TLDR: Deputy Prime Minister Koo Yoon-cheol has announced a comprehensive government initiative, including significant budget allocations, tax incentives, financial support, and regulatory easing, aimed at rapidly expanding AI-powered factories across South Korea’s manufacturing sector. This move is part of the “AI grand transition” strategy to boost national productivity and global competitiveness.
Daejeon, South Korea – Deputy Prime Minister for the Economy and Minister of Economy and Finance, Koo Yoon-cheol, today unveiled a sweeping package of measures designed to accelerate the adoption and expansion of Artificial Intelligence (AI) factories throughout South Korea’s manufacturing landscape. Speaking at the “AI grand transition relay on-site roundtable” held at the KAIST AI Factory Lab in Yuseong-gu, Daejeon, Koo emphasized the critical role of AI in securing the nation’s economic future. “With the 15 leading projects for the AI grand transition, we will provide a package of support to the corporations that know the market best, including budget, tax, finance, and regulatory easing,” Koo stated.
The initiative is a cornerstone of the new government’s economic growth strategy, which aims to transform Korea’s manufacturing capabilities “from A to Z” by integrating world-class manufacturing with advanced AI technology. The ultimate goal is to elevate the AI adoption rate among manufacturing corporations from its current level of under 5% to a robust 40% by 2030.
To achieve this ambitious target, the government plans to significantly expand the number of leading AI factory project plants to 500 by 2030, a substantial increase from the 26 plants in 2024. Financial commitments include a dedicated insurance product worth up to 10 trillion won and loans totaling 200 billion won to support these ventures. The budget allocated for building smart factories is set to see a nearly 85% increase, rising from 236.1 billion won this year to 436.6 billion won in 2026. Furthermore, tax benefits will be enhanced, with the introduction of accelerated depreciation (up to 50%) for tangible assets utilized in smart factory projects by small and midsize corporations.
Koo Yoon-cheol highlighted the transformative potential, stating, “By combining world-class manufacturing capabilities with AI technology, we can lead the world.” The widespread adoption of AI is expected to drive higher productivity, enable responses to customized consumer demand, facilitate carbon reduction, and enhance workplace safety.
Industry leaders, including POSCO, LG Electronics, GS Caltex, Hyundai Motor, and Google Cloud, participated in the roundtable, sharing successful case studies. POSCO, for instance, demonstrated how AI is used to calculate optimal proportions of ironmaking inputs, leading to increased productivity through its AI smart blast furnace. Corporations also advocated for expanded support in research and development (R&D) and demonstration projects.
Beyond direct factory implementation, the government is committed to fostering core AI technologies. This includes the development of AI factory-specialized models, software platforms, and an ultra-precise large action model (LAM), alongside efforts to preempt global standards. Talent development is also a key focus, with plans to increase AI/AX graduate schools from 19 to 24 and expand leading research projects in generative AI from 5 to 13, aiming to train 11,000 advanced talents.
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This initiative is part of a broader economic strategy under President Lee Jae Myung’s administration, which views AI integration as crucial for revitalizing the economy. The government projects that successful AI integration could boost GDP growth by 4.2% to 12.6% over time. A larger fund of 100 trillion won is being raised, with 50 trillion won earmarked for nurturing high-end industries and future growth engines, and the other 50 trillion won for public livelihood programs and SME support. The overall budget for AI is set to increase significantly, from 3.3 trillion won this year to 10.1 trillion won, with investments in areas such as purchasing 150,000 graphics processing units and talent cultivation.
