Daily Management Review

Chinese Catch-up Threatens Korea’s High-tech Economy


Chinese Catch-up Threatens Korea’s High-tech Economy
From the world’s fastest internet connection speed, world-beating innovation and Samsung’s smartphones, South Korea is famous as a high-tech powerhouse.
But here is a reality check: the advantage of Korean companies over their Chinese competitors is closing fast – even as presidential hopefuls are laying out plans to develop new technology to drive the economy over the next five years.

According to a report by the state-run think-tank Korea Institute for Industrial Economics & Trade, including sectors such as high-end smart phones, wearable devices, memory chips, and smart electronics, there’ll be little difference between the tech of Chinese and Korean companies in most sectors in a time period of five years.

“Of the main industries, it seems Korea has a competitive edge over China only in the semiconductor and display sectors,” said Kim Hyeon-wook, an economist at SK Research Institute in Seoul. “The government shouldn’t sit back, but needs to create a cohesive blueprint that sets the agenda and necessary reforms to move forward.”

From labor-intensive work into more sophisticated sectors such as in robotics and in aerospace, China aims to push its economy, thee second largest in the world, from labor driven to tech driven sectors through its “Made in China 2025" strategy. And according to the industrial think-tank’s report, China’s’ companies would be made into Korea’s “strong rivals,” and the strategy will also enable the country to set up increasingly advanced industries.

In order to replace traditional manufacturing such as shipbuilding, which has struggled recently, South Korea is struggling to find new growth engines and China’s rapid catch-up in technology comes amidst such a time for Korea.

The average gap with China on 24 key industries like biotechnology and displays was 0.9 years, according to a report by the Korea Evaluation Institute of Industrial Technology. This means that China would catch up in that amount of time if Korean companies make no effort.

“China’s improvement of industry is changing the structure of the value chain between Korea and China,” according to Cho Chuel, the director of Chinese industry research at Korea Institute for Industrial Economics & Trade. He said that Korea will need to invest more to produce competitive products instead of the previous vertical structure where Korea made value-added, high technology products as competition will become more equal.

“I would like to see new policies that can fundamentally change Korea’s industrial structure,” said Lim Hyun-seo, the chief executive officer of Tankerfund, a peer-to-peer platform startup in Korea. “Korea has highly sophisticated industries, but there needs to be a discussion on how the country can prosper from here.”

Although it remains to be seen if these outlast the term of whoever wins, policies on supporting artificial intelligence, the internet of things, and robots are being pushed by the candidates running for president’s chair.

Earlier, political change forced shortening of such policies like former President Park Geun-hye’s creative economy initiative and Lee Myung-bak’s green growth agenda even as previous governments had laid out plans to boost industrial competitiveness.