South Korea warns US could ‘overburden’ its chipmakers with China limits

South Korea has called on Washington to review its conditions for new semiconductor subsidies, revealing its concerns over the impact of US legislation on Korean chipmakers’ operations in China.

The US Chips and Science Act offers $52bn in subsidies to chipmakers building new production facilities in the US, but contains “guardrails” detailing the limits on those receiving federal funds, in terms of expanding or upgrading their advanced chip capacity in China over the next 10 years.

South Korea is home to leading memory chipmakers such as Samsung Electronics and SK Hynix, who are boosting investments in US production facilities even as they remain heavily exposed to the Chinese market.

“The Republic of Korea believes the ‘guardrail provisions’ should not be implemented in a manner that imposes an unreasonable burden on companies investing in the United States,” South Korea said in a statement on the proposed funding rules of the Chips Act.

“In this vein, the RoK requests the US government to review the proposed rule’s current definitions of ‘material expansion’, ‘legacy semiconductor’ and other key terms,” the statement added.

The US in October introduced expansive chip export controls in an effort to slow China’s progress in making advanced semiconductors, barring US companies from supplying technology for D-Ram chips that are more advanced than 14 nanometres, and for Nand memory chips with 128 layers or more.

The Korean government also requested that Washington further clarify the scope of restricted activities under a “technology clawback” clause. This requires the recipients of federal funding to return US subsidies if they knowingly engage in any joint research or technology licensing effort with “foreign entities of concern” for a technology or product that raises national security concerns.

Samsung, the world’s largest memory chipmaker, is building a $17bn foundry plant in Taylor, Texas, while second-ranked SK Hynix is planning to build an advanced chip packaging plant in the US.

But they have both been caught up in growing US-China tech rivalry as Washington’s curbs on technology transfers threaten to weaken their competitiveness in China. Under the Chips Act rules proposed in March, they are required not to expand capacity for advanced chips in China by more than 5 per cent for a decade, in order to receive federal funding.

Seoul’s state-run Yonhap News said on Wednesday that the Korean government had asked Washington to double the limit to 10 per cent. Seoul’s commerce ministry declined to comment on the report.

South Korean chipmakers are heavily reliant on their Chinese plants for a substantial part of their D-Ram and Nand flash memory chip production. Samsung produces about 40 per cent of its Nand flash memory chips from its Xian plant, while SK Hynix’s plant in Wuxi in eastern China accounts for nearly half of its global D-Ram output.

The Biden administration in October gave the two Korean chipmakers a one-year reprieve from export controls designed to curb China’s ability to develop high-end chips and has signalled to them that it will extend permission for them to send US chipmaking tools to China.

But experts said it would be difficult for the Korean chipmakers to significantly upgrade their Chinese production facilities or expand their capacity there, which would weaken their long-term competitiveness in China. “They are just trying to buy time, hoping for the best while preparing for the worst,” said Lee Jae-min, a law professor and trade expert at Seoul National University.