South Korea wants to strengthen its chip design sector, which currently accounts for 1% of the global market

South Korea unveiled a support package aimed at strengthening its semiconductor industry and catching up with international rivals. The plan aims to support large enterprises and weaker sectors, particularly in the chip design and foundry sectors.

According to reports from Korean business daily AND HankyorehOn May 23, South Korean President Yoon Suk Yeol announced a KRW 26 trillion ($19.1 billion) support package aimed at strengthening the country’s semiconductor industry. This initiative aims to increase competitiveness in weaker areas such as chip design and foundry, especially since South Korea holds only 1% of the global chip design market.

The public in South Korea has expressed concerns that the support plan serves primarily as a tax break for large businesses. In response, Yoon emphasized that more than 70% of the benefits of this comprehensive plan will go to SMEs. He emphasized the important role of semiconductors in everyday life. He argued that tax incentives for corporate investment would help develop the semiconductor ecosystem, increase corporate revenues and tax revenues, and create more high-quality jobs.

Yoon highlighted that South Korea’s share of the global chip design market is just 1% and its wafer foundry sector still lags behind industry leaders such as TSMC. As a result, it tasked the Ministry of Trade, Industry and Energy (MOTIE) with developing additional measures to increase the competitiveness of the system semiconductor industry.

The comprehensive plan to support the semiconductor industry includes financial assistance, infrastructure development, research and development, and support for small and medium-sized enterprises (SMEs). South Korea will launch a KRW 17 trillion financial support program to help semiconductor companies make large-scale hardware investments. This program, run through banks, is designed to help companies manage cash flow issues associated with the significant capital expenditure required to build new factories or expand production lines.

Additionally, Korea will establish a KRW 1 trillion Semiconductor Ecosystem Fund to support promising companies in the chip design, materials, components and hardware sectors. The government will also extend investment tax breaks, which are due to run until 2024, to support businesses with R&D and equipment purchases. South Korea will take care of the necessary infrastructure and accelerate the construction of semiconductor clusters worth KRW 622 trillion.

South Korean chip giants Samsung Electronics and SK Hynix welcomed the package. Notably, SK Hynix announced the Yongin Semiconductor Cluster project in 2019, but has faced delays due to water supply and permitting issues, and the first factory is not expected to be completed until 2027.