South Korea pledges massive $1.2 trillion injection into semiconductor and artificial intelligence infrastructure.

South Korea is poised to invest a staggering $1.2 trillion in a cutting-edge chip-building hub and AI data centres over several years, a move that seeks to capitalize on the surging demand for these technologies while revitalizing neglected regions, with this enormous investment equivalent to more than two-thirds of the country's GDP.

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The massive cash injection comes at a time when Asia's fourth-largest economy is riding the wave of a global AI boom, with South Korean memory chipmakers emerging as a vital component in the rapidly evolving industry, and President Lee Jae Myung emphasizing that "speed is the only path to survival" in this context.

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President Lee Jae Myung stressed the need for swift action, stating "we must secure the core elements of artificial intelligence faster than any other nation" during an event in Seoul to unveil the public-private collaboration, highlighting the urgency of the situation.

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Samsung Electronics and SK hynix are set to make a record investment of 800 trillion won, approximately $520 billion, in a new semiconductor fabrication hub in the country's southwest, according to the government, with both companies having experienced skyrocketing profits and share prices in recent months.

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The frenzied demand for AI infrastructure has led to a global shortage of memory chips, benefiting Samsung Electronics and SK hynix, and the government has also announced a separate investment of a quadrillion won, around $650 billion, in AI data centres over the next 10 years.

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These plans align with President Lee's agenda for industrial development in regions outside the capital, and Industry Minister Kim Jung-kwan noted that the Samsung-SK hynix project will comprise four fabrication plants, aiming to develop the southwestern region into a second semiconductor production hub.

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According to Kim's presentation, Samsung Electronics and SK hynix will each build two plants under the 800 trillion won project, with the goal of rapidly expanding production capacity through dramatically shortened permit approvals and construction timelines.

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Industry Minister Kim Jung-kwan emphasized that this rapid expansion will enable the country to maintain its overwhelming market leadership and decisive technological gap in the memory semiconductor sector, a crucial aspect of the investment.

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Science Minister Bae Kyung-hoon announced that the country will invest 550 trillion won in AI data centres by 2029, with an additional 10-gigawatt AI data centre to be built by 2035, resulting in a total investment exceeding 18.4 gigawatts and 1,000 trillion won.

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This new investment is the largest in South Korea's history, and it aims to bridge the gap between the southwestern region of Honam, a traditional liberal stronghold, and the more industrialized southeast, which has long been the hub of economic activity.

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The southwestern region has lagged behind the southeast since the rapid economic development under former president Park Chung-hee in the 1960s and 70s, and without incentives for companies to relocate, the massive investment could have unintended consequences, warned Kim Dae-jong, a professor of Business Administration at Sejong University.

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Professor Kim Dae-jong cautioned that the investment could backfire and hurt the nation's semiconductor competitiveness if the financial burden and time-related risks faced by companies are not minimized, emphasizing the need for careful planning.

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Analysts point out that the southwest has abundant renewable electricity resources, making it possible for companies to meet their green energy commitments, but they also warn that building a new semiconductor manufacturing ecosystem from scratch would require significant time and investment.

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Establishing production lines from scratch could take more than five years, according to Lee Jong-hwan, a semiconductor engineering professor at Sangmyung University, who noted that the biggest challenge is the concentration of skilled workers and suppliers around the Seoul metropolitan area.

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Concerns have also been raised about the heavy demand for water, but President Lee has written that assessments indicate it is possible to supply one million tons of industrial water per day in the region, addressing this concern.

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The announcement comes as South Korea debates how to share the enormous profits generated by the global AI-driven semiconductor boom more broadly across society, with discussions around using excess AI-related tax revenue to fund various social programs.

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Kim Yong-beom, the president's chief policy secretary, suggested in May that excess AI-related tax revenue could be used to fund startup support for young people, basic income programs for rural and fishing communities, and assistance for artists, highlighting the need for a more equitable distribution of wealth.

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The AI-driven semiconductor boom has also led to worker demands for better pay packages, with Samsung averting a major strike in May by agreeing to a deal on bonuses with its largest union, demonstrating the impact of the boom on labor relations.