South Korea's economic circles have been in an uproar recently, as the exports of many traditional pillar industries, which had been far ahead, have suddenly increased in similarity and competition as China has caught up. The latest data released by the Korea International Trade Association has lit up a red light: from January to August 2023, the export similarity index (ESI) of South Korea and China in the semiconductor industry is 0.677, an increase of 0.008 percentage points from five years ago; In the automotive sector, the ESI soared from 0.354 to 0.522, an increase of 0.168 percentage points.
The closer the ESI index is to 1, the more similar the product mix of the two countries' exports and the more fierce the competition. Judging from the data, with the development and growth of China's manufacturing industry, South Korea's traditional advantageous industries such as semiconductors and automobiles are encountering unprecedented squeezes and challenges.
To make matters worse, in addition to continuing to compete with South Korean products for high quality and low prices, China has also begun to surpass South Korea in many cutting-edge technology fields.
According to the latest assessment by the Ministry of Science and Technology of South Korea, in 11 national key science and technology fields, including artificial intelligence, new generation communications, cyber security, and robot manufacturing, if the United States is regarded as 100% of its development level, China's is 82.6%, while South Korea's is only 81.5%, which is the first time that China has overtaken it.
If we only look at 50 of the "national strategic technologies", China's development level is as high as 86.5%, 4.8 percentage points ahead of South Korea's 81.7%. It can be said that in terms of the speed of development in key scientific and technological fields, China has shown a trend of "catching up and catching up", and South Korea's traditional advantages are being eroded little by little.
What is even more worrying for South Koreans is that even in the field of "secondary batteries", which is still a leader, South Korea is facing a serious dependence on China. Data shows that last year, South Korea imported lithium hydroxide and other core battery raw materials as high as 4.93 billion US dollars, a year-on-year increase of more than 53%, all from Chinese manufacturers.
South Korean industry has to feel the challenge from China in crisis. The Culture Daily dismissed it as a "big Chinese raid that shook the South Korean economy," and several experts warned that "the future of the South Korean economy will depend on how to deal with this dilemma, and our prime time is only three years at most." "
Why is there such alarmism? The reason is to start with the development and growth of China's manufacturing industry.
In fact, China has been vigorously developing its manufacturing industry for many years, constantly extending to the middle and high-end. From the initial processing and manufacturing, to the active research and development and mastery of core technologies, China's manufacturing is making breakthroughs in all directions and catching up with the level of developed countries.
Taking electric vehicles as an example, the share of Chinese electric buses in the South Korean market has reached an astonishing level of 54% in 2022. From the "copycat" products that were initially looked down upon to today's local Korean brands, Chinese auto companies have undoubtedly undergone earth-shaking changes.
In addition to the continuous improvement of product quality and technical strength, the accelerated development of China's manufacturing industry is also strongly promoted by China's huge domestic demand market. With policy and financial support, Chinese enterprises have accelerated the pace of innovation and continuously refreshed the height of the industry.
In recent years, China has further deepened reform and opening up, promoted supply-side structural reform, developed a mixed-ownership economy and a series of reform measures, which further stimulated the vitality of the manufacturing industry. The market-oriented mechanism of survival of the fittest is promoting the continuous optimization and upgrading of China's industry.
Under the combined effect of multiple favorable factors, China's manufacturing industry is developing by leaps and bounds, and the global manufacturing map is also undergoing drastic reshaping. Traditionally advanced industrial countries, such as South Korea, are already feeling unprecedented pressure.
The data shows that South Korea's exports will fall significantly in 2023, and the trade surplus will drop sharply. At the same time, due to the continuous decline in South Korean companies' exports to China and the surge in Chinese imports, South Korea's trade with China will have a deficit of $18 billion for the first time in 2023, the first deficit in 31 years.
This shows that the development of China's manufacturing industry is effectively changing the global industrial pattern. Experts believe that this not only means that South Korea will face a more fierce competition for export markets, but also will directly impact the dominance of South Korea's industry.
In the face of the rapid development of China's manufacturing industry, traditional developed economies such as South Korea do not seem to be prepared in advance. For a long time, there have been some old problems in the development of South Korea's industry, such as insufficient innovation ability and excessive dependence on Chinese raw materials, which have been completely exposed under the tide of China's rise.
A number of South Korean economic experts pointed out that it is necessary to complete industrial transformation and upgrading within the three-year "golden period", otherwise it will be completely overtaken by China. So, what is South Korea currently doing to deal with Chinese competition, and how effective are they?
In fact, the Korean business community has indeed realized the crisis and has begun to take action. But as things stand, these efforts are far from sufficient.
At the national level, South Korea's Finance Minister Choi Sang-mu has repeatedly called for better response to China's challenge by improving competitiveness. But the exact way to do this is still vague. Previously, he proposed to "find an alternative market in China", and then had to explain that it was not meant to be "decoupling".
It can be seen that there are still considerable differences and hesitations in the ROK on how to handle economic and trade relations with China. Some conservative forces have tried to protect South Korea's interests by "de-Sinoizing" and curbing China's industrial development, but this is nothing less than naivety and putting the cart before the horse.
In contrast, the actions of the Korean business community in terms of innovation and development seem to be more resolute and forceful. Samsung Electronics and other leading Korean companies have increased R&D investment to seek breakthroughs. However, the problem is that the efforts of large enterprises cannot fully radiate and drive the entire industry, and South Korea still needs to introduce supporting measures to form a joint force.
Despite its awareness of the crisis, South Korea's response has not been adequate. Analysts believe that in order to truly meet the challenges of China's manufacturing industry, it is not enough to rely solely on existing practices, and must promote thorough reform at the institutional level.
First, we must increase R&D investment and promote scientific and technological innovation. China's manufacturing industry is catching up, thanks to continuous innovation. Therefore, South Korea must further increase investment in scientific research, cultivate more scientific and technological talents, and accelerate the pace of industrial and technological upgrading.
Second, we must be determined to promote industrial diversification. Over-reliance on a few pillar industries is one of the common problems of the South Korean economy. In the face of China's rise, it may be difficult to sustain itself with traditional advantages alone, and it is necessary to vigorously develop new industries and avoid over-dependence.
Third, we need to actively integrate into the global industrial chain and embrace openness and inclusiveness. South Korean companies are too dependent on China's raw materials precisely because they are not open enough to the outside world. To curb this risk, it is necessary to promote the localization and diversification of the industrial chain and reduce the dependence on a single source.
Fourth, it is necessary to boost vitality through mechanism innovation. The bottleneck in industrial development in developed countries is largely due to a lack of innovation. South Korea needs to boldly promote mixed-ownership reform, improve market mechanisms, and cultivate new development momentum.
All these reform measures need to be fully supported and institutionalized by the Republic of Korea. It is almost impossible to rely on the enterprise alone.
In the face of China's fierce catch-up in the manufacturing industry, South Korea should not stop waiting and stand idly by, but should establish a sense of crisis and take the initiative. Because in the game of the global manufacturing map, whoever holds the leading power of innovation will win the future. If you miss the opportunity and miss the "last window period" of industrial upgrading, you may have to pay the price of being completely overtaken and backward.
Many people in South Korea are pessimistic because all this seems to be unsolvable at the moment!