[2026 East Asian Institute Conference on Diplomacy and North Korea Strategy: New Year Dialogue] IV. Technological Investment and Strategic Realism: China's Industrial Transformation Amidst US-China Strategic Competition and South Korea's National Survival Strategy

YouTube link: https://www.youtube.com/watch?v=mkQSjNFlYm8

Video Script

"Do not hate that thing by putting money in front of it." This is a famous line from the Kabbalah. There are many stories, such as Han Gye-gye, but in the end, if it makes money, it's a friend, and if it doesn't, it's a stranger. This seems to be the harsh truth of Sino-Korean relations. Therefore, what I will talk about today is to discuss relations with China based on data, removing all emotions. If we have endured one day against a great nation like the United States, we can consider ourselves lucky, but if we have endured for a year and survived, we can consider ourselves blessed.

Refuting China Crisis Theory and the 'Use China' Strategy

However, if we have endured for eight years, this must be seen as skill, not luck or fortune. In the past four years, the most frequently asked question, besides the downfall of China's top leader, has been about China's economic crisis and financial crisis. Therefore, today, I want to argue that we should stop advocating for 'decoupling from China' due to China's crisis and instead smarty 'use China' (用中國). We have talked a lot about decoupling from China for four years, so it's time to stop and develop a strategy to wisely utilize China. The justification for the US-China trade war was the reduction of trade privileges from the United States, and there was a question of whether any country could survive strong sanctions from the United States.

The US-China trade war is not about YouTube creators or Trump's mouth, but can be seen from America's trade deficit and China's trade surplus. Despite such difficult trade conditions, China's trade surplus reached $1 trillion by November of this year. This surplus is comparable to the GDP of Poland, which ranks 19th in the world. In the current situation, it is fortunate that we are not ruined, and we must think differently about this reality.

First, why are individual investors in the Korean market selling stocks and going abroad, raising the exchange rate? Money flows from low places to high places. The government talks about various value-up policies, but I believe the fundamental prescription is wrong. It is a law of nature and a financial principle for money to flow out of a country with a GDP growth rate of 0.8% to countries with a world average growth rate of 3%. How will we solve Korea's GDP growth rate of 0.8% and next year's 1.8%, a growth rate in the 1% range? If we cannot solve this, Korea's problems are over. The answer is ultimately a new breakthrough, but is decoupling from China the path to survival? Even a fly on the dining table can travel a thousand miles in a day.

What is the method? It is to ride on the back of a thousand-mile horse. There is a country next door growing at 5%. If they prosper, it's shopping; if they fail, it's revolution. Would any country in the world call a 5% GDP growth rate a revolution? If we ride on the back of a neighboring country growing at 5%, we can also grow at 5%. When we grow at 5%, many of Korea's problems will be cleanly resolved. In the past five years, there have been numerous regulations under the Biden and Trump administrations, and protectionist measures for advanced technologies, but China has survived and not perished for one reason: technology cannot overcome the market.

No matter how good the technology is, it is meaningless without a factory to produce it. Despite having the world's best technology, the reason the US could not self-destruct China in the competition is simple. China is the world's largest manufacturing base, producing all 5,000 export items according to UN statistics. In an era without factories, in an era where nothing can be done without factories, the most important thing is the factory that can produce advanced technology products, more so than advanced technology itself.

Data-Driven Analysis and Utilization Strategy for the Chinese Economy

From this perspective, the reason China has survived strong US sanctions lies here. How should we view this? For nearly five years, we have cried 'decouple from China,' but there are no more companies to leave. What do we do now? We must properly implement a strategy to re-enter and effectively utilize China. If you cannot see what is in front of you, what should you do?

They tell us to read history books. There is no need to ask experts where the world is going. The answer can be found by asking money. The Venezuelan crisis caused a stir, and the media was flooded with reports that China's energy problems were severe because 80% of Venezuela's oil was exported to China. However, China's oil imports from Venezuela account for only 1.1%. The impact of the Venezuelan crisis on China can be seen in its stock prices. The stock price rose by 1.4% today. You can go a thousand miles by standing on the shoulders of giants. We need to think about strategies to ride the wave of a 5% growth market. Riding a 'thousand-mile horse' can lead to great success, but first, you need to know how to ride it, and second, you must not fall off once you're on.

