Try making chips in Korea
The author is an editorial writer of the JoongAng Ilbo.
“Competition in the semiconductor industry has gone beyond a corporate level to a national level. Our government also must be one with companies to build a chip powerhouse,” said President Moon Jae-in in a strategic briefing on so-called K-chips at the Pyeongtaek campus of Samsung Electronics last May. Chips indeed have become a matter of national competition. Governments have gone all-out to ensure self-sufficiency in chip production.
The United States passed the U.S. Innovation and Competition Act aimed at investing $52 billion to promote domestic chip manufacturing in America. The European Chips Act involves a more than 43-billion-euro ($47.5 billion) investment.
South Korea has joined the international movement. Moon has pledged support, and a bipartisan chip act passed the legislature in January. But the so-called special act ended up being not so special after a legislative deliberation because key provisions — tax incentives and exemptions from the rigid 52-hour workweek — were removed. A proposal to increase student quotas in chip majors in universities around the capital region to groom a workforce was killed due to worsening imbalances with local universities. Exempting up to 50 percent in facilities investments from tax also was scaled back due to controversy over favoritism toward big companies. The request for flexible application of the 52-hour workweek for R&D divisions was also not accepted. The innate bias towards big companies and the strict principle of balance in the capital and non-capital regions made the law toothless.
There are multiple hurdles to construction of a new chip facility. It took five years for Samsung Electronics to install the power cable for its Pyeongtaek campus. The chip compound became complete in 10 years — twice as long as the company planned.
A mega project by SK hynix to create a chip cluster in Yongin, Gyeonggi Province, also has been stalemated. In February 2019, the world’s second largest DRAM maker announced it would invest a total 120 trillion won ($98 billion) to build four fabrication facilities. Three years have passed since, but it is still unable to break ground. It has taken more than two and a half years to gain an exemption to restrictions on factories in the capital region and hold evaluations on the environmental impact. Buying land was tough due to conflict with residents over compensation. SK hynix may finally be able to start construction in the first half. But when the legal process of land acquisition will be complete and whether it can ensure water supplies from the reservoir in Yeoju remain uncertain.
SK hynix is studying a Plan B. Since the Yongin cluster project could be much delayed from the original outline of completing the first factory in February 2026, the company is mulling building a new fab facility over 123 acres in its Cheongju complex. Since land has already been secured in Cheongju, the company could accelerate the construction.
In the U.S. and China, it took Korean chipmakers around two years from gaining a license to completion of their facilities. The Samsung Electronics foundry in Austin, Texas was built in 23 months and its facility in Xian, China, 25 months. SK hynix was able to start mass production at its facility in Wuxi, China, in just 20 months after signing a contract for the construction. The new foundry Samsung Electronics plans to build in Taylor, Texas, is expected to be finished in 30 months.
It is no wonder Korean chipmakers are looking overseas for expansion. While overseas direct investment (ODI) by Korean manufacturers reached 85 trillion won over the last five years, foreign direct investment (FDI) in Korea stopped at 25 trillion won ($20.5 billion) during the same period. A net 60 trillion won of Korean capital fled overseas while 370,000 jobs moved out of Korea.
What use is it for the president to declare that he wants national competitiveness in chipmaking? Korean companies cannot stay ahead of the competition if it takes three to four times longer to build a factory when preemptive expansion in capacity is crucial to determining global competitiveness. If the government can step in to solve power and water problems above all, much of the time loss could be shortened. But the government does not want to get involved in fear of stoking controversy over favoring large companies.
During a meeting with corporate leaders, President-elect Yoon Suk-yeol said, “Chips, not guns, are behind global war.” Will Yoon be any different? We cannot be sure. If his government cannot become one with companies, the government must at least think of the position of companies. The government, local governments, and residents should all feel responsible for the tough business environment Korea Inc. faces.