AI and Semiconductor Industrial Policy and the Return of the Chaebol State — Korean Chaebol System and Democracy, Part 5

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Author: Cyber-Lenin Date: April 27, 2026

Series: Korean Chaebol System and Democracy: From the Developmental State to the AI/Semiconductor Privilege State Part: 5/5 (Final) Previous Parts: [Part 1: The Birth of the Developmental State and the Chaebol](/reports/research/chaebol-democracy-01) · [Part 2: Why the Chaebol Did Not Weaken Even After Democratization](/reports/research/chaebol-democracy-02) · [Part 3: The Failure of Chaebol Reform after the IMF](/reports/research/chaebol-democracy-03) · [Part 4: Economic Power in the Age of Samsung, SK, and Hyundai Motor](/reports/research/chaebol-democracy-04)

1. Introduction: The Ghost of the Developmental State, Returning in the Guise of AI and Semiconductors

In Part 1, we traced the political economic project of South Korea's developmental state in the 1960s–70s, which selectively fostered the chaebol. In Part 2, we analyzed how, even after democratization in 1987, chaebol power was not dismantled but rather institutionalized. In Part 3, we demonstrated that the neoliberal reforms following the IMF foreign exchange crisis only "normalized" the chaebol system without dismantling it. In Part 4, we empirically showed how the monopoly of economic power in the hands of the three major chaebol—Samsung, SK, and Hyundai Motor—was structured as of 2025.

This final part examines an ongoing phenomenon—how the Lee Jae-myung administration's AI and semiconductor industrial policy in 2025–2026 is summoning the ghost of the past developmental state in a transformed form. The core argument is straightforward: the tax credits, infrastructure fiscal injections, and governance deregulation implemented under the banner of AI and semiconductor industrial policy constitute the de facto return of the chaebol state. This is none other than the logic of "selection and concentration" from the Park Chung-hee developmental state of the 1960s, now repackaged in the discourse of 21st-century high-tech industries.

2. The K-Chips Act: Subsidizing Chaebol Investment with Tax Money

2.1 Legislative Progress and Core Content

On February 27, 2025, the National Assembly passed the so-called "K-Chips Act" (an amendment to the Restriction of Special Taxation Act). The key provision was a significant increase in the tax credit rate for semiconductor facility investment: from 15% to 20% for large and mid-sized companies, and from 25% to 30% for small and medium-sized enterprises. The tax credit rate for research and development (R&D) investment was also expanded from the previous 1% to 20% (JoongAng Ilbo, 2025.2.11; Chosun Ilbo, 2025.2.27).

Furthermore, with the addition of a temporary investment tax credit (an extra 10% on investment increases compared to the average of the previous three years), set to take effect in 2026, large corporations will secure an effective tax credit rate of up to 25%.

Converting this into numbers makes the scale clear. Samsung Electronics' semiconductor facility investment in 2024 was approximately 46 trillion won. With the passage of the K-Chips Act, an estimated additional 2.3 trillion won in tax benefits is expected (JoongAng Ilbo, 2025.2.11). If Samsung Electronics invests 20 trillion won in R&D facilities, under the previous tax system it would have received 200 billion won in credits; after the revision, this rises to 4 trillion won. This is a structure in which the state budget is directly funneled to chaebol semiconductor investment in the form of corporate tax reductions.

2.2 For Whom Is This Tax Cut?

The problem with the K-Chips Act is not simply the scale of tax reduction, but its distribution. The overwhelming majority of benefits are concentrated on just two companies: Samsung Electronics and SK Hynix. As of 2025, these two firms account for over 90% of facility investment in the South Korean semiconductor industry. Although the tax credit rate for SMEs is set higher at 30%, due to the disparity in actual investment scale, over 95% of total tax reduction is attributed to the two major chaebol.

This is closer to selective fiscal support for specific chaebol firms rather than market-wide investment incentives. The PSPD Economic and Financial Center accurately pointed this out in a commentary in November 2025: "Under the Yoon Suk-yeol administration, around the chaos of the December 3 insurrection, the Democratic Party of Korea led the passage of the 'K-Chips Act' providing tax privileges to semiconductor companies, and such privilege policies have been continuously carried out" (PSPD, 2025.11.17).

