South Korea's Transition to an AI Developmental State Model and the Implications of Its Sovereign AI Strategy

Executive Summary

The South Korean government, through its "AI for All" initiative, is reconfiguring for the AI domain the developmental state model that previously drove its semiconductor and automobile industries. This can be interpreted as an attempt by South Korea to secure negotiating leverage by combining its proprietary foundation models and semiconductor capabilities, navigating a niche created by the bifurcation of the U.S.-China AI competition into a U.S. model led by Big Tech and capital, and a Chinese state-mobilization model. However, the expansion of computing infrastructure is constrained by physical limitations in securing electricity, water, and GPUs. With other middle powers like Kazakhstan and Greece also competing to attract computing resources, success will largely depend on the speed and scale of resource investment. The policy's success hinges on whether South Korea can maintain strategic ambiguity between building an independent ecosystem and participating in a U.S.-led computing alliance, a question directly tied to the alignment of its sovereign AI goals with the ROK-U.S. technology alliance. The government must assess the sustainability of its resource reallocation from a North Korea-focused policy toward industrial and computing diplomacy across different scenarios, and oversee the effective implementation of infrastructure investments linked to balanced regional development.

I. Analysis of the Current Situation

South Korea's Attempt to Transition to an AI Developmental State Model: An Analysis of the Current Situation

1. Background and Developments

South Korea's developmental state model, which operated during its industrialization from the 1960s to the 1980s, involved the government selecting specific strategic industries and concentrating financial, fiscal, and human resources into them. The heavy and chemical, semiconductor, and automobile industries are products of this model. The U.S. foreign policy magazine The Diplomat assesses that the South Korean government is reconfiguring this developmental state model for the AI era [1]. The "AI for All" initiative is presented as a symbolic policy reflecting this trend. This vision does not treat AI as merely a new industrial sector. The Diplomat analyzes that South Korea is approaching AI as a means to "realize its domestic economic development plans and geoeconomic objectives, maintain its technological edge in key strategic industries, and secure a strong position amid the new technology competition" [1].

The structuring of the U.S.-China AI competition underlies this policy shift. An EAI working paper diagnoses that as of 2025, the AI competition is unfolding on all fronts, "revolving around the struggle for leadership in AI models and tech infrastructure between the United States and China, alongside the EU's norm-setting strategy, and the AI development strategies of the UK, Japan, South Korea, and the Middle East" [3]. The emergence of low-cost, high-efficiency models from Chinese startups like DeepSeek has gained attention as an alternative to the U.S.-led AI development path, prompting not only China but also middle powers including South Korea to explore independent AI strategies [3]. In this landscape, South Korea occupies a dual position: it is a semiconductor powerhouse aligned with the U.S. camp, yet it also seeks to develop its own foundation models and infrastructure.

2. Current Situation

The Carnegie Endowment for International Peace, based in Georgetown, D.C., pointed out a shift in the center of gravity of South Korean diplomacy in a recent commentary. It observed that the Lee Jae-myung administration's summit diplomacy is being reorganized "from a Pyongyang-centric focus to the geography of industrial networks and the computing economy" [13]. This suggests a reallocation of South Korea's diplomatic and security resources away from North Korea policy and toward securing AI infrastructure and supply chains. However, this observation was a brief mention in a Carnegie newsletter and has not been substantiated with detailed policy content.

Domestically, there are attempts to link AI development with balanced regional development. The Hankyoreh introduces a plan to attract AI infrastructure investment to provincial areas through an "AI Transition Fund," presenting it as a response South Korea can take within the security-focused supply chain order being reshaped by U.S. regulations on semiconductors and AI chips targeting China [4]. This shows that the industrial policy interventions characteristic of the developmental state model are reemerging in the AI era, combined with the goal of regional and industrial balance.

Concurrently, international competition among nations to attract computing infrastructure is intensifying. Kazakhstan is attempting to convert its energy resources into digital leverage by developing a data center complex of up to 1 gigawatt in Ekibastuz [14], while Greece is promoting itself as a geographically diversified investment destination amid tensions between the U.S. and the EU over AI infrastructure [15]. South Korea's strategy for expanding its AI infrastructure is situated within this international context of competition among middle powers and resource-rich countries to attract computing resources.

3. Key Actors and Positions

The South Korean GovernmentThrough "AI for All," the government pursues the dual objectives of increasing public access to AI while also maintaining the competitiveness of its strategic industries and achieving its geoeconomic goals [1]. The EAI National Security Panel (NSP) summarizes that South Korea is "devising its own AI development strategy to enhance national competitiveness while proactively responding to changes in the international order" [9]. This approach is closer to a middle-power strategy aimed at securing practical benefits through expanding access and building infrastructure, rather than seeking overwhelming dominance in the proprietary foundation model race like the United States or China.

The United StatesThe United States recognizes South Korea as a key partner in the semiconductor and computing supply chains. The Atlantic Council emphasizes the need to build a "compute coalition" among allies, arguing that the window for the democratic camp to secure an advantage in AI infrastructure is limited [8]. South Korea's expansion of its AI infrastructure can be interpreted in the context of this U.S.-led initiative to realign its bloc.

