'State Capitalism 2.0' and Korea’s choice

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'State Capitalism 2.0' and Korea’s choice

Published: 17 Dec. 2025, 00:01

Audio report: written by reporters, read by AI

Park Sun-young

The author is a professor of economics at Dongguk University.

The global economy of 2025 is entering a phase markedly different from the era that operated on the assumption of a liberal free trade order. This shift is often described as “State Capitalism 2.0.” It is not simply a return to old-style protectionism. Rather, it reflects a trend in which governments play a more active role in allocating capital, setting technology standards and managing supply chains to safeguard technological sovereignty and economic security.

From sixth from left: Lee Eog-weon, chairman of the Financial Services Commission, Park Hyeon-joo, founder and chairman of Mirae Asset, Seo Jung-jin, chairman of Celltrion and Park Sang-jin, chairman of the Korea Development Bank, press a ceremonial lighting button at the launch ceremony of the National Growth Fund held on Dec. 11 at the Korea Development Bank headquarters in Yeouido, Seoul. [BYUN SUN-GOO]

The Covid-19 pandemic, the war in Ukraine and intensifying U.S.-China strategic competition exposed the fragility of global supply chains and the risks of dependence on critical technologies. These shocks reinforced the view that market mechanisms alone are insufficient to manage such vulnerabilities. Major economies are now redesigning both the methods and scope of state intervention, particularly around strategic industries.

What distinguishes State Capitalism 2.0 is not the intensity of intervention but the way it is exercised. Under State Capitalism 1.0, associated with postwar developmental states, governments directly led production, employment and capital accumulation. Examples of this are nationalization in France or state-owned enterprises and policy finance during Japan’s high-growth era. By contrast, State Capitalism 2.0 preserves a market structure centered on private firms while steering market outcomes toward policy goals through regulation, capital policy and subsidy conditions.

President Lee Jae Myung takes a selfie with a visitor at the National Growth Fund report session at Mapo District, western Seoul, on Sept. 10. [JOINT PRESS CORPS]

Mariana Mazzucato, a professor at University College London, has described this approach in “The Entrepreneurial State” (2013) and “Mission Economy” (2021) as mission-oriented state intervention that shapes the direction of technological and industrial development itself.

In this environment, both the United States and China are mobilizing massive resources in a competition for technological leadership. The United States relies less on direct government spending and more on shaping the flow of private capital through rules and conditions. A representative example is the “guardrail” provision of the CHIPS and Science Act, which restricts companies receiving U.S. subsidies from investing in advanced semiconductor production facilities in China. This aligns capital flows with national security objectives while limiting fiscal outlays.

Such a strategy is possible because of the sheer scale of U.S. capital markets. In 2024 alone, U.S. venture capital investment is estimated at around 280 trillion won ($189.7 billion). Capital expenditures and research and development spending by the "magnificent seven" technology firms exceeded 650 trillion won.

China, by contrast, emphasizes the state’s capacity for direct capital mobilization. President Xi Jinping’s strategy of developing “new quality productive forces” focuses on AI, advanced semiconductors, biotechnology and quantum technology as engines of qualitative growth. A core instrument is the China Integrated Circuit Industry Investment Fund, known as the “Big Fund Phase III.” Backed by about 344 billion yuan ($48.2 billion) it is deploying capital at a scale and speed far exceeding earlier phases.

Against this backdrop, Korea’s 150 trillion won National Growth Fund, officially launched on Dec. 10, is clearly an important policy tool for participating in global industrial competition. The fund is designed to act as a catalyst in long-term, high-risk areas that private capital struggles to bear alone. By sharing risks in strategic industries, it aims to crowd in private investment.

Yet given Korea’s demographic constraints and fiscal capacity, policies of comparable scale are difficult to repeat. In that sense, the National Growth Fund resembles a final window of opportunity. Since Korea cannot compete with the G2 economies in sheer capital size, the fund’s success will depend on the regulatory environment in which that capital operates.

Here, China’s biotechnology sector offers a telling lesson. After launching a national strategy to become a biotech powerhouse in 2015, China undertook sweeping regulatory reform based on a state council master plan to overhaul drug and medical device approval systems. Between 2015 and 2018, it quadrupled review staff and cleared a backlog of nearly 20,000 new drug applications in just two years.

Exhibitors brief visitors at a Bloomage Biotech booth during the 3rd China International Supply Chain Expo at the China International Exhibition Center, in Beijing, China, on July 18. [AP/YONHAP]

The results are measurable. In May 2024, Pfizer signed a $1.25 billion deal with China’s 3SBio to secure global rights to an experimental cancer drug. Including that agreement, roughly one-third of global licensing deals by major pharmaceutical companies in 2024 and 2025 involved Chinese firms. China has already emerged as the world’s second-largest producer of pharmaceutical innovation.

Ultimately, success hinges not only on the size of capital but on the roads along which it flows. For the National Growth Fund to serve as a true catalyst for innovation, institutional reforms that shape these pathways must accompany capital deployment. As Nobel laureate economist Joel Mokyr has argued, long-term growth depends on institutional flexibility that accommodates innovation and on a society’s capacity to overcome resistance from entrenched interests.

Rationally updating outdated regulations is therefore not a peripheral task. It is a necessary condition for ensuring that committed capital is fully transformed into a driver of future growth.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.