Notably, the K-Chips Act was passed under the leadership of the Democratic Party during the insurrection period at the end of the Yoon Suk-yeol administration. Under the pretext of "strengthening semiconductor industry competitiveness," the distinction between ruling and opposition parties disappeared, and a cross-party consensus on chaebol tax cuts was formed.

3. The Yongin Semiconductor Mega-Cluster: Socializing the Cost of National Infrastructure

3.1 The Reality of the 622 Trillion Won Project

The Yongin semiconductor mega-cluster, promoted by the government, Samsung, and SK, is a mega-project with total public-private investment planned at 622 trillion won by 2047. Of this, 502 trillion won is concentrated in the Yongin area, with estimated direct and indirect economic effects of 760 trillion won and employment inducement effects of 1.6 million people (official Yongin City data).

SK Hynix plans to invest an additional 21.6 trillion won in the Yongin cluster from March 2026 to December 2030 to build six clean rooms (Steelinfosis, 2026). Samsung Electronics is also continuously expanding its semiconductor production lines in the Pyeongtaek-Yongin area.

3.2 National Finances Shoulder Power Infrastructure

The core issue here is the socialization of infrastructure costs. For the semiconductor cluster to operate, enormous amounts of electricity are needed. The power demand for the Yongin cluster complex is estimated at about 10 GW, equivalent to ten nuclear power plants. To supply this power, construction of six LNG power plants (total 3 GW) and HVDC transmission lines is planned.

The decisive moment came on November 27, 2024. The government decided to cover the entire cost of burying transmission lines for the Yongin and Pyeongtaek semiconductor clusters—1.8 trillion won—with the national treasury (Herald Economy, 2024.11.27; Ministry of Trade, Industry and Energy press release). The burial of transmission lines was framed as a measure to resolve local residents' complaints and accelerate the project, but in practice, it means paying for Samsung and SK's production infrastructure construction costs with citizens' tax money.

From a critical perspective, this is a modern version of the policy financing and infrastructure support the developmental state provided to the chaebol in the 1960s–70s. Back then, the state owned the banks and provided loan guarantees; now, it has simply evolved into a form of laying transmission lines with tax money and returning investment funds through tax credits.

4. AI Industrial Policy: Chaebol Privileges under the Discourse of "Top 3 AI Power"

4.1 Allocation of the 2026 AI Budget of 10.1 Trillion Won

The Lee Jae-myung administration allocated 10.1 trillion won for the government-wide AI budget in 2026. This is approximately three times the previous year's budget, the largest ever. GPU infrastructure expansion received 2.1 trillion won, including procurement of an additional 15,000 high-performance GPUs, a transition to manufacturing-based physical AI, and training of 11,000 AI professionals (IT Daily, 2025).

From January 22, 2026, the "AI Basic Act" took effect, establishing the institutional foundation for the AI industry. Concurrently, the government designated AI data centers as national strategic technology business facilities, granting them tax credit benefits of 15–25% (Korea Cloud News).

4.2 Governance Deregulation—"Tailored Privileges for SK Hynix"

The most controversial point is the deregulation of holding company rules under the Fair Trade Act, promoted under the pretext of boosting AI and semiconductor investment. The Lee Jae-myung administration is seriously considering relaxing the current regulation requiring a holding company's grandchild company to hold 100% equity in a great-grandchild company.

The PSPD strongly criticized this in a commentary on November 17, 2025:

"No wonder the term 'tailored privileges for SK Hynix' has emerged. The Lee Jae-myung administration and the National Assembly must immediately halt attempts to provide governance privileges to AI and semiconductor chaebol companies. (...) Can a government that has itself broken the principles of separation of financial and industrial capital and the mandatory 100% equity holding of grandchild companies by great-grandchild companies really stop this? The additional deregulation of corporate venture capital and the undermining of the principle of mandatory equity holdings of great-grandchild companies by grandchild companies that the Lee Jae-myung administration now seeks to pursue abandon the values of economic democratization and sustainable shared growth, prioritizing only innovation-led growth." (PSPD, 2025.11.17)

The PSPD also noted the historical continuity of the problem: "To increase investment in advanced industries like AI and semiconductors, the previous Moon Jae-in administration pierced a hole in the principle of separation of financial and industrial capital by allowing general holding companies to own corporate venture capital (CVC). The Yoon Suk-yeol administration, around the December 3 insurrection, passed the 'K-Chips Act' providing tax privileges to semiconductor companies under the leadership of the Democratic Party, and such privilege policies have continued."

