Korea Spends Heavily in the Chip War to Stay Ahead of China

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According to the Asia Times, in Wonsam, Yongin County, 40 kilometers south of Seoul, residents expect seismic changes after a chip cluster groundbreaking this month.

Change is afoot. South Korean media say the cluster’s land area makes it the largest semiconductor project ever.

SK hynix, one of South Korea’s two chip-making champions, is investing $100 billion in the project. The 4 million-square-meter cluster will produce 800,000 wafers per month.

50 material, part, and equipment suppliers will move in. Once completed, Yongin will focus on DRAM and other next-generation memory chips. SK Group, which includes SK hynix, plans to invest $110 billion over five years.

It’s another addition to one of the world’s most impressive industrial belts: a semiconductor super-corridor stretching from Seoul to Pyeongtaek.

In its zero-to-hero industrialization, Korea overtook Japan in multiple sectors. China, which has a much larger domestic market and is equally determined to win the chip war, is using the same tactics to climb the value chain.

Korea’s lead in shipbuilding, electric car batteries, and electronics devices is in question.

South Korea’s semiconductor belt stretches south of Seoul, through Suwon and Yongin, to Pyeongtake – all within less than 90 minutes’ travel time. Image: Google Maps
South Korea’s semiconductor belt stretches south of Seoul, through Suwon and Yongin, to Pyeongtake – all within less than 90 minutes’ travel time. Image: Google Maps

Boomtowns on tap

Yongin is in Gyeonggi, which surrounds Seoul. This area was agricultural until the 1980s. After Korea’s high-tech leap, the region has benefited from the chip boom.

South Korea’s two chip titans compete for top spots and scout for human resources, making land around the capital expensive.

Due to Seoul’s unbeatable educational, cultural, recreational, and health infrastructure, the country’s top tech talent prefers to work there. The half of Gyeonggi province bordering Gangnam has become the world’s premier chip-making cluster, rivaled only by Taiwan.

In boomtowns, business is booming. Gyeonggi is thriving despite low birthrates, closing schools, and youth migration in other provinces.

New schools, apartments, and restaurants are opening in Pyeongtaek, Hwaseong, Suwon, Yongin, and Icheon. On manure-scented farmland, cities like Dongtan have sprung up.

Gyeonggi’s population surpassed Seoul’s 10 million in 2003. Youth fleeing Seoul’s sky-high apartment prices have found the surrounding province, with its booming tech economy, a welcoming alternative.

South Korea’s chip corridor includes Cheongju, Chungbuk province, Icheon, and Pyeongtaek. Its ecosystem includes R&D centers, fabs, equipment suppliers, and fabless designers. These businesses’ talent comes from Seoul and Daejeon universities.

It started out small. In 1984, Samsung started making 256-kilobit DRAMs in Giheung, Yongin. Samsung and Hyundai Electronics seized the memory crown from their Japanese rivals in just a few years.

South Korea is the leading memory chip supplier

Korean firms are now focusing on logic chips, a high-value-added sector dominated by Taiwan Semiconductor Manufacturing Company (TSMC).

Samsung plans to invest hundreds of billions in logic chips through 2030, challenging its Taiwanese rival.

Cho Kyeong-soon, a professor of Electronic Engineering at Hankuk University of Foreign Studies, said Korea’s entry into system semiconductors is not new.

Two national competitors, one in manufacturing

Korea is doing well in the chip foundry market, which contracts out the production of non-memory chips.

According to research firm TrendForce, TSMC has a 53.6% global market share in logic chips in the first quarter of 2022. Samsung is second with 16.6%.

UMC, another Taiwanese firm, is third with 5.9%, followed by New York-based Global Foundries. SMIC is fifth with a 5.6% market share. China held 10.2% of the global market.

While the data shows Korea’s lead over Chinese players at first glance, some in Korea interpreted it negatively because Samsung’s market share dropped from 18.3% in Q4 2021 to 16.3% in Q1 2022.

Front-runners

The semiconductor crown has changed hands several times over the industry’s seven-decade history.

South Korea and Taiwan dominate wafer production. Western companies abandoned chip manufacturing to focus on design.

Even the sector’s kings have little room to relax. To maintain market share in the capital-intensive chip business, companies must invest heavily in R&D and new fabs.

