South Korean lawmaker: Samsung is the only company that can replace TSMC

South Korea passed the "K-Chips Act" in December last year to expand tax incentives for high-tech manufacturing industries such as semiconductors and car batteries. On January 3 this year, the South Korean government plans to expand the reduction and exemption again, allowing the facility investment tax credit rate to reach a maximum of 25%.

With the United States, China and Japan pouring billions of dollars into building domestic chip supply chains, South Korea should step up to keep up. "Bloomberg" interviewed Yang Hyang-ja, a member of Congress who has 30 years of work experience in Samsung. The chip industry is equivalent to a national security issue. In particular, the United States and China are concentrating talents, funds and policies on chip research and development .

"We are in a chip war," Liang Xiangzi said in an interview in December last year. "'Technology first' can allow our country to play a leading role in any security-related meeting without being judged by other countries. influence, for example in matters of foreign affairs and defense."

President calls for stronger incentives, Treasury proposes 25% tax cut

Yang Hyang-ja is the leader of South Korean President Yoon Seok-yue's ruling party, which this year established a 13-member special committee to expand the country's $550 billion semiconductor industry. The committee believes that strong intervention and protectionism should be used to deal with the chaos in logistics and production lines caused by the high interdependence of countries under the epidemic.

And just last month (December 2022), the South Korean National Assembly passed the chip bill. In addition to speeding up the factory construction review process in urban areas, the number of related professional and technical schools will also increase. It's just that the tax break given to semiconductor manufacturers has only increased from 6% to 8%, far below the 20% to 25% proposed by Liang Xiangzi's committee.

President Yin Xiyue last week called for stronger incentives to promote the development of the chip industry, and accused opposition lawmakers of blocking this trend. Liang Xiangzi also told Bloomberg that short-term political interests have blinded opponents of the tax cuts in Congress.

Therefore, on Tuesday, South Korea's Ministry of Finance announced that it will increase the tax cuts for corporate capital expenditures to 25%. Bloomberg said that "substantial amendments are proposed shortly after legislation, which is quite unusual", but it is not yet certain whether the revised bill can win the support of the opposition party with a majority of seats.

The opposition's stance suggests that too many incentives could threaten government finances and benefit only big business.

South Korea needs to grasp talents in order to gain a firm foothold in the world

Liang said that unless the government stepped up incentives, more South Korean companies may move their main production facilities to the US and take their talented engineers with them. Samsung currently plans to spend 17 billion U.S. dollars to build a semiconductor factory in Texas, and has proposed a possible investment of nearly 200 billion U.S. dollars to build a series of production plants in the Texas city of Austin and other places.

Liang Xiangzi also pointed out that this is a unique opportunity for South Korea to seize the geopolitical tension and the global trend of hoping to diversify the industrial chain to counter TSMC. "Samsung is the only company in the world that can replace TSMC," she said. .

The increasing sanctions or preferential policies imposed by various countries on the high-tech and semiconductor industries have put increasing pressure on South Korea, forcing it to choose between its democratic ally, the United States, and its largest trading partner, China. Both have asked South Korea to expand its chip production partnership.

According to Yang, such a situation highlights the need for South Korea to build its own domestic high-tech production capacity, and the country must increase incentives to retain manufacturers and young talent.