If you fall, you either faint or die. Korea seems to have the most China experts. Korea's top expert is someone who has visited China only three times. If you go 30 times, you might not know well, and if you go 300 times, you might know even less, but if you live there for three years, you will realize that China is not a country that we can carelessly claim to have conquered or can conquer. In the last five years, numerous YouTube videos about China have been released in Korea, but their veracity is now being determined by numbers. Would you believe someone who has never lived, studied, or worked in the United States to talk about America when they don't even speak English? Yet, we have watched many accounts from so-called experts who have not studied, worked, or lived in China for the past four to five years.

This is the answer in the end. A leopard waits patiently even when hunting small prey. Who buys the most cars in the world? The US buys 500,000 units, while China buys 32 million units. Which country buys the most Mercedes-Benz, a representative luxury car? 34% of Mercedes-Benz sales are in China, while the US accounts for 16%. Germany, the home of Mercedes-Benz, accounts for only about 10%. Do you know who buys the most Hermès products globally? Despite reports of reduced purchases due to the economic downturn, China is surprisingly the country that buys the most. Ultimately, opportunities must be well-perceived.

Korea's Opportunity and Semiconductor Competitiveness in the AI Era

We are in the AI era, an 'AI war,' and to achieve AI, four elements are necessary: technology, capital, platform, and human resources. Only two countries perfectly possess these four elements: the US in first place, and China in second. Korea's stance is most crucial here. Korea possesses something that these two countries desperately want but lack. That is the answer and our opportunity. To develop AI, data centers are essential, and to build data centers, GPUs and HBMs must be produced. The problem is that the US cannot produce HBMs properly, and China cannot even touch them. Who supplies them? It is SK Hynix of South Korea, which supplies 100% of the highest-performance chips, and Samsung also supplies them. Ultimately, in this AI war era, South Korea is the nation that can fulfill the deficiencies of these two countries.

Ultimately, for us now, 'Engaging China' (용중국) rather than 'Decoupling from China' (탈중국) is not an option but a market we must choose as our vast market in the upcoming AI war era. The Korean economy must now proceed with a cool-headed economic logic, not based on past emotions or prejudices. China can be described by three keywords. The first is prejudice. We think of China as a poor country, less developed than ours, but the per capita GDP of Beijing and Shanghai exceeds $30,000, similar to ours. China's per capita income of $13,000 is comparable to Korea's in 2004, so it is indeed a less developed country, but the average and median are the same. Among 1.4 billion people, $13,000 is the income of the 700 millionth person. Therefore, the income cutoff for the top 50 million people, roughly the population of Korea, is $98,000.

What we think of China is ultimately prejudice or preconceived notions. The answer is taught by these three keywords. The first keyword is 'Bu-ryeo-il-gyeon (不慮一見),' meaning 'unexpected encounter.' I believe China is closer than Bundang. It takes three and a half hours to get from Yeouido to Bundang on a rainy day, but if you take the high-speed train to Beijing, it takes 10-15 minutes, and by plane, it takes 1 hour and 40 minutes. Excluding the time difference, it's a 40-minute journey.

Regarding China, mixing our emotions with their past arrogance or rudeness, rather than focusing on facts, leads to many misunderstandings in judging China. We don't need to listen to Korean YouTubers or self-proclaimed experts about China's condition; we can judge it by President Trump's words. If China were a country on the verge of collapse, facing crisis and bankruptcy, would the US president and others have imposed sanctions for eight years? President Trump's pressure on China intensified with a much stronger approach than President Biden's. This implies that China's strength has significantly increased over the past five years. This interpretation is correct. The problem is not China, but our perspective in viewing China. First, we need to look at China objectively, considering whether its success is due to luck or skill.

If it lasts for one year, it might be considered luck, but if it lasts for eight years, it implies luck plus something more. China has never had a GDP growth rate lower than the global GDP growth rate in the last eight years. Although the US-China trade war began in 2018, China's GDP growth has never turned negative, nor has it been lower than the global average growth rate. The reason for this is ultimately not technology, but the market. We tend to think of China as a country of knock-offs that copies global technology, but it is a country that OEM produces global luxury goods. After 30 years of OEM production, it has become capable of producing genuine articles at prices that mimic fakes. China can sell any item for the price of cabbage within five years. This signifies that it is backed by a vast market and utilizes the technology accumulated over 30 years as the world's factory. More importantly, it possesses the ecosystem, the supply chain.

