Pass the chip promotion act quickly

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Pass the chip promotion act quickly

The pillar of the Korean economy — the chip industry — is in peril. Samsung Electronics which ranked No. 1 in market cap in earnings guidance for the third quarter last week estimated its operating income plunged over 30 percent on year to 10.8 trillion won ($7.6 billion), off 1 trillion won from market consensus.

Deterioration in Samsung’s earnings is not an issue of just a company. It is a bad harbinger for a down cycle in the chip sector. Although Samsung Electronics has not specified earnings by business division, income from chip operation is projected to have plummeted 30 to 40 percent on year.

Current-account balance and foreign reserves have turned alarming, too. According to data from the Bank of Korea, current-account balance in August incurred a deficit of $3.05 billion. It is the first monthly deficit in 10 years apart from April when companies pay out dividends to foreign investors. Foreign exchange reserves also shrank about $20 billion last month as authorities had to sell dollars to defend the weakening won.

The fall in chip exports contributed to the worsening in external balance. Chips make up 20 percent of Korean exports. Semiconductor exports contracted on year for two consecutive months in August and September. A slump in chip exports will worsen trade and current-account balance and upset the financial market and economy.

The government is yet to share the danger looming over the economy. In a recent press conference, Deputy Prime Minister for the Economy Choo Kyung-ho said that the deficit in the current-account balance would be temporary and won’t spill over to cause an economic crisis. He could have tried to fend off an unnecessary panic, but the economic conditions are getting worse.

Chip exports won’t likely pick up in the fourth quarter amid the slowing global economy. Due to oversupply, inventories have been piling up to cause a fall in chip prices. The U.S.-China trade war and China’s lockdowns are exacerbating the situation. The Ministry of Trade and Industry issued a statement saying the latest U.S. curbs on chip shipments to China won’t likely affect Korea. But companies fear growing uncertainties could hurt output in China.

The government must address the alarms with urgency. They must take extra care so that the chip and other key industries do not fall into a lengthy slump. The legislature must hasten the passage of the Special Korean Chip Promotion Act. Despite fast changes in the global environment, the Assembly has not yet started a review of the bill. Korean politics must not dilly-dally while the rest of the world is in a hurry to promote their strategic industries.
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