ChinaChina is leveraging the low cost and openness of its AI models to propose the creation of alternative ecosystems not only to developing countries but also to middle powers like South Korea. A prime example is its recommendation to Rwanda to build an AI ecosystem based on the Chinese model [7]. However, as South Korea is deeply integrated into the U.S.-led technology alliance structure, the likelihood of it directly adopting a Chinese-style alternative model is low.

North KoreaNorth Korea does not appear as a direct actor in this issue. However, EAI's series "Choosing a Path in the AI Era and the New Korean Peninsula Initiative" analyzes that North Korea, "constrained by a lack of high-performance semiconductors and computing infrastructure, is selectively utilizing AI for specific purposes such as drones, cyber operations, and surveillance systems, instead of developing frontier AI on its own" [6]. South Korea's AI developmental state strategy has indirect implications, as it is likely to further widen the technological gap between the two Koreas.

4. Key Issues

The first issue is the suitability of the developmental state model for AI. The past developmental state model was premised on the government's selective resource allocation and corporate compliance, whereas the AI industry is driven by private Big Tech and open-source ecosystems. It remains unproven whether government-led policies to expand access will translate into actual technological competitiveness.

The second issue is positioning between the United States and China. While South Korea is integrated into the U.S.-led regulatory regime for the semiconductor supply chain [4], it is in a difficult position to completely dismiss the practical appeal of low-cost Chinese models for AI applications. The Hindu reports that Indian startups are rebuilding their products based on Chinese models like DeepSeek and Qwen [19], and South Korean companies and startups could face similar pressures.

The third issue is the international competition to secure computing infrastructure. As countries with resource or geographical advantages like Kazakhstan and Greece compete to attract data centers [14][15], whether South Korea, with its relatively significant energy constraints, can sustainably expand large-scale computing infrastructure domestically is a question tied to separate energy and land-use policies.

The fourth issue is the reprioritization of diplomatic resources. If, as Carnegie observed, South Korean diplomacy is shifting its focus from North Korea channels to industrial and computing networks [13], this raises questions of alignment with the existing Korean Peninsula policy framework. Striking a balance to ensure that the AI developmental state strategy does not erode capabilities for managing inter-Korean relations will be a key challenge in future policy design.

II. In-Depth Analysis

South Korea's Attempt to Transition to an AI Developmental State Model: An In-Depth Analysis

1. Analysis of Root Causes

The root causes of South Korea's attempt to reconfigure its AI policy along the lines of a developmental state model are not singular. Three overlapping layers are at play.

First is the securitized nature of technological competition. U.S. export controls on semiconductors and AI chips to China have institutionalized the securitization of dual-use technologies [4]. As a Hankyoreh report points out, "U.S. technology regulations against China are manifesting as a trend of supply chain reorganization that excludes China, based on the judgment that dual-use (civilian-military) technologies like artificial intelligence (AI) chips are directly linked to national security" [4]. In this realignment process, South Korea is a key pillar of the semiconductor equipment and materials supply chain, yet it is a latecomer in foundation models and computing infrastructure. This asymmetry creates the rationale for government-led intervention.

Second is the bifurcation of competitive models. An EAI working paper diagnoses that "artificial intelligence is becoming the focal point of the ongoing reorganization of the world order, extending beyond the technological level to the realms of economic security and norms" [3]. While the U.S. expands its infrastructure led by private capital and Big Tech, China has narrowed the gap by combining low-cost, high-efficiency models, like the DeepSeek case, with state resources [3][19]. South Korea does not fully belong to either path. The capital strength of its private companies falls short of U.S. Big Tech, and its level of state control differs from China's mobilization system. In this niche, the government taking on the role of a market-maker through a project to expand access for the entire population is the real motivation behind the "AI for All" vision [1].

Third is the inertia of domestic industrial policy. The Diplomat assesses that South Korea treats AI as a means to "realize its domestic economic development plans and geoeconomic objectives" [1]. This implies that the policy grammar of selecting strategic industries and concentrating resources, as seen repeatedly in semiconductors, shipbuilding, and automobiles, is being transplanted to the AI domain. However, unlike the past developmental state model which concentrated resources in a few large conglomerates, the current AI policy foregrounds a distributive frame of nationwide accessibility.

2. Structural Context

Political StructureThe Carnegie Endowment for International Peace observes that the Lee Jae-myung administration's summit diplomacy is shifting "from a Pyongyang-centric focus to the geography of industrial networks and the computing economy" [13]. This suggests a change in the prioritization of diplomatic resource allocation. It can be interpreted that with North Korea policy at a standstill, the government has chosen technology diplomacy as an area where it can achieve results. This is also accompanied by a structural change, as the Blue House and the Ministry of Science and ICT emerge as the lead agencies for AI policy, with some of the foreign policy agenda-setting authority traditionally held by the Ministry of Foreign Affairs and the Ministry of Unification being transferred.