Why is China so strong in electric vehicles? How did BYD beat Tesla? This is because China is the only country with a full lineup from mines to electric vehicles. China's share of the global electric vehicle market was 74% as of December last year. China's large market served as a significant shield in the US-China tech war, and secondly, the sanction paradox. Sanctions against China have accelerated localization, leading to the rise of China's advanced industries. The current sluggish domestic demand in China is attributed to the failure of the Xi Jinping government's buildup strategy, which began in 2021. Ironically, the rise of China's advanced industries is a byproduct of the US-China war.

Prejudice and Pragmatic Approach to the Chinese Market

Ultimately, this could be a tragedy, but on the other hand, there is a comedy. China achieved a trade surplus of $1 trillion. Despite a decrease of over 18% in exports to the US, the surplus was generated due to the 'Belt and Road Initiative.' Exports to regions other than the US have increased. Now, we should not view China's crisis from a Korean perspective but by observing the actions of its competitors in the same industry. We have withdrawn from China in sectors like mobile phones, cars, and coffee franchises. However, our competitor, Apple, continues to sell mobile phones in China and maintains its first and second positions globally. We have not heard of Volkswagen, the originator of automobiles, withdrawing its factories. Walmart and Starbucks are also still operating in China.

How did this happen? This is precisely why we see things through our own lens, with our own eyes. Viewing China through a Western lens can lead to misunderstandings. I believe China is more of a 'Red Capitalist' country than we are. It's a country where nothing happens if it doesn't make money, and everything happens if it does. Like North Korea, socialist countries must be viewed differently from capitalist or democratic countries. How should they be viewed differently?

Ultimately, this could be a tragedy, but on the other hand, there is a comedy. As mentioned earlier, China recorded a trade surplus of $1 trillion. How did this surplus occur despite a decrease of over 18% in exports to the US? The answer is the 'Belt and Road Initiative.' Exports to regions other than the US have expanded. Therefore, instead of judging China's crisis by Korean standards, we should assess it by observing the actions of its industry peers. We have withdrawn from businesses in China such as mobile phones, automobiles, supermarkets, and coffee franchises. However, our competitor, Apple, continues to operate its mobile phone business in China and maintains its global market share in the first and second positions. We have not heard of Ford, the originator of the automobile industry, withdrawing its factories. Walmart and Starbucks also continue their business operations in China.

This phenomenon occurs because we view China solely through a Korean perspective. Evaluating China based on Western standards can lead to misunderstandings. In my opinion, China is a more thorough capitalist country than we are. It does nothing if it doesn't make money, but it does anything if it does. From this perspective, although China is classified as a socialist country, like North Korea, it operates differently from capitalist and democratic countries. What is the difference?

Socialist countries should be evaluated not by the amount of suffering but by their endurance of suffering. North Korea has lived through dire circumstances, but that is precisely its endurance. China is also a socialist country like North Korea. Looking at how China has reached this point, we can point to its long-term achievements in overcoming the war with the US, the COVID-19 pandemic, and lifting 700 to 800 million people out of absolute poverty. This could be China's strength, but it needs to be viewed differently. Therefore, we need to look at actual indicators based on data, rather than the China we saw in the past.

Understanding Interdependence and Redefining Economic Relations between Korea and China

Regarding our perspective on China, we now need to consider how to utilize China. The Korea-China relationship is strictly based on mutual interests. We have never been comrades in ideology or thought with China. China is part of the Confucian cultural sphere, and in the past, we have even been in conflict. The reason we called it 'Chunggong' (Communist China), then 'China,' then 'friend,' and now 'an inseparable neighbor' is for one reason only: China needed technology and capital, and we needed a manufacturing base to produce them. So, why is anti-China sentiment so strong in Korea now?

Numerous studies are being conducted, but I believe the reason is very simple. Ask money. Korea's trade balance with China began to show monthly deficits in 2022, and the annual deficit was recorded starting in 2022. This year, a record deficit of $11 billion was recorded. Korea-China sentiment is at its worst. The reason lies here. However, in my view, the economic relationship between Korea and China is likely to improve next year. This is partly because President Yoon Suk-yeol's visit to China may help resolve the relationship, but more importantly, it is due to semiconductors.

