Korea And Taiwan: When An AI Boom Lifts A Nation

(MENAFN- Asia Times) I have had the rare privilege of conducting on-the-ground equity research in both Korea and Taiwan at different stages of my career. They are often spoken in the same breath, partly because of their regional proximity and parallel growth trajectories, and partly also because of their capital controls, leading to similar behavior from index agencies towards them.

I have spent a lifetime explaining, in detail, how little they actually share. Their culture, political systems, and financial markets work differently. Their innovation cultures differ. Their corporate strategies, balance sheet structures, and the very nature of their flagship companies sit on different rails.

I have spent even more time defending each of them against a common tendency to overestimate political risk, given more than half a century of evidence that geopolitics involving each has been far more stable than the headlines suggest.

This note is not about any of that. It is about the new big thing that now binds these two countries together. By accident of timing rather than national design, they have become the largest economic beneficiaries of the AI era.

The world has accepted this at the level of its major corporates. What was unique in the tales of these notes is now folklore: Samsung Electronics, SK Hynix and TSMC are all entering the league of the world's ten most profitable companies, with one having the possibility of being the world's most profitable.

We have had fun discussing the enormity of their numbers through absurd comparisons, but it is no longer fun when we say something like,“One of them could become the most profitable of all time.” These things are well-known, even if not well-valued. What is not yet accepted is what it means for the two countries in which those companies sit.

Tendency to project after the actuals

Both economies are also covered by analysts who, as a group, tend to project from the present rather than reason from structure. We have written before about how wrong earnings forecasts have been for the hardware names through this cycle, often by extreme margins, even as actual revenue and profit moved on a completely different trajectory.

In Taiwan, sell-side analysts have been known to wait until the day of the quarterly earnings release before adjusting numbers, even when monthly sales already pointed to a different reality. In Korea, the pattern has been worse. The DRAM market was misread for years. The structural shift from commodity DRAM to oligopoly memory took yet longer to register.

The same reflex now extends to the country level. Korea today looks as if nothing unusual is going on in the macro data. Taiwan is growing at perhaps the fastest pace in the world. Yet the secondary and tertiary consequences of the windfall, on consumption, on investment, on fiscal capacity, on confidence, on the adoption of new technology, are not yet priced in for either.

We have written elsewhere about how these two countries got here (see here and here, among many others). That is not the question for today. The question is what happens next.

What binds Korea and Taiwan together at this moment is not the windfall itself. It is the structure that determines where the windfall lands. Both countries have among the lowest income inequality in the developed world, with disposable-income Gini coefficients near 0.32 in Korea and 0.34 in Taiwan, in the same neighborhood as Japan and Scandinavia, and well below the United States at over 0.40.

Both have unusually deep retail equity participation, meaning that a stock market that more than doubled in two years is reflected in household wealth across an unusually broad base of the population.

Both have functional democracies capable of converting a tax windfall into industrial policy and direct transfers. And both have populations that, despite or perhaps because of demographic pressure, are among the fastest adopters of new technology on earth.

The same societies that are quietly aging into super-aged status are also the most aggressive deployers of robots, the most active national experiments in eldercare automation, and the highest-intensity national R&D spenders outside Israel. The combination is unusual. It is also nowhere in the current consensus.

Table 1. Korea, Taiwan, Japan, the macro frame The income effect

Start with what is unusual about how the windfall is being distributed. In both Korea and Taiwan, an extraordinary share of the corporate gain is being paid out to workers rather than retained on the balance sheet or returned to a small group of senior managers and shareholders.

SK Hynix's 2025 performance bonus reached 2,964% of an employee's monthly base salary, which is roughly 29 months of base pay, structured by labor agreement as a hard 10% of operating profit. For an average SK Hynix engineer, this works out to approximately 700 million won (US$477,000) on top of base salary, for 35,000 employees.

Samsung Electronics' distribution could be similar. TSMC's profit-sharing payout in 2024 totaled around NT$2 million ($63,000) per employee, with a comparable scale expected in 2025.

These numbers are not symbolic. They are structurally embedded in compensation systems that route a fixed percentage of corporate profits directly to rank-and-file employees, in a way with few real parallels elsewhere.

A natural reflex among investors is to worry. A 2,964% bonus sounds destabilizing. A 10% operating profit share to labor sounds avoidable. But this is the wrong frame.

In low-Gini, profit-sharing societies, corporate cash distributed to a broad employee base produces a much larger second-round effect than the same cash retained on the balance sheet, awarded to a small number of top employees, or returned through buybacks.

The reason is the marginal propensity to consume. A mid-level Korean engineer receiving the equivalent of 2.5 years of pay in a single bonus likely buys an apartment, replaces a car, takes the family on holidays, finances her children's education or invests in domestic equities.

