South Korea on Monday announced one of its biggest industrial investment plans, placing semi-conductors and artificial intelligence at the centre of its economic strategy. President Lee Jae Myung unveiled a package worth over 886 trillion won (about $576 billion) to expand chip production, develop AI infrastructure and spread economic growth beyond the Seoul metropolitan area, reported Reuters.

The strategy relies heavily on Samsung Electronics and SK Hynix, the world’s two largest memory chip makers. The government hopes the investments will help South Korea stay ahead in the global semi-conductor race while also creating new industrial hubs in regions outside the capital.

President Lee described the initiative as a “great leap forward” and said the country’s future would depend on strengthening three key sectors – semi-conductors, physical AI and data centres, reported Reuters. “We must secure the core elements of AI faster than any other country,” Lee said during a televised address.

Samsung and SK Hynix will jointly invest 800 trillion won (about $518.3 billion) to build two new semi-conductor fabrication plants each in South Korea’s southwestern region, according to Reuters report. Industry Minister Kim Jung-kwan said local governments in Gwangju and South Jeolla province will also invest between 5 trillion won and 20 trillion won to support the projects.

The government has also earmarked another 81 trillion won for a semi-conductor packaging cluster in the Chungcheong region near Seoul. Lee said South Korea must quickly complete semi-conductor projects that are already under construction while preparing for future demand with additional manufacturing capacity.

“To meet the rapidly increasing demand for semi-conductors, we need to quickly complete the production hubs that are currently under construction,” Lee said. “At the same time, we must secure overwhelming production capacity in advance through large-scale new investments, including in the southwestern region. Existing sites centred around Yongin and Pyeongtaek have already reached their limits,” he added. 

Why is South Korea expanding chip production beyond Seoul?

The government wants to reduce pressure on the Seoul metropolitan area and create new economic opportunities in other parts of the country. Lee said the southwest has abundant unused electricity, making it suitable for large semi-conductor facilities, reported Reuters.

Experts, however, believe the move carries challenges. Advanced chip factories require huge amounts of electricity and water. They also depend on reliable transport networks, specialised suppliers and a highly skilled workforce.

Lee Jong-ho, a professor at Seoul National University’s Department of Electrical and Computer Engineering, said such a large project needs careful planning. “To execute something of this magnitude properly requires an extraordinary amount of deliberation. I am sure there has been extensive internal review, but from the outside, it still appears to be moving too fast,” he said.

He also warned that long-term demand for chips cannot be guaranteed. “It would be ideal if demand remained strong for the next 20 or 30 years, but no one can know that with certainty. If demand were to decline, the consequences would be severe,” Lee added, reported Reuters.

South Korea has become one of the biggest beneficiaries of the global AI boom because Samsung Electronics and SK Hynix dominate the production of high-bandwidth memory (HBM) chips. These chips play a critical role in advanced AI processors used for training and running artificial intelligence models.

Industry Minister Kim said the government also aims to double the country’s dynamic random-access memory (DRAM) output within five years. To achieve that goal, construction of additional semi-conductor plants in the Seoul metropolitan area will begin earlier than originally planned, with completion targeted for the mid-2030s.

DRAM is widely used in devices such as laptops, smartphones and servers. HBM chips are produced by stacking multiple DRAM layers together, allowing AI systems to process data much faster.

Samsung Electronics Chairman Jay Y Lee confirmed that Gwangju will host the company’s new semi-conductor cluster. SK Hynix Chairman Chey Tae-won said his company still needs more time before selecting a final location because it must secure enough land, electricity, water and skilled workers, reported Reuters. “It took us nine years for us to create a cluster in Yongin. Also, a chip factory requires massive land, power, water and talent,” Chey said.

Despite the government’s ambitious plans, investors reacted cautiously. Samsung Electronics shares fell 4.86% on Monday, while SK Hynix lost 1.68%. Some market analysts believe such a sharp increase in production capacity could eventually create excess supply if global demand slows.

Other tech plans

The semi-conductor programme forms part of a much broader technology plan. Science Minister Bae Kyung-hoon said South Korea will invest 550 trillion won in AI data centres by 2029. Total investment in AI infrastructure is expected to exceed 1,000 trillion won by 2035, reported Reuters.

The government also plans to spread AI infrastructure across different regions instead of concentrating it around Seoul. Officials believe this approach will help regional economies grow while improving access to digital infrastructure.

South Korea will also establish a robotics and parts manufacturing cluster in Saemangeum on the country’s west coast. Hyundai Motor has already invested in the area, and the government hopes the new hub will strengthen South Korea’s position in humanoid robotics and help it compete with countries such as China.