[2026 Financial Forum] Sonal Varma: "AI, Energy, and the China Shock Are Reshaping Asia"

AI Boom Triggers ‘K-Shaped’ Polarization Depending on Who Benefits
Intensifying Shift Toward U.S. Investment Raises Concerns of Manufacturing Hollowing-Out
Korea Must Prepare for Manufacturing Investment Slowdown and Job Replacement

It has been diagnosed that the artificial intelligence (AI) revolution, energy shocks, the restructuring of trade and investment, and supply gluts originating from China are among the "five major drivers" reshaping the landscape of the Asian economy. Although Korea has established a foundation for growth through AI, challenges such as the weakening of domestic manufacturing investment due to accelerated investment in the United States have been identified as issues that need to be addressed.

Sonal Varma, Chief Economist at Nomura Securities, stated this during a session lecture at the "2026 Asian Financial Forum," held under the theme "Future Financial Transformation: The Era of Productive Capital and the New Financial Order" at the Westin Chosun Seoul on May 21.

Sonal Varma, Senior Economist at Nomura, attended the "2026 Asian Financial Forum" hosted by The Asia Business Daily on May 21 at the Chosun Hotel in Jung-gu, Seoul, and gave a lecture on the topic "Five Drivers Reshaping the Asian Economy." 2026.5.21 Photo by Kang Jinhyung

Intensifying 'K-Shaped Polarization' Among Countries Amid AI-Driven Growth

In her lecture on "Five Drivers Reshaping the Asian Economy," economist Varma analyzed, "Last year, about 50% of Asia's economic growth was driven by AI," adding, "Investments in semiconductor factories and data center construction have become the core pillars of Asia's economic expansion."

However, she pointed out that this AI boom is causing a "K-shaped polarization," further widening the gap between countries. She diagnosed, "Countries like India, Indonesia, and the Philippines, which have not kept pace with the AI revolution in a timely manner, are experiencing capital outflows," adding, "AI is acting as a key factor deepening polarization not only within individual countries but also among countries in the region."

Varma also mentioned the employment market risks faced by advanced Asian economies such as Korea, Taiwan, and Hong Kong. She warned, "Advanced Asian economies are regions with a very high degree of job replacement exposure due to AI technology," and cautioned, "If job replacement outpaces job creation, social friction between AI beneficiary companies and marginalized labor groups could intensify." She argued that employment insecurity triggered by AI could emerge as a risk exacerbating social conflict.

'Energy Security' Determines AI Leadership...Warning of Industrial Hollowing-Out in Korea and Japan

She also emphasized the importance of "energy security" amid the global supply chain restructuring. According to Nomura Securities' "Asia Energy Security Index," Korea ranked third, following China and Japan, based on factors such as a high number of days of strategic oil reserves—about 200 days. She stated, "Energy security is directly linked to AI leadership," and explained, "Countries are seeking flexible responses by reducing dependence on fossil fuels and increasing the use of renewable energy and nuclear power."

She particularly noted that Korea has strengths in exporting eco-friendly technologies such as electric vehicles, solar cells, and lithium-ion batteries. Varma forecasted, "Korea's battery exports will continue to grow," and added, "The structure of aligning with the United States' supply chain strategy is also a positive factor for the Korean economy."

Recently, as global foreign direct investment (FDI) has been concentrated in specific strategic sectors such as AI, data centers, defense, energy, and key minerals, the trend of investment flowing toward the United States has intensified. Companies from Korea and other Asian countries are rapidly increasing local investment in the United States to ease security risks and respond to the pressures of the Trump Administration. On this, she pointed out, "While this improves access to the U.S. market, it can also lead to capital outflows and pressures on domestic manufacturing, raising concerns over the 'hollowing-out' of domestic manufacturing."

She also warned against the so-called "China shock" resulting from a flood of low-priced Chinese goods. As massive oversupply caused by sluggish domestic demand in China spills over into the rest of Asia, it undermines the production vitality of the region's manufacturing sector and exerts overall deflationary pressure. Varma explained, "In fact, countries where imports of Chinese products have surged in specific categories have suffered serious damage, with the collapse of their domestic manufacturing base."

Finally, regarding the direction of monetary policy in Asian countries, she advised, "In light of interest rate differentials with the U.S. and concerns over capital outflows, benchmark interest rates should be carefully managed so as not to fall excessively low."

She further emphasized that financial guidance measures must be established to ensure that market funds flow into urgent strategic sectors requiring massive capital investment, such as AI, next-generation energy, and defense, rather than into unproductive areas like real estate. Varma advised, "Amid geopolitical upheaval, Asian countries must pursue sophisticated and shrewd balanced diplomacy between the U.S. and China to maximize their own economic interests."

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