Q&A: South Korea Weighs Its Strengths Amidst US-China Tech Competition

Baek Seoin argues Korea needs a 'one-team strategy' to foster continued industrial success


April 11, 2022

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April 11, 2022

Dr. Baek Seoin is the Head of the Office of Science and Technology Diplomatic Policy Research at the Science and Technology Policy Institute (STEPI) of the Republic of Korea (ROK). He was also an adviser and a committee member of the Global Innovation Center, collaboration between STEPI, the Shanghai Academy of Science and Technology, and the Shanghai Industrial Technology Institute. He received his bachelor's degree from Tsinghua University in Beijing and a Ph.D. from the Korea Advanced Institute of Science and Technology. Baek is currently working on a policy paper on the global competition around high-end technology and Korea’s policy response to rapid development in the S&T sector. 

In this DigiChina interview by Chaeri Park, Baek provides his view of U.S.-China competition in technologies and the challenges and opportunities Korea faces, as its industrial strong points compete with Chinese efforts while potentially benefiting when international customers look for replacements for Chinese suppliers. With President-elect Yoon Suk-yeol set to take office in May 2022, Baek describes the efforts under way to chart a new course for Korea in its relationships with China and the United States, with technology a crucial issue.

The interview has been edited for clarity and length.

DigiChina: How do you assess the current state of technology policy in the United States and China?

The U.S. government has recently become more closely involved in the market to foster their industries strategically. The House-passed America COMPETES Act and the Senate-passed U.S. Innovation and Competition Act both outline the critical technologies and the importance of establishing "control towers" to manage each specific technology field. The National Security Council (NSC) and the National Security Commission on Artificial Intelligence (NSCAI) are control towers that work on fostering critical technologies and securing engines for growth in each sector. The United States also promotes a U.S.-centered network for global cooperation in tech policies, excluding China. 

China, meanwhile, is determined to foster indigenous innovation and overcome its technology bottlenecks. It has tried to attain technological independence. China is now at a critical moment in its science and technology (S&T) development. It just initiated its second 15-year “Medium-to-Long-Term Plan for Development of Science and Technology (MLP S&T Plan).” In 2006, China started its first MLP S&T Plan, intending to become an “innovation-oriented society” by the year 2020 and a world leader in S&T by the year 2049, when it will celebrate the 100th anniversary of the People's Republic. Now its second MLP S&T Plan, which runs from 2021 to 2035, includes plans from a more practical viewpoint and in more detail, primarily focusing on building independence in critical technologies and bottleneck technologies. China plans to increase R&D expenditures by at least 7% every year, around 1 percentage point higher than its annual GDP growth. 

Overall, the U.S. and Chinese governments are expanding their support for R&D. However, a notable difference between the two countries is that the United States is more aligned with the values of the international system and is seen as a more credible and reliable country than China. For instance, other countries voluntarily follow the U.S. standards on self-driving automotive technology, which were drafted by the National Highway Traffic Safety Administration and the Society of American Engineers. While China does not have this advantage, its political system, which is led by the Chinese Communist Party (CCP), enables Beijing to consistently propel its plans within a longer time frame. It also has an effective public-private collaboration system.  

How do you expect U.S.-China tech competition to evolve?

The United States still has a considerable technological advantage over China, but the gap between the two countries has narrowed in the past few years. In 2019, China had more international patent applications at the World Intellectual Property Organization than the United States. In 2020, China for the first time surpassed the United States to record the highest number of AI patents. While quality is another factor to consider, it should be noted that we could not imagine China overcoming the United States in any S&T-related parameters in the past. China built up its capability and is no longer following global trends, but rather creating its own initiatives that impact other countries. Unlike Alibaba and Baidu, which resemble eBay and Google, there are now companies like Bytedance and Meituan, which originated in China and have no U.S. comparison.

To foster indigenous technologies, China will continue to seek foreign investment and provide incentives to foreign investors, most likely in the form of corporate tax exemptions or cash compensation. It recently started to offer incentives not just when companies decide to invest in China, but for each specific technology these companies bring into China. This is an excellent way to incentivize foreign companies to invest in diverse technologies within China. While the U.S. government is trying to exclude China from global collaborations, many U.S. companies still have their factories in China. These companies favor the benefits of investing in China and are reluctant to pull out of the Chinese market. 

