Tech-led growth contrasts with sluggish traditional industries

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South Korea’s economy is showing an increasingly pronounced K-shaped growth pattern, with a handful of advanced industries such as semiconductors posting strong gains while traditional manufacturing sectors including steel and petrochemicals stagnate. Even within the semiconductor industry itself, the gap is widening, as memory chipmakers drive national industry and exports while non-memory and artificial intelligence (AI) semiconductor segments remain relatively sidelined in policy support, investment and large-scale pilot projects.

The divide was highlighted when Park Sung-hyun, chief executive of Rebellions, spoke at a national economic growth strategy forum presided over by President Lee Jae-myung. “We can’t bring ourselves to smile even at the national celebration of importing 260,000 Nvidia GPUs,” Park said, expressing frustration that domestic AI chipmakers are not benefiting from the boom.

Rebellions develops homegrown AI semiconductors optimized for data centers and inference workloads, aiming to partially replace Nvidia graphics processing units. In a phone interview with Maeil Business, Park stressed that “large-scale pilot deployments where domestic AI chips can actually be used are essential for the semiconductor industry as a whole to advance.” His remarks underscore how the K-shaped divide is deepening even within Korea’s core semiconductor sector, reflecting not only global investment imbalances but also a growing domestic rift between memory and non-memory chips.

Across the broader industrial landscape, South Korea’s dependence on semiconductors has intensified, while reliance on other sectors such as steel, petrochemicals and machinery has weakened, exacerbating structural imbalances. Multiple indicators point to a widening K-shaped divide in the country’s industrial structure.

According to monthly manufacturing output data released by the Ministry of Data and Statistics, semiconductor production surged to 193 in the third quarter of last year, based on an index of 100 in 2020 — nearly doubling in just five years. In contrast, output in industries excluding semiconductors edged up only marginally, from 100 in 2020 to 104.4 last year. The gap is also widening geographically, with productivity diverging between the Seoul metropolitan area, where semiconductor and IT industries are concentrated, and non-capital regions dominated by traditional manufacturing.

Productivity disparities are becoming especially stark. A recent report by the Korea Development Institute (KDI) found that productivity in traditional manufacturing cities such as Geoje, Gumi and Yeosu has fallen sharply since the 2010s. By contrast, productivity has risen significantly in metropolitan cities like Seongnam and Hwaseong, where information and communications technology industries are clustered.

The risk becomes more acute when the memory semiconductor cycle peaks and turns downward. With manufacturing output and exports heavily dependent on memory chips, a downturn could shake the entire national economy. If operating profits at Samsung Electronics and SK hynix were to shrink again into losses, corporate tax revenues would plunge, dealing a blow to government finances.

Ultimately, the key challenge lies in fostering growth in other industries and cultivating new growth engines, a process that hinges on industrial restructuring. Sectors such as steel and petrochemicals, which are gradually losing competitiveness, face an urgent need for reorganization. Park Sung-keun, a senior research fellow at the Korea Institute for Industrial Economics and Trade (KIET), said the government should move beyond a passive approval-based approach and instead proactively identify restructuring targets and encourage participation through a more supportive framework.

Cho Dong-geun, emeritus professor of economics at Myongji University, argued that sectors such as petrochemicals, steel and electric vehicles require structural transformation rather than ruinous competition with China. Seok Byoung-hoon, a professor at Ewha Womans University, added that as the economy inevitably shifts toward advanced industries with comparative advantages, restructuring should focus on identifying new industries where workers can apply existing skills.

In a recent report warning of oversupply in petrochemicals, steel and batteries, the KIET concluded that “corporate self-driven efforts have reached structural limits that make meaningful change difficult.”

The semiconductor-heavy growth model is also widening the imbalance between large conglomerates and small and midsize enterprises. Balanced development across diverse industries is essential to narrowing that gap, but growing reliance on just two mega-sized semiconductor firms has begun to undermine that balance.

Gwak In-hak, chief executive of aluminum panel maker KSC, said, “With domestic industrial policy focused mainly on regulation, the economy inevitably becomes centered on large corporations,” adding that industrial promotion policies should be strengthened rather than regulatory controls.

President Lee echoed the sentiment at a Cabinet meeting on Monday, stressing that “regulatory reform and rationalization are also critical tasks,” and urging that progress be made quickly as “businesses and worksites feel increasingly constrained and frustrated.”