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$100-billion chip project caught in policy debate

Everyone wants it to be built, but they can’t agree on exactly where
Feb 13,2019
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(Left) Cheonan City Council members hold a press conference Monday on the government’s planned semiconductor industrial complex. Gumi residents hold signs on Jan. 30 at an industrial complex in Gumi welcoming SK Hynix’s planned semiconductor facilities. [CHEONAN CITY COUNCIL, NEWS1]
A $100-billion next-generation semiconductor manufacturing complex, seen as vital to the country in maintaining its dominance in the market, is becoming a victim of politics.

As the price of memory chips plummets and their export declines, government and industry are joining to build the state-of-the-art facility. But the administration’s focus on developing regional economies is making the job that much more difficult and could lead to a less-than-optimal solution.

Observers are growing concerned.

“If political distribution is considered over the competitiveness of the semiconductor industry, which is currently largely responsible for exports, it will lead to a loss for the country,” said Lee Byung-tae, a professor at KAIST.

The government announced last year the development of a new semiconductor industrial complex to support the making of the chips of tomorrow. It will provide the land and the companies will invest in the manufacturing. The total value of the project is estimated to be 120 trillion won ($106.8 billion).

The decision came as the country works to maintain its dominance in the market and maintain production in the face of an industry slowdown. Semiconductors are vitally important for Korea. They account for 16 percent of total exports, the largest category, while the two main companies, Samsung Electronics and SK Hynix, have more than 73 percent of the global DRAM market in terms of revenue.

Signs of a weakening abound as the supercycle in memory chips seems to be coming to an end. Export prices for DRAMs were $5.74 per unit in December last year, down 37.2 percent compared to the previous year, according to a report from Daishin Securities.

Despite the urgency, local governments have been squabbling over who should get the site.

Cities near the capital, such as Yongin and Icheon in Gyeonggi, have argued they are most suitable, noting their proximity to the capital and their established infrastructure. Gumi in North Gyeongsang and Cheongju in North Chungcheong have emphasized balanced regional development, a government priority.

SK Hynix is at the center of the storm, as it is likely to operate the complex. Samsung Electronics, the country’s other top semiconductor maker, already has room to develop future capacity in Pyeongtaek and Giheung, Gyeonggi.

“Through discussions between the government and regional organizations, we expect a competitive location to be selected,” SK Hynix said.

Just last year, the semiconductor industry expected Yongin to host the site for SK Hynix’s new factory, with the Industry Ministry saying in December that it planned to develop three semiconductor factories in the area.

Then politics intervened.

Later in December, the ministry in a report to the Blue House added balanced regional growth as a factor for site selection, leaving Yongin as just one of many possible candidates and no longer the obvious choice.

Developing areas outside the greater Seoul area are some of the government priorities, and it is going to great lengths to achieve its stated goal. Late last month, it decided to fast-track 23 infrastructure projects worth 24.1 trillion won, allowing local governments to speed up planned projects.

The government now faces a quandary, whether it should select a site based on the interests of the private sector or on balanced growth.

“We understand the requests from the industry to maintain the competitiveness in the semiconductor industry,” said a senior government official. “With political insistence on balanced regional growth, we have to solve a complex problem of economic efficiency and balanced growth.”

Legislative interest is also becoming relevant, and localities are beginning to compete for the investment.

Baek Seung-joo, a Liberty Korea Party (LKP) lawmaker for Gumi, submitted an amendment to a development law last month to only allow factory construction in the capital metropolitan region after approvals from committees under the prime minister and the president. Should the amendment pass, it will be for all intents and purposes impossible to construct the industrial facility in Icheon or Yongin.

“The law is needed for balanced growth,” said Baek.

Gumi is willing to provide one million square meters (10.8 million square feet) of land to SK Hynix. It has also expressed the intent to build the industrial water facilities essential for semiconductor plants, new roads and even a high-speed rail station.

“Considering the reality of a collapsed regional economy, the semiconductor complex should be built outside the capital metropolitan region,” said Park Su-won, a spokesperson for Gumi City.

Cheongju has highlighted its existing SK Hynix factory as a reason for its selection.

“With the current situation in SK Hynix’s M15 factory, which does not fully have NAND flash memory production facilities, it would be ideal for Cheongju to host in terms of creating synergy,” said Park Myung-ok, an investment official for the city.

Icheon is emphasizing its long relationship with SK Hynix. The city has hosted the company for more than 30 years.

“Icheon has existing SK Hynix infrastructure,” noted Kim Jong-tae, a policy planning official at Icheon City. “If the government takes a forward-looking policy and loosens regulations, the problem surrounding the factory site will be easily resolved.”

The city cannot currently build new factories as it is designated for environmental protection.

Neighboring Yongin has areas designated for industrial growth, making the construction of factories an immediate possibility.

The competition has heated up as regional governments try to boost industrial competitiveness amid weakening local economies. As the shipbuilding, steel and auto industries faced difficulty in recent years, areas outside the capital metropolitan region have suffered.

“As industries in regions outside the capital lost competitiveness, cities, such as Gumi, Gunsan, Gwangju, Ulsan and Pohang, which once hosted industrial complexes, face a crisis,” said a professor at Yeungnam University in North Gyeongsang, who asked not to be named.

Other experts point out that regional development is not appropriate for the semiconductor industry, which is a main driver of exports.

“Prior to the decision for the semiconductor cluster site, there needs to be a fundamental consideration on how to maintain industrial competitiveness, and whether the cluster will be able to gather the brightest workforce from not only factories, but universities and research institutes,” said Han Tae-hee, a professor of semiconductor engineering at Sungkyunkwan University.


BY CHANG CHUNG-HOON AND KIM YOUNG-MIN [chae.yunhwan@joongang.co.kr]