Against the backdrop of increasingly fierce global technology competition, the South Korean government announced the establishment of a US$34 billion (about 246.849 billion yuan) policy fund to support the development of key strategic industries such as local chips and automobiles. This move not only reflects the great importance that South Korea attaches to global industrial chain competition, but also highlights its firm determination to safeguard national economic security.
1. As global competition intensifies, why did South Korea spend $34 billion?
In recent years, global trade protectionism has risen, and countries have increased their support for their key industries. The U.S. passed the CHIPS and Science Act in 2022, providing a total of $39 billion in grant support to chipmakers, as well as up to $75 billion in loans and guarantees, as well as tax credits of up to 25%. South Korea's move is a response to U.S. policy.
However, the deeper motivation for this move is that South Korea is trying to strengthen its position in the global semiconductor and automotive industry chain through large-scale investment to deal with external uncertainties. For example, the CHIPS and Science Act of 2022, signed by U.S. President Joe Biden, marks the official entry of the United States into the field of chip manufacturing with national strength. In addition, the U.S. government has repeatedly threatened to impose new tariffs on major trading partners this year, covering a variety of industries such as chips, automobiles and biopharmaceuticals.
Figure: South Korea has spent $34 billion on chips and the automotive industry chain
2. Behind the $34 billion: the current situation and challenges of South Korea's chip and automotive industry chain
Chip industry:
The semiconductor sector is seen as a "lifesaver" for the Korean economy. In 2023, South Korea remains the world's second-largest semiconductor producer, accounting for 13.8% of the global market in terms of shipments, behind only the United States (50.2%) and slightly ahead of the European Union (12.7%). However, South Korea is currently facing a number of challenges:
- Technology overtaken: A recent survey by the Korea Institute of Science and Technology Assessment and Planning reported that South Korea's technology is 90.9% in the field of high-integration, low-impedance memory chip technology, lower than China's 94.1%.
- Huge R&D investment and low yield rate: Samsung Electronics invested 840 billion yuan to develop 3nm chips, and the current yield rate is only 20%.
Automotive Industry:
South Korea is trying to maintain its upstream position in the global semiconductor industry chain with the help of semiconductor industry investment, and at the same time, China's automobile industry is developing rapidly, ranking first in the world for two consecutive years in 2024 and leading in power battery and autonomous driving technology, which also puts great pressure on the Korean automotive industry.
3. Opportunities and challenges brought by $34 billion
Opportunity:
- Technological breakthroughs: Companies such as Samsung Electronics and SK hynix can use the funds to increase R&D investment and drive further breakthroughs in chip manufacturing technology.
- Market expansion: South Korea's automotive industry is expected to accelerate its transition to electrification and intelligence to further enhance its competitiveness in the international market.
Challenge:
- External Uncertainty: The U.S. government's trade policy and uncertainty over the global economic recovery remain a potential threat.
- Increased competition: The rapid development of emerging economies such as China in the field of chips and automobiles has made South Korea face more intense international competition.
4. Conclusion
The South Korean government has set up a $34 billion policy fund to provide strong support for strategic industries such as chips and automobiles. On the one hand, this initiative will help to meet the challenges posed by global competition and protectionism; On the other hand, it may also trigger the attention and reaction of the international community. South Korea's ability to stand out from this competition in the future will depend on its ability to strike a precise balance between technological breakthroughs, market expansion, and international cooperation.
