A Government Spending Big, Next Year’s Budget Over 800 Trillion Won (Plus Alpha).

• Next year’s government spending will exceed 800 trillion won, a 10% increase from this year.
• National tax revenue is expected to surpass 500 trillion won—far exceeding the initial forecast of 412 trillion won.
• The additional revenue will be allocated to a Future Response Fund, focusing investments on three mega-projects, youth, regional development, and education. This emerged from yesterday’s National Fiscal Strategy Meeting at the Blue House.
• Park Hong-geun (Minister of Planning and Budget) emphasized, “This is the golden time to decide South Korea’s fate.”
• While tax revenue grows, spending will be tightened. Discretionary and mandatory expenditures will be cut by 15% and 10%, respectively, with 10% of government projects reduced. Even commuter buses for public officials in the capital region will be eliminated. The plan includes a 50-trillion-won structural spending overhaul.

“An Unimaginable Opportunity.”.

• The combined operating profits of all listed companies barely reached 300 trillion won. Now, there are forecasts that Samsung Electronics’ operating profit alone could exceed 1,000 trillion won.
• Lee Jae-myung (President) emphasized, “Change has two sides: opportunity and crisis,” adding, “Some nations seized the chance of modernization, while others, after rising, fell completely. Politics is the greatest factor at this crossroads.”

What Matters Now.

AI as Ubiquitous as Hangul.

• Byeong-Hun Baek (Deputy Prime Minister and Minister of Science and ICT) stated, “We plan to provide general-purpose AI services like ChatGPT or Gemini based on our own AI models,” adding, “There will be no cost burden or usage limits—every citizen will be free to use it as they wish.”
• The plan is to offer a true one-person-one-agent service, where AI autonomously manages assets, provides learning coaching, plans housing, and designs retirement strategies.

“Household Electricity Rates Need Adjustment.”.

• Lee Jae-myung (President) said this. He proposed raising household electricity rates and supporting low-income groups through vouchers.
• Industrial electricity rates in Korea are around 180 won per kWh, while in China they are around 120 won. Household rates are 160 won, cheaper than industrial rates.
• Lee Sang-min (Research Fellow at the National Budget Research Institute) proposed an “elastic tariff system.” He pointed out that building power plants worth trillions of won for specific peak times is inefficient when there are over 360 surplus days of electricity annually.

Three Goals and Four Directions for the Future Response Fund.

• First, a paradigm shift in fiscal management to overcome the limitations of annual budgets.
• Second, a strategic investment platform to support a rebound in potential growth rates.
• Third, a fiscal stabilization mechanism to mitigate tax revenue volatility.
• The investment directions for the secured funds are as follows:
• First, transitioning the growth paradigm through three mega-projects,
• Second, leading regionally driven growth through infrastructure, growth hubs, and K-culture.
• Third, improving polarization through growth ladders for youth, startups, and small businesses, and active welfare.
• Fourth, establishing a foundation for national safety and peace through security, self-reliant defense, economic security, and pragmatic diplomacy.

AI Data Centers Spanning 140 Soccer Fields to Become National Strategic Industry.

• By 2029, 8.4GW of AI data centers will be built, with an additional 10GW by 2035.
• A 1GW data center requires at least 300,000 pyeong of land—18.4GW demands an area larger than 2,500 soccer fields.
• Byeong-Hun Baek (Deputy Prime Minister and Minister of Science and ICT) stated, “We will operate a cross-ministerial task force to provide full support for site acquisition, power supply, and permitting to ensure swift private investment.”

Physical AI’s Potential Market Reaches $60 Trillion.

• That’s nearly half of global GDP.
• Byeong-Hun Baek said, “I believe this is the golden time to mobilize national capabilities.”
• They’ve begun developing core foundational technology—the world model—and aim to create a universal physical AI foundation model rivaling global leaders.
• South Korea holds just 1% of the humanoid robot market, compared to China’s 86%. While Shenzhen alone invests 900 billion won in humanoids, South Korea’s total national investment is around 100 billion won. China has 64 data factories; South Korea has none.
• Jeong-Gwan Kim (Minister of Trade, Industry and Energy) stressed, “The government must lead procurement to open the market.”

