South Korea’s stock market has declined for five straight months since July, marking one of its longest losing streaks in history. The last time such a downturn occurred was during the 2000 collapse of the country’s IT bubble and the global financial crisis of 2008, both of which were marked by synchronized global market declines. In contrast, the current slump starkly contrasts with the robust performance of other major markets, underscoring South Korea’s unique vulnerabilities. Analysts point to several factors behind the downturn, including opaque corporate governance, lackluster shareholder returns—the lowest globally—and sluggish efforts to enhance corporate value. However, at the heart of the issue is waning corporate competitiveness, which has dampened economic growth.
Foreign investors have offloaded Samsung Electronics shares worth 16 trillion won ($11.37 billion) in the past three months, citing concerns over the company’s diminishing competitiveness in artificial intelligence (AI) semiconductors and foundry services. This coincides with the rapid encroachment of Chinese firms in the memory chip sector, a traditional stronghold for South Korea. The data reflects a broader trend: over the past decade, China has overtaken South Korea in seven of eight key industries—semiconductors, displays, secondary batteries, wireless communication devices, ships, automobiles, and steel. The petrochemical sector remains South Korea’s sole bastion of competitiveness. However, both the steel and petrochemical industries face mounting challenges in competing with China’s aggressive pricing strategies. Once dominant players in the Chinese market, South Korean automobiles and smartphones have all but vanished, while Chinese automakers have risen to become the world’s largest exporters. South Korea retains a technological advantage only in semiconductors and shipbuilding, but even this lead appears tenuous.
China’s rapid advancements in memory semiconductor production and its globally competitive electric and autonomous vehicle industries pose a significant threat to South Korea’s edge. In 2023, Chinese firms collectively invested $205 billion in research and development (R&D), four times South Korea’s expenditures. China has also outpaced the United States in advanced science and technology research citations and produces over 80,000 STEM Ph.D. graduates annually. Huawei, now the global leader in foldable smartphones, employs 110,000 researchers—a workforce unencumbered by regulations like South Korea’s 52-hour workweek. Meanwhile, as many of South Korea’s brightest minds gravitate toward careers in medicine, questions arise about the country’s ability to sustain its competitiveness in technology-driven industries.
South Korea’s economic dynamism has steadily waned, with its growth rate dropping by nearly one percentage point every five years under successive administrations. Addressing these deep-rooted challenges will require bold, structural reforms in education and labor. Experts highlight the importance of fostering creativity, rewarding performance based on merit, and dismantling regulatory barriers that hinder innovation. Adopting a more flexible approach to corporate operations could boost productivity and fuel growth. Furthermore, intensifying U.S. efforts to counter China’s global ambitions may provide South Korea with a pivotal opportunity to recalibrate. A second term for Donald Trump could potentially slow China’s technological progress, granting South Korea valuable time to recover and strengthen its competitive standing.
