ITIF report reveals China invested $611.5 billion in advanced industries vs. South Korea's $7.4 billion, highlighting a massive divergence in semiconductor and advanced-tech capacity buildout.

South Korea currently leads the artificial intelligence (AI) memory market, driven by high-bandwidth memory (HBM). However, a new analysis warns that if China’s production scale continues to expand, the foundation of South Korea’s broader advanced-industry base could erode. The report emphasizes that the semiconductor boom must not remain confined to individual corporate performance; instead, national industrial competitiveness must be extended across materials, equipment, and services.

According to a report released on the 14th by the U.S.-based Information Technology and Innovation Foundation (ITIF), China’s value-added production across the ten advanced industries tracked by the Hamilton Index grew by $611.5 billion (approximately ₩824 trillion) between 2018 and 2022. Over the same period, South Korea’s increase amounted to just $7.4 billion (approximately ₩10 trillion)—a disparity exceeding 80-fold.

The Hamilton Index measures production and specialization across ten strategically important advanced industries—computers and electronics, electrical equipment, motor vehicles, chemicals, machinery and equipment, fabricated metal products, primary metals, other transport equipment, pharmaceuticals, and IT and information services—on a value-added basis. Because 2022 is the most recent year for which the underlying OECD data is available, the report uses those figures as a “structural baseline” reflecting industrial composition. It then overlays trade and policy data from the past year through the present to track evolving trends.

In 2022, South Korea’s value-added production across these sectors totaled $420.4 billion (approximately ₩567 trillion), representing 25.1% of its domestic economy. Its composite location quotient (LQ)—a metric measuring the concentration of specific industries within a national economy—stood at 2.17, ranking second among the 39 countries analyzed by ITIF, behind only Taiwan. Within computers and electronics alone, production reached $133.6 billion (approximately ₩180 trillion), supported by an LQ of 5.27.

The core concern is that China is rapidly scaling production precisely in the sectors where South Korea maintains competitive advantages. In computers and electronics, China’s 2022 value-added production reached $385.7 billion (approximately ₩520 trillion), surpassing South Korea’s total. Between 2018 and 2022, South Korea’s output in this sector contracted by 7.6%, whereas China’s expanded by 6.2%. Similarly, in electrical equipment, South Korea’s LQ of 2.68 exceeded China’s 2.11, yet the absolute production gap remained stark: China recorded $261.6 billion (approximately ₩353 trillion) against South Korea’s $29.8 billion (approximately ₩40 trillion).

Nevertheless, South Korea’s dominance in cutting-edge AI memory remains unchallenged. The report estimates that SK Hynix captured 58% of the global HBM market in the first quarter of this year, with Samsung Electronics and Micron each holding 21%. “South Korea is not being overtaken in cutting-edge AI memory. Its advantage is clear,” ITIF concluded.

However, the report cautioned that the semiconductor boom cannot function as a safety net for the broader industrial ecosystem. “The risk is not a sudden industrial collapse but gradual erosion,” it warned, noting that China is poised to capture a growing share of materials, equipment, components, and manufacturing capacity.

China's HBM Catch-Up: Technology Gap Narrows to Three Years

Indeed, the technological gap with China has narrowed substantially even within HBM, the core driver of South Korea’s semiconductor sector. According to the Korea Semiconductor Industry Association, the technology gap between South Korea and China has contracted to three years for HBM, two years for DRAM, and one year for NAND flash. A disparity once estimated at more than five years has effectively compressed to less than a single product generation.

China’s ChangXin Memory Technologies (CXMT) is currently testing fifth-generation HBM, designated “HBM3E,” in collaboration with domestic fabless firms including Alibaba subsidiary T-Head. The company plans to deploy IT products utilizing the technology as early as next year. HBM3E trails only one generation behind the HBM4 currently in production by Samsung Electronics, SK Hynix, and Micron.

China’s progress in HBM development is particularly concerning because it has been achieved despite stringent U.S. sanctions. While extreme ultraviolet (EUV) lithography equipment is critical for advanced HBM manufacturing, export controls have blocked China’s access to EUV tools. In response, Chinese manufacturers have pivoted to breakthroughs in back-end processing—specifically semiconductor stacking, bonding, and heterogeneous integration. CXMT has incorporated “X-tacking,” a 3D NAND flash bonding technology developed by Yangtze Memory Technologies (YMTC), into its HBM architecture. By directly bonding two wafers to shorten inter-circuit distances, the method expands bandwidth and mitigates thermal output without relying on EUV lithography.

