Samsung strives to insulate Yongin fab plan from political pressure

An artist impression of a national semiconductor complex in Yongin, Gyeonggi Province, which will house Samsung Electronics' fabs. Courtesy of Yongin Mayor's Office

Samsung Electronics’ plan to set up a semiconductor cluster in Yongin, Gyeonggi Province, is facing government pressure to relocate the project to the country’s southern region, triggering industry concerns that the 360 trillion won ($251.2 billion) project could be swayed by political considerations ahead of local elections in June.

According to industry officials and Yongin City, Samsung Electronics and Korea Land & Housing Corp. (LH) signed contracts on Dec. 19 for the chipmaker to purchase land in an area designated as a national semiconductor industrial complex in the city. LH, which is in charge of developing the area, has since begun compensating land and property owners in the zone.

The city emphasized that this shows Samsung Electronics and LH remain committed to carrying out the industrial complex project as scheduled. It also issued a press release saying that Yongin Mayor Lee Sang-il met with Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol on Sunday to urge the central government to support the project “as planned.”

Samsung announced the semiconductor cluster initiative in 2023, with plans to begin construction of six fabs in December next year in the southwestern part of Yongin’s Cheoin District. With fellow memory giant SK hynix also building its own chip cluster in southeastern part of the district, the city is expected to emerge as the country’s next semiconductor hub.

Samsung and Yongin hurried to seal the contracts as political circles began pushing the idea that the semiconductor industry should be dispersed more evenly across regions.

President Lee Jae Myung on Dec. 10 told Samsung Electronics’ chip division head Vice Chairman Jun Young-hyun and SK hynix CEO Kwak Noh-jung that he hopes for “semiconductor companies to turn their eyes to the southern region and make contributions to the country’s balanced development.”

The construction site of SK hynix's semiconductor cluster in Yongin, Gyeonggi Province / Courtesy of SK hynix

Because SK hynix had already begun construction in Yongin, the remarks were widely interpreted as being aimed at Samsung Electronics. Industry officials spent considerable time trying to determine whether the president’s comments were rhetoric or a signal that the government was seriously pushing the relocation idea.

On Friday, Minister of Climate, Energy and Environment Kim Sung-whan floated the necessity of dispersing the chip cluster during a radio interview. “If Samsung Electronics and SK hynix complete chip clusters in Yongin, the electricity demand would be equivalent to that of 15 nuclear power plants," he said. His remarks were interpreted as a signal that the government’s moves were not merely rhetorical.

The minister’s remarks further fueled local governments’ calls that the semiconductor complex should be relocated to their regions.

Rep. An Ho-young of the ruling Democratic Party of Korea, who represents Wanju, Jinan and Muju counties in North Jeolla Province, has been urging the relocation of the national industrial complex to the province's Saemangeum area saying “the relocation to Saemangeum is the only solution for the country’s survival, and this has now been acknowledged by the minister.”

“With Korea set to hold its local elections in June, municipalities and politicians are striving to bring industries related to artificial intelligence (AI) or semiconductors to their constituencies,” a lawmaker said. “Balanced national development is important, but in many cases such projects are pushed ahead without consideration of corporate feasibility or the industrial characteristics of each region.”

Semiconductor industry officials are expressing concern that political considerations could end up dictating corporate decisions based on feasibility.

When selecting Yongin, both Samsung Electronics and SK hynix considered the area’s proximity to the capital area, the country’s largest power-consuming region with the most densely installed grid infrastructure. This would give chip fabs an advantage in securing stable electricity supplies.

Industry officials said the decision also reflected the abundance of water resources that can be used as industrial water, the proximity to Incheon International Airport for shipping chips by air, the advantage of the capital area in attracting talent and the strong connectivity with the semiconductor ecosystem companies have already built.

“Just as the government makes plans with a long-term perspective, companies also select locations after years of feasibility studies,” an industry official said. “Given the Samsung plan also affects the business plans of over 80 semiconductor material and equipment firms, intensifying political influence would end up hurting the nation’s chip competitiveness.”