Japan is stirring. Its semiconductor industry rebuilding is gaining momentum through attracting investment from overseas companies such as TSMC and Micron, and last year its economic growth rate surpassed Korea's for the first time in 27 years. Korea, whose industrial competitiveness is being threatened by China's technological rise, now also faces an all-out revival campaign by the Takaichi Sanae government under the banner of a "strong Japan."
Kim Hyun-chul, a professor at Seoul National University's Graduate School of International Studies and an expert on the Japanese economy, said in an interview with Seoul Economic Daily on the 20th that "the 17 strategic industries the Takaichi government is intensively nurturing are all in a competitive relationship with Korea, so we need to be on guard," while also noting that "it will not be easy for the Japanese economy, already mired in the low growth of the 'lost 30 years,' to revive."
Kim said, "Korea is expected to see a V-shaped rebound in growth this year, but if it fails to maintain growth in the 2% range over the next three to four years, it may have to brace for low growth like Japan." He stressed, "Now it is important to strengthen growth momentum through multiple strategies such as boosting exports, revitalizing domestic demand, and nurturing future core industries, and to build a foothold against China's pursuit."
— Japan's industry and economy are showing signs of revival. How do you diagnose this?
△ It has escaped deflation, but it is hard to say the economy is reviving in earnest. Last year's rebound in growth was a temporary phenomenon that appeared in the process of escaping the shock of COVID-19. This year, growth in the 0% range is again expected. Once you fall into the swamp of low growth like Japan, the economy overreacts to external shocks and recovers slowly. Even when it recovers, it wavers again, and the growth rate eventually settles in the 0-1% range. This is why Korea must guard against low growth.
— What are the chances that Japan, the "manufacturing kingdom," will revive?
△ It is true that semiconductor companies such as Kioxia are emerging thanks to the Takaichi government's strong industrial policy and the effects of a weak yen. But in terms of industrial structure, it looks difficult for Japan to regain its former standing. In the past, Japan's two main industries were automobiles and electrical/electronics, the so-called "tank corps." The automobile industry remains solid, but except for Toyota, others such as Nissan and Honda are wavering due to setbacks in their electric vehicle strategies. As the electronics industry collapsed, tourism became the second main industry, but this too has faltered as xenophobia spread due to overtourism. The only field maintaining competitiveness is roughly materials, parts, and equipment. Moreover, the excessive yen weakness resulting from the Takaichi government's fiscal expansion policy has become an incentive for companies to leave Japan, reaching a level that acts as a negative factor for the economy.
— The Takaichi government has put forward aggressive policies to nurture strategic industries.
△ This is now an era in which the entire world is pursuing industrial policy. Even the United States, which once abandoned manufacturing, has stepped up, so Japan's will for industrial revival is all the stronger. The Takaichi government plans to invest 3,500 trillion won through public-private cooperation to nurture 17 growth strategy industries, including physical artificial intelligence (AI), semiconductors, space, shipbuilding, and defense. Since these are dual-use fields usable for both civilian and military purposes, and all are areas of competition with Korea, we need to watch them with strong vigilance.
— What field is most threatening to Korea?
△ The AI and semiconductor industries. For Korea to secure a clear competitive advantage, investment on par with Japan's is needed. Japan is generating large-scale domestic investment by attracting even overseas companies. We too must increase the scale of investment anywhere across the country, whether in Yongin or Honam. Shipbuilding also foretells competition over the U.S. market. As the Takaichi government has effectively lifted the principle prohibiting exports of lethal weapons, Japan has become a direct competitor even in defense exports such as the K9 and submarines. Of course, Korea and Japan are in a competitive relationship while also having many areas for cooperation.
— As Korea-Japan cooperation strengthens, the idea of an "economic community" has been raised in the business world.
△ The unexpected cooperative relationship built between Korea, a progressive government under a presidential system, and Japan, a conservative government under a parliamentary cabinet system, was largely influenced by hardline conservative Prime Minister Takaichi taking a confrontational stance against China over the Taiwan issue to boost her domestic approval ratings. For Japan, since it cannot withstand simultaneous deterioration of relations with its neighbors China and Korea, there is an aspect of it wanting to join hands with Korea, and our government seized that opportunity to build a friendly relationship. However, a Korea-Japan economic community is a separate matter. Japan's New Right governments, which have continued since 2012, are supported by right-leaning conservative forces. From Korea's standpoint there would be nothing to lose, but it is questionable whether Japan's conservative right and political circles would agree.
— If there are lessons to be gained from Japan's past and present?
△ In the past Korea followed Japan, but now it is taking a different path through globalization. I believe we have already gained enough lessons from Japan. Of course, constant research and observation of neighboring Japan is necessary, but over the past 30 years of globalization, Japan and Russia declined, and the four powers around the Korean Peninsula have shifted to a "two powers" system of the United States and China. Now, rather than paying excessive attention to Japan, it is time to devote greater attention to the United States and China. Didn't we fail to predict both the birth of U.S. President Donald Trump and the foreign policy of the second Trump administration? I don't know how many people in the government properly understand our ally the United States and China. We need to increase research on the United States and China tenfold.
— How should Korea respond to China's manufacturing rise?
△ In the 1960s and 1970s, when Japanese manufacturing was taking off, our country opened an office in Tokyo to learn from Japan and responded with active research and analysis. That effort became the foundation of Korea's industrial competitiveness today. Yet while China has already surpassed us in many fields through its "Made in 2025" rise, the previous administration, far from studying and analyzing China, declared "de-China." Although policy corrections have been made under the current government, companies too must actively open offices in China and diligently study and analyze China. I believe that if we fail to build a foothold against China's pursuit, there is no future for the Korean economy.
— From Korea's standpoint, it cannot help being conscious of the Trump administration in the United States, which is confronting China.
△ Neither America's Tesla nor Apple pulled out of China. It is questionable whether we should have been the first to carry out a de-China move that even American companies are not doing. U.S.-China trade is still ongoing, but the previous government failed to foresee that.
— There are also loud voices worrying about industrial hollowing-out like Japan's in the past, due to America's tariff policy.
△ Due to the fallout from the U.S.-China hegemony war, there is a possibility that a considerable portion of our industry will move to the United States. In this situation, if we also give up China, low growth becomes inevitable. To gain markets, advances on multiple fronts are needed. However, manufacturing research and development (R&D) hubs and core factories must unconditionally be kept in Korea. The state must actively step up to nurture the talent needed for this. It is important to strengthen R&D support so that advanced research fields do not waver, and to prevent the outflow of high-level talent overseas. Recently the "N% performance bonus" became an issue, but it is encouraging that talent that had been flocking to medical schools has begun turning its eyes to science and technology fields such as semiconductor departments.
— What should Korea do to avoid following the same path as the Japanese economy?
△ As a scholar who has spent a lifetime studying Japan's low growth, my only wish is for Korea not to become like Japan. That is how painful "zero growth" is. Many scholars worried that 2023 would become the first year of Korea's entry into low growth. Last year, the economic growth rate slumped to 1.0% due to the aftereffects of the emergency martial law. It was only by drawing up a supplementary budget that it avoided the 0% range. Fortunately, this year a sharp rebound in the growth rate to the 2.6-3% level is expected thanks to the semiconductor boom, but the question is whether it can hold the 2% range even after next year. If the growth rate fails to maintain a certain level over the next three to four years and plummets, we may have to brace for low growth like Japan. That is the greatest task facing the Korean economy.
— What is the biggest threat factor to the Korean economy now?
△ The rapidly changing global trade environment. From 1990 to the 2010s
