the size of companies, up from the current 6-16 percent range. It also intends to extend the period of tax credit in high-tech sectors to 2030.

The other bill is designed to set up a government committee in charge of designating special zones for semiconductor production in a bid to reduce conflicts with local administrations over facility projects. The bill also includes tax credit and support programs for schools that train students in high-tech fields.

Rep. Yang Hyang-ja, a Samsung Electronics executive-turned-lawmaker who leads the special panel on chips, said the country still has a long way to go in advancing the domestic chip industry, compared with similar bills being pushed by other advanced countries such as the United States and Taiwan. Yang called for the National Assembly to pass the bills swiftly and establish a state control tower to coordinate support for the chip industry.

The new proposed bills, if passed by the parliament, are expected to revise the Special Measures Act on Strengthening and Protecting Competitiveness of National High-Tech Strategic Industry, which went into effect Thursday after being passed under the Moon Jae-in administration last year.

The new package of the two bills floated Thursday is also in line with the Yoon Suk-yeol administration’s earlier announcement to nurture some 150,000 semiconductor engineers in the next 10 years in order to shore up the industry.

Keeping and strengthening the global competitiveness of the local chip industry is crucial for South Korea, as semiconductors are used as core components for a wide range of products from smartphones to cars. The country’s two chip giants -- Samsung Electronics and SK hynix -- are frontrunners in the global chip industry, but are facing fiercer competition from rivals in the US, Taiwan and China.

The US, in particular, is accelerating support for the chip industry. Last week, both houses of Congress passed a bill called the Chips and Science Act, or CHIPS Act, which contains $52 billion in federal support for the semiconductor industry and offers billions more in tax credit to spur investment in chip manufacturing.

On Wednesday, US House Speaker Nancy Pelosi, who is on an Asia trip, met with Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co. The meeting came as TSMC, which is building a chip factory in Arizona, is reportedly considering expanding the project.

Taiwan, home to TSMC, the world’s biggest contract chipmaker, has been boosting its semiconductor industry with systematic policies and nurturing a thriving chip ecosystem based on private enterprises armed with innovative technologies.

China is also catching up fast. It aims to raise its share of homemade semiconductors to 70 percent by 2025 and in the longer term replace most cutting-edge chips with domestically produced ones.

Currently, Samsung and TSMC are dominating the high-end chip manufacturing in China, but the Chinese government’s aggressive support policy for its own chip sector could change the market structure -- an outlook that is prompting the US to come up with measures such as CHIPS Act to keep China at bay in the high-tech field.

As far as the chip rivalry is concerned, South Korea is in a tricky position. China is clearly an important source of exports for Korean chipmakers, but at the same time the country could pose a threat once its homegrown chip manufacturing surpasses a certain threshold. The US is also pushing South Korea and other chipmaking countries to make a choice, as the CHIPS Act comes with restrictions regarding future investments in China.

Given the cutthroat global competition, there is no doubt that South Korea needs to help the semiconductor sector to sharpen its competitive edge and nurture more chip talents for the future. To that end, policymakers should refine support policies and help local chipmakers navigate the complex global chip market.