The Ministry of Industry on Tuesday unveiled a comprehensive plan aimed at revitalizing the sluggish auto sector and increasing state spending on research and development for manufacturers of chips and batteries to secure their leadership in the global market.

For auto parts makers suffering from shrinking sales at home and abroad, the government plans to provide 3.5 trillion won ($3.1 billion) of liquidity support and loan guarantees. To help them secure new businesses, the government also plans to boost the production size of locally manufactured green cars from the current 1.5 percent to more than 10 percent by 2022.

The plan came amid growing concerns over the nation’s auto industry losing confidence. The South Korean branch of US carmaker General Motors shut down its plant in Gunsan, North Jeolla Province, in April, citing accumulating debts and falling sales, and local auto giants Hyundai and Kia posted their lowest-ever earnings for the third quarter.

Under the funding scheme of 3.5 trillion won, the government has already provided 1 trillion won in credit guarantees for small and medium-sized car parts makers and another 1 trillion won in loan guarantees. For contractors of GM Korea, state-run banks will extend their loan deadline by one year, the ministry said.

To rejuvenate the sluggish local auto market, the ministry also plans to provide a 30 percent discount on consumption tax on new cars purchased by June and cut 70 percent of the tax for consumers replacing old diesel cars aged more than 10 years with gasoline vehicles next year. Subsidies for green car buyers will also be expanded, the ministry said, saying that it wants to have 430,000 electric cars and 65,000 fuel cell vehicles powered by hydrogen on the road by 2022.

Also by 2022, shipments of electric vehicles will grow seven times from the current 36,000 units to 250,000 units, while exports of hydrogen vehicles will be expanded 17 times to 5,000 a year, it added.

The government plans to spend 2 trillion won on developing next-generation chips and post-organic light-emitting diode display technology, while placing evolving technologies under state protection to prevent technology leakage abroad. For battery makers, the government will make joint investments with the private sector to develop solid-state, lithium-sulfur and lithium-metal batteries -- known as three key technologies often cited to lead the future of rechargeable batteries.

With Chinese competitors closely chasing after South Korean chipmakers, the government plans to provide administrative support for private sector investment aimed at boosting production capacity for next-generation semiconductor products.

Around 120 trillion won will be invested by the private sector over the next 10 years to build an industrial cluster for chip businesses, which would house four fabrication plants and about 50 suppliers, the ministry said without mentioning which company would be involved. The construction of the new cluster will begin in 2021 and start chip manufacturing from 2025, it said.

SK hynix, the nation’s second-largest chipmaker and a global leader in memory chips, has reportedly voiced the need for securing new factory sites as part of its mid- and long-term plans of expanding production capacity. It currently has two factory sites in Icheon, Gyeonggi Province, and Cheongju, North Chungcheong Province, but the company is running out of land capacity to build new factories. The chipmaker is reviewing plans for a new factory site, but nothing specific has been confirmed yet, a company official said.

By Cho Chung-un (christory@heraldcorp.com)