South Korea will direct 21.3 trillion won ($15.5 billion) toward artificial intelligence, semiconductor manufacturing, and physical AI next year, nearly doubling its current spending on three megaprojects the government considers essential to future economic competitiveness. The proposed 2027 budget, released Tuesday, signals a sharp escalation in state-backed industrial policy as the country moves to secure its position in frontier AI and advanced chip production.
Spending across the semiconductor, physical AI, and domestic AI data center programs will rise 97.2% from 10.8 trillion won this year, according to the budget plan. The increase touches everything from GPU procurement and AI model development to the electricity grids and water pipelines that underpin massive fabrication plants.
Semiconductor infrastructure spending surges tenfold
Semiconductor funding climbs from 1.3 trillion won to 3.4 trillion won. The sharpest increase lands on production infrastructure, which jumps from 200 billion won to 2 trillion won. The government plans to concentrate much of this on manufacturing hubs in the Seoul metropolitan area and the southwestern region of the country.
Two specific sites will receive early attention. The government has earmarked 100 billion won to accelerate operations at fabrication plants in Yongin and Pyeongtaek. Another 300 billion won is allocated for the southwestern semiconductor cluster, including costs tied to relocating the Gwangju military airport. Combined infrastructure spending on these two hubs totals 400 billion won.
A separate 1.5 trillion won integrated financial support program will back the southwestern cluster. The government intends to provide 6 trillion won over four years and will establish a dedicated semiconductor account within a support fund for a planned integrated Gwangju-South Jeolla special metropolitan government. A new special account for strengthening semiconductor competitiveness will also hold 2.6 trillion won.
Research and development funding for core semiconductor technologies rises from 461.2 billion won to 546.6 billion won. The budget includes 48 billion won for a shared fabrication facility for prototyping and testing compound semiconductors. Workforce programs aim to develop 670 specialized semiconductor workers in the south and 1,320 semiconductor design specialists.
AI investment targets independent frontier model
Overall AI spending will increase from 8.4 trillion won to 12.2 trillion won. A major portion - 4.7 trillion won - goes toward developing a new independent frontier-level AI model, securing graphics processing units, and training personnel. The government also plans to spend 25 billion won to attract 20 leading overseas researchers.
Funding for "AI for Everyone" and AI for Government education programs increases from 1.4 trillion won to 2.4 trillion won. Within that envelope, 250 billion won in new spending will support AI agent services built on domestic models and made accessible to the general public. Another 2.1 trillion won will fund customized AI education, training, and retraining for 3.9 million people.
Physical AI and data center ecosystem get dedicated funding
Physical AI programs receive 3.1 trillion won. Next year, 500 billion won will support field demonstrations across eight sectors including manufacturing, smart factories, construction, and agriculture. The government also plans to establish training centers to generate physical AI data and introduce roughly 2,000 domestically produced AI robots.
A further 500 billion won will go to the AI data center ecosystem. That investment covers test laboratories for core components alongside development of materials, components, equipment, and cloud technologies.
Power and water: the infrastructure beneath the chips
The budget begins addressing the electricity and water demands that expanded semiconductor production will create. The government will provide 88.1 billion won for underground transmission lines, high-voltage substations, and other electricity infrastructure at new semiconductor industrial complexes. By 2035, it plans to build 44 substations operating at 345 kilovolts. A 500 billion won cash injection into Korea Electric Power Corp. aims to ease the utility's financial strain from accumulated losses.
For water infrastructure, 119.6 billion won will supply semiconductor complexes in the southwest. The allocation breaks down to 52.3 billion won for pipelines, 67 billion won to expand Dongbok Dam, and 300 million won for wastewater reuse. Most of next year's funding covers design and initial construction. The long-term target is infrastructure capable of delivering 1.33 million tons of water daily to southwestern semiconductor complexes, backed by 250 billion won in capital for Korea Water Resources Corp.
Planning and Budget Minister Park Hong-keun said the government would provide full support for essential infrastructure so the three megaprojects proceed without delay. "We will concentrate support on 10,000 GPUs, data and talent so that our independent AI model can achieve world-leading performance, and we will develop AI for Everyone services and make them available to the public," Park said.
Why this matters for government professionals
South Korea's budget offers a concrete benchmark for how a mid-sized, trade-dependent economy structures large-scale industrial investment. The line items - from dedicated semiconductor accounts inside regional government funds to direct capital injections into state-owned utilities - show the operational mechanics behind a national technology strategy. For policy and procurement professionals, the breakdown of infrastructure spending (underground transmission, dam expansion, shared prototyping facilities) provides a reference for the physical assets that semiconductor and AI commitments require beyond R&D grants. The four-year, 6 trillion won financial support program tied to a planned special metropolitan government also illustrates how regional governance structures can be reshaped around industrial clusters.
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