Last year, the US government converted subsidies it had pledged to chipmaker Intel into an equity investment, securing a 9.9 percent stake. The state had become a part-owner of a private company. The question worth asking is: why take shares instead of simply handing over the money?
The more significant point is not that this happened to Intel specifically, but that the government chose to act as an investor rather than a benefactor. Countries around the world are now actively cultivating their own strategic industries. Sectors such as semiconductors and AI require enormous capital and take years to show results. When they succeed, the benefits ripple out to materials and equipment suppliers and to other industries as well. Yet the financial risk falls entirely on the companies and their investors. That dynamic makes certain investments — ones vital to a nation but too risky for any single company to undertake alone — difficult to pursue. For strategic industries to grow properly, governments need to move in step with them.
Above all, taking an equity stake differs fundamentally from extending a loan or a subsidy. Loans must be repaid; subsidies, once conditions are met, are in principle not returned. Shares carry no fixed repayment date, which suits long-horizon investment, and when a company grows, so does the return for those who invested. Rather than absorbing losses on a company's behalf, the government shares both the risk and the reward alongside other investors.
Investment in strategic industries is also inseparable from supply chain security. Rare-earth magnets used in semiconductors, automobiles and robots are consumed in small quantities, but a supply disruption can halt production entirely. Last year, after China restricted exports of certain rare-earth materials, Ford suspended SUV production for a week. According to Korea Customs Service data, Chinese-origin goods accounted for 90.9 percent of South Korea's imports of permanent metal magnets last year. Building up strategic industries requires industrial investment and supply chain security to advance together.
The government already supports investment through loans and subsidies, and stockpiles critical minerals as a buffer against supply disruptions. The Supply Chain Stabilization Fund and various policy funds do take equity positions, but they face constraints on bond repayment and mandatory exit at maturity. Korea Investment Corporation is, in principle, restricted to overseas investments. No government fund yet exists that takes long-term stakes in domestic strategic industries while also managing supply chain exposure.
To fill that gap, the government has announced plans to establish a strategic sovereign wealth fund within Korea Investment Corporation — a fund that would use government-held shares as seed capital to make long-term investments in domestic strategic and foundational industries. It could buy stakes in semiconductor materials and equipment companies, support their growth and help secure supply contracts in the process.
If domestic strategic industries come to rely solely on foreign capital, there is a real risk that management control and technology will follow. A patient, deep-pocketed domestic investor would give companies the stability to grow with confidence — and keep the returns at home.
Concern about using public money to buy corporate shares is entirely reasonable, and the conditions must be strict. Valuations and profitability must be scrutinized rigorously, and the fund must never become a vehicle for propping up uncompetitive companies. As the government's own proposal states, the government should set only the broad direction, leaving individual investment decisions to independent professionals, with voting rights guidelines established and disclosed in advance.
If those principles are upheld, the strategic sovereign wealth fund will not simply be another fund added to an existing lineup — it will be a mechanism for creating a long-term shareholder committed to strategic industries. It can protect economic security, support the stable growth of companies, and ultimately return the gains from successful investments to the public.
By Choi Eun-rak, head of the research division at the Korea Chamber of Commerce and Industry
fact0514@heraldcorp.com
