South Korea invests $900 billion in AI and semiconductors

What happened?

The South Korean government, along with tech giants such as Samsung, SK Hynix, LG, and Hyundai, announced a joint investment exceeding 1 quadrillion won (about $900 billion) to position the country as a 'K-Semiconductor powerhouse' and global leader in artificial intelligence and robotics. The initiative, named '3S+1F', was presented by President Lee Jae-myung as a comprehensive economic and social development strategy. This amount is roughly equivalent to 45% of South Korea's 2024 GDP, underscoring the unprecedented scale of the commitment. According to The Register, the plan includes building data centers with a combined capacity of 18.4 GW by 2035, a figure that surpasses the electricity consumption of countries like Portugal or Greece. Additionally, it envisions the creation of 'physical AI models', which aim to replicate in the real world what large language models (LLMs) do with text, enabling robots to perform complex tasks in dynamic environments.

Why is it important?

This investment represents South Korea's biggest tech bet since its industrial transformation in the 1990s, when the country shifted from a light manufacturing economy to a leader in electronics and automotive. The plan aims to directly compete with China and the United States in the race for technological supremacy, especially in advanced semiconductors and robotics. The explicit reference to China's 'Great Leap Forward' in official documents, according to The Register, is ironic given that the plan seeks to emulate China's massive investment model but with the goal of surpassing it. Additionally, it aims to decentralize wealth by building infrastructure outside Seoul, addressing the severe problem of economic concentration in the capital, where 50% of the population resides and most of the GDP is generated. Unlike previous initiatives such as the 2020 'Digital New Deal' (which allocated 76 trillion won), this plan is 13 times larger and covers not only digital infrastructure but also advanced manufacturing and robotics.

What consequences will it have?

In the short term, an acceleration in the construction of semiconductor fabs and data centers is expected. Samsung and SK Hynix have already committed massive investments: Samsung plans to spend 300 trillion won on a new megafab in Pyeongtaek, while SK Hynix will invest 150 trillion won in its Yongin complex. This will require investments in clean energy and efficient power grids, as data centers alone will consume 18.4 GW, which could strain the national grid if renewable sources and storage are not implemented. In the medium term, the development of physical AI models could revolutionize sectors such as manufacturing, logistics, and healthcare. For example, Hyundai plans to integrate humanoid robots into its assembly lines, while LG will develop service robots for hospitals and homes. Robotics, powered by AI, could turn South Korea into a direct competitor to China, which currently dominates 50% of the global industrial robot market. However, success will depend on execution and the ability to attract global talent, in a context where South Korea's population is aging rapidly and its birth rate is the lowest in the world (0.72 children per woman in 2023).

What should readers know?

• The investment is 1 quadrillion South Korean won, equivalent to about $900 billion, combining public and private funds. The government will provide tax incentives, subsidies, and deregulation, while companies will cover most of the spending.
• The '3S+1F' plan stands for: Strongholds (rapid construction of factories in regional hubs), Spearhead (innovation in semiconductors for emerging markets like AI and automotive), and Full support (government and industry support).
• Data centers will total 18.4 GW, more than the electricity consumption of many countries. They will be built mainly in regions like Gangwon and Chungcheong, where land and energy are available.
• Samsung and SK Hynix are the main players in semiconductors; LG and Hyundai will focus on robotics and mobility. LG has already announced a 10 trillion won investment in a robotics research center in Seoul.
• The initiative includes the creation of physical AI models, which will allow robots to perform complex tasks in the real world, such as assembling products or assisting in surgeries. This contrasts with current robots, which are often limited to controlled environments.

President Lee Jae-myung stated that the plan aims to 'build the industrial base needed for AI faster than any other country and distribute wealth beyond Seoul.'

According to The Register, the mention of the 'Great Leap Forward' in official documents is ironic, given that the plan aims to compete with China. The investment also seeks to stem the outflow of capital to factories abroad, especially in China. In recent years, Samsung and SK Hynix have built factories in China to take advantage of local subsidies, but this plan offers incentives to keep production on South Korean soil.

Context and outlook

South Korea is already a leader in semiconductor memory, with SK Hynix dominating the HBM (High Bandwidth Memory) market used in AI chips, and Samsung being the world's largest semiconductor maker by revenue. However, it needs to diversify into AI and logic chips, where companies like TSMC and NVIDIA have an edge. This plan could consolidate its position in the global supply chain, though it faces challenges such as a shortage of skilled labor (150,000 additional engineers will be needed by 2030) and dependence on imported raw materials like lithium and rare earths. The bet on robotics is strategic: if it manages to develop a competitive robotics industry, it could capture a significant share of the global market, valued at $200 billion by 2030. Compared to the US 'Chip Act' ($52 billion) and China's 'Made in China 2025' plan ($300 billion), South Korea's plan is proportionally larger relative to its GDP. However, execution will be key: South Korea has a track record of success in national projects, such as the development of DDR memory and 5G technology, but also failures like the attempt to create a commercial aviation industry. Time will tell if this Korean 'Great Leap Forward' can position the country as the undisputed leader in the next tech wave.