South Korea to create $3.5b chip fund for semiconductor materials and hubs

South Korea has earmarked 5 trillion won, equaling $3.52 billion, for a fund designated to develop chip materials, components and small design firms.

This development was announced by presidential chief of staff Kang Hoon-sik on Monday, in a bid to cut the country’s reliance on foreign suppliers that feed its world-leading chip manufacturers.

$3.5 billion fund comes with more

According to Reuters, Seoul is also pairing the 5 trillion won fund with an additional 5 trillion won in trade financing for export-leaning suppliers, which brings the total direct support for the industry to 10 trillion won.

In addition, the government is creating a 10-year, 1 trillion won program to tie large chipmakers to the small and mid-sized suppliers positioned at every stage of production, inclusive of design, testing all the way to manufacturing.

South Korea’s government also wants parliament to pass a Mega Special Zones Act by the end of the year, which is a law meant to compress permitting, environmental reviews and infrastructure work for major industrial sites.

The announcement followed a meeting chaired by President Lee Jae-myung, all part of a semiconductor initiative Lee unveiled in June.

South Korea chip fund targets supply chain

Samsung Electronics and SK Hynix lead the world in memory and advanced manufacturing, however, the specialty chemicals and precision parts that keep their lines running still arrive mostly from abroad, most importantly, Japan and the Netherlands.

That gap has previously cost South Korea significantly. When Japan curbed exports of key chipmaking materials in 2019, it showed how exposed the country’s flagship industry was to a supply shock it could not control.

The increased interest in channeling money toward fabless firms and companies that design chips but do not own factories is an additional aim, as Korea has leaned on two giants for years and has comparatively few design houses to show for it.

Freeing land and moving ahead for power and water

President Lee ordered the Ministry of National Defense to move the military functions of Gwangju’s air base to other sites by mid-2028, clearing an 8.3 million square meter area for the Honam Semiconductor Cluster, a project set at an estimated 800 trillion won in total investment. Samsung and SK Hynix also took part in the meeting leading to these conclusions as lead investors.

Lee pressed for speed, telling officials the effort needed to go on as fast as humanly possible. He stated TSMC’s plant in Kumamoto, Japan, which went from groundbreaking to completion in 22 months, as the benchmark, and told officials to run procedures in parallel rather than in sequence.

Modern chip manufacturing factories are among the thirstiest and most power-hungry facilities anywhere, so utilities are now booked years in advance. Seoul plans to supply 650,000 metric tons of water a day to the Gwangju and South Jeolla cluster by 2030, drawn from treated wastewater and nearby dams.

For the Yongin cluster south of Seoul, 14.7 gigawatts of electricity are planned by 2041, sourced from cogeneration, liquefied natural gas and transmission from other regions.

Semiconductor bet amid flustered market

The offensive lands as Korea’s stock market swings wildly, with the KOSPI index surging 116% in the first half of the year, peaking at 9,385 points on AI-driven demand for high-bandwidth memory (HBM). HBM chips are mass-produced by only three companies in the world, with two of them being South Korean.

The KOSPI index has seen a tumble since mid-July, falling about 40% from its peak, while President Lee’s approval rating has dropped to a record low of 43.3%.

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