The cash circulates. The income gain for 100,000 semiconductor employees becomes the wage gain for hundreds of thousands of service workers in the cluster zones, which becomes retail revenue for adjacent businesses, which becomes the tax base for municipal governments.

None of this is theoretical. The Korean Ministry of Economy and Finance attributed the 15.3% annual jump in national income tax collection in Q1 2026 directly to semiconductor performance bonuses. Securities transaction tax revenue rose 234.6% in the same quarter.

Wage growth in Korean manufacturing between 2011 and 2024 ran at 82.9% against 64.4% for the broader workforce, an 18 percentage point manufacturing premium that has compounded for over a decade and is widening.

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Taiwan's average monthly regular wages rose 3.09% YoY in the first eleven months of 2025, the highest growth rate for that period in twenty-six years. There will be friction, as is evidenced by the strikes and threats of strikes in Korea. Even if some disputes are resolved quickly, there will be more.

This is what labor disputes look like in low-inequality democracies with strong corporate cash flow. They escalate, they resolve, the workers get paid more, the cash flows out into the broader economy, and the fundamental industrial position is unchanged.

The contrast with Japan in 1989, where rising wages came alongside an asset bubble that consumed the productive capital, is also structural. Korea and Taiwan are running a different experiment, even if they face the long-term risks of asset bubbles.

The downstream evidence is already visible in the data. In Korea's semiconductor cluster zones, apartment prices in Yongin's Suji-gu rose 6.4% in early 2026, driven by demand tied to Samsung and SK Hynix's workforce expansion. Pyeongtaek's unsold apartment inventory fell from 5,868 units in February 2025 to 2,612 units in February 2026, a level of absorption unusual for any Korean housing market in this cycle.

Across Pyeongtaek, Hwaseong's Dongtan, and Yongin, roughly 800 apartments traded at record prices in Q1 2026, compared with just 90 in the same quarter a year earlier. Hsinchu remained Taiwan's wealthiest municipality with average household disposable income above NT$1.5 million, well above the national average.

Korean luxury department store sales rose meaningfully in 2025. Major retailer aggregate retail sales rose 6.8% in 2025. Korean marriages in 2025 rose 8.1% to a seven-year high, and the fertility rate ticked up to 0.80 from 0.72 in 2023.

None of these is decisive evidence by itself. Together, they describe an economy in which households are visibly absorbing a wage shock and beginning to redistribute it across consumption, property, family formation, and investment.

The wealth effect

The wealth effect is the channel where Taiwan and Korea diverge most sharply, and where the Taiwan story becomes genuinely difficult to find a historical precedent for. Taiwan's stock market is now capitalized at roughly 329% of GDP, up from 287% only a year earlier.

The arithmetic is worth pausing on. A market capitalized at three times GDP that rises 75% in eighteen months produces a paper wealth gain to households equivalent to nearly two times the annual GDP in two years. There is little evidence of similar-scale gains in any developed economy historically.

The DGBAS national wealth release showed Taiwan's household net worth at NT$183.7 trillion at the end of 2024, before the larger 2025 and even larger 2026 gains had landed. Household securities holdings inside that figure rose 21.8% to NT$37.3 trillion, the largest single-year increase on record.

What converts this from a paper number into a macro driver is breadth. Taiwanese household equity ownership is among the deepest in the world. In Taiwan, the top decile holds a much smaller share of the float because the float is held directly by millions of households.

This is why Q1 2026 Taiwanese real GDP grew 13.7% YoY. The surprise inside that number was not the export surge but the strength of domestic private consumption at 4.9%, well above the forecast. The DGBAS explicitly named the equity wealth effect as a contributing driver.

Real gross capital formation rose 5.2% in the quarter, as Taiwanese corporates accelerated reinvestment into a domestic backdrop they could see was changing.

Korea's situation is structurally different, and the gap is worth understanding rather than papering over. The KOSPI returned 75% in 2025 and added another 64% year to date. The market-capitalization-to-GDP ratio reached 150% in 2025, materially below Taiwan's but still elevated by Korean standards.

The wealth gain is enormous in absolute terms. The transmission to consumption is more filtered. Korean household balance sheets remain 76% in real assets.

According to the latest published figures, equities account for roughly 9% of household wealth. A near trebling of the index would materially alter the numbers in Korea as well, even if a direct consumption boost may be less on this account compared to one in Taiwan.

This bifurcation is itself the point. The two countries are responding to the same windfall in two different ways, and both responses are productive even if the headline data look different. Taiwan is producing the textbook wealth-effect outcome with the textbook consumption response.

Korea is producing a slower-burn outcome in which the gains are recycled into financial deepening, household balance sheet repair, foreign asset accumulation, and capacity investment in semiconductor cluster properties. Neither path is inferior.

