The Counterproductivity of "Productive Finance"

The South Korean government has placed "productive finance" at the center of its economic agenda and is actively driving it forward. The initiative aims to redirect financial resources—long trapped in real estate project financing and household debt, feeding on rent-seeking—toward cutting-edge strategic industries, innovative companies, and regional ecosystems. At the forefront of this effort stands the "National Growth Fund," projected to channel 150 trillion won over five years. The underlying recognition that finance must break free from fueling runaway housing prices and instead power the real economy's future growth engines is entirely sound.

However, this policy quickly ran into contradiction at the Yongin Semiconductor Cluster. For the fund's first mega-project under priority review, the government selected the "Semiconductor Cluster Energy Infrastructure" project, valued at approximately 3.3 trillion won. Promoted by Korea Midland Power (KOMIPO) and SK Innovation E&S, the project entails building a 1,050 MW liquefied natural gas (LNG) combined heat and power (CHP) plant to supply electricity and industrial steam to SK Hynix facilities. The claim that stable power and heat sources are indispensable for maintaining cutting-edge semiconductor competitiveness has practical merit. Yet that necessity in no way justifies building brand-new fossil fuel infrastructure.

The core of the problem lies in the apparent lack of any rigorous evaluation of alternatives. Public records do not show whether clean, decarbonized solutions—such as grid upgrades, direct renewable energy power purchase agreements (PPAs), battery energy storage systems (BESS), demand response (DR), or a combination of electric boilers and carbon-free heat sources—were ever given serious consideration. Sidestepping thorough alternative assessments to bring conventional, easy-to-deploy gas generation straight to the public financing table is not energy security; it is irresponsible "path dependency" on legacy technology.

Furthermore, opening the books on a massive new fossil fuel facility in 2030 is a self-defeating choice that directly manufactures "stranded asset" risks. With South Korea legally bound to its 2050 carbon neutrality mandate, a gas-fired plant requiring at least 30 years of continuous operation to recoup capital investments faces an inevitable policy dilemma. If decommissioned early to comply with decarbonization targets, the National Growth Fund and the financial sector will swallow immense write-downs; if operated to full term, it directly undermines the nation's Nationally Determined Contribution (NDC) targets. Moreover, with global big tech clients increasingly demanding RE100 compliance throughout their supply chains, electricity generated from LNG cannot qualify. Public policy financing that touts short-term production cost savings will inevitably inflate future carbon prices and transition costs, generating an ironic drag on export competitiveness.

The current financing structure reveals an even deeper inequity. For a commercial infrastructure project backed by a guaranteed conglomerate off-taker, public funds are taking on the first-loss risks through subordinated debt and equity stakes, leaving private financial institutions securely perched in low-risk senior positions. Why should public funds shoulder the downside risk of conventional fossil fuel assets that involve zero pioneering technological innovation? While citizen-participatory funds are being offered an extraordinary safety net—absorbing the first 20% of losses using public fiscal reserves—essential safeguards such as public profit sharing on excess returns or clawback provisions for underperformance are conspicuously absent. Ultimately, it institutionalizes an unfair privilege where the public absorbs the risk while private players pocket the upside.

The true mandate of productive finance does not lie in pouring capital volume into projects simply because they wear the label of a strategic industry. Its genuine purpose is to share the long-term innovation risks that the private market cannot shoulder alone, thereby elevating the qualitative productive capacity and systemic resilience of society as a whole. Injecting public capital into routine facilities of major corporations that possess ample internal financing capabilities, or into conventional fossil fuel assets, fundamentally contradicts the foundational criterion of "additionality" in public finance.

Semiconductors are a cornerstone of South Korea’s economic future, but a brand-new gas plant built right next to them can never be counted as future-ready infrastructure. What is urgently needed now is not a race to burn through 150 trillion won as quickly as possible, but clear principles defining what kind of energy landscape and industrial ecosystem that capital will leave behind. The moment productive finance is used to cheaply prolong fossil fuels and multiply stranded assets, it will end up proving nothing other than its own painful counterproductivity.