Economic StructureThe Hankyoreh introduces the concept of an "AI Transition Fund" for balanced regional development, presenting it as a countermeasure within the global supply chain order being reorganized around security [4]. This is an attempt to mitigate the regional imbalance that would occur if AI infrastructure investment were concentrated in Seoul and the metropolitan area. However, data centers and computing infrastructure are heavily dependent on locational factors such as power supply, water, and communication networks, and these conditions tend to be concentrated in specific regions. A tension exists between the government's intention for balanced development and the market's locational logic.

Security StructureA Carnegie report points out that there is a "narrow window of time" for free-world nations to pool their computing infrastructure [8]. South Korea is positioned to be considered a key participant in this "compute coalition" concept, given its semiconductor manufacturing capabilities. At the same time, EAI's "New Korean Peninsula Initiative" series notes that North Korea "is selectively utilizing AI for specific purposes such as drones, cyber operations, and surveillance systems, instead of developing frontier AI on its own due to constraints in high-performance semiconductors and computing infrastructure," and points to the "possibility of deepening dependence on China's technological ecosystem" in this process [6]. South Korea's AI developmental state strategy is proceeding separately from the security variable of a widening inter-Korean technological gap, but in the long term, it could lead to a growing disparity in surveillance, reconnaissance, and crisis management capabilities.

3. Comparison with Historical Precedents and Similar Cases

South Korea's developmental state model is itself a historical precedent. The promotion of heavy and chemical industries in the 1970s and the semiconductor industry in the 1990s are examples of the government concentrating resources in specific industries through credit allocation and tax benefits. The current AI policy differs in that the target of resource concentration is not a few large conglomerates but nationwide infrastructure. This is more akin to the case of building the high-speed internet network following the Framework Act on Informatization Promotion in the 1990s than to past industrial policies. The way the government then created an industrial foundation by disseminating telecommunications infrastructure as a public good is now being replicated in the form of expanding AI accessibility.

Internationally, similar attempts by middle powers and resource-rich countries are emerging simultaneously. Kazakhstan is trying to "convert its energy base into digital leverage" by using the coal power infrastructure in the Ekibastuz region to build a data center complex of up to 1 gigawatt [14]. Greece is pursuing a strategy of promoting itself as a geographically diversified investment destination amid U.S.-EU tensions over AI infrastructure [15]. China is conducting technology diplomacy with developing countries, presenting its AI model to Rwanda as a template for "building an AI ecosystem centered on local data, infrastructure, and engineers" [7]. These cases show a common pattern where computing infrastructure is being transformed into a geopolitical asset, regardless of a country's size. South Korea's distinguishing feature is that it is reorganizing its existing semiconductor manufacturing capabilities as a developmental state policy tool. Its starting point is different from that of Kazakhstan and Greece, which rely on resources or geographic location.

The way the U.S.-China competition itself is unfolding also serves as a point of comparison. The Global Times claims that while the "go-slow" and "unlimited development" factions in the U.S. appear to be in conflict, they actually share a common logic of "containing China's AI development and maintaining U.S. technological hegemony" [16]. The JoongAng Ilbo reported that President Trump dismissed the go-slow argument as a "sick conspiracy," stating that "only China would be happy" [18]. The rigidity of this U.S.-China bipolar structure provides the backdrop for middle powers like South Korea to seek their own policy space rather than being fully absorbed into one camp.

4. Key Variables Shaping Future Developments

The Trajectory of the Competition for Computing ResourcesThis is the first variable. Amid the spreading international competition to attract GPUs and data center capacity, as seen in the cases of Kazakhstan and Greece, a key question is whether South Korea can secure sufficient infrastructure despite locational constraints like electricity and water supply. The recent industry trend of "resource reallocation from training to inference" is also a variable [17]. If the launch of OpenAI's new model signals a trend of shifting GPU investment from model training to service inference, this could lead to a change in policy priorities, with the expansion of inference service infrastructure becoming more important than large-scale training infrastructure.

The Outcome of the U.S.-China Summit and Norm-SettingThis is the second variable. The JoongAng Ilbo reported that a key point to watch is whether common ground on AI risk management can be found at the U.S.-China summit scheduled for September 24 [18]. The outcome of this summit could alter the intensity of the U.S.-China AI proliferation race, which in turn would affect the degree of policy autonomy South Korea can secure.

Domestic Fiscal Capacity and the Feasibility of Balanced Regional DistributionThis is the third variable. Whether the "AI Transition Fund" concept proposed by The Hankyoreh leads to actual regional infrastructure investment, or if the existing pattern of concentration in the metropolitan area repeats, will be an indicator of the success or failure of the developmental state model [4].

Resource Competition with North Korea PolicyThis is another point to watch. If, as Carnegie observed, diplomatic resources shift toward the computing economy [13], this could paradoxically reduce the policy capacity to address the widening inter-Korean AI technology gap pointed out by EAI [6]. The external success of the AI developmental state strategy could come at the cost of relatively deprioritizing Korean Peninsula policy. Therefore, the balance of resource allocation between these two agendas will be a key criterion for future policy evaluation.