South Korea to Allocate $3.5 Billion for Its Own AI Model as Seoul Looks to Catch Up With China’s Leading Systems

South Korea’s government is preparing a large-scale state project to build a national frontier artificial intelligence model. It plans to direct 4.7 trillion won (about $3.5 billion) to the effort. The initiative launches in spring 2027 and is meant to lift the country into the top league of generative AI developers, where tech giants from the US and China currently dominate.

As Reuters reports, the government is changing how it hands out subsidies: instead of classic no-strings grants, the state will use matching co-funding on equal terms with private business. The winning team will also get access to government databases, computing capacity built on modern accelerators and help from specialized researchers, so the money isn’t spread across dozens of small startups.

A consortium competition and sovereign AI

The main contractor for the project will be chosen through an open national competition. Both individual tech corporations and consortia of startups, universities and research institutes will be able to apply. If the National Assembly approves the proposed budget in December, the winner will be announced in February 2027.

Funding for the program will be a key part of the government’s digitalization strategy. According to South Korea’s Ministry of Science and ICT, the country’s total spending on AI in 2027 will rise 84% to 9.4 trillion won. Of that, more than 5.6 trillion won will go directly to building foundation models and related infrastructure.

The new tranche does not cancel the existing state Sovereign AI Foundation Model program, which aims to free Korean businesses from dependence on American APIs. Domestic efforts are already competing in it:

• telecom giant SK Telecom has built a model with 519 billion parameters;
• LG AI Research is developing a system with 236 billion parameters;
• startup Upstage is scaling up its own compact architectures.

The two best teams from this pool will be selected early next year, and the new $3.5 billion project will be a separate layer on top aimed at the global market.

A pragmatic goal: overtake China’s open-source models

Seoul has a sober view of the balance of power. South Korean officials acknowledge that competing on budgets with American corporations like Microsoft, Google or OpenAI is pointless — private investment in Silicon Valley exceeds the resources of the state budget many times over.

So Korea’s main strategic goal is to catch up with and overtake open models from China (such as Alibaba’s Qwen and DeepSeek), which have made a qualitative leap in recent years and have come almost level with the closed paid systems of the US. If parliament passes the bill without cuts, active development of South Korea’s flagship model will begin as early as March 2027.