South Korea unveils $1.2 trillion investment plan for AI data centres and semiconductor manufacturing

• South Korea will invest nearly $1.2 trillion in AI data centres and semiconductor manufacturing, with Samsung Electronics and SK hynix leading a massive chip production expansion.

• The project includes four new semiconductor fabrication plants and a long-term plan to build advanced AI data centres, boosting the country's AI and chip infrastructure.

• While the investment aims to transform South Korea into a stronger AI and semiconductor powerhouse, experts warn that relocating production outside the Seoul region could face challenges such as labour shortages, supply chain development and infrastructure costs.

South Korea has announced plans to invest nearly 1.6 quadrillion won ($1.2 trillion) in artificial intelligence infrastructure and semiconductor manufacturing, marking one of the biggest industrial investment drives in the country's history.

The ambitious public-private initiative is aimed at strengthening South Korea's position as a global technology powerhouse as demand for AI chips and data centres continues to surge worldwide.

Speaking at the launch of the initiative in Seoul, President Lee Jae Myung said speed would determine which countries emerge as leaders in the AI era.

"Speed is the only path to survival. We must secure the core elements of artificial intelligence faster than any other nation," President Lee said.

As part of the plan, semiconductor giants Samsung Electronics and SK hynix will jointly invest 800 trillion won (about $520 billion) to build a massive semiconductor manufacturing hub in South Korea's southwestern region.

According to the government, the project will include four semiconductor fabrication plants, with Samsung and SK hynix each constructing two facilities.

Industry Minister Kim Jung-kwan said the goal is to transform the country's southwest into another major semiconductor production centre, reducing reliance on the existing cluster around the Seoul metropolitan area.

"We will develop the southwestern region into a second semiconductor production hub," Kim said.

He added that the government would fast-track approvals to help companies begin production sooner.

"Permit approvals and construction timelines will be dramatically shortened to rapidly expand production capacity," Kim said.

"Through this, we will maintain an overwhelming market leadership and a decisive technological gap in the memory semiconductor sector."

South Korea is already home to two of the world's biggest memory chip manufacturers, and both companies have enjoyed strong earnings as artificial intelligence fuels unprecedented demand for high-bandwidth memory (HBM) chips used in AI servers and graphics processors.

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Alongside the chip manufacturing project, the South Korean government also announced plans to invest one quadrillion won (around $650 billion) in AI data centres over the next decade.

Science Minister Bae Kyung-hoon said the first phase will see 550 trillion won invested by 2029 before expanding further over the following years.

"By 2035, an additional 10-gigawatt AI data centre will be built, with a total investment exceeding 18.4 gigawatts and 1,000 trillion won."

The new facilities are expected to provide the computing power needed to support AI development, cloud services and next-generation digital industries.

A key part of President Lee's economic strategy is directing more industrial investment outside the Seoul region.

The semiconductor hub will be built in Honam, which includes Gwangju and the Jeolla provinces, areas that have historically received less industrial development than South Korea's southeast.

The economic gap dates back to the country's rapid industrialisation during the 1960s and 1970s under former President Park Chung-hee, when much of the nation's manufacturing infrastructure was concentrated elsewhere.

However, some experts warn that moving such a large industry away from its existing supply chain may not be straightforward.

Kim Dae-jong, a Business Administration professor at Sejong University, said companies could face enormous financial and operational risks.

"It is essential to minimise the financial burden, amounting to hundreds of trillions of won, as well as the time-related risks faced by companies."

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Industry analysts say the southwest offers abundant renewable energy resources, making it attractive for semiconductor manufacturers looking to meet sustainability targets.

Still, building an entirely new semiconductor ecosystem from scratch will require significant investment beyond factories alone.

Lee Jong-hwan, a semiconductor engineering professor at Sangmyung University, said the existing concentration of suppliers and skilled workers around Seoul remains a major hurdle.

"Establishing production lines from scratch could take more than five years."

"The biggest challenge is that most skilled workers and suppliers remain concentrated around the Seoul metropolitan area."

Another concern is the massive amount of water required for semiconductor production. President Lee recently said government assessments showed the region could supply one million tonnes of industrial water per day, easing some concerns about future factory operations.

The investment comes as South Korea seeks to capitalise on the global artificial intelligence boom, with demand for advanced semiconductors continuing to rise as companies expand AI services and data centre capacity.

The rapid growth has also sparked debate over how the country's AI-driven economic gains should be shared.

Earlier this year, presidential policy chief Kim Yong-beom proposed using additional tax revenues generated from the AI industry to fund startup support for young entrepreneurs, rural basic income programmes and financial assistance for artists.

Meanwhile, booming profits in the semiconductor sector have also strengthened workers' demands for higher compensation. Samsung recently avoided a major strike after reaching a bonus agreement with its largest labour union.

With more than $1 trillion earmarked for AI infrastructure and semiconductor manufacturing, South Korea is positioning itself to remain one of the world's most important players in the race to dominate the next generation of artificial intelligence technology.