Financial Times
December 21 2003

China closes technology gap with S Korea
Andrew Ward

A South Korean government committee has warned that the country could lose its technological advantage over China within five years, underlining fears in Seoul about the growing competitive challenge posed by its giant neighbour.

South Korea's national science and technology committee said in a report to President Roh Moo-hyun that the country had a technological advantage of 1.7 years over China but that the Chinese were likely to close the gap within five years.

The study showed that in some high-technology fields, such as telecommunications, South Korea was much further ahead than the average but the research captured a mood of anxiety in the country about its perceived loss of competitiveness.

China is developing a presence in some of South Korea's most important strategic industries, such as electronics, carmaking and shipbuilding, taking advantage of its lower cost base to undercut Korean manufacturers on price.

Many South Korean companies, including Hyundai Motor and Samsung Electronics, have opened manufacturing plants in China to take advantage of its lower costs and growing local market. However, such investments accelerate the transfer of technology because they usually involve a local joint-venture partner.

There have also been cases of Chinese companies acquiring distressed South Korean companies to secure technology. The latest example of this could come today, when China National Blue Star Group, a Chinese conglomerate, is expected to sign a provisional deal to buy a majority stake in Ssangyong Motor, South Korea's fourth-largest carmaker. Last year, BOE Technology of China bought the flat panel display-making arm of South Korea's Hynix Semiconductor, marking another Chinese inroad into a strategically important sector.

South Korea's economy is undergoing a painful transition from its former reliance on low-end volume manufacturing and smoke-stack industries towards higher-value production and services. However, the committee's report reflects concern about whether the country is moving fast enough.

The committee, headed by Lee Seok-han, of Sungkyunkwan University, measured South Korea's and China's technology against the most advanced global standards in 14 fields. Aerospace was the only sector in which China was already ahead. The study found that South Korea's technology trailed the world's most advanced countries by about 5.8 years.

However, the report could be criticised for being overly pessimistic. South Korea has the world's highest penetration of broadband internet services, vies with Japan for leadership in wireless data services and is the biggest producer of memory chips and liquid crystal displays. Moreover, many analysts believe South Korea has more to gain than lose from China's economic growth, through increased inter-regional trade and investment.

South Korea's ambiguous attitude towards China's economic growth is shared throughout Asia, as neighbours try to determine whether the country's development is a threat or an opportunity.