Milan (AsiaNews) – For decades, South Korea has based the growth of strategic sectors, such as shipbuilding and semiconductors, on a “developmental state" model, characterised by close cooperation between the government and large family-run conglomerates known as chaebols.
Under this model, the state identifies key sectors and then entrusts the chaebols with the task of driving their development.
President Lee Jae-myung is now applying this same principle to artificial intelligence (AI) with a project unparalleled elsewhere: providing all 51 million residents with free, unlimited access to an AI assistant based on Korean models.
However, the programme, dubbed AI for All, faces several unresolved challenges, such as the immense amount of electricity required to run the models and the allocation of infrastructure costs.
In late August, the Ministry of Science and ICT[*] selected three consortia to manage the service, led by the country's two largest telecom operators, SK Telecom and KT, and Kakao, the company behind the popular messaging app KakaoTalk.
For its part, the state will provide up to 512 Nvidia B200 processors and cover a portion of the operating costs.
The assistant will be linked to public administration systems, enabling tasks such as booking medical appointments or obtaining tax advice.
To promote domestic models, the government has mandated that at least 80 per cent of the service should rely on systems developed in South Korea; foreign systems may be adopted only where domestic ones are not yet sufficiently capable, and in such cases, the cost will be borne by the operators.
This move also aims to bridge the significant gap between domestic models and foreign competitors, given that ChatGPT already has nearly 23.5 million monthly users in Korea, whereas domestic models reach only a limited segment of the public.
The microchip boom and new investments
The project is part of a major increase in public spending on AI, with the budget allocation more than tripling from 3.3 trillion won in 2025 to 10.1 trillion won in 2026 (about US$ 7.5 billion).
The goal of establishing South Korea as one of the world's top three AI powers – originally set by Yoon Suk-yeol’s ultra-conservative government and reaffirmed by Lee’s progressive administration – remains unchanged.
However, the Chinese tech outlet 36Kr noted a shift from the model followed in the past, when South Korea primarily funded the supply side, simultaneously supporting industrial production and research activities.
Today, the government is also intervening on the demand side, creating a protected user base that allows domestic models to gather data and improve their performance.
Funding for this strategy has been made available by the chip boom. To this end, the state budget for 2027, unveiled in early September, includes a 12.8 per cent increase over the previous year.
A key component is the 162.3 trillion-won Future Fund, fuelled by windfall tax revenues from South Korean tech giants like Samsung Electronics and SK hynix, driven by strong global demand for AI-related memory chips.
Deputy Prime Minister and Minister of Science Bae Kyung-hoon rejected calls from some US industry executives to slow down technological development, stating that South Korea cannot afford to decelerate its AI progress at this time.
However, the country currently lacks the capacity to supply the massive amounts of energy required to power data centres and semiconductor manufacturing plants, nor does it possess the necessary infrastructure to distribute power wherever it is needed.
In late June, the government launched three mega-projects focused on semiconductors, AI data centres, and robotics.
Samsung and SK hynix have pledged investments totalling 800 trillion won for new factories in the country's southwest, while total data centre capacity is projected to reach 18.4 gigawatts by 2035.
According to government estimates cited by critics of these megaprojects, the southwestern semiconductor hub alone will require 6.3 gigawatts, more than the output of four large nuclear power plants, as well as 650,000 tonnes of water daily.
Meanwhile, in Seoul, available data centre space is nearly exhausted; the vacancy rate has dropped to 1.1 per cent, the lowest among major Asia-Pacific markets, and operational capacity stands at 663 megawatts, compared to 1,397 megawatts in Tokyo.
Investors are increasingly seeking land that is already connected to the power grid, driving growing interest in cities such as Busan and Ulsan.
Sustainability concerns
The primary challenge lies in transporting electricity from generation sites to consumption areas. Constructing a new transmission line takes an average of more than ten years, yet private data centres remain concentrated in the capital region.
The goal of establishing South Korea as one of the world's top three AI powers, originally set by Yoon Suk-yeol’s ultra-conservative government and reaffirmed by Lee’s progressive administration, remains unchanged.
The most prominent example is the semiconductor cluster in Yongin, south of Seoul, which requires more than 10 gigawatts of additional power and 1.1 million tonnes of water daily; however, the project is struggling as resident opposition to new power lines and slow authorisation processes delay construction.
The government has pledged to utilise all available sources, including extending the operational lifespan of aging nuclear power plants, and has shortened the timeframe for environmental impact assessments.
The Korea Electric Power Corporation (KEPCO), the state-owned utility managing the national grid, asked Samsung Electronics and SK hynix to make a combined upfront payment of 25 trillion won, an amount equivalent to roughly five years of their electricity bills, to rapidly fund new power lines and substations, starting with those needed for the Yongin cluster.
The company proposed covering the interest costs itself and subsequently deducting the advance payment from future electricity bills.
However, Samsung and SK hynix rejected the proposal, citing their inability to confidently predict that the current chip market boom would last another five years, as well as the need to preserve sufficient liquidity to fund new factories and research activities.
KEPCO, for its part, lacks the means to proceed alone due to its complex financial situation.
The Korea JoongAng Daily compared the situation in South Korea to that in China, where central and local governments directly shoulder part of the investment risk associated with semiconductor manufacturing.
In the case of Yongin, however, the 622 trillion won earmarked for the new industrial hub is being funded almost entirely by Samsung and SK Hynix, while public support consists primarily of low-interest loans and tax credits, an arrangement that allows the companies to retain the profits while shifting the costs and risks onto the public.
Some South Korean experts consulted by the Financial Times question whether the semiconductor boom will last long enough to sustain this strategy.
Shin Yul, a political science professor at Myongji University, noted that no one knows how long the favourable period, upon which the revenue for the future funding depends, will last.
Meanwhile, the central bank has raised interest rates to 3 per cent in an effort to curb inflation, which has been partly fuelled by the growth of the chip sector.
Uncertainties surround not only the duration of the chip boom but also the sustainability of the "AI for All" initiative.
The 512 processors made available by the state are intended to serve a population of 51 million but offer far less computing power than what ChatGPT has at its disposal.
Compounding the issue is the fact that public funding is guaranteed only until 2028; after that, operators will have to provide the service using their own revenue.
[*] Information and Communication Technology
