The Korea Zinc Case: Why the Pentagon Is Worried About China-Linked Private Equity in Defense Supply Chains
The US Department of Defense recently moved to support Korea Zinc’s proposed USD 7.4 billion smelting plant in Tennessee. The facility would refine critical minerals used for military applications, such as fighter jets, sensors, and night-vision systems. The Pentagon may have had multiple motivations to support Korea Zinc, including concerns about who might own the South Korean smelter years from now.
This concern has sharpened due to an ongoing governance dispute at Korea Zinc. The dispute centers on a shareholder alliance led by MBK Partners and founding shareholder Young Poong. According to South Korean media reports, this alliance controls roughly 44% of Korea Zinc’s voting shares, which is enough to block major decisions, but not enough to run the company outright.
The Financing Dispute
The immediate disagreement concerns project financing. Korea Zinc has proposed issuing new shares to fund the Tennessee project through a US-backed joint venture (JV). MBK and Young Poong have filed a court injunction in Seoul to block the issuance, arguing this would unfairly dilute existing shareholders. As a result, the financing plan is under judicial review and has not yet been approved.
South Korean media reports indicate MBK’s legal action concerns shareholder rights, not its opposition to the US investment or to the Tennessee project itself. However, from the Pentagon’s perspective, the dispute highlights how ownership could evolve once private capital moves toward eventual exit.
Why Capital Sources Matter
MBK is a Seoul-based private equity (PE) firm founded and managed by South Korean and US nationals. There is no evidence it is controlled by China. However, South Korean media have reported that China Investment Corporation (CIC), a Chinese sovereign wealth fund, has committed roughly 5% of the capital in MBK’s sixth flagship fund. CIC is a limited partner with no management role.
That said, the concern here is not about influence today, but exposure over time. PE firms buy companies, improve them, and eventually sell their stakes. When that moment arrives, the identity of potential buyers matters, particularly in defense-related sectors.
In strategic industries, acceptable buyers can be limited. US and European firms often face regulatory scrutiny and political hesitation. Chinese state-linked firms may face fewer constraints and can move faster. Even when transactions are formally reviewable, timing and structure can produce outcomes that are legally permissible but strategically undesirable.
This is what Pentagon planners are watching: not present control, but future ownership pathways.
The Pentagon’s Response
The Tennessee project is being structured through a US-backed JV that would own and operate the facility. Separately, Korea Zinc has proposed issuing new shares that would bring “US-aligned” investors into the parent company. While both steps remain subject to court approval, they are intended to provide visibility and influence over a facility that will be part of the US and allied defense industrial base.
A related precedent exists. In 2025, the Department of Defense invested in MP Materials through preferred stock and warrants, a structure that strengthened US leverage relative to existing China-linked shareholdings and gave the Pentagon operational control.
The Broader Pattern
The Pentagon’s involvement in Korea Zinc reflects a broader shift in how Washington approaches economic security. Rather than assuming ownership questions can be resolved later through regulation, defense planners are acting earlier—before exit timelines, market stress, or constrained buyer pools narrow their options.
The Tennessee project may prove less an exception than a template. As defense-critical supply chains grow more capital-intensive and globally entangled, questions of ownership and governance are drawing the same scrutiny once reserved for technology transfer or export controls. In that environment, direct involvement may become a tool of first resort rather than last.
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