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“K-Semiconductor Belt Strategy” to establish the world’s largest supply network by 2030

#Key Business Issue l 2021-05-17


The global rivalry for dominance in the semiconductor industry has been intensifying, with major economies such as the U.S., Europe and China all announcing plans to make large-scale investments. The Korean government also revealed the “K-Semiconductor Strategy'' on May 13, with chip manufacturers such as Samsung Electronics, SK Hynix and others pledging investments of over 510 trillion won until 2030. The government has also vowed to support the industry with tax deductions and infrastructure packages. Let’s take a look at the comprehensive measures to strengthen competitiveness for Korean chip manufacturers with Kim Dae-ho (김대호) of the Global Economic Research Institute. 

To sum it up, the plan calls for further expanding the country’s prowess in chips and making Korean chipmakers the global leaders. In particular, the plan includes massive and diverse support measures to help Korean chip makers take the initiative amid shifts in the global semiconductor supply network due to the COVID-19 pandemic. The fact that the government and private sector are working hand-in-hand has garnered much attention, with the government pledging support and chipmakers promising 510 trillion won worth of investments. Another factor that grabbed the most attention was the “K-Chip Belt” which calls for connecting metropolitan areas such as Pangyo, Pyeongtaek and Icheon as one “belt” to nurture and develop the chip industry in all different stages from design, manufacturing, equipment, materials etc. in one area. As such, the comprehensive measures can be evaluated as a very strong plan to foster the semiconductor industry and strategy to secure the leadership spot in the new global semiconductor supply chain.

With the digital transition quickening pace since the outbreak of COVID-19, semiconductors have emerged as a global security issue while becoming an evaluation standard for national competitiveness. As automobile production had to shut down as chips worth only 1,000 won became difficult to secure, some are even saying that we are living in an age where wars are being fought with chips rather than bombs. There were also concerns that Korea’s semiconductor industry needed to take urgent measures to secure competitiveness as leading economies such as the U.S., Europe and China are also competing for dominance in the industry. As such, there were concerns over whether Korea’s semiconductor ecosystem is in a healthy state and if it had secured future competitiveness.  

Whether Korea is a global leader in the industry depends on how you look at it. If you look at it in terms of the total sales figures and the amount of money the industry rakes in, then yes, Korea is a leader. Korea is usually in 1st or 2nd place globally, each year. 

However, in terms of return on investment, Korea lags far behind. This is because Korea’s chip industry was unable to diversify its strengths. Semiconductors can be largely divided into memory and system chips. Korea is the undisputed leader for memory chips but unfortunately, the sector does not make much profit and is extremely sensitive to the economy. So, if the economy is in bad shape, the sector falters. As Korea’s semiconductor business is heavily concentrated only in the memory chips, it is difficult to say that we are a global leader for the industry overall. The K-Semiconductor Belt Strategy emphasizes this point and pledges to nurture the industry into a comprehensive semiconductor powerhouse that encompasses not just memory chips but non-memory, systems, foundries, fabless production, packaging and other sectors.


The government’s “K-Semiconductor Strategy'' aims to make Korea into a comprehensive semiconductor powerhouse with local firms by establishing the world’s top semiconductor supply chain in its territory. The so-called “K-Chip Belt” connects Pangyo with Kiheung, Hwaseong, Pyeongtaek, Onyang from North to South and Icheon and Cheongju to Yongin from East to West creating a “K” shaped belt. Companies specializing in manufacturing, materials, high-tech equipment, packaging and fabless manufacturing will enter the belt while existing firms will increase investment. To that end, domestic semiconductor firms, including Samsung Electronics and SK Hynix, have pledged to invest more than 510 trillion won for the next ten years. 

One important factor to consider is the cooperation between government and private firms. Samsung Electronics, SK Hynix and other chipmakers, have been contemplating moving abroad as many countries have reached out to them with various incentives to relocate their production base. However, even if they do relocate, the pledge to invest 510 trillion won is still a valid promise made to the people of Korea. By increasing investment, more domestic jobs will be created. 

Meanwhile, with the creation of a belt, SMEs will be able to do business with each other more easily, creating a strong network for parts manufacturers and other sectors. By revealing the investment plan and presenting a blueprint for the area and sectors that will receive investment in advance, the new strategy is expected to create an ecosystem to further nurture Korean semiconductor SMEs. 

The government has also decided to fully support private investment by providing tax breaks. For example, the government has newly established the “core strategy technology” track to provide up to 40-50% tax deductions for semiconductor R&D and 10-20% deduction for semiconductor facility investment. This is in contrast to the existing 3% tax deduction rate for large companies in semiconductor facility investment.

Financial support will also be expanded. The government newly established a “semiconductor facility investment special fund” worth over 1 trillion won to support facility investment through favorable interest rates. Also, the new government strategy includes plans to nurture manpower, which the industry has been strongly calling for. 

Having talented manpower is also an important factor that can determine the success or failure of the industry. Korea has many talented individuals working in the semiconductor industry, but they are not spread out wide throughout the industry. In other words, we have many talented world-class individuals, but we need a wider layer of these individuals within the industry’s various sectors. The shortage may be due to the fact that Korea is smaller than other leading economies such as the U.S., China or Europe, but also because of the structural factor that there are few institutions providing specialized semiconductor-related training or education. That is why companies have been repeatedly asking the government to help nurture manpower, and the government has finally responded. 

It announced plans to train 36,000 individuals for the next ten years through industry-academia cooperation at universities, which is raising hopes for a big boost to the industry by relieving its chronic manpower shortage problem. 

In addition, the government plan calls for semiconductor infrastructure support. In order to supply essential water for semiconductor manufacturing facilities, the government will secure a 10-year water supply at semiconductor complexes in Yongin and Pyeongtaek, while the government and KEPCO will jointly share up to 50% of the semiconductor-related power infrastructure. If all things go according to plan, the government expects annual semiconductor exports to increase to 200 billion dollars, which is twice the current amount in ten years, and add 270,000 more jobs. Also, the plan will help Korea to lead the global semiconductor supply chain. The domestic industry has welcomed the new measures and expressed anticipation for continued support.   

The most important factor is maintaining consistency in related policies. It’s not just the Moon Jae-in Administration that pledged to nurture the semiconductor industry as the nation’s key industry. Previous administrations have announced many related strategies, but the plans fizzled out with each new government. That is why there are concerns over whether the momentum will remain strong with less than one year left for the incumbent government. Perhaps the legislation of a comprehensive semiconductor promotion act through discussions with the opposition and national consensus will be a more effective way to keep the momentum going. 

Semiconductors are now directly linked to the stability of the nation. The new “K-Semiconductor Strategy” is a special countermeasure responding to the growing sense of crisis in the semiconductor industry, which has long been Korea’s leading industry, amid the intensifying rivalry for global dominance. 

We hope the government and private firms will cooperate closely to carry out the comprehensive plans, helping the domestic semiconductor industry to take another leap forward, elevating Korea’s status as the world’s leading semiconductor powerhouse.

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