ROK, China should cooperate more on AI

In late 2025, China and the Republic of Korea acknowledged a fundamental shift in their economic relationship. The era of vertical specialization, in which each side was on different rungs of the industrial ladder, was giving way to horizontal competition.

To adapt to this new reality, the two countries chose "horizontal cooperation" to redefine their economic relationship.

As the regional production network they jointly built over the past three decades gradually unravels and relocates, an important question arises: can China and the ROK build a new network around artificial intelligence infrastructure and usher in another golden era of industrial cooperation?

History suggests they can. Sustainable growth is often driven by the emergence of new industries, markets and business niches. Since they established diplomatic relations, China and the ROK have built production networks in sectors such as computers, mobile phones and information technology. The ROK's technological edge and China's cost advantages combined to create a globally competitive force.

But every industrial cycle has its limits. As these industries matured and the global market became saturated, technological barriers fell, production capacity expanded rapidly and competition intensified.

A case in point is the ROK's two former pillar industries — mobile phones and automobiles. In 2025, Counterpoint Research reported that global mobile phone shipments grew by just 2 percent year-on-year amid fierce brand competition.

Similarly, global vehicle sales stagnated, with the ROK's main markets — the United States, Western Europe and domestically — experiencing varying levels of negative growth, according to data from a think tank affiliated to the Hyundai Motor Group.

Emerging industries tell a different story. Demand continues to outpace supply in emerging fields such as AI, new energy and biomedicine. Rather than competing in crowded traditional sectors, companies from China and the ROK have the opportunity to deepen cooperation in these emerging industries and work toward rebuilding a new East Asian production network.

The foundation for this already exists. ROK companies excel in high-end semiconductor hardware, especially AI-specific high-bandwidth memory (HBM).

Fueled by ongoing demand for new AI infrastructure and HBM shortages, the country's semiconductor industry achieved record revenues and profits in 2025. SK Hynix and Samsung Electronics together accounted for about 80 percent of the global HBM market in 2025, and about 47 percent of the total market capitalization of the ROK stock market, highlighting their dominant position in the semiconductor sector.

China, meanwhile, has rapidly strengthened both its AI software capabilities and computing infrastructure. According to Stanford University's 2025 AI Index Report, the performance gap between China's top AI models and those of the US shrank from 17.5 percent in 2023 to just 0.3 percent by the end of 2024.

China also holds around 70 percent of global generative AI patents. Additionally, its growing network of high-performance computing centers and supercomputers accounts for a significant portion of the world's intelligent computing power.

These complementary strengths present an opportunity to establish a robust East Asian AI-specific production network and explore new market opportunities.

By combining the ROK's strengths in hardware with China's advantages in both hardware and software, both countries can develop new global competitive advantages and increase their market share.

Governments on both sides have begun laying the groundwork. In January, ROK President Lee Jae-myung led an economic and trade delegation to China covering semiconductors, batteries, electric vehicles, new energy and smart manufacturing. The visit demonstrated the willingness for horizontal cooperation, and 32 cooperation memorandums were signed.

Following the APEC Trade Ministers' Meeting in Suzhou, the seventh Jiangsu-ROK trade cooperation and exchange conference was held in May. It strengthened industrial connectivity in semiconductors, new energy and shipbuilding and generated immediate export contracts worth approximately $2.3 million, according to media reports from the ROK.

Capitalizing on this momentum, business exchanges have intensified, focusing on sustainable development, SME innovation and entrepreneurship, green industries and the silver economy.

Even so, greater efforts are still needed. Both sides should enhance awareness about the opportunities created by cooperation, identify new areas of complementarity and manage security-related factors. Horizontal cooperation should take precedence over horizontal competition.

Multinational corporations allocate resources where they can maximize profits rather than opt for less efficient domestic firms.

What may appear as competition between Chinese and ROK companies can actually become mutually beneficial cooperation through cross-border partnerships.

As the pace of technological catch-up surpasses innovation, the room for cooperation inevitably narrows. However, no enterprise — nor any country — can dominate an entire industry chain, and the potential for complementary cooperation between Chinese and ROK companies still exists.

With overcapacity in traditional sectors and shortages in emerging ones, both sides should avoid competition in established areas and focus on collaboration in new sectors.

Greater emphasis on collaboration in high-end products, advanced services and specialized segments will create broader opportunities for both economies.

The current global environment makes such cooperation even more important. Rising geopolitical uncertainty, China-US trade frictions, tariff barriers and technology blockades have increased the risks for businesses.

Chinese and ROK companies should therefore work together to mitigate political risks and safeguard economic security. They should enhance cooperation in export controls, investment screening, R&D security and talent management.

These steps are essential if the two sides are to avoid excessive competition and move toward win-win outcomes.

The success of the new AI production network in East Asia hinges on Chinese and ROK companies leveraging their complementary strengths, building bridges rather than barriers, and exploring new markets as partners, not rivals.

The author is the director of the Sino-Korea Economy/Society Institute based in Daegu, the ROK.

The views don't necessarily reflect those of China Daily.

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