In a fast-digitizing world where decoupling looms, semiconductors are strategic.

Worried national governments around the world have vowed to create their own domestic chip supply chains by subsidizing chipmakers to build new fabs within their borders.

These goals may not be realized

Multibillion-dollar fabs can’t stand alone. Effective operation requires a network of equipment and material suppliers, transportation nodes, and water and electricity supplies.

Its location must have high-end housing, educational, and recreational facilities to meet workforce lifestyle needs. And a skilled and knowledgeable workforce is needed.

If these conditions aren’t met, a brand-new fab can become a rusty cog in an inefficient, uncompetitive supply chain propped up by government subsidies.

Champion, challenger

South of Seoul and along Taiwan’s western coast are the top two chipmaking clusters. Each was built over decades by government, industry, and academia. This multi-stakeholder industrial policy explains their industry dominance.

Very few democratic governments outside of South Korea and Taiwan can make a decades-long commitment. Once post-pandemic supply chains are re-normalized, public attention to chips in North America and Europe may fizzle out, and politicians may move on to new issues.

Beijing is the only government besides Seoul and Taipei that could create and sustain leading chip clusters.

Despite US-led sanctions on high-tech chip-making equipment and software, China’s authoritarian government is determined to achieve semiconductor dominance.

Taiwan and South Korea feel this rise’s pressure. Each has lost thousands of chip engineers to China.

It’s a big game now. China’s semiconductor industry could affect South Korea and Taiwan’s economic prosperity and technological leadership.

Current winners’ playbooks may be used against them.

Build massive fabs, maximize government support, and poach foreign talent to achieve chip supremacy. South Korea and Taiwan used these tactics to seize the semiconductor crown from Japan.

China is now using these tactics, which worries South Korean experts.

Cho, the electronic engineering professor, said China has heavily invested in its semiconductor sector and is ahead of Korea. [China] is strong at training and recruiting labor, for example.

In a recent article on China-South Korea competition, Chinese media Guancha noted that in the first quarter of 2022, a Chinese firm entered the world’s top ten semiconductor design companies for the first time, “while Korean companies didn’t even have a name [in that sub-sector].”

Size matters for chips. Not just the ever-decreasing nanometerage of wafers – where Korea and Taiwan are manufacturing kings – but also the size of the market in which they can be incubated.

Given how South Korea carefully incubated industrial exports in a closed home market from the 1960s to the 1980s, these words likely send Korean semiconductor executives shivering.

More forces are at work, but not in the East

The US, EU, and Japan are also investing tens of billions in chipmaking. This new capital could dilute TSMC and Samsung’s investments.

An important war

South Korea is a global leader in shipbuilding, electric-vehicle batteries, and popular culture. None of these industries is as profitable or geopolitically significant as semiconductors.

For South Korea’s economy to grow and prosper in the face of a shrinking population and geopolitical uncertainty, its chip industry must be fostered.

South Korea is no longer confident in its past dominance. It aims to dominate chip manufacturing, from image sensors to automotive chips. This would bring decades of economic growth.

South Korea announced a $450 billion chip investment plan in May 2021 called the “K-Semiconductor Belt Strategy” Industry players had announced much of this capital spending. The scope is huge.

Then-president Moon Jae-in said South Korea would “solidify its position as the world’s top memory semiconductor producer and take the lead globally in [logic] semiconductors by 2030.”

Massive spending will continue. South Korea has chosen logic semiconductors, future mobility (modern cars), and bio-pharmaceuticals as its future breadwinners. The first appears to absorb most of the country’s investment capital and talent.

Several obstacles exist.

South Korea’s regulators may be the biggest obstacle. Local and national bureaucracy, environmental regulation, local residents’ pushback, and real-estate opportunism make doing business in Korea difficult, even for global champions.

Ex: Samsung’s new chip-making complex in Pyeongtaek, the world’s largest, took five years to build.

In rival countries, the time between announcement and construction may be months.

Yoon Suk-pro-business yeol’s administration is cutting red tape to speed up processes and encourage investment. South Korea’s battery, display, and bio industries expect growth.

Businesspeople who have heard the “slash red tape” mantra before may roll their eyes.

South Korea’s dominance in the chip industry is unknowable. Gyeonggi province will be at the center of the competition for national economic prosperity and prestige.

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