ED 'Do-or-die' chip investment in AI era

An aerial photo of the Yongin semiconductor cluster in Gyeonggi Province, Dec. 26, 2024. Construction is set to begin in earnest December 2026. Yonhap

President Lee Jae Myung this week announced a blueprint to invest more than 700 trillion won ($534 billion) in the semiconductor sector to gain an edge in the artificial intelligence (AI)-driven global chip race through 2047.

"It's a do-or-die situation," he said. One of the tangible outcomes would be 10 new fabrication plants, likely in the cluster under development in Yongin, Gyeonggi Province.

As the AI-driven chip race continues, this vision and investment plan is highly timely. The government plays a role mainly through incentives, including a public fund, and deregulation allowing Korea's leading firms to make massive investments. Around 40 senior executives of Korea's top firms, including Samsung and SK hynix, were present for the announcement, and they welcomed a possible easing of the separation of industrial and financial capital that would accelerate the sourcing of funds while spreading out the risks.

The South Korean semiconductor industry is a force to be reckoned with in the global memory chips sector. However, Chinese manufacturers are quickly gaining ground. The Changxin Memory Technologies (CXMT) last month unveiled its cutting-edge dynamic random access memory (DRAM), the DDR5, regarded as comparable to DRAM chips produced by Samsung, SK hynix and U.S. company Micron. Meanwhile, YMTC has produced its latest 270-layer NAND flash memory.

The punishing pace of technological gains compels the Korean semiconductor industry to stay on its toes and hold tightly to its first mover advantage. Also, about 70 percent of the global semiconductor market share belongs to system semiconductors — non-memory logic chips — an area where Korea lags.

In essence, the government's blueprint is to ensure Korea can lead in memory chips and expand its fabless ecosystem, which must go beyond declarations and into action.

To spur the envisioned investment, the Lee administration must be smart and needle-sharp in implementing its package of incentives and deregulation. The government has pledged expanding its sources of electricity and water as well as infrastructure in the clusters. However, it has not offered a clear reference to how it will deliver on the required energy capacity without a more aggressive reliance on nuclear power plants.

Also, the investment scheme needs to exercise prudence regarding the separation of the industrial and financial capital even only for cutting-edge strategic industries. SK hynix is expected to be one of the beneficiaries of this upcoming measure, which would allow it to tap into outside funds for mega-sized projects. The firm had previously estimated that its investment in Yongin may cost around $408 billion, an amount it would have had to independently raise without a conditional easing of the Monopoly Regulation and Fair Trade Act. Relaxing regulations may also enable Korean firms to participate in the global norm of joint ventures for massive projects. At the same time, policymakers and the companies themselves should remain vigilant against outcomes that may put a few specific firms in a monopolistic position.

The government's vision also entails a relaxation of the rules that require research and development workers to adhere to the 52-hour workweek, as long as semiconductor firms build outside Seoul and its surrounding areas. It's a good call, in theory, to achieve balanced national growth in a country where about one-fifth of the population works and lives in Seoul and its vicinity.

However, the reality within the industry is that those with master's degrees or Ph.D.s are reluctant to relocate to regional provinces, and the workweek exemption won't overcome that limitation. Policymakers should work with legislators to revise the laws to allow for practical flexibility in the semiconductor industry so that research and development personnel can work beyond the 52-hour workweek when necessary, with long-term holidays in between.