WSJ "Samsung and SK Hynix Will Face Significant Burden"
Analysis suggests that semiconductor companies such as Samsung Electronics and SK Hynix may face a crossroads of choosing between the U.S. and China due to the 'guardrail' regulation that restricts investments in China if they receive subsidies under the U.S. CHIPS and Science Act (CSA). It is expected that U.S. subsidies will pose a significant burden on future investment decisions for South Korea's two major semiconductor companies, which already operate production facilities in China.
On the 28th (local time), the U.S. Wall Street Journal (WSJ) reported that global semiconductor companies are facing a difficult choice between expanding their operations in the U.S. by receiving government subsidies or continuing to expand their business capabilities in China.
The Biden administration announced detailed guidelines on the guardrail provisions within the CHIPS Act on the 21st. The core of the guardrail provision is that companies receiving a 25% tax credit benefit under the semiconductor law are prohibited from expanding advanced semiconductor production capacity in China by more than 5% over ten years. This regulation bans the establishment or expansion of factories in China as a condition for receiving subsidies in the U.S.
WSJ pointed out that this will be a significant burden for Samsung Electronics and SK Hynix of South Korea, as well as Taiwan's TSMC, which have already invested billions of dollars and established production facilities in China. While U.S. semiconductor companies do not have factories in China, only Samsung Electronics, SK Hynix, and Taiwan's TSMC operate factories there.
Angela Stiles, a lawyer at Akin Gump, a prominent U.S. law firm and lobbying firm, said, "Companies will raise questions about whether to accept U.S. semiconductor subsidies."
Samsung Electronics operates a NAND flash memory chip factory in Xi'an, China, and a semiconductor back-end (packaging) factory in Suzhou. SK Hynix runs a DRAM memory chip manufacturing facility in Wuxi, China, and acquired Intel's NAND flash memory chip factory in Dalian. The world's largest foundry company, TSMC, also operates semiconductor manufacturing facilities in Nanjing and Shanghai, China.
According to market research firm TrendForce, as of the end of last year, Samsung Electronics' Xi'an factory accounted for 16% of global NAND flash production, and SK Hynix's Wuxi factory accounted for 12% of global DRAM production. SK Hynix's Dalian factory also accounts for 6% of global NAND flash production. Additionally, TSMC's Shanghai and Nanjing factories represent 6% of the company's total semiconductor production capacity.
The three companies have yet to release specific positions on the 5% restriction regulation. Samsung Electronics emphasized to WSJ that it is "in close discussions with relevant South Korean and U.S. government departments," highlighting the possibility of further negotiations. It also stated, "We will decide on the next steps after reviewing the subsidy details."
Samsung Electronics is currently constructing a foundry plant in Taylor, Texas, with an investment of $17 billion and has hinted at the possibility of investing up to $200 billion more in the Texas area in the future.
SK Hynix also refrained from detailed comments, stating it will closely review the U.S. announcement, according to WSJ. Taiwan's TSMC recently announced plans to build a semiconductor production facility in Arizona with an investment of $40 billion. WSJ also conveyed the words of Ahn Deok-geun, Director General for Trade Negotiations at South Korea's Ministry of Trade, Industry and Energy, who said that while it has become difficult for Korean semiconductor companies to continue investing in China, ultimately, individual companies must make their own (autonomous) decisions.
U.S. Secretary of Commerce Gina Raimondo said in an interview with WSJ that the U.S. is not pursuing economic decoupling from China but emphasized, "We need to keep our eyes wide open regarding the risks posed to the U.S." She stressed that the U.S. cannot allow its cutting-edge technology to be used for military purposes in China.
Meanwhile, Secretary Raimondo stated that she may visit China around this fall to continue U.S.-China dialogue and ensure that American companies can operate on a "level playing field."
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