The National Growth Fund, launched by the current government in December of last year, aims to respond to the global competition in advanced industries such as artificial intelligence (AI), semiconductors, secondary batteries, and future vehicles. The government has set a goal of raising 150 trillion won, the largest single policy fund in history, to nurture industries that will drive South Korea's future growth over the next five years.
As the fund marks its 10-month anniversary, questions arise about whether it is operating as intended. An analysis of data submitted by the Korea Development Bank to Han Min-soo, a member of the National Assembly's Political Affairs Committee, reveals that the fund's performance is not entirely aligned with its original purpose. The execution rate is notably low, and there are concerns about the concentration of investment in specific areas.
Execution Rate Stands at 25%
The National Growth Fund is a 150 trillion won policy finance program established by the government to foster future strategic industries. It consists of 75 trillion won from the advanced strategic industry fund and 75 trillion won from private funds over five years. The structure is designed to encourage private investment by having the government and the fund bear the initial risks, supplying funds to the entire ecosystem related to strategic industries such as AI, semiconductors, biotechnology, and secondary batteries through various means, including direct and indirect investments, infrastructure investments, and low-interest loans.
While the government has not clearly outlined the annual fund creation scale, it plans to raise over 30 trillion won. According to the data received by Han Min-soo's office, as of the end of September, the approved amount for the National Growth Fund, excluding the National Participation Growth Fund and K-Content Fund, was 18 trillion won, making it feasible to achieve the target of 30 trillion won in the remaining period.
Concentration on Large Corporations and the Metropolitan Area
Alongside the slow execution rate, the distribution method also raises concerns. Initially, the National Growth Fund aimed to mobilize large amounts of capital to foster advanced industries while also supporting medium-sized and small enterprises and regional industrial ecosystems. However, the approval and execution records over the past 10 months show that fund resources have been disproportionately allocated to large corporations and the metropolitan area, which are considered relatively stable assets.
As of the end of September, the approved amount for large corporations was 10.937 trillion won, accounting for 60.6% of the total. The proportions for medium-sized and small enterprises were 27.5% and 11.9%, respectively. Out of a total of 35 approved cases, large corporations accounted for 13, medium-sized enterprises for 17, and small enterprises for 5. Notably, 37.1% of the total approved cases were large corporations, which received more than half of the total funds.
Regionally, 10 trillion won was approved for the metropolitan area, making up 55.4% of the total. The Honam region followed with 5.2 trillion won (28.7%), while the Yeongnam region received 1.4 trillion won (7.9%), the Chungcheong region 1.4 trillion won (7.5%), and Gangwon and Jeju 1 billion won (0.4%).
This funding distribution is believed to be influenced by the characteristics of large-scale strategic industry projects. Larger projects require more funding, and since public funds are being used, the scale of the business, funding needs, profitability, and risks must be comprehensively considered. Consequently, it is inevitable that funds are prioritized for the metropolitan area and large corporations, which have a higher concentration of financially sound companies. A representative from an asset management firm noted, "The dilemma of considering returns and risks likely influenced the funding distribution process."
"Initial Stage, but Review Needed"
However, there are growing concerns that the National Growth Fund's focus on large corporations and the metropolitan area may dilute its distinctiveness as a policy finance initiative. A financial investment industry representative stated, "If it is a policy fund, it is crucial to play a catalytic role in supporting early-stage technology companies or supply chain firms that the private sector finds difficult to invest in due to risk. If funds cannot be allocated due to risk, the original intent will be undermined."
In response, the Korea Development Bank stated that the differences in approval performance by region do not indicate a bias toward specific areas. The Honam region's larger approval amount reflects the inclusion of large-scale infrastructure projects, and future approvals in the Busan and Gyeongnam regions will focus on promising industries such as future mobility. Similarly, the relatively small support for small and medium-sized enterprises compared to large corporations is expected to increase as indirect investment methods for the fund become more established.
Of course, some experts believe it is premature to evaluate the National Growth Fund's performance or investment direction based solely on current approval and execution results. An investment banking industry representative remarked, "The fund has not been around for long, and there have been market shocks, so it is too early to assess its performance or investment direction. To determine its actual impact, we need to observe the operational period for a sufficient time."
* This article has been translated by AI.
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