South Korea will scale up the National Growth Fund to 150 trillion won ($110 billion) from the originally planned 100 trillion won to accelerate investments in advanced industries such as artificial intelligence, biotechnology and robotics – sectors the government sees as potential game changers for the slowing domestic economy, the country’s top financial regulator said on Wednesday.
Asia’s No. 4 economy expects the fund, part of President Lee Jae Myung’s campaign pledge, to be a catalyst for private sector investments in high-tech startups, with the state assuming potential investment losses ahead of other investors.
The National Growth Fund will consist of 75 trillion won sourced from a high-tech industry fund backed by the state-run Korea Development Bank (KDB), with an additional 75 trillion won to be raised from financial services companies, pension funds and individual investors, the Financial Services Commission (FSC) said.
Over the next five years, the government-led fund will aggressively invest in key strategic industries, including AI, semiconductors, biotechnology, vaccines, robotics, hydrogen, secondary batteries, displays, future mobility and defense sectors, as well as companies within these value chains.
The FSC unveiled the plan at a public briefing, attended by President Lee and ministers of Economy, Industry, Science and Startups, along with Korean business leaders and representatives of domestic startups.
GROWTH ENGINE
With the domestic economy projected to slow to nearly zero this year, the initiative is expected to redirect substantial market liquidity concentrated in real estate and savings banks toward venture companies.
“The 150 trillion won National Growth Fund will serve as a growth engine for South Korea’s new leap forward, driving industrial restructuring and transformation,” the FSC said in a statement prepared for the briefing.
The fund will deploy capital through direct and indirect equity investments, offering ultra-low-interest loans in the 2% range in line with treasury bond yields.
“For newly established companies or plant construction projects, which require massive investments, the National Growth Fund will step in as an equity investor, or provide M&A financing,” the FSC said.
LEE’S 3.3.5 VISION
The National Growth Fund will serve as a key policy tool for Lee’s so-called 3.3.5 vision to transform the country into one of the world’s top three AI countries, raise economic growth potential to 3% from this year’s estimated 1.8% and join the ranks of the world’s top five economies.
The fund may evenly split its allocation to 50 trillion won to direct and indirect equity investments, including M&A financing; another 50 trillion won to low-interest loans; and the remaining 50 trillion won to energy infrastructure through investment and lending.
The FSC projected that investments via the national fund to create up to 125 trillion won in added value for the domestic economy, not only by strengthening industrial competitiveness, but also by supporting tech companies, fostering regional growth and creating jobs.
EASING FINANCIAL SOUNDNESS STANDARDS
To encourage financial companies’ contribution to the fund, the FSC may loosen financial regulations related to their investment activities.
“We’ll make efforts to improve the regulatory framework so that financial soundness and operational regulations can be applied more flexibly across financial sectors, including banking, securities, insurance and pension funds,” the FSC said.
As an example, regulations on banks’ risk-weighted asset calculations for lending might be relaxed, granting them greater flexibility to boost corporate loans and venture capital investments.
By Yeonhee Kim
yhkim@hankyung.com
Yeonhee Kim edited this article.