U.S.-China competition is expected to become more intense. Both countries have similar interests in critical technologies, mostly in AI, quantum science and technology, and biotech. Competition in the areas of AI and quantum science will be closely contested, and it may not be as intense in biotech as the United States is still far ahead of China. 

The competition usually takes place in five domains: R&D, finance, trade, standardization and regulation, and human resources. There used to be potential for collaboration with China in R&D; however, it is no longer considered a gray area for the U.S.-China competition as research integrity has risen to the surface. Future R&D work will consider values in addition to science, making it harder to collaborate with China. There will be more reporting requirements for research involving China and heightened questioning regarding the values involved in conducting the research. For instance, the Massachusetts Institute of Technology terminated a research collaboration with iFlytek, a Chinese AI company that was accused of having links to human rights abuses against Uyghurs and having connections to China’s military buildup. 

How is Korea affected by the U.S.-China tech competition?

The technology portfolios of Korea and China have considerable overlap. Thus, China's technology development poses a significant threat to Korea. In the short term, Korea may benefit from portfolio overlap, as demand for overlapping technologies may turn to Korea in search of a substitute for China. However, it may also fast-forward Beijing's technological independence, which means China will own indigenous technologies and will no longer be dependent on other countries. This development will amplify China’s threat to Korea. 

There were many cases in the past where China was isolated from global efforts in specific sectors and successfully developed indigenous technologies. For instance, the United States banned commercial satellite sales to China, accusing China of illegally obtaining U.S. satellite technology in 1990. However, the ban did not stop China from advancing in satellite technologies; instead, it led to China developing indigenous space-related technologies. In this context, China’s development in semiconductor technology is one of Korea's primary concerns. Korea is a global technology leader in semiconductor manufacturing, an area where China has not yet achieved technological independence. Korea aims to defend its global semiconductor leadership, and its efforts range from identifying China's current technological developments to understanding China’s potential to develop technological independence in the semiconductor field without international cooperation. 

In the end, there is no safe zone for Korea from the Chinese threat to technology. Korea currently leads in semiconductor memory, battery, and display technologies in the global market. It also used to lead in shipbuilding and mechanics industries in which China already moved ahead, and is chased after in many other fields, maintaining only a narrow margin. Moreover, China has a significant influence on the Korean economy, making it more difficult for Korea to come up with solutions. Beijing also has been actively reaching out to different countries to attract advanced foreign technologies, causing a more significant threat to Korean industries. 

Is China aiming to become a global technology standard setter?

There is a Chinese saying that a first-class company sells standards, a second-class sells patents, and a third-class sells products (一流企业卖标准, 二流企业卖专利, 三流企业卖产品). In the last few decades, China opened its economy, continued its economic reforms, joined the WTO, and became the world's biggest manufacturer. It is natural for China to have the ambition to move upstream as its power grows, to become a global standard-setter from the world’s biggest factory. 

Also, China’s domestic market is big enough to set its own standards without considering other markets or even pushback from other countries. This is different from Korea, Japan, and Taiwan, which usually follow the global standards already in place. Also, because of its market size and the generous incentives that China gives out to foreign companies, industries may voluntarily work to comply with Beijing’s standards. China’s policy for technology standards can be expressed as "one planet, two systems (一球两制)." This means China recognizes and accepts the fact that multiple standards can coexist. China collaborates with countries willing to take its standards, like India and the ASEAN member countries, and promotes its standards through various means, like RCEP. 

However, China's technology standards in each sector are yielding different results in the global market. For example, Huawei's 5G standards were successfully accepted as global standards. This was partly due to the attributes of communication technologies where the standardization process is less affected by regional differences or interests. However, China has unique domestic market demand for AI technologies that focuses on areas that do not align with other countries’ priorities. China is trying to use facial recognition technologies in the private sector. However, the global focus for AI is not on commercial services, but on clarifying the ethical responsibilities of using data retrieved from this technology, making it difficult for China to suggest globally accepted standards in this domain. 

How is Korea performing in response to the U.S.-China tech competition, and what more can be done?