We export $170 billion worth of semiconductors, of which approximately $50 billion are exported to China. However, the price of semiconductors has quintupled since July this year. If this trend continues, sales in China are expected to be four to five times higher next year. Then, the $11 billion deficit could quickly turn into a surplus. Ultimately, the relationship at this moment is clearly determined by money. We must not fall into the fallacy of the average. Dividing anything by 1.4 billion makes it seem like mere grains of sand, but when 1.4 billion grains of sand are gathered, they form a mountain. This is what we misunderstand.

We talk about the wealthy in China, but some might question if there are rich people in a socialist country. However, China's billionaires rank around 11th to 15th globally. In contrast, Korea's top billionaire, the chairman of a company that manufactures semiconductors, mobile phones, and home appliances globally, ranks 155th. We need to be somewhat objective here. Secondly, we tend to think that socialist countries are hell for creativity. This is particularly emphasized in the Western world, but it is a significant error. While some argue there is no competition in advanced industries, the US has not returned to the moon since landing in 1979, although they are planning to go again. China landed on the far side of the moon, collected soil samples, and brought them back. They even give these samples as souvenirs to world leaders when they visit – lunar soil.

This is a country that gives such souvenirs. So, who provided the technology to go to the moon? Was it the US, Japan, or Korea? We need to think about this. In the field of artificial intelligence, there is a company that has outmaneuvered OpenAI globally. DeepMind, a company with only 130 employees, surpassed OpenAI just two years after its establishment, despite none of its employees having studied in the US. This is something we need to consider, and creativity can be seen through unicorn companies. The US has the largest share of unicorn companies globally, followed by China with 23%, while Korea accounts for only 1%.

China as a Core Material Supply Chain and the 'Middle East' Analogy

Creativity can be simply judged by numbers. Therefore, the China we need to look at now is different from the China we have seen so far. First, I propose that we stop calling China 'China' and instead refer to it as the 'Middle East.' Without steel, the 'rice of industry,' and oil, the 'blood of industry,' nothing can function. In today's era, Korea's dollar reserves are built on semiconductors, batteries, and electric vehicles. The problem is that we depend on China for 40% of the essential materials needed for semiconductors and 80-90% for batteries.

The moment this supply is cut off, Korea faces the risk of its trade surplus immediately turning into a deficit. Therefore, China should now be managed not as a manufacturing base but at a level comparable to the Middle East, as a supplier of raw materials. In my view, although Korea is discussing the Korea-China summit, the readjustment of Korea-China relations, and the second phase of the FTA, the highest priority must be given to the security of the raw material supply chain. This is because it is the most crucial pillar for maintaining Korea's competitiveness and trade surplus.

Re-establishing Korea-China Relations Based on Economic Power

Therefore, in our relations with China, we must abandon outdated notions such as the fallacy of the average or the hell of creativity and view China as our core material supply chain. Furthermore, it is time for Korea to demonstrate its capabilities through actions rather than words regarding China. The question is what Korea will do. There is a saying: the history of Korea-China relations over the past 30 years should be viewed as history; it holds no meaning now. We must now let go of the past 30 years, during which China called us 'Dagger' (older brother), 'Big Brother,' 'Boss,' and 'Teacher,' and view it with a new perspective. The answer to why China treats Korea dismissively is clear. In 1994, Korea's GDP was 83% of China's GDP.

If a country with one-eighteenth the population and one-ninety-eighth the land area had 83% of China's GDP, it was natural for China to call us 'older brother.' In 1994, Korea's GDP was larger than the combined GDP of 18 Chinese provinces. However, in 2022, the GDP of Guangdong Province alone surpassed that of Korea. What does this mean? The answer to why President Xi Jinping does not visit Korea is simple. How many times does President Xi Jinping visit Guangdong Province in a year? Not even once in ten years. What we need to see objectively now is Korea's position from China's perspective, and our stance should be based on that.

