South Korea is building a $3.5bn fund to own more of the chip supply chain

South Korea makes some of the world’s best chips, yet it still leans heavily on others for the materials and machines that make them. A new government fund is meant to start closing that gap.

Seoul is setting up a 5 trillion won fund, roughly $3.5bn, aimed squarely at chip materials, components and the smaller fabless firms that design chips without building them.

Presidential chief of staff Kang Hoon-sik announced the plan as part of a broader push to build out the country’s chip clusters.

The logic behind it is about resilience rather than prestige. Samsung and SK Hynix dominate the glamorous end of the business, memory and advanced manufacturing, but the specialty chemicals, precision parts and lithography tools that feed their fabs still come largely from abroad, especially Japan and the Netherlands.

That dependence has bitten before, which is why this matters. When Japan restricted exports of key chipmaking materials in 2019, it exposed just how vulnerable Korea’s crown-jewel industry was to a supply shock it could not control, and the lesson clearly stuck.

The fund is only one piece of a much larger package. Alongside it, the government is committing another 5 trillion won in trade finance for export-oriented suppliers, and pursuing a Mega Special Zone Act to speed up the permits and infrastructure that big chip projects always seem to wait on.

Infrastructure is the quieter half of the story, and arguably the harder one. Seoul is planning to supply hundreds of thousands of tonnes of water for chip projects in the Honam region by 2030, and to route some 14.7 gigawatts of power to the giant Yongin cluster by 2041.

Those numbers hint at the scale of what modern chipmaking demands. Fabs are among the thirstiest and most power-hungry facilities on earth, so securing water and electricity years in advance is now as strategic as any subsidy.

This is familiar territory for Seoul, which has been spending aggressively to defend its lead. The government has already been in talks with Samsung and SK Hynix over a second chip cluster, part of a steady drumbeat of state-backed investment.

The ambitions run to eye-watering totals. Korea has floated an $880bn plan for chips and robots, a sign that it sees semiconductors and AI as the foundation of its economic future rather than just another industry.

It can afford to be bold partly because the boom is filling its coffers. The country has been planning a future-response fund built on its AI chip tax windfall, effectively recycling the profits of the current cycle into the next one.

The private sector is matching the mood. SK Hynix alone is pouring $51bn into a new NAND factory, and the materials-and-equipment fund is designed to make sure the ecosystem around such megaprojects is Korean too, not just the marquee names.

The fund’s focus on fabless firms is telling in its own right, too. Korea has long been strong in manufacturing but comparatively thin in chip design houses, so channelling money to smaller designers is an attempt to broaden an industry that has leaned heavily on two giants.

Timing plays in Seoul’s favour as well. The AI boom has sent demand for memory and advanced packaging soaring, which gives Korean suppliers a rare window to win business and scale up while buyers are desperate for capacity.

There is a limit to what money can buy quickly, though. Building a domestic base in specialty materials and precision equipment takes years of painstaking engineering, and incumbents in Japan, the US and Europe hold decades of accumulated know-how that cannot simply be subsidised into existence.

Still, the direction is unmistakable. As chips become ever more central to economic and national security, South Korea has decided it can no longer afford to own only the finished product while renting the means of making it.