Korea needs a “one-team strategy,” where members of different backgrounds and expertise gather in one place to discuss the regional and industrial implications of technologies and collaborate on building Korea's potential. The United States did a great job on the inter-agency collaboration, where the U.S. Trade Representative compiles domestic opinions and promotes a unified front toward China. As for Korea, it does not have a control tower to discuss its stance in the U.S.-China technology competition. This is partly due to Korea’s high dependence on China and the memory of the Chinese retaliation to Korean deployment of the Terminal High Altitude Area Defense system and battery regulations. However, Korea can take a more proactive stance to protect its industries, especially against unfair practices that are clearly against WTO norms. 

Also, Korea can participate more in global collaboration on technologies. It joined the Global Partnership on Artificial Intelligence but is not participating in the Quad or other U.S.-led global technology groups. It should also be noted that Korea may be pressured to choose sides as the United States is stepping up its efforts to bond its allies around S&T collaborations. The United States reportedly proposed a “Chip4” alliance with South Korea, Japan, and Taiwan to establish a semiconductor supply chain. The United States also announced Indo-Pacific Economic Framework to form “fair and resilient trade” in the Indo-Pacific region, including Korea. Looking at other countries, Japan resonates with the U.S. tech policies at the government level. Germany, which used to have strong ties with China, recently clarified its stance on points of contention, especially after intense controversies over human rights. While the EU concluded a Comprehensive Agreement on Investment with China in 2020, the European Parliament voted to pause its ratification, and the EU still stands as one of the United States’ strongest allies. 

Moreover, the public sector has many ways to support its industries. For instance, it can change its regulation formats for technologies. Korea has a positive regulatory system, while the United States and China have negative regulatory systems. The former provides specific guidelines around operations on specific technologies. This architecture makes it difficult for Korea to have flexibility in response to fast-changing high-end technologies. Negative regulations, on the other hand, allow companies to have flexibility in their operations. The Korean Office for Government Policy Coordination has been trying to enhance efficiency of these regulations. However, each industry's different interests and domestic agendas are delaying and complicating the process. Also, the government can look for ways to better utilize its strength. Korea has a small market, making it hard to set global standards like countries with large markets and global influence. However, Korea has its unique strengths, for instance, in digitalization. Only a few countries have their indigenous digital platforms, and Korea is one of them, with portal platforms like Naver, Daum, and KakaoTalk. Korea should try to form tech policies around its unique strengths. 

How will the incoming Korean government collaborate with the United States and China?

Korea’s relationship with the United States will solidify. The incoming president prioritizes the Republic of Korea (ROK)-U.S. relationship, and the Korean government and industry agree on strengthening their relationship with the United States. Thus, bilateral collaboration is sure to see a boost. There are obvious signs that this is happening already. President-elect Yoon Suk-yeol dispatched the Policy Consultation Delegation to the United States to discuss ways to upgrade the bilateral alliance into a comprehensive and strategic partnership. Also, as a democratic country, Korea is a good alternative to China for the United States. Thus, it is a good opportunity for Korean companies to take over the role of Chinese companies in the U.S. market, as they share similar technology portfolios. It is most likely that the collaboration will be centered around R&D in high-end industries, as can be seen with SK hynix, which already has a plan to establish a new R&D center in Silicon Valley and decided to acquire Intel’s NAND memory business in 2020. 

The ROK-China relationship might suffer, not just from conflicting interests between the countries, but also from Korea’s domestic disagreement between government and the industry. Korean companies operate key facilities in mainland China, which is also the world's largest semiconductor market. Unlike the Korean government’s intention to keep China in check, the industry is greatly incentivized to keep its relationship with China alive, which cannot be ignored. Samsung Electronics reportedly declined to participate in the U.S. government’s proposal to form a “Chip4” alliance. Korean companies, including Samsung and Hyundai for more than a year have active task forces to strategize blueprints for their Chinese market operations. This clearly shows that Korean companies do not intend to give up on the Chinese market, which does not align with the Korean government’s stance toward China. In short, there will be a lot of efforts from the Korean government to balance its relationships with the United States and China. Planning and maintaining Korea’s relationship with China will be a tricky and challenging task for the Korean government.