South Korea has begun rolling out the first tranche of a $9bn-plus investment fund designed to boost start-ups in dozens of growth areas including drone technology, artificial intelligence and fintech.
The move comes amid concern in Asia’s fourth-largest economy that its export-led growth model is losing steam and that the country needs to foster expertise in new technologies to remain competitive.
“A low-growth pattern has taken root in the economy,” said Min Byung-doo, a lawmaker who presided over the launch of the fund on Monday. “Innovative growth is a task that cannot be postponed. And in order to make this growth possible, finance must play a pivotal role.”
The three-year fund is being shepherded by South Korea’s Financial Services Commission and the Ministry of SMEs and Startups, which will this year dole out some $2.8bn to start-ups before increasing the amount available for 2019 and 2020 to more than $3.3bn each year.
The launch of the fund comes hot on the heels of an announcement last month by Samsung — the country’s largest and richest conglomerate — that it would pour $160bn into new technologies and start-ups over the next three years.
“South Korea’s fund is much smaller than similar funds in Japan and China. But with the move the government is signalling to big Korean companies like Samsung and Hyundai to increase their investments in start-ups and SMEs,” said Lee Hang-koo, a researcher at Korea Institute for Industrial Economics and Trade.
For South Korea and Samsung, the investments are being done with an eye on China.
Under the “Made in China 2025” blueprint, Beijing has made clear it wants to dominate high-tech industries over the next decade and is willing to spend big to achieve that goal.
Research group Gavekal suggests the Chinese government could spend as much as much as $300bn on the project, although other analysts caution the amount already raised is only about a third of that figure.
“Although the total amount [of the South Korea start-up fund] is not so big, the funds are needed because venture capital here is weak and the M&A market is also too small,” said Mr Lee.
Unlike with previous government funds, Seoul is this time putting private fund managers, not bureaucrats, in charge of assessing promising start-ups, Mr Lee added.
A spokesperson for the FSC said it would raise private funds to match the public purse before handing out the money to promising businesses.
Kim Young-soo, an official at the Korea Development Bank, which is overseeing the fund, said this year’s tranche would be invested in 45 sectors including AI, autonomous driving, drone technology and fintech.
Funds would also be allocated to developing advanced manufacturing processes, new chemical materials and biopharmaceuticals, he said.
However, Seoul’s choice of growth areas has come under fire for its lack of originality. Critics say the government is simply following objectives already outlined by Samsung.
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