In the battle of AI in South Korea, Lee Jae-myung cannot afford to lose

Author: Xu Chao
Military airports give way to chip factories; this is a nation betting on its fate.

On August 10, 2026, South Korean President Lee Jae-myung presided over the second joint inspection meeting of the "Three Major Super Projects" at the Blue House, where he ordered the Ministry of Defense to temporarily relocate all functions of the Gwangju military airport to other military bases by mid-2028, freeing up land for the construction of the Jeolla-do South semiconductor industry cluster. His exact words were—"Speed in warfare is not enough; we must launch a blitzkrieg." Meanwhile, his approval rating had just dropped to a historic low of 43.3%, declining for the fourth consecutive week.

On one hand, polls were alarming; on the other, he was fully betting on AI chips. Lee Jae-myung chose the latter.

This is a bet on the nation's fate

Lee Jae-myung set very clear goals for this industrial offensive: using semiconductors, physical AI, and AI data centers as the "three pillars," doubling South Korea's DRAM production capacity within five years, with Samsung and SK Hynix each building two new wafer fabs, with a total investment scale of about 800 trillion won. At the same time, the South Korean government plans to invest over 1,000 trillion won in the AI data center sector before 2035, and an additional 81 trillion won in the Chungcheong region to build an advanced chip packaging industry cluster.

The vacating of the Gwangju military airport is the most symbolic move in this chess game.

He specifically mentioned that the project should benchmark against Japan's Kumamoto model—"The Jeolla-do South semiconductor cluster must be advanced at a speed no less than that of Kumamoto." "Kumamoto is the benchmark case for TSMC's establishment in Japan, taking only about two years from groundbreaking to production, setting a speed record for global semiconductor base construction. Lee Jae-myung's meaning is very clear: South Korea cannot be slow."

He said, "The prologue to Korea's golden era has begun; the next year is a golden window period, and we must go all out."

Lee Jae-myung's two parallel lines

On one line, he mobilizes military resources with national will, vacating airports to build chip factories, engaging Samsung and SK Hynix, planning a blueprint for industrial investment worth tens of trillions of won over the next decade, proclaiming "AI is a blitzkrieg," and demanding that the government must "respond to extraordinary situations with extraordinary measures"; on the other line, due to controversies over property tax reform, the prosecution power bill, ongoing heat waves, and a series of policy pressures, his public support rating has dropped to 43.3%, falling for four consecutive weeks.

He attempts to use the narrative of AI and semiconductors to reforge social consensus—at the meeting, he specifically mentioned that the ultimate goal of the super projects is not to concentrate results in a few enterprises and regions but to extend the growth axis nationwide, redrawing the advanced industry map to be "local-centered." He also called for preventing the polarization of "K-shaped growth," ordering the government to study countermeasures in advance. He said, "Excess tax revenue in the AI era will be injected into a newly established future response fund, targeting youth, local areas, and growth engines."

But the reality is, the slogan of "golden era" coexists with 1.2 million accounts reaching the liquidation line.

A French Lyon Securities analyst stated: "The KOSPI has lost its price discovery mechanism."

In that market, the discussion is no longer about the supply and demand of memory chips, nor is it about calculating the return on AI capital expenditures—it's leveraged ETFs selling, margin calls being made, and accounts being forcibly liquidated. The fundamentals haven't even had a chance to speak before orders have been executed.

Lee Jae-myung's bet in this AI battle is on the industrial landscape of South Korea for the next two to three decades. Military airports can be vacated, chip factories can be built, data centers can be established; this logic may not be wrong at the industrial level.

But this summer, the first to be swept away by this "AI golden era" are the 360,000 ordinary accounts that have already been forcibly liquidated and can no longer wait for a rebound.

Ordinary investors in South Korea are experiencing another reality

While Lee Jae-myung shouts about the golden era, this summer, ordinary investors in South Korea are experiencing another reality.

In the first half of this year, the KOSPI index soared from 4,300 points to 9,385 points, an increase of 116%, leading the world. The logic flows smoothly like a perfect story: The AI wave drives explosive demand for computing power, HBM is the core bottleneck, and only three companies globally can mass-produce it, with South Korea holding two—Samsung and SK Hynix. Buying into the South Korean stock market means buying the most certain beneficiaries of AI.

Thus, the entire nation entered the market. The South Korean government approved a 2x leveraged ETF linked to Samsung and SK Hynix, and retail investors flocked in, with assets under management skyrocketing from 50 trillion to 76 trillion won in just two months. In the first half of the year, leveraged products claimed the top twelve returns, with the first place seeing a 764% increase.

A story circulated on social media: a South Korean girl told her friend, "This is the best summer since I became an adult." She had just found a job and threw all her salary into the stock market, earning five years' worth of salary. She said, "It feels like a human golden era."

Note—she used the word "illusion."

On July 16, the KOSPI fell below 6,800 points during trading, officially entering a technical bear market. On the same day, the South Korean central bank announced a 25 basis point interest rate hike on the day of the crash. On July 28, "Black Tuesday," the KOSPI dropped over 10% in a single day, falling below 6,000 points, with Samsung down over 13% and SK Hynix down over 14%, triggering a circuit breaker. On July 29, it fell nearly 6% again, closing at 5,663 points, triggering circuit breakers for two consecutive days. From the peak of 9,385 points to 5,663 points, the drop was a full 40%.

The mechanism of leveraged ETFs turned into a "meat grinder" in a bear market—when stocks fall, funds must mechanically cut positions to maintain 2x leverage, and cutting positions accelerates the decline.

Citigroup analysts estimate that South Korean retail investors have incurred cumulative losses of about 56.3 trillion won on leveraged ETFs, equivalent to 38.7 billion USD. Over 1.2 million leveraged accounts reached the margin call line, with about 350,000 to 460,000 accounts forcibly liquidated by brokerages, wiping out their principal. With a population of 50 million in South Korea, one in every 30 adults faces liquidation. Among those liquidated, 62% are young people aged 20 to 30.

Someone wrote in a South Korean anonymous workplace community: "I originally made 600 million won, but now I've lost a cumulative 700 million." Another person said, "The money for my wedding is all in there, and I've lost 40%." A 45-year-old office worker, Kim, invested a total of 34 million won after five margin calls, with a floating loss of over half. A 60-year-old, Song Meijing, made 300 million won in the first half of the year but now has a floating loss of over 60%. She said, "I've never seen such a rapid decline; it’s faster than during the Asian financial crisis."

"My life is ruined; I can't think of any way out." A retail investor left this message on a South Korean brokerage forum.