Korea’s $102 billion fund sparks more concern than hope as fears of state-driven finance resurface

Financial sector bracing for full mobilization
Contradictions in a funding model that leans on public money
Signs of renewed debate over investment efficiency

The Korean government has introduced a USD 102.74 billion National Growth Fund to support future strategic industries, but market sentiment remains cool. With half the capital sourced from households, pension funds, and commercial banks, financial institutions face mounting contribution pressure, while actual deployment is expected to tilt toward state-led infrastructure projects. This has raised concerns that past issues seen in the New Deal Fund and the Corporate Partnership Fund—such as public money overriding private-investment judgment, or regulatory, talent, and governance gaps failing to lift productivity—will resurface.

Lingering scars from the failed National New Deal Fund

On the 17th (local time), Lee Ok-won, chairman of Korea’s Financial Services Commission, attended the inauguration ceremony for the National Growth Fund Secretariat held at Korea Development Bank in Seoul. Lee stated that the fund, scheduled to launch on December 10, “must redirect capital flows and concentrate national innovation to trigger a major transformation of Korea’s advanced industries as the largest fund since the founding of the nation.” He added that “given how cold the market and the public are toward the financial sector, the government, financial institutions, industry, local communities, and the public must mobilize every capability to respond to the global power contest.” The remarks reflect a push to signal strong policy resolve backed by unprecedented scale and coordinated mobilization.

Earlier, the government outlined a blueprint to build the National Growth Fund as a mega-sized, state-backed financial platform totaling USD 102.74 billion. Its core aim is to establish a nationwide capital-allocation system supporting semiconductors, artificial intelligence, biotechnology, and other advanced strategic industries under a productive-finance model. Major financial groups would jointly participate in project-specific investments, while Korea Development Bank would lead integrated execution through expert secondments, information exchange, and unified review processes.

Market reaction, however, remains skeptical. The failed National New Deal Fund—launched just five years ago with similar ambitions—remains a vivid memory. Marketed as an easy-access investment vehicle for the public, the fund delivered average returns in the low 2 percent range, and factoring in the structure where fiscal resources absorbed first-loss risks, the real perceived performance was widely viewed as below 1 percent. At the time, the government also framed the initiative as a catalyst for future industries, nearly identical to the narrative used today. Because of these parallels, markets fear the new fund will repeat familiar problems: policy-driven design, public assumption of risk, and limited autonomy in project selection.

Further distrust stems from the National Assembly Budget Office’s warning about overlapping investments. Since the new fund’s focus overlaps with existing initiatives such as the AI Innovation Fund, K-Bio Vaccine Fund, and SME growth funds, private capital could be diluted and performance tracking across areas could become more difficult. Commercial banks, constrained by limited risk-weighted-asset capacity, may also find that mandatory commitments to the National Growth Fund crowd out existing venture-capital allocations. Ultimately, if financial companies are effectively tied to government-designated sectors, the private market’s autonomous investment function could weaken further.

Uncertainty over deployment structure and the scope of regulatory easing

The government plans to source USD 51.37 billion of the fund’s capital directly from households, pension funds, financial firms, and corporations. Having already proposed a massive USD 498.63 billion national budget but still facing fiscal constraints, the government is looking to compensate the gap by drawing from private-sector resources. Within the financial industry, many interpret the plan as essentially requiring households, pension operators, and commercial banks to provide the first wave of capital. The government’s message of “public participation” is widely seen as a necessity-driven mechanism rather than an organic choice.

As a result, the real burden falls heavily on pension funds and financial institutions—particularly commercial banks. The government has summoned strategic chiefs from major banking groups to quickly devise ways to participate in the fund, yet banks remain unable to estimate their required contributions. Only a few months ago, the fund was described as USD 68.49 billion, but it suddenly expanded to USD 102.74 billion. With deployment plans and regulatory relief still undefined, banks find themselves hesitating and watching each other rather than preparing concrete responses.

Against this backdrop, President Lee Jae-myung has intensified pressure on the financial sector, calling the National Growth Fund a “turning point to end pawnshop-style finance.” At a recent national briefing, he declared plans to facilitate aggressive state-level investment into semiconductors, biotechnology, energy, and other future strategic industries, insisting that banks must abandon their reliance on collateral-based lending and stable interest-margin profits. His comments underscore the view that bank profits are rooted not solely in internal capability but in state-granted currency issuance and intermediation privileges. He also suggested that financial institutions’ participation levels in the National Growth Fund may serve as a barometer for evaluating their “public purpose.”

Many corporate leaders attended the event. Seo Jeong-jin, chairman of Celltrion Group, recalled that “from 2000 to 2009, no investor would fund us, but the Singaporean government invested approximately USD 547.95 million in 2009, prompting JPMorgan to commit another USD 342.47 million, allowing us to secure a total of about USD 890.41 million.” He added, “With investment of that scale, almost no company fails—all eventually succeed,” underscoring the importance of capital supply. His remarks were widely seen as supporting the government’s argument that large-scale risk capital can produce new global champions if financial institutions reduce their aversion to risk.

Concerns that the fund will serve as “policy-driven capital”

The problem, critics point out, is that today’s market environment bears little resemblance to the early 2010s, when Celltrion built its growth trajectory on those large capital injections. Back then, abundant liquidity and a relatively benign interest-rate environment provided wide channels for aggressive fundraising. Now, high interest rates, stricter capital standards for financial institutions, and numerous compliance considerations have reshaped the investment landscape. Industry conditions have also changed, with accumulated regulatory burdens and shortages of critical talent. Under such constraints, injecting large amounts of capital alone is unlikely to reproduce past innovation outcomes.

The track record of past policy funds reinforces this concern. The Corporate Partnership Fund—originally designed to support restructuring and M&A—faced repeated criticism that its capital was diverted toward large conglomerates’ long-desired projects or affiliate support. The Growth Ladder Fund supplied some venture capital to startups but focused more on later-stage investments than high-risk early stages, effectively competing with private venture capital rather than complementing it. These examples show how public capital has often crowded out private investment instead of strengthening the ecosystem.

Similar concerns surround the National Growth Fund’s early potential project, the “energy highway.” This initiative envisions a U-shaped offshore-wind transmission network stretching from Korea’s west coast down to the south coast and up to the east coast, linked to major industrial complexes via high-voltage direct-current (HVDC) lines. Experts warn that this structure will effectively serve as a long-term, low-interest financing channel for predetermined national infrastructure projects. Without resolving issues such as siting conflicts and local-government burden sharing, injecting capital into such ventures could reignite debates over investment efficiency.

For these reasons, many market participants believe the National Growth Fund may end up doing little more than expanding the role of existing policy-financing institutions. What the market wants is not optimism that “everything succeeds once money flows,” but a concrete framework explaining how USD 102.74 billion will connect with regulatory reform, talent development, and risk-sharing restructuring to yield real productivity gains. Without such a roadmap, individual success stories may be used merely to justify policy goals, while financial constraints in the industrial sector remain unchanged.