Samsung, SK to Keep Chinese Factories Despite U.S. Sanctions

Samsung and SK Hynix are expected to be allowed to keep their factories in China despite U.S. sanctions against Beijing.

The U.S. Department of Commerce on Monday announced details of so-called "guardrail" provisions under the CHIPS and Science Act that punishes global companies for investing in China.

Large-scale new investments in China are still forbidden if Korean companies want American subsidies, but the details have been watered down in negotiations between Seoul and Washington. 

That means companies that receive U.S. government subsidies for any reason can keep their factories in China and even expand them by up to five percent over the next 10 years. Existing production lines can be expanded by up to 10 percent. 

And if more than 85 percent of a company's Chinese output is actually sold within China, then they can expand even more than 10 percent and build new factories.

The chipmakers expressed relief. One industry insider said, "It looks like the government took active steps that led to more favorable provisions."

Samsung and SK said they will look closely at the details to come up with a response. Samsung has invested W33 trillion in its semiconductor factories in China so far, while SK pumped in W35 trillion (US$1=W1,311). 

In the negotiations, Korea argued that punishing businesses from an allied country was bound to do more harm than good. Korea said the eventual beneficiaries from excessive U.S. restrictions on Korean chipmakers would be Chinese chipmakers, because if the competitiveness of Korean chips is undermined in China, they will simply be replaced by Chinese rivals, which would in turn grow to threaten the U.S. itself. 

Korean chipmakers may be out of the woods for now, but they will have no choice but to build additional production facilities to replace chips made in China over the next few years if their Chinese investments remain curtailed. 

SK Hynix in particular breathed a sigh of relief. It has been in dire straits since taking over Intel's NAND flash chip factory in Dalian, China in 2021 -- it already paid US$7 billion and has to pay another $2 billion by 2025, but it narrowly avoided wasting even more money by failing to upgrade the facilities by the time the CHIPS and Science Act kicks in. 

An industry insider said, "Although some regulations seem more favorable, we'll have to wait and see how the negotiation with the U.S. unfolds as there are still some risk clauses for Korea such as disclosure of confidential information. Investing in U.S. chip plants instead costs way too much."

The presidential office here said it will continue negotiation with the U.S. ahead of President Yoon Suk-yeol's state visit to the U.S. next month since the semiconductor business is one of the country's key industries.