Too Much Money Flowing? Conservative Media Voices Concern.

• JoongAng Ilbo warned in an editorial, “Even if we assume a deluge of semiconductor tax revenue, we cannot help but worry about astronomical fiscal spending.”
• Chosun Ilbo shifted focus in its editorial, arguing, “We must stop riding on semiconductor successes and start creating a practical, pro-business environment now.” It added a cryptic suggestion: “Doing what needs to be done will at least provide cover if results fall short.”
• The Hankyoreh used the phrase “tax revenue windfall.” In its editorial, it cautioned, “We must be mindful of potential side effects when budgets solidify into spending-first frameworks.” The paper emphasized, “We must prepare for the backlash of expansionary fiscal policies while enforcing rigorous expenditure restructuring to curb non-essential spending.”
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Black Monday, New York’s Hynix Strikes Back.

• KOSPI plummeted 8.9%. Circuit breakers triggered 35 times this year, with circuit breakers activated six times.
• Samsung Electronics and SK Hynix fell 10.7% and 15.4%, respectively.
• Foreign and institutional investors sold off 1.7 trillion won and 2.2 trillion won net, while individuals propped up the market with 3.9 trillion won in net buying.
• U.S. markets also struggled. S&P 500, Dow, and Nasdaq dropped -0.79%, -0.26%, and -1.55%.
• SK Hynix ADR on Nasdaq fell 9.3% to $152.30. It had surged 12.7% last Friday but followed Korean shares downward.
• Related Link.

The Wagging Tail, the Body, and Leverage ETF Measures?

• They are considering raising the minimum deposit requirement.
• Delisting is highly unlikely—it doesn’t meet the criteria, and investor losses would be unmanageable. Even if banned domestically, similar products would likely flood in from overseas.
• Reducing leverage multiples from 2x to 1.5x is also under discussion.
• Lee Chan-jin (Financial Supervisory Service Governor), who famously declared, “We should have blocked this even if we had to lie down and protest,” summoned asset management CEOs yesterday but only urged, “Self-regulatory efforts are necessary.”

Deep Dive.

Yoon Faces Additional 2-Year Sentence.

• This is the first-instance ruling on charges of violating the Political Funds Act. The court found an implicit agreement between Yoon Suk-yeol (former president) and his spouse, and Myeong Tae-gyun. Myeong received a 1 year 6 month prison sentence and was immediately detained in court. Myeong allegedly provided 58 opinion poll results to Yoon and his spouse, with 14 instances deemed illegal political funding.
• Lee Jin-kwan (Seoul Central District Court presiding judge) stated, “Yoon Suk-yeol exerted influence over Kim Young-sun at Myeong’s request” and ruled that “intent to violate the Political Funds Act is established.”
• Kim Keon-hee remains acquitted at the appellate level for this case. The Seoul High Court previously judged that “the polls were conducted at Myeong’s request or as part of his business activities.”

Next Up: Oh Se-hoon.

• Oh Se-hoon (Seoul Mayor) is also facing trial in a nearly identical case. He awaits a first-instance ruling on the 22nd. He received 10 opinion poll results from Myeong Tae-gyun, with costs covered by supporter Kim Han-jeong.
• Oh claims he never requested polls from Myeong or asked Kim to cover expenses—but Myeong insists, “Oh said he desperately needed polls showing him beating Park Geun-hwan.”
• A confirmed fine over 1 million won would cost him the mayoralty.
• Related Link.

“No Presidential Bid via Party Leadership.”.