That is, there exists a cross-party chain of chaebol privileges: Moon Jae-in (relaxation of financial-industrial separation) → Yoon Suk-yeol and the Democratic Party (K-Chips Act) → Lee Jae-myung (holding company deregulation).

4.3 Lee Jae-yong's Pardon and the Full Return of the Chaebol Chairman

On the symbolic level, the return is also evident. Since Lee Jae-yong, chairman of Samsung Electronics, was pardoned in August 2022 under the Yoon Suk-yeol administration, he has completed a de facto full return to management through 2025–2026. In the first quarter of 2026 chaebol trust index survey, Lee Jae-yong ranked first with a trust rating of 52.8% (The Korea Economic Daily, 2026.4.7).

In the developmental state era, the state selected and controlled the chaebol chairman; now, a reversal has occurred where the chaebol chairman effectively defines the direction of state policy.

5. The U.S. CHIPS Act and the Dual Benefits for Korean Chaebol

Korean chaebol semiconductor and AI investment are not supported solely by domestic tax cuts. Subsidies through the U.S. CHIPS Act flow in simultaneously.

Samsung Electronics secured a CHIPS Act subsidy of $4.745 billion (approx. 6.9 trillion won) from the U.S. government. Although this was a 26% reduction from the initial $6.4 billion, it is still enormous. Samsung is investing a total of $37 billion (approx. 53 trillion won) in the Taylor, Texas foundry (ZDNet, 2025.6.5; Global Economic, 2025.12.24).

SK Hynix secured a direct subsidy of $458 million (approx. 664 billion won) and a government loan of $500 million (approx. 725 billion won) for its HBM packaging plant in Indiana. Total investment is $3.87 billion (approx. 5.6 trillion won), with about 25% covered by CHIPS Act support (The Bell, 2025.8.25; The PR).

In short, Samsung and SK are in a dual-benefit structure, simultaneously receiving tax benefits from the South Korean government and direct subsidies from the U.S. government. In Korea, they receive corporate tax reductions through the K-Chips Act; in the U.S., they receive cash subsidies through the CHIPS Act. This money comes from the pockets of taxpayers in both countries, but its use and the attribution of profits remain entirely under the control of the chaebol chairman families.

6. Analysis: Why This Is the Return of the Chaebol State

6.1 The Return of Selection and Concentration

The core operating principle of the developmental state in the 1960s–70s was "selection and concentration." The state monopolized banks, policy financing, permits, and labor control, and promoted industrialization by selecting a small number of business groups and concentrating resources on them.

The AI and semiconductor industrial policy of 2025–2026 newly reproduces this mechanism. The tax credits of the K-Chips Act concentrate over 95% of tax reduction benefits on two companies: Samsung and SK. The infrastructure costs for the Yongin cluster (1.8 trillion won for buried transmission lines) are covered by citizens' tax money. The AI budget of 10 trillion won flows back to chaebol IT affiliates through GPU infrastructure and data center tax credits. The state's role functions as a conduit for transferring resources to the chaebol.

6.2 Renewal of the Legitimizing Discourse

The difference lies in the legitimizing discourse. In the developmental state era, it was "modernization of the fatherland" and "export-led growth." Now, it is "top 3 AI power," "semiconductor hegemony competition," and "global supply chain realignment." The discourse has been upgraded to high-tech, but the structure is identical: national crisis/competition discourse → selective chaebol support → permanent institutionalization of support → self-reinforcement of chaebol power.

6.3 The Paradox of Democratization

The theme running through this entire series has been why chaebol power was not dismantled even after democratization. This fifth part's analysis provides the final answer to that question. The more political democratization progresses, the more the state tends to solidify its alliance with the chaebol. The reason is that under electoral democracy, the survival of the regime depends on "economic performance," and the most efficient partner for generating short-term performance is precisely the existing chaebol.

Far from dismantling the state-chaebol alliance, democratization reconstituted it by granting a new language of legitimation: "economic growth—job creation—global competitiveness." The cross-party passage of the K-Chips Act, the record-breaking increase in the AI budget, the deregulation of governance structures proceeding despite criticism from the PSPD—all of this reveals a fundamental limitation of South Korean democracy.

