Is China doing to Korea what Korea did to Japan in manufacturing?
Increasingly it looks like it, according to a recent report by a Seoul-based state research house.
The Korea Institute for Industrial Economics and Trade forecast in a report this week that by 2018, Chinese manufacturers will likely catch up with or overtake their South Korean competitors in most of the industries in which Korea currently leads the world.
Over the next few years, South Korea will gradually lose out to China in the former’s flagship export items such as mobile phones, displays, ships, machinery, petrochemicals, steel and textiles, the institute said.
Only in making cars and memory chips will South Korea stay stronger than China beyond 2018, it forecast.
The shift is reminiscent of how South Korea overtook Japan in several export industries late last century following a government-directed move in the 1960’s to pour capital into key manufacturing sectors.
The institute expects Chinese firms to “be on a par with Korean liquid crystal display manufacturers within two to three years” thanks to government support and Chinese firms’ aggressive investment in the industry. China’s government has a target for local manufactures to supply about 80% of the country’s total display demand by 2015, up from last year’s 36%, the report notes.
Korean companies’ share of the global LCD market fell from 51% in 2013 to 44% in the first half of this year, the report says.
The institute says it expects China will outperform Korea within two years in making oil tankers and cargo vessels. But Korea will likely remain the leader in the higher-end segments of ships specially designed to carry liquefied natural gas or to explore and store oil offshore.
The threat to Korean phone makers from Chinese manufacturers was crystal clear in Samsung Electronics’ latest financial report on Thursday. Samsung’s quarterly net profit nearly halved as Chinese companies ate into its market share.
In the Chinese market, local player Xiaomi Inc. replaced Samsung as the biggest supplier of mobile handsets during the second quarter of this year.
The institute expects China to outshine South Korea globally in the mid- and low-end smart phone markets “within two years”
Korean manufacturers, however, will likely continue to excel Chinese rivals in the higher-end smartphone market even after five years, the institute said.
The institute said China is two to three years away from matching Korea in the manufacture of numerical-control milling machines, excavators and loaders, and three to five years away from overtaking Korea in making textiles for higher-end clothing. China is also quickly moving up the value chain in steel products, such as those used for vehicles, the report says.