South Koran semiconductor manufacturers avoided a worst-case scenario from the U.S. CHIPS Act designed to thwart Beijing’s chip technology ambitions as details of the regulation turned out to be less stringent than earlier feared.

Samsung Electronics Co. and SK hynix Inc., which produce advanced semiconductors in China, are banned from expanding their production capacity there by more than 5 percent for 10 years after receiving subsidies in the U.S., according to the new guardrails announced by the U.S. Commerce Department Tuesday local time.

However, the 5 percent cap applies only to wafer units and there are no restrictions on increasing the level of technology integration. This means that the rule does not cover an increase in the number of chips per wafer, allowing Korean chipmakers to seek technological advances to produce more chips from a single wafer.

“The uncertainty for Korean companies has been largely resolved,” said both the Korean and U.S. governments on the detailed regulation. Contrary to initial concerns, Samsung Electronics and SK hynix will be able to technically increase production at their factories in China as long as they do not exceed the 5 percent limit in output expansion and comply with U.S. export controls.

“We have been in close communications with the U.S. government and have been briefed on the key details of the regulation before its announcement,” said Senior Presidential Secretary for Economic Affairs Choi Sang-mok Wednesday, adding that “I see there will be no interruption in the operation of manufacturing facilities owned by Korean companies in China.”

“What is important is the fact that there are no restrictions on upgrades or equipment replacement investments in the detailed regulation. As a result, actual production expansion is also possible,” Choi said.

When asked whether the U.S. measure was essentially limiting active investment by Korean companies, Choi said “we contacted the industry and were told that there are no major problems,” stressing that the Korean government plans to consult with the U.S. to minimize the burden and maximize the benefits for Korean companies.

At a press conference held on Wednesday, Minister of Trade, Industry and Energy Lee Chang-yang said that “a considerable amount of uncertainty regarding several concerns has been resolved. Korean companies will be able to devise investment and production strategies in a quite flexible manner.”

“From this perspective, I believe that the basic requirements is sufficient to make the companies feel relieved and we will discuss with the U.S. government for the remaining 60 days before finalizing the regulation,” Lee said.

By Song Gwang-sup and Minu Kim

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