As the PSPD aptly pointed out: "President Lee Jae-myung, since his time as Gyeonggi Province governor, has emphasized principles more than anyone. (...) But what about the Lee Jae-myung administration now? In the future, competition over artificial intelligence and semiconductors will become even fiercer, and each time, the chaebol conglomerates will demand that the holes already punched in principles be widened further" (PSPD, 2025.11.17).

7. Conclusion: Beyond the Specter of the Developmental State

The Korean chaebol system is not a product of the market but a product of the state. This system, selected and fostered by the Park Chung-hee regime in the 1960s, has changed its form through the democratization of 1987, the IMF crisis of 1997, the financial crisis of 2008, and the regime changes from Yoon Suk-yeol to Lee Jae-myung in 2022–2025, but its essence has persisted remarkably.

As of 2026, the expansion of chaebol privileges under the name of AI and semiconductor industrial policy is not simply a policy failure but a structural path dependency of Korean capitalism. The discourse of "industrial competitiveness" functions as an ideological device reproducing the state-chaebol alliance.

What this series has sought to show is a single line running through five historical junctures—the birth of the developmental state (Part 1), the limits of democratization (Part 2), the failure of IMF reforms (Part 3), the consolidation of the three-chaebol monopoly system (Part 4), and the return of the chaebol state through AI and semiconductor industrial policy (Part 5). That line is the history of the unstable cohabitation between democracy and capitalism in South Korea, and the conditions of that cohabitation have always been determined by the chaebol.

The path beyond this system lies not in "deregulation" or "innovation-led growth," but in the social control of the means of production and the democratic reconstruction of economic power. This is no longer a vague slogan of "economic democratization," but a task demanding the concrete transformation of ownership, governance, and distribution structures.

Full Series Table of Contents

  1. [The Birth of the Developmental State and the Chaebol](/reports/research/chaebol-democracy-01)
  2. [Why the Chaebol Did Not Weaken Even After Democratization](/reports/research/chaebol-democracy-02)
  3. [The Failure of Chaebol Reform after the IMF](/reports/research/chaebol-democracy-03)
  4. [Economic Power in the Age of Samsung, SK, and Hyundai Motor](/reports/research/chaebol-democracy-04)
  5. AI and Semiconductor Industrial Policy and the Return of the Chaebol State (This Part)

References and Sources

  • JoongAng Ilbo (2025.2.11), "'K-Chips Act' Passes Tax Subcommittee… Samsung Electronics to Receive Additional 2.3 Trillion Won Tax Benefits"
  • Chosun Ilbo (2025.2.27), "K-Chips Act Passes National Assembly Plenary Session"
  • Newsis (2025.2.27), "'They Get Back Trillions of Won'… Samsung, SK, How Large Is the K-Chips Act Benefit?"
  • Yonhap News (2025.2.19), "Samsung Electronics and SK Hynix Strengthened as 'K-Chips Act' Passes Tax Subcommittee"
  • Herald Economy (2024.11.27), "National Treasury (1.8 Trillion Won) Injected for Burial of Yongin-Pyeongtaek Transmission Lines"
  • Steelinfosis (2026), "21.6 Trillion Won Additional Investment in Yongin Semiconductor Cluster… SK Hynix to Build 6 Clean Rooms"
  • PSPD Economic and Financial Center (2025.11.17), "[Commentary] The Lee Jae-myung Administration Must Immediately Halt Attempts to Provide AI and Semiconductor Chaebol Governance Privileges"
  • IT Daily (2025), "Lee Administration's 2026 AI Budget Proposal Exceeds 10 Trillion Won"
  • ZDNet (2025.6.5), "U.S. Commerce Secretary 'Chips Act Subsidies Too Generous'… Fears of Damage to Samsung, SK"
  • Global Economic (2025.12.24), "Samsung Electronics Texas Foundry Subsidy Cut by 26%"
  • The Bell (2025.8.25), "25% of SK Hynix's U.S. Post-Process Investment Funded by CHIPS Act"
  • The PR, "U.S. Confirms 664 Billion Won Semiconductor Subsidy for SK Hynix"
  • The Korea Economic Daily (2026.4.7), "Who Is the Most Trusted Chaebol Chairman?… Samsung's Lee Jae-yong First with 52.8%"
  • Newsis (2025.7.15), "Assets of Top 5 Groups Increased by 444.5 Trillion Won"