• Jeong Chung-rae (former Democratic Party leader) officially declared his bid for re-election as party leader. When asked, “Does this mean you won’t run for president even if the opportunity arises?” he only replied, “Please understand as I’ve stated.”
• He chanted “President Lee” 30 times, repeatedly stressing, “I will protect President Lee to the end.”
• He emphasized two points. First, he will finalize the complete abolition of supplementary investigative powers. Second, he is a one-hearted Democratic Party fool who has never left the party. Both are differentiation points targeting Kim Min-seok (former prime minister). Kim Min-seok has a history of leaving the party in 2002 to support Jung Mong-joon (then independent candidate).
• Related Link.

Democratic Primary Rules Remain Unsettled.

• Jeong Chung-rae (former Democratic Party leader) views the preferential voting system as disadvantageous.
• The party convention approaches in one month. Rules must be finalized by tomorrow at the latest.

Homeplus Sudden Closure.

• At 10 a.m., it announced, “We are entering a temporary closure due to exhausted operating funds and difficulties in facility maintenance and management.”
• On-site staff learned of it only after arriving at work.

Another Take.

“America is the Guardian of Hormuz.”.

• “The Guardian of the Hormuz Strait,” said Donald Trump (U.S. President).
• He stated, “We will be compensated at a rate of 20% of cargo volume for the costs required to provide incomplete safety and security in this region.” It’s a bargaining chip, but its effectiveness is questionable.
• The ceasefire MOU has been neutralized. Airstrikes continue, and maritime traffic remains halted.
• Sanam Vakil (Director of Middle East Studies at Chatham House) told the Financial Times, “Iran believes Trump is risk-averse” and analyzed, “They calculate they can exhaust the U.S. by tolerating a new normal of low-intensity conflict.”
• Related Link.

NHRCK Still Mired in Yoon’s Defense Rights Controversy.

• Last year, a recommendation to guarantee defense rights to Yoon Suk-yeol was submitted but fell through. A motion to discard the recommendation was proposed, yet it hasn’t even been placed on the full commission’s agenda.
• Ahn Chang-ho (NHRCK Chairperson) is holding firm, and among the 11 commissioners, a significant number remain who were appointed under the Yoon Suk-yeol administration.
• Yesterday, a motion to discard the recommendation and apologize to the public was proposed. After over two hours of heated debate, the session ended without resolution.

The Fix.

70% Subsidy for a 14-Million-Won Heat Pump.

• Heat pumps are more energy-efficient than fossil fuel boilers. Think of them as air conditioners installed backward: they use electric energy to draw heat from the surroundings for heating.
• Their low adoption in Korea stems from high upfront costs—around 14 million won per unit—as well as cheaper city gas compared to electricity. Yet, they solve both cooling and heating needs.
• Lee Sang-min (Researcher at the Korea Institute of Public Finance) noted, “Europe subsidized up to 40% of costs.” In Korea, subsidies—including local government support—cover up to 70%. Lee Jae-myung (President) remarked, “We should consider increasing the budget burden.”

Give Young People Their Time Back.

• University students work an average of 19.4 hours per week (including those on leave). Choi Han-soo (Professor at Kyungpook National University) proposed, “Providing unconditional monthly payments of 330,000 won to young people in their early 20s in regional areas would give them back 20–33 hours per month.”
• It’s a proposal to frame youth basic income as a form of time support.
• “Money can come and go, but time, once lost, never returns. If the government wants to give something to young people, it should start with the most precious and irretrievable resource. Give young people their time back.”
• Related Link.

The Bottleneck Is Not Power Plants, but the Grid.

• Lee So-young (Democratic Party lawmaker) pointed out, “The key to the success of the three mega-projects is power,” yet “the most serious bottleneck now is not power plant construction, but the lack of grid infrastructure.”
• Over 100 trillion won is needed for transmission and distribution grid construction over the next decade. However, Korea Electric Power Corporation (KEPCO), the state utility in charge, is burdened with 200 trillion won in debt, paying over 10 billion won daily in interest.
• Lee Jae-myung said, “We are obviously reviewing it,” adding, “We will deliberate and finalize whether to fund it through private funds, KEPCO’s own resources, or a newly established fund.”

