Global chip shortage: South Korea to offer tax breaks to local chipmakers

Government announces measures to foster the local non-memory chip industry and to tackle global shortages of automotive chips

South Korea announced on Thursday that it will offer tax incentives and loans to local chipmakers in an effort to foster the non-memory chip industry and to tackle global shortages of automotive chips.

The aim is to encourage local semiconductor industry to invest a total of 510 trillion won (£320 billion) in research and facilities by 2030.

According to the Ministry of Trade, Industry and Energy, the South Korean government is planning to increase tax incentives from the current 3 per cent (or lower) to 6 per cent for capital expenditures between the second half of 2021 and 2024.

The benefits will be offered to companies developing 'key strategic technology' including semiconductors.

There is also a plan to create a 'K-semiconductor belt' to build supply chains in the northern region of Chungcheong province and southern area of Gyeonggi province. A new 'fabless valley' will be established inside the belt to enable fabless companies to do business in Pangyo, south of Seoul.

"To cope with the supply shortages in the automotive chips, we plan to focus on expanding support for the 8-inch wafer foundry industry," industry minister Moon Sung-wook said during his visit to Silicon Mitus, a local fabless company.

Moreover, the government is also planning to offer 1 trillion won (£630 million) in loans for the local chip firms.

According to the Korea Semiconductor Industry Association, 153 local chipmaking companies have plans to invest a combined 41.8 trillion won (£26 billion) in the current year, and about 510 trillion won (£320 billion) or more between 2021 and 2030.

If they manage to implement the plans as scheduled, South Korea's chip export may increase to $200 billion (£142 billion) in 2030 from $99.2 billion (£70.7 billion) in 2020, according to government estimates.

South Korea is a home to Samsung Electronics and SK Hynix, the top two memory chipmakers in the world, which account for around 20 per cent of the country's outbound shipments.

According to Reuters, Samsung is currently working on a third chip plant in Pyeongtaek, which it expected to be completed next year. SK Hynix is also considering acquiring additional 8-inch chip contract manufacturing capacity, according to the Ministry of Trade, Industry and Energy.

Speaking at the country's main chip production centre in Pyeongtaek, South Korean President Moon Jae-in said that their country needs to increase competitiveness in the semiconductor industry, as competition intensifies globally.

"We will solidify our number one position in memory chips and become the world's best in system semiconductors to achieve our goal of becoming a semiconductor powerhouse by 2030," he added.

There is currently a global chip shortage, and analysts believe this situation could last until next year.

The supply has been worsened due to a variety of factors, including Covid-19 pandemic, a drought in Taiwan and a blaze at a semiconductor factory in Japan.

Last month, it was reported that Taiwan's Water Resources Agency has shut off irrigation across tens of thousands of acres of farmland to ensure that the country's semiconductor industry continues to receive precious water amid the ongoing drought.

Most carmakers across the world have also been facing problems due to the chip shortage. Nissan, Ford and Honda have either slowed or temporarily halted production at some of their plants.

Jaguar Land Rover (JLR) also announced last month that its car manufacturing plants in Castle Bromwich and Halewood would undergo a temporary suspension starting 26th April due to a shortage of computer chips. JLR said that it would continue to monitor its chip supply before announcing a reopening date.