Companies Struggling with 'Taljunguk'... Government Supports 50% of Investment, Paving the Way for U-Turns

The government’s announcement to support more than 50% of investment costs for companies returning (U-turn) their advanced strategic industries such as semiconductors to Korea has provided relief to companies struggling with their China operations. This is because the government has laid out a 'platform' for companies to return domestically amid heightened risks in China due to the US-China hegemonic rivalry. However, since there is a cap on the support amount, responses indicate that the policy is more suitable for small and medium-sized enterprises (SMEs) rather than large corporations.

◆ "If the situation is serious, we will sell the Chinese factory and move equipment to Korea" = On the 4th, the government announced the '2023 Second Half Economic Policy Direction,' which includes supporting at least 50% of investment costs for companies returning advanced industries such as semiconductors. Companies that heard the government’s announcement responded that although the Chinese market remains very attractive, the reopening effect (resumption of economic activities) has not been significant, and business risks have increased due to US-China competition, making this policy direction timely.

In fact, even large corporations are struggling to thrive in their China operations. Samsung Electronics disclosed in its '2023 Sustainability Report' that its net sales in the China region last year were KRW 35.6 trillion, down 21.9% from KRW 45.6 trillion in 2021. SK Hynix is plagued by rumors of withdrawing from its Dalian plant in China, which accounts for 20% of the company’s NAND flash production. At the earnings conference call at the end of October last year, SK Hynix President Noh Jong-won described the situation as 'very serious' and said, "If it becomes difficult to operate the Chinese fab (factory), we are considering scenarios such as selling the fab or moving equipment to Korea."

◆ "The value chain of Korean partner companies is attractive" = Although the U-turn law was enacted in Korea in 2013, only about 80 companies returned over eight years until 2020, indicating a low execution rate. Among large corporations, it is hard to find any U-turns except Hyundai Mobis, which returned from China to Ulsan in 2019.

Semiconductor companies, which found it difficult to execute U-turns, welcomed the government support this time. As the US-China conflict has intensified recently, making it difficult to rely solely on the 'one-year grace period' for US equipment regulations, corporate perspectives have changed. An industry insider, Mr. A, said, "If the situation arises where the China supply chain must be replaced, Korea is better than India, Vietnam, or Singapore. Rebuilding an overseas supply chain requires training personnel, government relations, and customer (set manufacturers) sales from scratch, but now, with government support for U-turn companies and investments by Samsung Electronics and SK Hynix in Yongin, the 'materials-parts-equipment (SoBuJang) ? fabless ? manufacturer' supply chain has become solid, so rather than moving to other countries, Korea is a better option."

◆ "Labor cost burden in Korea remains... subsidy cap is too low" = However, there are opinions that labor costs in Korea are still too high due to the sharp rise in minimum wage, and the government support scale is too small to reflect reality properly. The government support cap is KRW 60 billion (KRW 30 billion in the metropolitan area). Considering that building a semiconductor line costs trillions of won, the government subsidy may feel insufficient. This is why it is said that while SMEs struggling with China operations due to US-China conflicts may consider U-turns, it will be difficult to induce large corporations to respond positively.

Industry insider Mr. B said, "Samsung Electronics and SK Hynix are already investing astronomical amounts in Yongin, so unless a problem arises that makes it impossible to maintain their China operations, it will be difficult for them to U-turn to Korea," adding, "(Rather) U-turning would be a redundant investment." Another insider, Mr. C, said, "The US market is most attractive for server customers, and China for mobile customers, so whether they U-turn to Korea or move equipment to India or Vietnam, they will inevitably suffer losses in securing customers. Even if they restore sales networks, personnel, and equipment to the level of Chinese factories after U-turning, it will not be easy to secure major customers as when operating normally in China."

This content was produced with the assistance of AI translation services.