ICYMI.

China’s ‘Chip Sea Battle’ Strategy.

• NVIDIA’s share of the Chinese AI semiconductor market fell from 40% last year to an expected 8% this year, as Huawei rapidly accelerates domestic production.
• SMIC is the largest Chinese semiconductor foundry.
• Memory chips are split between Changxin Memory Technologies (CXMT) and Yangtze Memory Technologies Corp (YMTC), with 8% and 13% market shares in DRAM and NAND, respectively.
• Lee Woo-geun (Sungkyunkwan University professor) analyzed, “I said it would take at least 10 years for China to catch up to Korea, but at their current pace, they could close the gap in 2–3 years.”
• Kim Sang-bae (Seoul National University professor) emphasized, “A joint front must be formed against China by combining U.S. GPU technology and Japan’s materials, components, and equipment (so-called ‘so-bujang’) expertise.”

Foreign Spending at Top Three Department Stores Surges Past 1 Trillion Won.

• In the first half of this year alone, foreign sales at Lotte Department Store, Shinsegae Department Store, and Hyundai Department Store reached 640 billion won, 580 billion won, and 500 billion won, respectively. The total is on track to exceed 1 trillion won by year-end.
• Last year’s annual figures were 734.8 billion won, 650 billion won, and 700 billion won.
• One in three customers at Shinsegae Department Store’s main branch is now a foreigner.

Worth Reading.

Collapse Cultivated by Mismanagement.

• Debt-driven investment and market concentration: the two keywords that fueled volatility in Korea’s stock market.
• Credit loan balances surged by over 10 trillion won, and margin account loan balances also increased by over 3 trillion won. Forced liquidations quadrupled. Volatility begets forced liquidations, which in turn feed more volatility—a vicious cycle.
• In a market already prone to wild swings, Samsung Electronics + Nicks leveraged ETFs added fuel to the fire.
• In an editorial, JoongAng Ilbo pointed out, “The recent stock market’s sharp swings resulted from a combination of market concentration, overheating, and mismanagement.” It criticized, “Instead of introducing measures to cool the overheating, authorities made a blunder by allowing single-stock leveraged ETFs.”
• Related Link.

Lee Jae-myung Government’s Surprising Reversal.

• Ko Hyun-gon (JoongAng Ilbo editor-at-large) assessed, “It’s fortunate that this government is taking a different path from past left-wing administrations steeped in ideology and populism.” This refers to the Lee Jae-myung government’s decision to establish a future-response fund instead of cash handouts.
• Regarding Labor Minister Kim Young-hoon’s remark that “we will find ways to redistribute excess profits,” Ko criticized it as “typical left-wing logic—only scheming to divide the pie without thinking about how to grow it.”
• Ko pointed out, “The Lee Jae-myung government owes nothing to the Moon Jae-in administration,” adding, “there’s no reason to inherit left-wing policies.” “True courage lies in boldly acknowledging and correcting the misjudgments of past left-wing governments. The critical crossroads is whether to remain an ideology-entrenched left-wing government or transform into a centrist pragmatic government that creates livelihoods.”
• Is conservative media’s evaluation changing? A column worth noting.
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Kim Bu-gyeom and Woo Won-shik’s Turn to Step Up.

• Lee Dae-geun (Woosuk University professor) views the politics of Kim Min-seok, Jeong Cheong-rae, and Cho Guk as tribal politics. Even without support from the entire party, controlling just one highly loyal faction can secure dominance in internal power struggles. A scathing assessment that it’s closer to a village spectacle than politics.
• Can Kim Bu-gyeom (former Prime Minister) and Woo Won-shik (former National Assembly Speaker) be the alternative?
• Lee Dae-geun emphasized, “The moment tribal politics becomes a success model, everyone will rush to become a tribal chief,” adding, “It is the task of these two to turn tribal politics into a failed model and unifying politics into a successful one.”
• “The power to overcome divisive politics is not hatred or vitriol, but respect and restraint. Driving out demons isn’t done with a club, but with garlic.”
• Related Link.