Both result in a stronger economy over the long term. The KOSPI's continued retail account growth, the first such increase in three years, suggests Korean households are now more willing to convert real-asset wealth into financial wealth than they were a decade ago.

This is exactly the deepening that Korean policymakers have been trying to engineer since the 2014 value-up reforms first surfaced. It is happening now because the corporate flywheel is generating returns that retail investors find difficult to ignore.

The cluster-effect comparison to Bangalore, Guangdong and Silicon Valley is useful but understates what is happening. Each of those metros transformed its surrounding region, but each sat inside a country too large to be remade by a single industry.

Karnataka rose, but India did not. Guangdong rose, but inland China did not. Silicon Valley produced the wealthiest metropolitan area in human history, but the median American household barely moved.

Korea and Taiwan are small enough that a national semiconductor cluster reshapes their countries. Taiwan, with a population of 23 million, has TSMC alone delivering income tax equivalent to 28% of all Taiwanese corporate tax revenue.

Korea has Samsung and SK Hynix, likely to deliver over 20% of the national corporate tax soon. That concentration is what makes the second and third-order effects this article is concerned with show up at the country level rather than dissipating into a vast hinterland.

The fiscal channel

The fiscal multiplier is where the windfall stops being a corporate phenomenon and starts becoming a state one.

Both Korea and Taiwan now sit on fiscal headroom of a kind that almost no developed economy has access to, and both have begun deploying that headroom into spending categories that were politically out of reach as recently as 2023.

Korea's central government tax revenues rose 11% in 2025, and even though in no forecasts, could rise well over 15% in 2026. Taiwan's central government debt-to-GDP ratio fell to 22% at the end of 2025, the lowest among major Asian economies.

The constraint that has bound government action across the developed world for two decades, namely the borrowing capacity of the state, simply does not bind in either Korea or Taiwan today.

What the state then chooses to do with the headroom is the more interesting question. Korea has chosen industrial policy at scale. The K-Chips Act has been expanded. A new Public Growth Fund of 150 trillion won is being established, with 30 trillion won earmarked over five years for the Yongin and Pyeongtaek mega-clusters and a national AI computing center.

The 2026 government R&D budget is up 19%, the largest single-year increase since the post-2008 stimulus. Government R&D as a share of total Korean government spending is nearly 5%, against an OECD average of 1.8.

Taiwan has chosen a different deployment mix because it sits in a different political and demographic position. One headline program is the universal cash distribution of NT$10,000 ($320) per citizen, which has been claimed by 23.31 million people, equivalent to 99% of the eligible population.

This is a one-time program, but it is now the second such distribution in three years and civil society advocacy is openly pushing the legislature to make recurring distributions a permanent feature of fiscal policy.

Beyond the cash distribution, the Executive Yuan authorized a NT$570 billion special budget package that combines direct economic relief, defense infrastructure upgrades, and maritime security investments.

There are many other programs one can write about, but the real action is ahead rather than behind, given the income and wealth rises observed of late and their persistence.

The interesting feature of the deployment, in both countries, is what is missing from it. Neither government is running large traditional infrastructure programs of the sort that absorbed Japanese fiscal capacity in the 1990s, and that consumed much of the Chinese stimulus after 2008.

Neither is engaging in significant tax cuts of the sort that absorbed US fiscal capacity after the 2017 reform. Neither is building social benefit programs at the scale of European welfare expansion.

The Korean and Taiwanese choices instead concentrate on industrial policy, R&D, defense, AI infrastructure, semiconductor cluster build-out and pension stabilization. These are the categories that compound.

The compounding cycle

The deepest part of the story is the virtuous cycle among the companies that spur all of these. At the risk of boring long-time readers, allow us to repeat one more time our core belief: AI-era leadership is now genuinely capital-intensive in a way that pre-2020 software innovation was not.

EUV lithography costs have multiplied. Advanced packaging has multiplied. HBM stacking is harder than DRAM. The companies generating the cash flow to fund the next generation pull further ahead of those that cannot. The combined 2026 capex of TSMC, Samsung Semiconductor and SK Hynix is likely to exceed $125 billion, larger than the entire annual GDP of several mid-sized European countries.

Korea's national R&D-to-GDP ratio reached 5.1% in 2024, second globally only to Israel. Taiwan's is approximately 4.1%. Both are higher than those of the United States, Japan, China, and Germany, and every other major economy.

The private sector accounts for roughly 78% of Korean R&D, with cash from semiconductors funding research across robotics, biotech, defense, AI and small modular reactors at the same time.

Korean biotech technology export deals reached $14.5 billion in 2025, up 162%. Korea now has roughly 1,300 new drug candidates in development, 10% of the global total, ahead of the United Kingdom, Switzerland, and Japan.

