South Korea’s bold new chip cluster tests strategy to stay ahead in AI race

BEIJING, 23 JULY 2026 —

South Korean President Lee Jae Myung (centre) with SK Group chairman Chey Tae-won (left) and Samsung Electronics chairman Lee Jae-yong after an announcement of public-private collaboration projects in Seoul on June 29.

SEOUL – South Korea’s bold decision to build a massive AI semiconductor cluster in its south-western region marks more than just an industrial policy gamble.

It is also a geopolitical bet to ensure the country’s indispensability in the global AI supply chain while creating a second technology hub beyond the capital region.

South Korean President Lee Jae Myung unveiled on June 29 an ambitious US$576 billion (S$745 billion) national push to cement the country’s leadership in semiconductors and artificial intelligence.

Calling the plan a “great leap forward”, Lee said the mega project, backed by major chipmakers Samsung Electronics and SK Hynix, will be built around the three core pillars of the semiconductor industry (design, manufacturing, and assembly and test), physical AI, and data centres.

The plan comes amid an intensifying global race for semiconductor and AI supremacy, fuelled by surging demand for the advanced chips that power generative AI.

South Korea’s Samsung and SK Hynix already dominate 80 to 90 per cent of the global production of high-bandwidth memory (HBM) chips, a critical component used in AI accelerators and data centres.

However, South Korea continues to lag behind in terms of AI processors, logic chips and in the foundry business (contract manufacturing), where Taiwan’s TSMC currently reigns supreme.

The newly announced cluster aims to address those gaps by creating a more integrated AI semiconductor ecosystem encompassing chip design, fabrication, AI computing infrastructure and data centres, broadening it beyond memory chip production.

It also comes at a time of unprecedented growth in the sector.

On July 1, South Korea’s Ministry of Trade, Industry and Energy announced that, compared with June 2025, semiconductor exports had nearly tripled year on year to a record US$44.8 billion, driven by surging global demand for memory chips.

But beyond capitalising on the current boom, the new AI chip cluster is also “a strategic imperative to fend off Chinese competition in less advanced memory production”, said non-resident fellow Troy Stangarone from the Carnegie Mellon Institute for Strategy and Technology in Pennsylvania.

China has spent the past decade building up its domestic semiconductor industry, committing around US$150 billion through successive state-backed investment funds to reduce its reliance on foreign chip technologies.

Beijing has further accelerated those efforts since the United States imposed sweeping export controls on advanced chips and chipmaking equipment in 2022 to slow China’s progress in advanced semiconductors and artificial intelligence.

Its growing capabilities in memory chips have added urgency to Seoul’s efforts to move further up the semiconductor value chain and strengthen its position in AI.

And with the global AI boom triggering an unprecedented surge in demand for memory chips, iPhone maker Apple is reportedly considering sourcing memory components from Chinese suppliers ChangXin Memory Technologies and Yangtze Memory Technologies for devices meant for sale only in the Chinese market.

If Apple’s proposed arrangement materialises, it could reduce demand for memory chips supplied by non-Chinese manufacturers such as South Korea’s Samsung Electronics and SK Hynix, as well as the US’ Micron Technology , allowing the capacity to be redirected elsewhere .

“In the medium term, this should also help limit the need of non-Chinese firms to purchase Chinese memory chips (because of the global shortage),” said Stangarone.

The new chip cluster, centred on Gwangju city, is intended to help Seoul maintain its competitive edge as a global semiconductor powerhouse , Stangarone said. It also serves geopolitical significance in supporting the US-led global AI ecosystem by bolstering the supply of advanced semiconductors and AI infrastructure, while helping to “minimise Chinese market advances in the memory sector” through reinforcing the scale and technological lead of South Korean chipmakers , he pointed out .

With the mega project, South Korea is also seeking at the same time to decentralise tech-related industrial and economic activity away from the capital region, where its existing semiconductor industry is concentrated in a corridor encompassing the cities of Suwon, Hwaseong, Pyeongtaek, Icheon and the current Yongin semiconductor cluster, stretching south of Seoul.

The location of the new cluster marks a significant departure from South Korea’s traditional industrial geography.

The country’s manufacturing backbone has long been concentrated in the south-east region , where decades of rapid state-led industrialisation under the conservative former president Park Chung-hee created clusters of shipbuilding, steel, petrochemicals and automobiles .

The new plan has thus drawn scrutiny domestically, with critics questioning whether the earmarked locations of Gwangju city and South Jeolla province in the south-west have the infrastructure and talent pool to support such a massive undertaking.

Members of the opposition party even alleged that the choice of location was driven by political considerations, as Gwangju city and South Jeolla province are traditional liberal strongholds.

President Lee, whose liberal party currently holds the majority in the National Assembly, has pushed back against such criticism at an event on July 2 , saying “the harmful effects of concentration in the capital region have become so severe that it has become burdensome even for companies to do business there”.

He added that the government strives to support companies to base their operations in the most suitable regions.

According to local media reports, a 2023 survey commissioned by the previous administration of former president Yoon Suk Yeol to assess regional readiness for future semiconductor and high-tech manufacturing hubs had found Gwangju city and the South Jeolla province ranked as the country’s best-prepared locations.

The region was found to have a good supply of industrial water, along with solar and wind power infrastructure considered optimal for realising RE100 renewable electricity commitments , of which Samsung and SK Hynix are members .

RE100 is a global initiative that brings together the world’s most influential businesses committed to sourcing 100 per cent of their electricity from renewable energy sources.

Infrastructure aside, the region will also face an uphill task in attracting a highly skilled labour force ready to power the cluster .

An opinion piece in the JoongAng Daily on July 3 argued that Gwangju and South Jeolla were “largely excluded” from South Korea’s high-growth industrialisation, leaving the region with “relatively few major business leaders, limited manufacturing employment and a comparatively small middle class”.

As a result, the success of the planned chip cluster would depend less on attracting investment than on building “the administrative capacity, urban infrastructure and quality of life” needed to sustain a long-term high-tech ecosystem, the opinion piece said.

Stangarone shares the same concern. He said: “While there are broader infrastructure issues to consider, the government should be able to address those over time. The lack of a highly skilled labour force will be the biggest constraint.”

Wendy Teo is The Straits Times’ South Korea correspondent, based in Seoul. She covers issues concerning the two Koreas.

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