The value chain between Korea and China has emerged as a key strategic issue. In the past, the relationship between Korea and China was characterized by a division of labor between industries, but, as they have developed, not only Chinese industries but now even Chinese products have come to rival their Korean counterparts. Thus an examination of the value is warranted to better understand the state of both competition and cooperation between Korea and China. Competition between Korea and China should be seen as competition between value chains; cooperation assumes more specific roles within these chains.

A comprehensive investigation of the competitiveness of majorindustries reveals the following. First, there a negligible gap between Korea and China in the steel industry, and we expect that the Chinese steel sector will be Korea’s equal in five years. There is, however, a slight gap in competitiveness in the automobile industry, with Korea some measure more advanced that China. And in the semiconductor sector, Korea is significantly more competitive than China now, and is expected to maintain its edge for the next five years, though afterward China should quickly narrow that gap.

In terms of the value chain, Korea has the upper hand in automotive design, internal combustion engine (ICE) R&D, green cars, overall procurement (ICE, green cars, smart cars, etc), and overall production (ICE, green cars, etc). However, the gap is modest outside the design, ICE development and procurement, and production stages of the chain.

In the steel industry value chain, Korea is slightly more competitive in process technology, product technology, and production (blast furnace and electric arc furnace hot-rolled steel sheets, surfacetreated steel sheets, steel bars, but not in procurement (iron ore, coking coal, ferroalloys). However, Korea’s competitive edge will disappear in five years, and it is expected that China will surpass Korea in process technology development..

In the semiconductor sector, China’s competitiveness is significantly ahead in EDA/IP, system semiconductor design, and back-end processes, but Korea is ahead of China in memory semiconductor design, equipment, front-end processes, and materials. Overall, Korea’s competitiveness is evaluated to be significantly higher than China’s competitiveness, and although China is catching up, it will still  take time for it to reach the level of Korea.

While the relationship between Korea and China is shifting from cooperation to competition in most industries, this trend is particularly stark in the technology sector, where cooperation is becoming less and less common and competition is intensifying; cooperation is taking place mostly in research on localization. Recently, the number of fields that utilize Chinese technology is increasing. And moreover, it appears that Korea is highly dependent on China for procurement of parts and materials in several major industries. For example, Korean firms source as much as 37.9% of automotive parts from China. In the steel industry, Korean steelmakers import some ferroalloys, coking coal, and coke from China, but not a large proportion. Korea exports semiconductor manufacturing equipment to China, but Korea also imports manufacturing equipment parts from China. This is an area where mutual cooperation is taking place.

China has been a major production location for Korean firms throughout the manufacturing sector, but there are signs of change, with some Chinese industries beginning to enter Korea. In the production segments of key industries, competition is intensifying not only in the Chinese market but also in the domestic market.

Cooperation with China is mainly focused on strengthening local R&D to enter the Chinese market, identifying technology trends to utilize Chinese technologies, joint technology development in the eco-friendly field, joint response in areas where both countries are vulnerable, and joint responses in the Chinese market following the developments of the US-China conflict. The government’s policies for cooperation and market entry revolve around information collection support for product development tailored to the Chinese market,  linkage support for utilizing Chinese technologies and systems, support for founding joint research efforts, designing trade strategies to appropriately respond to US–China disputes, support for Chinese market expansion, and support for diversifying procurement lines for parts and materials.

Most Korean industries are now fiercely competing with China, although this does vary somewhat throughout the value chain. In order to respond to future competition with China, it is necessary to
continuously maintain a competitive edge in areas where Korea has an advantage, and to strengthen competitiveness in areas where Korea is weak. Furthermore, Korea should take into account new industries or promising future sectors.