One does not need to discuss the diversified nature of the Taiwanese tech-stack beyond TSMC. Mediatek is the latest one to provide the type of competition to giants like Broadcom that Taiwan's multiple ODM giants provided to the US device companies.

For many, from Qualcomm to Dell, Taiwan is where they must procure, but also where they face their biggest competitors. The next up could be those in the optical field. Taiwan's innovations outside tech are less eye-catching, but growing.

The adoption edge

Korea and Taiwan are not just producing the technology of the AI era. They are deploying it faster than anyone else. Korea has the highest industrial robot density in the world by a wide margin, nearly three times that in China.

Hyundai unveiled its production-ready Atlas humanoid robot at CES 2026, with deployment scheduled at its Georgia Metaplant from 2028 to help it internalize and improve.

Taiwan launched its own four-year Smart Robot Service Application Program in 2026, specifically because service-sector labor shortages have surpassed those in manufacturing.

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These countries' extreme demographics are producing other side effects that are spurring growth in the near-term and providing the companies involved with a local laboratory for their experiments.

Eldercare is the most striking adoption story in Korea, and one that genuinely cannot be replicated at scale in any other large developed economy. As of November 2025, over 12,000 Hyodol AI companion dolls had been deployed to elderly Koreans living alone, primarily through government welfare programs.

The Seoul Metropolitan Government distributed nearly 500 robot dogs. Daejeon city distributed 1,000 Kumdori AI dolls. The Ministry of Science and ICT and the Ministry of Health and Welfare have formalized the AI Care Technology Full-Cycle Support Strategy with physical AI for nursing facilities starting in 2028. The driver is necessity.

The average age of a Korean nursing care assistant is 61. Demographic pressure that would otherwise be a deadweight has become the single largest structural pull on robot deployment.

The final adoption advantage is geopolitical. Korea and Taiwan benefit from not being China at a moment when not being China is itself a meaningful competitive edge.

Both received 15% reciprocal tariffs in the US tariff structure of 2025 against China's 50% or higher. Both negotiated semiconductor manufacturing equipment exemptions.

Taiwan's January 2026 trade deal with the United States covers $250 billion of investment plus $250 billion of credit guarantees in exchange for tariff relief. As of December 2025, only 23% of Taiwanese exports to the United States faced emergency tariffs, the lowest of any major US trading partner.

The same arithmetic is helping Samsung Biologics win biopharma manufacturing share that would otherwise have gone to Chinese contract manufacturers. It is helping K-content, K-beauty, and K-food in Western markets where Chinese exports cannot operate.

It is helping Korean defense exports as a NATO-aligned alternative to Russian and Chinese suppliers. The not-being-China premium is showing up across more sectors simultaneously than at any point in the post-Cold War period.

The problems with a circular story

Every virtuous cycle contains the seeds of its own refutation. One shock breaks the circle. The reflexive risks here are obvious and have been cataloged in detail elsewhere. Both economies sit under genuine geopolitical clouds that have caused little market damage for decades but could create chaos overnight.

Both stock markets carry some of the most momentum-driven retail investors in the world, capable of buying with a velocity rarely seen anywhere and capable of running for the same door at the same moment.

Any meaningful reversal in the global capital expenditure cycle, regardless of what we currently believe about shortages, would impair the income and wealth gains we have just described. Cyclical reversals do happen. So do political shocks.

The point of this note is not to repeat what is already well-flagged. The point is to surface what is not. Korea and Taiwan have arrived at this moment with a combination of structural defenses that few other economies in the world possess.

They carry some of the lowest government debt-to-GDP ratios in the developed world. They have income inequality that sits among the most compressed of any market economy. They have populations where stock ownership runs unusually broad, and the gains accrue across deciles rather than concentrating in a top sliver.

They have functional democracies that have already converted parts of the windfall into industrial policy, defense, R&D, pension stabilization and direct cash transfers. They have demographic pressures that, in the current technological era, double as adoption pull for robotics, automation and AI in domains where most other countries are still arguing about pilot programs.

These are not features that go away in a downturn. Low debt does not become high debt overnight. A society does not unlearn its egalitarian instincts in a quarter. One can make similar arguments about the tenacity on each of the factors mentioned in the previous paragraph.

Moreover, the corporate cash flows have already been earned, the capex commitments have already been made, the supplier ecosystems are already being built, the cluster real estate has already been bought and the bonuses have already been paid. None of this requires the next quarter to be good in order to keep working.

In brief, the macro entanglement of Korean and Taiwanese innovation windfalls is another story not yet fully told.

Nilesh Jasani is the founder and CEO of GenInnov Pte Ltd Singapore. This article first appeared on and is republished with permission. Read the original here. Read more at /blog

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