Let’s Clear Ahn Gyu-baek’s Suspicions First.

• Ahn Gyu-baek (Minister of National Defense)’s alleged desertion from 40 years ago is hindering defense reform.
• Lee Tae-gyu (Head of Content, Hankook Ilbo) stated, “Just as one cannot agree with defense reform being overturned over Ahn’s military service issues, if evidence of the suspicions is not disclosed, the reform itself risks stalling,” emphasizing, “To continue the achievements of the first civilian defense minister, the suspicions must be resolved first.”
• Lee Chung-jae (former Hankook Ilbo editor-in-chief) pointed out, “The suspicions about Ahn Gyu-baek’s military service, intensively raised by conservative factions, are clearly politically motivated.”
• “Not only were these suspicions already raised during his confirmation hearing a year ago with no new evidence, but given the strong possibility that the controversy stems from a clerical error in his military records, it’s hard not to suspect that the offensive is being waged for purely strategic reasons.”
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Not About Siding With Prosecutors.

• Hankyoreh has many senior editorial writers strongly advocating for abolishing supplementary investigative authority, but the tone of field reporters differs.
• Jeong Hwan-bong (Hankyoreh Social Desk Head) pointed out, “The proposition that no investigative authority should remain with prosecutors has devoured reform.”
• “The abolition of supplementary investigative authority is a matter for sufficient discussion, but such discussions seem unrelated to improving the bankrupt criminal procedure system.”
• “A system where police investigate, prosecutors determine indictment, and verify necessary details has advantages in revealing the truth of cases, facilitating checks and supervision of investigative agencies, and reducing case concealment. If there is an alternative to replace this, supplementary investigative authority can be abolished anytime. We urge political circles to engage in proper discussions now.”
• Related Link.

An Unavoidable Question: The Special Act on Prosecution Discontinuation.

• It’s quiet now, but questions will pour out when the Democratic Party’s leadership debate begins ahead of the convention.
• Seong Han-yong (Senior Reporter, Hankyoreh) pointed out, “Lee Jae-myung is fixated on discontinuing the prosecution.”
• Seong Han-yong noted, “It’s true that Yoon Suk-yeol’s prosecutors targeted and indicted Lee Jae-myung, and a special investigation into the fabricated charges is essential—but discontinuing the prosecution is a separate issue.” “After uncovering the truth and punishing the prosecutors behind the fabricated charges, it’s up to the prosecutors who investigated and indicted Lee Jae-myung to decide,” he argued. What if prosecutors refuse to discontinue? Then the special investigation law can be amended, or the court can dismiss the charges.
• If fabricated charges are proven, maintaining the prosecution will be difficult anyway—but the sequence cannot be reversed.
• Seong Han-yong emphasized, “To become party leader, one must confront the president.” “That’s what the public wants. Only then can the Democratic Party extend its rule. Can it be done?”
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Deliberation Before Megaprojects.

• Speed matters, but direction matters more. Ha Seung-su (Representative, Nongbon) pointed out, “Spouting unverified ideas without proper review is just boarding a highway to chaos and conflict.”
• A warning that this could become a “mega confusion” rather than a “mega project.”
• To achieve balanced development, power demand must first be decentralized.
• Expanding nuclear power due to renewable energy’s intermittency is a non sequitur.
• Semiconductors and data centers require different approaches. They are avoided even overseas and generate almost no employment.
• Ha Seung-su emphasized, “National sovereignty is secured through practice,” adding, “The more critical the issue, the more deliberative democracy is required.”
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