South Korea Plans to Use Excess Tax Revenue from Chips to Expand Sovereign Wealth Fund, Seed Capital Could Reach 300 Trillion Won

The South Korean government plans to invest part of the excess tax revenue generated by the super semiconductor boom into the "Korean-style Sovereign Wealth Fund" that will be launched in the second half of the year.

According to the Korean Economic Daily, the initial capital of the fund was originally planned to be 200 trillion won (approximately $13.2 billion), mainly raised through the government's holdings of state-owned enterprise equities and stocks paid through inheritance taxes. The government has now decided to add cash contributions, increasing the seed capital to nearly 300 trillion won (approximately $19.8 billion).

Relevant departments disclosed on the 21st that the government is pushing to include the budget for the sovereign wealth fund in the budget case for 2027 and plans to clarify the legal basis for cash contributions in the establishment bill to be submitted to the National Assembly in June. The scale of cash contributions is expected to reach tens of trillions of won.

Focusing on Domestic Strategic Growth Enterprises

Reports indicate that there is an internal consensus within the South Korean government that the massive tax revenue brought by the super semiconductor cycle should not all be used for short-term fiscal expenditure, but rather accumulated as a sovereign wealth fund in the Norwegian model, as a strategic asset for future generations. A government-related person stated:

“The super taxes can only last for 2 to 3 years at most. We are now more inclined to believe that this money should not be consumed by the current generation. It is necessary to deposit it into the sovereign wealth fund from a medium to long-term perspective.”

The report mentions that the fund is expected to be invested in domestic strategic industries, with enterprises in the growth stage, especially companies with growth potential after Series B funding. This differs from the Korea Investment Corporation (KIC) - while the latter mainly diversifies investments in foreign exchange reserves, the new fund emphasizes strategic investments, with the goal not being simply to achieve financial returns, but to participate in the medium to long-term growth of enterprises.

Main Concern: Overly Concentrated Domestic Investment

There are also many concerns surrounding the Korean-style sovereign wealth fund. With the National Growth Fund of 150 trillion won already in motion, if the sovereign wealth fund also enters the domestic investment market, it may create corporate value bubbles. Unlike Temasek, which actively invests in overseas assets, this fund only invests in domestic assets, which is also considered a risk factor.

Yonsei University Professor Emeritus of Economics, Kim Jeong-sik, stated that the key lies in whether or not truly technologically capable enterprises can be selected. He believes that if the investment direction is wrong, the side effect may only be to inflate corporate valuations; if it helps in accumulating national wealth, there is no need to exclude overseas investments.