In the global subsidy race for the semiconductor industry, South Korea wants to create the largest concentration of chip factories and related suppliers near the capital Seoul. President Yoon Suk-yeol spoke on Wednesday in the capital Seoul of an "economic battlefield" on which countries with large subsidies and tax support vied for the establishment of the semiconductor industry. Yoon promised tax aid and state support for settlement, research and development, and the training of highly skilled workers. The core of South Korea's plans, which were unveiled on Wednesday, is private investment.

Patrick Welter

Japan economics and politics correspondent based in Tokyo.

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Samsung Electronics, the largest manufacturer of electronic memory modules, will invest around 300 trillion won (215 billion euros) in Yongin south of Seoul over the next two decades, according to the Ministry of Industry. This involves five new semiconductor factories, which, according to the Ministry of Industry, are to attract up to 150 suppliers of materials and machinery, chip companies without their own factories and research institutions from Germany and abroad. Hyundai Motor is also involved in the planning.

The new concentration is to be linked to existing chip factories of SK Hynix or Samsung in Pyeongtaek and, according to the ideas of the Ministry of Industry, will become the largest semiconductor "megacluster" in the world.

Competition with Taiwan

South Korea is trying to position itself directly against Taiwan. Founded in 1980 in Hsinchu, west of the capital, the science park there has become the most important center of the global semiconductor industry. The Hsinchu Park is home to Taiwan Semiconductor Manufacturing Company ( TSMC ), the dominant manufacturer in contract manufacturing of chips, which produces the latest generations of microprocessors for Apple and many other customers.

Samsung Electronics, which leads the world market for electronic memory components, has been investing heavily in contract manufacturing, the foundry business, for some time. However, Samsung does not come close to TSMC in this segment. Technically, the two companies are global leaders in chip production. American and Chinese manufacturers do not hold their own.

18 billion euros for research and development

According to the plans, the government wants to spend 25 trillion won (18 billion euros) in research and development over the next five years, including artificial intelligence. It also wants to invest money in the infrastructure for electricity and water, which are important location factors for the semiconductor industry. The expansion of the chip industry in South Korea is part of a larger industrial policy package with which the government wants to promote core technologies such as semiconductors, screens, batteries for electric cars, biopharmaceuticals, connected cars and robots. It is always about a coexistence of public and private money.

The South Korean government's move comes at a time when the United States, Germany, and Europe and Japan are trying to lure semiconductor companies, and especially chip factories, with billions of dollars in subsidies. As in South Korea, the idea behind this is to become less dependent on the world market in the supply of semiconductors in times of crisis such as the pandemic and to stabilize suppliers.

At the same time, America's rivalry in China adds a geopolitical dimension to the subsidy race. Samsung Electronics and Taiwan's TSMC are currently investing in new factories in the United States. Samsung, like SK Hynix, the second major South Korean manufacturer of memory chips, faces the problem that the United States attaches subsidy money for the settlement of semiconductor companies to the condition that the subsidized companies do not expand their production in China for up to ten years. That will be one of the topics when South Korean President Yoon meets US President Joe Biden in Washington in April.