"China Overwhelms Korea in National, Manufacturing, Corporate Competitiveness, R&D, and Patents"

FKI Analyzes 30 Years of Korea-China Diplomatic Relations Gap
"High-Value Advanced Industries Struggle...Urgent Measures Needed Including 'Chip 4' Membership"

Chinese workers at work. (Photo by Asia Economy DB)

[Asia Economy Reporter Moon Chaeseok] On the 24th, marking the 30th anniversary of diplomatic relations between South Korea and China, an analysis revealed that China's industry is overwhelmingly surpassing South Korea on all fronts. Not only in macro indicators such as national competitiveness but also in corporate competitiveness, research and development (R&D), patents, competition among leading companies, and future growth potential, South Korea is generally falling behind. There are calls for drastic measures such as joining 'Chip4' (Chip4: South Korea, United States, Japan, Taiwan), revising the Korea-China Free Trade Agreement (FTA), discovering new export items to China, and regulatory reforms.

"China Overwhelms South Korea Beyond Just Catching Up"

The Federation of Korean Industries (FKI) released an analysis on the same day examining changes in competitiveness over 30 years since the establishment of diplomatic relations in 1992, showing that China has overtaken and is overwhelming South Korea. China has succeeded in rapid growth not only in quantity but also in quality, significantly widening the gap with South Korea. Especially, China is far ahead of South Korea even in future competitiveness indicators such as R&D investment. Core industries like batteries and automobiles are also rapidly growing in competitiveness. The FKI warned that if this situation continues, South Korean companies will struggle to even make profits in China. It predicted that the trade deficit with China is inevitable.

The overall economic scale of the country was found to be incomparable. In terms of nominal Gross Domestic Product (GDP), South Korea grew about 5.1 times from $355.5 billion (approximately 477 trillion won) in 1992 to $1.7985 trillion (approximately 2,415 trillion won) last year, while China experienced a storming growth of about 35.5 times from $492.1 billion (approximately 661 trillion won) to $17.458 trillion (approximately 23,446 trillion won). The nominal GDP gap between the two countries widened from 1.4 times to 9.7 times during the same period. Per capita nominal GDP increased 4.3 times in South Korea over 30 years, whereas China surged 29.4 times. China's per capita nominal GDP, which was only 5.2% of South Korea's in the first year of diplomatic relations, rose to about 35.5%. Looking at export-import growth rates, South Korea's trade grew 8.3 times from $77.3 billion (approximately 104 trillion won) in 1992 to $644.4 billion (approximately 865 trillion won) last year, while China’s trade grew 39.3 times from $85.6 billion (approximately 115 trillion won) to $3.3682 trillion (approximately 4,522 trillion won). In terms of total trade volume (exports plus imports), South Korea increased from $160.3 billion (approximately 215 trillion won) to $1.2595 trillion (approximately 1,691 trillion won), while China grew from $167.5 billion (approximately 225 trillion won) to $6.0471 trillion (approximately 8,118 trillion won). Although they started at similar levels, the gap now stands at about 4.8 times.

South Korea Falls Behind China Not Only in National Competitiveness Adjusted for Population but Also in Corporate Competitiveness

This gap is clearly reflected in national competitiveness indicators. According to the rankings compiled by the International Institute for Management Development (IMD) in Switzerland, South Korea and China ranked 32nd and 34th respectively in 1994, standing shoulder to shoulder. This year, China ranked 17th and South Korea 27th. According to the Competitive Industrial Performance (CIP) index published by the United Nations Industrial Development Organization (UNIDO), South Korea ranked 14th and China 33rd in 1992, but by 2020 China had risen to 2nd place while South Korea dropped to 5th. Although South Korea improved its ranking mainly through advanced manufacturing such as semiconductors, it was insufficient to surpass China, as proven by the statistics.

A more serious problem is that even among the top companies generating significant national wealth, South Korea struggles to compete with China. This is also proven by statistics. For example, China has surpassed South Korea in the number of Fortune Global 500 companies and the number of products ranked first in global export market share. In 1995, South Korea had 8 companies and China (including Hong Kong) had 3 in the Fortune 500, but this year South Korea has 16 while China (including Hong Kong) has 136, widening the gap nearly tenfold. The number of products with the world's top export market share was 96 for South Korea and 322 for China in 1993, but by 2020, South Korea had 77 and China 1,798, greatly widening the gap. South Korea's level compared to China dropped sharply from about 29.8% to 4.3%.

China Dominates Future Indicators... Gap Widens Over Time

South Korea also lags behind in future competitiveness indicators such as R&D. When examining the number of top 1,000 R&D companies worldwide, South Korea increased from 19 in 2006 to 27 in 2020, a 1.4-fold increase, whereas China surged from 4 to 194, a 48.5-fold explosion. South Korea is also struggling in patents. This trend can be seen in key science and technology indicators from the Organisation for Economic Co-operation and Development (OECD). China's total R&D expenditure increased 17.7 times from $32.9 billion (approximately 44 trillion won) in 2000 to $582.8 billion (approximately 782 trillion won) in 2020, while South Korea's rose only 6.1 times from $18.5 billion (approximately 25 trillion won) to $112.9 billion (approximately 152 trillion won). In terms of international patent applications, China surged 38.1 times from 1,339 in 2000 to 51,033 in 2018, while South Korea increased from 1,964 to 17,478, a smaller growth compared to China.

There is also analysis that South Korea is losing in product competitiveness. The trade deficit in key items with China is increasing, and market share is declining. For example, in the automobile parts sector, South Korea's exports to China halved from $4 billion (approximately 5.37 trillion won) in 2010 to $1.8 billion (approximately 2.417 trillion won) last year, while imports doubled from $1.2 billion (approximately 1.611 trillion won) to $2.2 billion (approximately 2.953 trillion won). Sales of new Korean cars in China are also decreasing. Hyundai sold 1.14 million units in China in 2016, but only 350,000 units last year. Its market share in China remains in the 1% range this year.

In the strategic battery sector, the high dependence on China has not been easily reduced. Looking at the import status of other non-metallic minerals, imports decreased only slightly from $1.02 billion (approximately 1.369 trillion won) in 2010 to $960 million (approximately 1.3 trillion won) last year. Especially for key materials such as lithium oxide and lithium hydroxide, import volume increased about 92 times from $16 million (approximately 2.15 billion won) in 2015 to $1.476 billion (approximately 1.9815 trillion won) as of last month.

"Major Reforms Needed Including Joining Chip4, Revising FTA, and Regulatory Innovation"

U.S. President Joe Biden, visiting Korea for the first time since his inauguration, is seen signing a prototype of the world's first 3-nanometer semiconductor based on GAA (Gate-All-Around), which Samsung successfully mass-produced and shipped for the first time in the world, together with President Yoon Suk-yeol on the afternoon of May 20 at Samsung Electronics' semiconductor factory in Pyeongtaek, Gyeonggi Province. (Image source=Yonhap News)

Summarizing the FKI analysis, it is clear that South Korea is falling behind not only in national economic 'size' considering population and territory but also in overall economic fundamentals including corporate competitiveness. Even advanced companies struggle to compete with China, and the gap is expected to widen further.

Kim Bongman, head of the FKI International Headquarters, stated, "Considering China's rapid growth, the trade deficit with China is likely to increase further," and emphasized, "We need to prepare special measures to raise South Korea's potential growth rate and maintain competitive advantages against China." He stressed, "To strengthen export competitiveness to China, external responses such as revising the Korea-China FTA and participating in Chip4, along with internal regulatory reforms, are necessary to discover high value-added export items."

This content was produced with the assistance of AI translation services.