Robust cash flows from the commodity memory market have further accelerated China’s catch-up efforts. As Samsung Electronics and SK Hynix reallocated production capacity toward high-margin advanced products such as HBM and server memory, a supply shortfall in commodity DRAM emerged, driving prices up 98% quarter-over-quarter in the first quarter of this year. CXMT capitalized on this gap, expanding its global DRAM market share to 10% in the second quarter—more than double the 4% recorded a year prior. For the first half of the year, CXMT’s revenue surged 873.6% year-over-year to CNY 150.31 billion (approximately ₩30.2 trillion), while its second-quarter operating margin of 82% outpaced both SK Hynix (76%) and Samsung Electronics’ semiconductor division (70%).

ITIF Proposes "World-First Innovation" and South Korea-Japan Cooperation as Solutions

To address these challenges, ITIF advocates pursuing “world-first” innovation. The report urges South Korea to collaboratively expand supply chains and production scale alongside allied nations. It further recommends enhancing R&D tax incentives for large corporations and accelerating the commercialization of next-generation memory and packaging, AI semiconductors, advanced batteries, robotics, and industrial software.

“South Korea cannot build more production capacity than China in every advanced industry, but it can still stay ahead in innovation,” ITIF noted.

Japan was identified as the primary cooperation partner. In 2022, value-added production in machinery and equipment stood at $42.4 billion (approximately ₩57 trillion) for South Korea, $130.4 billion (approximately ₩176 trillion) for Japan, and $430.1 billion (approximately ₩580 trillion) for China. The report calculates that merging South Korean and Japanese production volumes would compress China’s sectoral advantage from approximately 10-fold to under 3-fold. Strategic alignment with the United States and Europe was also deemed essential.

Regarding state support, the report advises evaluating success through productivity metrics, supplier commercial viability, export performance, and corporate expansion—rather than focusing solely on capital injection. It further urges policymakers to leverage the current semiconductor boom to position the nation at the forefront of the next technological cycle.

Capital Markets See Growing Demand for HBM and Materials/Parts/Equipment Investment

Concurrently, South Korea’s capital markets are responding to surging demand for HBM and semiconductor supply chain exposure. On the 15th, Hanwha Asset Management announced the upcoming listing of two new exchange-traded funds (ETFs): “PLUS Korea HBM Semiconductor” and “PLUS AI Semiconductor Materials, Parts & Equipment Active.”

The PLUS Korea HBM Semiconductor fund allocates approximately 50% of its portfolio to Samsung Electronics and SK Hynix, with the remaining 50% distributed across eight domestic semiconductor materials, components, and equipment firms: PSK, V M, TES, Wonik IPS, Simmtech, Jusung Engineering, Isu Petasys, and Daeduck Electronics. Reflecting strong institutional confidence, the global HBM market is projected to grow from $35 billion (approximately ₩47 trillion) last year to $68 billion (approximately ₩92 trillion) this year, and exceed $100 billion (approximately ₩135 trillion) next year.

The PLUS AI Semiconductor Materials, Parts & Equipment Active fund operates as an actively managed vehicle, allowing portfolio managers to dynamically select semiconductor supply chain companies and adjust allocations in response to market conditions. Its key holdings include Isu Petasys, Intekplus, Doosan, ISC, SFA Semicon, TES, D I, PSK Holdings, Simmtech, and Hansol Chemical.

Aggressive capital expenditure plans from South Korea’s memory leaders are further fueling growth projections for the domestic materials, components, and equipment sector. Samsung Electronics intends to allocate over ₩110 trillion (approximately $81.6 billion) toward facilities and R&D this year, while SK Hynix has outlined investment commitments totaling approximately ₩54.3 trillion (approximately $40.3 billion), encompassing its Yongin Y2 and Cheongju M17 campuses.

Semiconductor equipment maker Hanmi Semiconductor is also bolstering earnings growth expectations through customer diversification.