"Big Trouble Looms" While Korea's Semiconductor Sector Stalls... Taiwan, the 'TSMC Nation,' Forecasts Over 4% Growth

"Capital-Labor Reversal Difficult... Economic Growth Only Through Technological Innovation"
Tax, Labor, Policy Support Urgently Needed... "Prompt Passage of Semiconductor Special Act"
"'Jung Memory' Must Be Clearly Surpassed... Foundry Is a Long-Term Battle"

Thanks to the semiconductor industry boom centered around TSMC, Taiwan's economic growth rate is expected to exceed 4% this year. The rapid growth of AI-related industries has significantly improved TSMC's performance, boosting the national economic growth rate. In contrast, South Korea's economic growth rate this year is expected to remain in the low 2% range. Despite the global semiconductor boom, South Korea is being evaluated as a 'windless zone.' In particular, with the Semiconductor Support Special Act stalled due to the impeachment political turmoil, there are concerns that government support will not be properly implemented until the first half of next year.

Logo of Taiwan Semiconductor Manufacturing Company (TSMC) located in Hsinchu Science Park, Taiwan. Photo by AFP Yonhap News

According to foreign media and related industries on the 17th, Taiwan's think tank, the Taiwan Institute of Economic Research, recently revised its forecast for the country's real GDP growth rate this year upward to 4.21%. This is a significant increase from the initial forecast of mid-3% range (3.57%), with the booming AI semiconductor market and strong performance of TSMC, Taiwan's largest company by market capitalization, cited as major factors.

The Taiwan Institute of Economic Research also analyzed that the improved performance of semiconductor companies including TSMC will have a positive impact on private consumption and investment. It estimated private consumption growth at 2.69% and private investment growth at 4.5%, evaluating that the semiconductor industry is injecting vitality throughout Taiwan's economy.

Experts expressed concerns that the economic growth rate (GDP growth rate) gap between Taiwan and South Korea could widen. This is because there is no clear growth engine among the GDP growth-related factors such as capital contribution (investment), labor input contribution (workforce), and total factor productivity (technology). In particular, with low labor input contribution due to overlapping issues such as low birthrate, aging population, and preference for medical schools, it is analyzed that a breakthrough leap through 'technological innovation' in total factor productivity is necessary. Professor Kang In-su of the Department of Economics at Sookmyung Women's University said, "Since there are few companies planning to increase investment (capital contribution) next year and the decrease in economically active population (labor input contribution) is significant, if production and technology do not achieve results, the economic growth rate gap is likely to widen."

Domestically, there is an urgent call for the passage of the Semiconductor Special Act. The support bill included provisions such as raising the corporate tax credit for large companies from 15% by 5 percentage points and extending the sunset period to 5 years, but with the bill's failure to pass, neither the tax credit increase nor the sunset extension was realized. Also, the bill to apply an exceptional work hour system (white-collar exemption) allowing semiconductor companies to exceed 52 working hours per week was not passed. In Taiwan, under the 40-hour workweek system, labor and management agreements allow daily working hours to be extended from 8 to 12 hours.

Like South Korea, Taiwan also provides minimal direct support such as subsidies for the semiconductor industry. However, industry performance shows differences. A senior government official said, "Ultimately, what determines the outcome is not the size of subsidies but the difference in technological capabilities."

There is also advice to strengthen the 'foundry-fabless (design)-design house-packaging' ecosystem like Taiwan in the mid to long term. Kim Yong-seok, Chair Professor at Gachon University's Semiconductor College, said, "First, the government must actively participate in trade negotiations with the U.S. government to secure subsidy receipt issues; second, the Semiconductor Special Act, including the exemption from the 52-hour workweek, must be promptly passed in the National Assembly; and finally, large companies must bet their lives on competing in HBM4 (6th generation) products, while small and medium enterprises should increase deliveries of small on-device AI products for sets (mobile phones) to large companies, creating an ecosystem where both large and small companies grow in a virtuous cycle."

Im Hyung-kyu, former Samsung Electronics executive who laid the foundation for Samsung's system semiconductors, said the most urgent task is "strengthening internal technological capabilities, which is the only way to outrun China's pursuit." Professor Shin Hyun-chul of Kwangwoon University's Department of Semiconductor Systems Engineering, who is slated to become president of the Semiconductor Engineering Society, emphasized, "The foundry sector, which could be called a service industry rather than manufacturing, is a field that is difficult to catch up with in the short term regardless of any meetings held now. Memory, unlike foundry, is a field where technological and industrial achievements can be made within 1-2 years, so it is urgent to achieve definite results in financial performance, market share, and organizational confidence here, and reduce the 'noise (instability factors)' coming from the market."