South Korea Commits $1.2 Trillion to AI and Chip Industry Expansion

South Korea has announced an ambitious investment plan worth nearly $1.2 trillion to strengthen its semiconductor industry and expand artificial intelligence (AI) infrastructure, marking one of the largest industrial development initiatives in the country’s history.

The multi-year investment, equivalent to more than two-thirds of South Korea’s annual gross domestic product (GDP), is aimed at boosting the country’s global competitiveness in semiconductor manufacturing while accelerating the development of AI data centres across the nation.

President Lee Jae Myung unveiled the initiative in Seoul, describing artificial intelligence as a strategic priority for the country’s future economic growth.

As part of the programme, technology giants Samsung Electronics and SK hynix will jointly invest 800 trillion won (about $520 billion) to establish a major semiconductor manufacturing hub in South Korea’s southwestern region.

According to the government, the project will include the construction of four advanced semiconductor fabrication plants, with Samsung and SK hynix each building two facilities. The investment is expected to significantly expand production capacity and help South Korea maintain its leadership in the global memory chip market.

The announcement comes amid soaring worldwide demand for AI technologies, which has driven unprecedented growth in the semiconductor industry. South Korean chipmakers have recorded strong profits and rising share prices as demand for memory chips used in AI systems continues to outpace supply.

In addition to the semiconductor project, the government announced plans to invest 1 quadrillion won (approximately $650 billion) in AI data centres over the next decade.

Science Minister Bae Kyung-hoon said 550 trillion won will be invested in AI data centres by 2029, while an additional 10-gigawatt AI data centre is expected to be completed by 2035, bringing the country’s total AI data centre capacity to more than 18.4 gigawatts with investments exceeding 1 quadrillion won.

Industry Minister Kim Jung-kwan said the initiative aligns with President Lee’s strategy to stimulate economic growth outside the capital region.

“We will develop the southwestern region into a second semiconductor production hub,” Kim said, adding that the government will fast-track construction permits and regulatory approvals to speed up the expansion of semiconductor production.

He noted that reducing administrative delays would help South Korea preserve its technological advantage in the highly competitive global memory chip industry.

The investment is expected to transform the Honam region, which includes Gwangju and the Jeolla provinces. The area has historically lagged behind the country’s more industrialised southeastern region, a disparity dating back to the rapid economic development policies of the 1960s and 1970s.

However, some experts have expressed concerns over the scale of the project.

Business administration professor Kim Dae-jong of Sejong University warned that companies could face enormous financial and operational risks if sufficient incentives are not provided to support relocation and expansion outside the Seoul metropolitan area.

Similarly, semiconductor engineering professor Lee Jong-hwan of Sangmyung University noted that establishing a new semiconductor ecosystem from the ground up could take more than five years because most skilled workers and suppliers remain concentrated around Seoul.

Analysts also pointed to the region’s abundant renewable energy resources as a major advantage, saying they could help semiconductor manufacturers meet growing environmental and sustainability commitments.

Water supply has also emerged as a key issue due to the industry’s high consumption needs. President Lee stated that government assessments indicate the southwestern region can provide up to one million tonnes of industrial water per day, easing concerns over future operations.

The announcement comes as South Korea debates how the massive profits generated by the global AI and semiconductor boom should be distributed across society.

Earlier this year, presidential policy chief Kim Yong-beom proposed using additional tax revenue generated from the AI sector to support youth entrepreneurship, provide basic income programmes for rural and fishing communities, and fund initiatives for artists.

The rapid expansion of the semiconductor industry has also strengthened workers’ bargaining power. In May, Samsung successfully avoided a major labour strike after reaching a bonus agreement with its largest labour union.

The new investment underscores South Korea’s determination to remain one of the world’s leading semiconductor and AI technology powers as global competition in the sector continues to intensify.

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