Therefore, we need to objectively illuminate the fact that economic power is national power. Ultimately, how do you think money is made? I worked in finance this year, and from my observations, I worked at Korea's largest investment bank. They say money is not made with the head but with the nose. Money is made by instinct. If you have a good nose for money, that is money. Regarding China, I believe that over the past 20 years of conflict and struggle, we have, without realizing it, developed the ability to analyze Chinese people and understand their characteristics. Also, if you look at our latitudes, the Korean Peninsula and the Central Plains of China align perfectly.

The mindset of Chinese people, whether communist or monarchist, contains Confucian thought. Every speech by President Xi Jinping includes a quote from Chinese classics, such as the Analects. Although China abolished Confucian temples during the Cultural Revolution, causing Confucius's descendants to flee to Taiwan, we have temples in Korea. The foundation of Korean thought is Confucianism, and the same applies to China. Therefore, I believe Korea has an instinct for understanding China. Ultimately, music is the most important thing. The song sung with all their might by the Chinese People's Liberation Army upon occupying Beijing was surprisingly composed by a Korean composer, Jeong Ryul-seong.

Think about it. Would we tolerate a foreigner composing the number one military march song of our country? The fact that China's founding leader, Zhu De, adopted it as his song signifies that it deeply resonated with him. This means Korea has an instinct for understanding China. How to utilize this is very important. Understanding China (知中) is crucial. If you want to interact with China, I believe you must understand it. I went to China and lost, or I heard this...

They say things like this, but there is a method. The method taught by China is that all Chinese characters can be analyzed by 'Pah-ja' (breaking down characters). Let's analyze the Chinese character 'Ying' (贏), meaning 'to win,' by breaking it down: it consists of 'Wang' (亡), 'Kou' (口), 'Shi' (十), and 'Yue' (月). This means not to be obsessed solely with money. If we are treated poorly and wronged, we should wash our gallbladders and strategize from a bed of thorns, not just curse, or we will perish. Second, the character 'Kou' (口), meaning communication. Can you do business in China without knowing Chinese? Third, 'Yue' (月), meaning time. In China, there is the idiom 'U-gong-i-san' (愚公移山), meaning the foolish old man moves mountains. Things cannot be rushed; they don't happen quickly. Time has its own 속성 (properties). And the character 'Pei' (貝), meaning money, should be earned naturally. And the character 'Ping' (平), meaning ordinary, requires maintaining a 평상심 (calm state of mind). If you follow these five rules, you can make money in China; if you fail to follow them, you will fail. Therefore, when we apply this to companies that have failed in China, the answer becomes very simple.

The 'Only One' Strategy and the Potential of Korean Semiconductors

Korea claims to have been disadvantaged by China in manufacturing, but now, as the US has shown, the answer is not 'Number One' but 'Only One.' The US possesses numerous advanced technologies worldwide, but in negotiations with China under the Trump administration, it appeared to be at a disadvantage. The reason is simple: rare earths. The US cannot replace the rare earths that China possesses. In my view, the relationship between the US and China is like being bitten by a venomous snake with no antidote, and that is rare earths.

Therefore, we can compete by being 'Only One' instead of 'Number One.' The same applies to Korea. A remarkable phenomenon is occurring, which I see as Korea's good fortune and potential. There is a saying, 'O-su-bu-dong-gyeok (五獸不動格),' meaning 'the five beasts do not move.' When five types of beasts compete, none can devour the others. For example, if a cat, a mouse, a dog, a tiger, and an elephant face each other, none can devour the others. If a cat wants to catch a mouse, it fears the dog behind it, and if a dog tries to bite a cat, it fears the tiger. We are in the AI war era, and essential for this era is the 'rare earth' of advanced industries. What good are rare earths?

To make semiconductors, you need equipment. Today, we talk about advanced AI, but you need equipment like EUV, which is made by ASML in the Netherlands. With this, TSMC makes GPUs, and Korea makes HBM semiconductors. What do you do with these? You build data centers, and with those, you do AI. If even one of these five elements is missing, AI becomes useless. This is the answer. In these five aspects, Korea is truly fortunate: Taiwan's TSMC cannot make DRAM, the US cannot make it properly, and China cannot make it at all. Therefore, although Nvidia appears to be a very strong and successful company, there is a company in South Korea that could halve Nvidia's stock price tomorrow morning.

