South Korea is betting big on chips, proposing 2.6 trillion won (approximately $1.9 billion) in semiconductor funding as it races to stay competitive in the global AI economy.
The allocation is part of South Korea’s proposed 2027 government budget of approximately 821 trillion won (approximately $597 billion), a 12.8% increase from this year and the largest annual spending increase in the country’s history, according to Reuters.
The Cabinet approved the proposal on Sept. 1 and was expected to submit it to the National Assembly on Sept. 3. Total revenue is projected at 880.8 trillion won (approximately $641 billion), including 584.4 trillion won (approximately $425 billion) in national tax receipts, helped by strong corporate and income tax collections.
Much of that revenue boost is tied to the semiconductor industry. Samsung Electronics and SK Hynix have benefited from strong global demand for high-bandwidth memory chips used in AI systems.
The proposed 2.6 trillion won (approximately $1.9 billion) semiconductor allocation adds another layer to South Korea’s broader effort to strengthen its chip industry.
The wider proposal also includes 21.3 trillion won (approximately $15.5 billion) for industrial water systems, power grids and logistics networks supporting semiconductor manufacturing and other critical technologies, Reuters reported.
The infrastructure spending suggests Seoul is looking beyond chip factories themselves. Reliable power, water and transportation are increasingly important as semiconductor plants become larger and more resource-intensive. President Lee Jae Myung said the budget should help the country respond to rapid technological changes.
“Against the backdrop of these sweeping changes, next year’s budget should serve as a solid foundation for Korea to emerge as a global leader in cutting-edge technologies,” Lee said, according to SCMP.
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Turning a chip windfall into long-term investment
South Korea is also creating a 162.3 trillion-won (approximately $118.3 billion) Future Response Fund using tax revenue above the past decade’s trend. The fund will direct 45.4 trillion won (approximately $33.1 billion) toward youth support, growth industries, regional development and education, while 12.5 trillion won (approximately $9.1 billion) will help reduce new government bond issuance, according to Korea Pro.
The strategy would allow Seoul to invest unusually strong semiconductor-linked tax receipts without assuming the surge will last indefinitely. For enterprise technology buyers, sustained investment in South Korea’s chip industry could help strengthen supplies of high-bandwidth memory and other components used in AI servers. However, weaker chip demand could reduce future tax receipts while leaving the government with longer-term spending commitments.
Read more: SK hynix is investing $38 billion in new memory plants as AI demand puts pressure on South Korea’s semiconductor production capacity.