"AI-First" Becomes the Core National Strategy
After taking office, South Korean President Lee Jae-myung delivered his first budget address to the National Assembly, establishing artificial intelligence as the core engine for driving growth and enhancing competitiveness. This plan, termed the "first national budget of the AI era," aims to leverage fiscal and regulatory improvements to address its late start and create a systemic path from infrastructure to application ecosystems. The government emphasizes that the window of opportunity is fleeting and accelerating progress is crucial to securing a position in the global technological restructuring.
More Focused Budget Framework and Funding Direction
Within the proposed fiscal framework totaling approximately 728 trillion won, AI-related investments are set to increase to 10.1 trillion won, more than doubling from the previous year. Funds will prioritize three types of projects:
- Key computing power and data infrastructure, including high-performance computing clusters, domestically developed AI chips, and industry data spaces.
- Industry-side "AI+" transformation, encouraging the integration of models, visual, and automation systems in manufacturing sectors such as automotive, semiconductors, biomedicine, and energy to improve production line flexibility and yield.
- Talent and safety governance, expanding interdisciplinary training slots and improving data compliance, algorithm transparency, and AI safety assessment standards.
Public Service Digitalization Moving Towards Scaled Implementation
The budget proposes advancing AI application scenarios in healthcare, education, transportation, and government services, using smart triage, personalized learning platforms, congestion forecasting, and autonomous operations to create replicable city-level solutions. In government services, intelligent assistants and process robots aim to shorten processing times, reduce human costs, and enhance service accessibility. A supporting "fast pilot-evaluation-promotion" mechanism will be established to shorten the cycle from innovation to scale.
Increased Defense Investment Emphasizing "Smart Connectivity"
The defense budget is set to increase to 66.3 trillion won, focusing on upgrading conventional equipment and AI-enabled intelligence, surveillance, and command control systems. Unmanned platforms, target recognition, and situational fusion are prioritized to enhance reconnaissance and strike chain efficiency and rapid response capabilities amid limited manpower and a declining population. The government also emphasizes improving ethical and safety boundaries to ensure the control and usability of advanced technologies.
Structural Bets Amid Economic and Demographic Constraints
Currently, South Korea faces growth deceleration, population aging, and industrial homogeneity. The government aims to use AI to enhance total factor productivity while creating high-quality job demands, easing income and employment pressure on the young and middle-aged. To avoid "fiscal crowding out," the finance department will separate inefficient and duplicate projects through phased assessments and performance evaluations, ensuring new expenditures align with medium-term fiscal rules.
Initial Reactions from Industry and Capital Markets
Leading tech and manufacturing companies welcome the integrated investment in "computing power-data-talent," believing it helps reduce the marginal cost of individual enterprise constructions and promotes cross-industry collaboration. Capital markets focus on two aspects: policy continuity and implementation strength, and the transmission efficiency of AI investment on profitability and cash flow. Analysts caution that in the short term, AI investments will initially reflect in capital expenditures and pilot implementations, with delayed benefit release.
Risk Alerts and Governance Tools
The government acknowledges that the AI wave comes with risks such as computing power bottlenecks, data privacy, algorithmic bias, and network security. Therefore, the budget proposes supporting measures: building green computing centers to reduce energy consumption; establishing guidelines for trusted data circulation and cross-border compliance; creating a normalized mechanism for model evaluation and red team testing; formulating "substitution lists" for critical foundational software and hardware to enhance supply chain resilience.
Forming a Positive Feedback Loop with "Public Demand + Industry Momentum"
If the budget passes smoothly, AI is expected to form a closed loop between "public services-industry applications-talent ecosystems," driving manufacturing upgrades and urban governance modernization. With adjustments in international division and trade structures, South Korea aims to utilize "AI + physical economy" as a new growth point, striving to establish benchmark scenarios and product matrices with international demonstration effects within the next three to five years.
