South Korea warns that the US could “overburden” its chip makers with China’s limits

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South Korea has called on Washington to review its terms for new semiconductor subsidies, revealing its concerns about the impact of US legislation on Korean chip makers’ operations in China.

The US Chips and Science Act offers $52 billion in subsidies to chipmakers building new manufacturing plants in the US, but contains “guard rail” detailing 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 major memory chip makers such as Samsung Electronics and SK Hynix, which are ramping up investment in US manufacturing facilities even as they remain heavily exposed to the Chinese market.

“The Republic of Korea believes that the ‘guardrail provisions’ should not be implemented in a way that places 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, 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 expansionary controls on swarf exports in a bid to slow China’s progress in advancing semiconductorspreventing US companies from supplying technology for more advanced 14-nanometer D-Ram chips and Nand memory chips with 128 layers or more.

The Korean government has also asked Washington to further clarify the scope of restricted activities under a “technological rollback” clause. This requires recipients of federal funding to return U.S. subsidies if they knowingly engage in any joint research or technology licensing activity with “foreign entities of interest” for a technology or product that raises national security concerns.

Samsung, the world’s largest memory chip maker, is building a $17 billion smelter plant in Taylor, Texas, while runner-up SK Hynix is ​​planning to build an advanced chip packaging plant in the U.S. United.

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

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

South Korean chipmakers are heavily dependent on their Chinese factories for a substantial portion of their production of D-Ram and Nand flash memory chips. Samsung produces about 40 percent of its Nand flash memory chips from its Xian plant, while SK Hynix’s plant in Wuxi, east China, accounts for almost half of its global D-Ram production.

The Biden administration in October gave Korea’s two chipmakers a one-year reprieve from export controls designed to curb China’s ability to develop high-end chips and signaled to them it will extend the permit for them to send US chip making tools to China.

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