“At present, the U.S.-China semiconductor competition can be regarded as a tight draw.”

Lee Pil-sang, an expert on China’s advanced industries and investment and an executive director at Mirae Asset Global Investments in Hong Kong, said that despite various U.S. sanctions, China is “holding its own and preventing the gap with the U.S. from widening.” In an interview with the Kyunghyang Shinmun on the 5th, Lee, who has published <China Signal> after analyzing around 20 leading Chinese companies in core sectors such as semiconductors, artificial intelligence (AI), electric vehicles, batteries, and platforms, cited as the key to China’s semiconductor rise “the fact that, even without advanced extreme ultraviolet (EUV) equipment, it continues to keep pace with the development speed of leading players such as Korea.” In other words, it has been improving its technological capabilities even while unable to secure EUV equipment due to U.S. sanctions. In particular, regarding Huawei, the main target of U.S. measures, he assessed that “contrary to U.S. intentions, Huawei is involved in almost every area of China’s semiconductor innovation and has acquired even stronger research and development capabilities.”

He went on to say that “unlike most manufacturing fields where China is at the world’s top level, semiconductors are not yet No. 1 globally,” but added, “China possesses everything from chip design, foundry, memory, equipment, and electronic design automation (EDA) software to adjacent industries such as optical modules, optical cables, and AI foundation models.” Whereas Korea focuses on memory, Taiwan on foundry, and Japan on semiconductor equipment, China has all the detailed industries across the semiconductor supply chain. He also warned, “If even one of China’s more than five ongoing EUV development projects succeeds, or if a breakthrough such as Huawei’s ‘logic folding’ (a technology that stacks integrated circuits vertically) occurs, the situation could change.”

Having visited over 40 Chinese cities over the past 15 years to study Chinese firms, Lee identified the ‘engineer dividend’ as central to the strategies of China’s innovative companies. The engineer dividend refers to the effect of accelerating technological innovation based on an abundant pool of highly educated STEM talent, thereby feeding through to economic growth. In China, which turns out more than 5 million STEM graduates annually, companies are actively securing top talent and increasing R&D and patent filings. He said, “Thanks to the engineer dividend, Chinese companies are no longer merely copying others’ technologies as in the past, but building environments to develop original technologies themselves and amassing many patents,” adding, “this trend will continue for at least the next 20 years.” He also projected that the ‘Hefei model,’ in which local governments directly operate venture funds to provide ‘funding lifelines’ for innovation, will persist for the time being. Lee stressed, “Ultimately, companies are the driving force behind Chinese innovation, so to understand China, you must understand Chinese companies.”

He also noted that although China has graduated from developing-country status, its stature as a ‘manufacturing nation’ is actually strengthening. “Relatively low labor costs, productivity gains through robots, low electricity and food prices, and restrained growth in medical expenses thanks to innovative drug development mean China’s manufacturing costs will remain low for quite some time,” Lee said. “China is in fact reinforcing its manufacturing competitiveness, and this will pose a very serious threat to emerging economies that need to grow through manufacturing.”

Turning to Korean companies, he suggested that in manufacturing areas such as electric vehicles where Korea is seen as having fallen behind China, “it may be worth considering ways to leverage China’s manufacturing competitiveness instead.” Lee said, “Few countries understand China as well as Korea does. Now is not the time to worry about having our technology taken; rather, we should create synergies by utilizing certain technologies where China is ahead of us.”

On concerns in the U.S. and Europe about a ‘second China shock,’ he said, “The U.S. is about the only country that can erect strong protectionist barriers against fears of Chinese overcapacity,” adding, “The Global South, Europe, and Korea have little choice but to accept the reality.” Lee added, “However, in the long run, if Chinese consumption levels rise, we will have many more opportunities to sell into China, and the picture could unfold differently.”

Regarding the U.S.-China AI race, he said, “More important than who the winner is right now is the fact that the only countries building AI models are the U.S. and China,” adding, “The U.S. is a bit ahead, but the fact that China has models that former great powers (the U.K., Germany, Japan, etc.) do not is remarkable.” Lee continued, “No country will want to depend on just one nation for AI, and especially because of costs, middle-income countries are even more sensitive, so U.S. and Chinese models will coexist.”

As for recent China-related news such as CXMT’s listing on China’s stock market and the mass production of deep ultraviolet (DUV) lithography equipment, which rattled Korea’s stock market and sparked ‘China fear’ concerns, he said, “China is a kind of dark horse, but it is not an immediate, materialized risk, and the (memory) technology gap with Korea remains.” He added, “It is an overestimate to think China will immediately catch up with Korean semiconductor firms or global players,” while also noting, “We do not know when or with what technology China might emerge, and the possibility is always there.” He pointed, however, to factors other than the ‘China variable’ as the key drivers of Korean semiconductor earnings, namely “AI demand, the pace of AI agent proliferation, and AI’s real commercial viability.”