AI Boom Is Hiding Korea's Next Crisis

2026-04-24 01:05:45

(MENAFN- Asia Times) SEOUL - Few top economies are as surrounded by paradoxes in 2026 as South Korea.

As fallout from the Middle East sends shockwaves around the globe, Korea's stock market is skyrocketing. This week, the Kospi index soared to new all-time highs as semiconductor giants Samsung and SK Hynix ride the artificial intelligence boom.

Making your way around Seoul, it's easy to buy into the euphoria. Countless global conferences herald Korea's place in the AI era. Across the city, young executives hover around laptops in WeWork-fashioned shared office spaces - the more tie-less, the better.

Under this thick layer of economic energy lurk reasons to worry. Many, in fact, as China grabs more and more global market share and Korea's economic ties with the US crumble in real time.

These underlying frailties are easy to compartmentalize. The wonders of the AI boom and K-Pop world domination are topping the news cycles - and captivating the broader zeitgeist. Yet global investors might do so at their own peril.

Those preexisting conditions include: a rigid corporate system dominated by a handful of family-owned conglomerates, dangerously high household debt, lackluster productivity, uncompetitive labor markets, and one-time industrial strengths that China is increasingly luring its way.

For all China's troubles, its rapid growth and scale are commoditizing - or in the process of doing so - much of what Korea has long done well: cars, electronics, semiconductors, robots, ships and popular entertainment. Not just on price, but also on innovation with its own supply chains.

For less developed economies in Southeast Asia, the next China shock will be mass deindustrialization. Korea is hardly immune, as Chinese electric vehicle makers like BYD remind Korea that complacency can be very expensive.

Here, the“Made in China 2025” economic moonshot that Xi Jinping launched a decade ago is gaining traction in ways Korea Inc. is only now confronting. The advances China Inc. is making in AI, EVs, batteries, drones, biotechnology, renewable energy, and other future technologies pose a greater threat to Korea's future than Donald Trump's tariffs.

To be sure, Trump's policies are a clear and present danger to Korea's outlook. But Trump will leave the scene at some point. China's growing tech prowess, underwritten by vast state subsidies, is likely to persist.

The Chinese Communist Party's latest Five-Year Plan for economic development promises even greater state support for advanced industries to strengthen the economy's capabilities. And position China for the world it will confront in 2030 and beyond.

This isn't to discount Korea's potential. Investors who've bet against Korea in recent decades haven't made a lot of money. Korea, after all, is an economy that can take a serious punch.

Following the 1997-1998 Asian financial crisis, Korea was the first economically shattered nation to recover. A decade later, Korea navigated around the“Lehman shock” in ways hedge funds didn't expect. In 2009, Korea failed to become the“next Iceland,” as markets had speculated.

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