Ladies and gentlemen, it is indeed fortunate, but what would happen if Korea's SK Hynix resolutely decided, 'We will not sell Nvidia's HBMs starting tomorrow'? Nvidia chips could not be used in any data center. This is precisely Korea's potential and what we need to see. Ultimately, when it comes to semiconductors, the US has the technology but no factories, and China has factories but lacks the technology. Korea can satisfy both. Therefore, looking at Korea now, it is truly fortunate that Korea's ultimate weapon is now semiconductors. This can make Korea strong and protect us amidst the US-China war, and in a way, this is Korea's dollar box, economic stimulus, and the best remedy for stock price increases.

What do you think is the most important factor for the rise of the Korean stock market from 2,500 to 3,500? I don't think it's stock market support. In my opinion, what if Samsung Electronics' semiconductor profits reach 200 to 300 trillion won instead of 50 trillion won? Then the stock price could indeed reach 7,500. Therefore, Korea must now consider how to nurture the goose that lays golden eggs, which is semiconductors, at a national level. Think about it. Korean retail investors are selling their stocks and moving to the US, but US institutional investors are buying Samsung Electronics stocks today, driving them up by nearly 7%. They are not buying steel, shipbuilding, or machinery in Korea; they are only buying semiconductors. This is where the answer lies. For the rise of Korean stocks and Korea's trade balance, only one thing is needed. Semiconductors alone are sufficient.

But, ladies and gentlemen, let's look at Taiwan. Taiwan's per capita GDP has exceeded $10,000. Its GDP growth rate has reached unimaginable numbers. The answer is one thing: semiconductors, the company TSMC alone created that. Therefore, we actually have two geese laying golden eggs right now: SK Hynix. We must nurture them to maintain their competitiveness, yet every country in the world is feeding even geese that don't lay eggs.

We need to support them to lay more eggs, but we are hesitant to provide subsidies for the semiconductor industry. Korea's entire system has imitated the US, Europe, and Japan, but it has uniquely failed to copy semiconductor support policies. Other countries provide trillions of won in facility investment subsidies, but we only touch tax rates. The political mindset is 'How can we give money to chaebol companies?' but if we change our thinking, semiconductors in the AI war era are strategic materials.

Securing Competitiveness through the Combination of Manufacturing and AI

Strategic materials only require top performance; brand is not important. If the US were not foolish, why would it provide tens of trillions of won in subsidies to Taiwanese and Korean companies, not its own? The answer is strategic materials, and subsidies for semiconductors should be considered defense spending. If it's defense spending, what happens? The nation will not perish. Therefore, the next 30 years will depend on how we capitalize on China's deficiencies. Currently, Korean companies are working hard in China, but there's a joke that the only things Korea does better than China are semiconductors and soccer. However, this is true. But is semiconductors alone enough? The case of Taiwan shows us. Ultimately, we must sell not finished products to China but invisible things, and it is crucial to find opportunities in China's deficiencies. Furthermore, although we are currently restructuring our manufacturing sector, China refers to traditional manufacturing as the 'Ban-nae-gwon-jeong system' (반내권정 체계) and is working to resolve overcapacity.

While overcapacity is reduced through self-regulation, the important point is that China is not interested in AI. The US is focused on AI, while China is focusing on combining AI with manufacturing to reduce manufacturing costs by 50%. Why is China unperturbed despite facing an additional 35% retaliatory tariff from the US? The answer is simple. They believe they can overcome it by reducing costs by 50% through 'dark factories' powered by AI. However, the problem is that the 'dark factories' created by AI and robots will not be a US-China competition; their impact will first hit South Korea.

In a situation where cost competition with China in manufacturing is already difficult, if China's manufacturing costs decrease by another 30-50%, the impact will hit South Korea first. What is the solution? In my view, it is to combine US AI with Korean manufacturing. What can the US do with AI? Currently, not a single US AI company is making a profit. The true value lies in using AI in manufacturing to increase added value. Ladies and gentlemen, there is a lack of thought. Simply asking questions, drawing pictures, or writing papers does not generate money.

You cannot generate profit by charging 29,000 won. Ultimately, value must be created by combining it with manufacturing. The problem is that the US transferred its manufacturing overseas 40 years ago and lacks a manufacturing database. When establishing the relationship between Korea and the US, the $350 billion investment is important, but we must demand something in return. For example, we should create an investment model where Samsung Electronics and OpenAI, or Hyundai Motor Company and General Motors (GM), combine their artificial intelligence (AI) to reduce costs by 50%, and through this, we must defeat China. Then, transplanting that model to the US could be a successful model. The current approach of building factories and receiving subsidies will not work.

