South Korea’s government and its two largest memory-chip makers unveiled a combined investment plan worth roughly $1.2 trillion on Monday, aiming to build a new semiconductor manufacturing hub and expand AI data-centre capacity. The announcement was immediately followed by a drop in the share prices of Samsung Electronics and SK Hynix, which fell as much as 4.8 per cent and 1.7 per cent respectively in Seoul trading. The market reaction, analysts in the capital noted, reflected concerns that the long-term profitability of such vast outlays may be eroded by intensifying global competition and the widening gap between AI’s infrastructure build-out and its current commercial returns.

The core of the plan is an 800 trillion won ($518 billion) investment by Samsung, SK Hynix and their suppliers to construct four new fabrication plants in the southwestern Honam region, encompassing the city of Gwangju and South Jeolla province. A separate 1,000 trillion won ($650 billion) will be directed towards AI data centres, with the government targeting a national capacity of 18.4 gigawatts by 2035. President Lee Jae Myung, appearing alongside the chairmen of both companies, framed the projects as a “national survival strategy” to maintain an overwhelming lead in memory semiconductors while simultaneously narrowing the economic gap between the greater Seoul metropolitan area and the country’s less industrialised southwest.

Government officials emphasised that the southwest possesses abundant untapped renewable electricity and water resources, which they argue will help chipmakers meet growing global pressure to use cleaner energy. However, industry experts and opposition politicians have questioned the choice of location. Viewed from within South Korea, the Honam region is a traditional stronghold of the president’s liberal party, and critics allege the investment is politically motivated. Semiconductor engineering specialists also caution that the area currently lacks the dense supplier networks, advanced logistics and skilled workforce concentrated around Seoul, and that building a fully functional chip ecosystem from scratch could take more than five years.

The government has pledged to dramatically shorten permit approvals and construction timelines, but no completion dates have been specified. The next concrete milestone will be the submission of detailed site plans and environmental impact assessments, which the administration says it will fast-track. Whether the promised speed can overcome the structural challenges of creating a second semiconductor pole far from existing industrial basins will determine if the investment delivers the intended strategic edge.