Korea’s high-tech economy threatened by Chinese catch-up

Bloomberg

South Korea is famous as a high-tech powerhouse, from Samsung’s smartphones, the world’s fastest internet connection speed and world-beating innovation.
And while presidential hopefuls are laying out plans to develop new technology to drive the economy over the next five years, here is a reality check: the advantage of Korean companies over their Chinese competitors is closing fast. In five years’ time there’ll be little difference between the tech of Chinese and Korean companies in most sectors, including high-end smart phones, wearable devices, memory chips, and smart electronics, according to a report by the state-run think-tank Korea Institute for Industrial Economics & Trade.
“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.”
The “Made in China 2025” strategy aims to push the world’s second-largest economy beyond labor-intensive work into more sophisticated sectors, from robotics to aerospace. It will enable increasingly advanced industries and make its companies into Korea’s “strong rivals,” according to the industrial think-tank’s report.
China’s rapid catch-up in technology comes as Korea struggles to find new growth engines to replace traditional manufacturing such as shipbuilding, which has struggled recently. And the rivalry is especially stark in new technologies.
According to a report by the Korea Evaluation Institute of Industrial Technology, the average gap with China on 24 key industries like biotechnology and displays was 0.9 years. This means if Korean companies make no effort, China would catch up in that amount of time.
“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. Rather than the previous vertical structure where Korea made value-added, high technology products, competition will become more equal, and Korea will need to invest more to produce competitive products, he said.
“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.”
The candidates for president are also pushing policies on supporting artificial intelligence, the internet of things, and robots, although it remains to be seen if these outlast the term of whoever wins. Previous governments laid out plans to boost industrial competitiveness — such as former President Park Geun-hye’s creative economy initiative and Lee Myung-bak’s green growth agenda — but they were short-lived due to political change.