Utilizing China's Domestic Market and the Opportunity in Medical Tourism

Receiving subsidies is good, but after one year, it's a deficit. How does China plan to proceed in 2026? As briefly mentioned earlier, as a way to overcome sluggish domestic demand, they have set a motto for 2026 to drive the economy by increasing productivity through new quality productive forces centered on domestic demand. An important aspect of this is 'investment in people.' This means investing in services, not just goods. Therefore, they are investing heavily in tourism, healthcare, pharmaceuticals, elderly care, and education. In my view, approximately 4.6 million Chinese tourists visited Korea this year. What if this number doubles? What if double that number is attracted through medical tourism? Receiving a full package of medical services would cost the price of a Sonata. If we assume 4 million Chinese medical tourists visit Korea, this is equivalent to Hyundai Motor Company producing 4 million Avantes.

An 'Exit' Strategy Combining Manufacturing with Finance

Therefore, if we simply double the number of Chinese tourists and medical tourists, it would be equivalent to creating two more companies like Hyundai Motor Company, with profit margins more than three times that of Hyundai Motor Company. This could then have the effect of creating six more Hyundai Motor Companies. While outbound efforts to make money in China are important, an inbound strategy from China to Korea could be more dynamic. Lastly, I believe that when entering China, we must now combine manufacturing with finance. In the past, we focused on how much net profit to make, but now, we must enter with a predetermined exit time, such as 5 or 10 years.

However, the method of entry is precisely this. Instead of generating profits in China and bringing them back to Korea, maximize profits in China, establish numerous subsidiaries there, and then what? The end of the US-China war will eventually lead to financial warfare, and the financial market will inevitably open up. Limited listing is also permitted for foreign companies. What happens then? Instead of earning 10 billion won and bringing it to Korea, what if a company that makes 10 billion won in profit is listed on the Chinese stock market? For example, the Shanghai Stock Exchange's STAR Market has an average PER of 60 times, and high-tech stocks reach 100 to 120 times.

You can receive a valuation of 1 trillion won for 10 billion won in profit. China is where you can receive the highest valuation globally. Therefore, we now need to connect manufacturing with making money work, going beyond simply generating profits in China. We have made money from Chinese manufacturing for 30 years; now, we need to make money using the Chinese financial market. Ladies and gentlemen, do you think Samsung Electronics and Hynix are Korean companies? Look at the foreign ownership percentage of Samsung Electronics and Hynix on Naver Finance.

The foreign ownership ratio exceeds 50%. Regardless of how the Chinese stock market performs this year or next, if the market becomes bullish, it will have little impact on our individual investors. If Samsung or Hynix earns 100 trillion won this year, foreigners will take 50 trillion won. What have foreigners done? They take 50 trillion won without doing anything. Ultimately, manufacturing moved from the United States to Japan, and then to Korea, but the United States and Japan do not lament or resent Korea for surpassing them in manufacturing. Why is that?

A New Paradigm for Manufacturing Through Finance

They encourage us to work harder and better, and they make money by investing in it. Ultimately, we should not lament that manufacturing has moved to China; there are ways to recover through finance. Finance is an industry that makes money from societal trends. The United States and Japan developed all the industries we currently possess—steel, shipbuilding, machinery, semiconductors, telecommunications—which then moved from the U.S. to Japan, then to Korea, and are now moving to China. Therefore, regarding China, we must change the final evolutionary paradigm of manufacturing and send our businesses to China dressed in finance.

Furthermore, we should not be satisfied with earning 10 billion won annually. We must utilize the financial market, which allows us to recoup profits that can be generated consistently over the next 10 to 20 years. I believe this must be our new strategy. My lengthy explanation is intended to convey that it is time to set aside emotions and embrace trust. Thank you for listening.

■ Author: Jeon Byung-seo, Director of the China Economic and Financial Research Institute.

■ Editor: Lim Jae-hyun, EAI Researcher
Contact: 02 2277 1683 (ext. 209) | jhlim@eai.or.kr