Trade and Investment

, A spotlight on East Asia: Capturing opportunities in China and South Korea

Sustainability is a topic of focus for countries across the globe, presenting myriad challenges but also potential opportunities. How are China and South Korea approaching the green transition?

Franz-Josef Murr: Sustainability is one of the biggest themes across Asia, and both China and South Korea see the green transition – and their role in enabling it – as very important.

Mike Jaeho Hyun: South Korea’s Green New Deal outlines the country’s aim to reach net zero carbon emissions by 2050. As things stand, however, South Korea is still heavily reliant on fossil fuels, with renewable energy currently accounting for less than 10% of its power generation. But the country has pledged to achieve net zero carbon emissions by 2050, and is planning for renewable energy and nuclear power to make up 70% of its power by 2038. In the financial sector, Korea’s Financial Services Commission (FSC) has announced plans for five of its major financial institutions to provide US$314 billion by 2030 to boost climate finance in the country.

Yichen Lu: China is a global leader in the renewable energy sector. It is the world’s largest market for wind power, the largest producer and consumer of solar panels – and investment in energy innovation, such as solar-powered desalination plants and floating solar farms, is also taking place. With capacity flourishing, China is increasingly turning its attention to storage and improving its electricity grid management and resilience to ensure its green energy can be optimised. Away from energy, China is aiming to increase its forest coverage to nearly a quarter by next year and we’ve been able to see the greening of the country through satellite images. China’s banking sector is also demonstrating its commitment to ESG, becoming the world’s biggest green bond issuer in 2022¹.

China in particular is known to be a dominant force in many sustainability-focused industries, including semiconductors and EVs. What is the current state of play and how is the rest of the world responding?

FM: As China’s economy matures and stabilises, we are seeing greater investment in innovative, high-value products and industries such as semiconductors, which have a crucial role in the creation of EVs, solar panels and wind turbine infrastructure. This year, China has ramped up plans to increase its global share of semiconductor production, adding more new production capacity than the rest of the world combined in 2024². China is also the world’s largest silicon producer, an essential material for the production of the semiconductors used within chips.

MH: Alongside China, South Korea is one of the “big four” semiconductor producers, generating over half of the world’s memory chips used for data storage and management in PCs, smartphones and SD cards. To support the industry, the government has introduced initiatives such as tax incentives for chip investments, and plans to build the world’s largest chip centre.

YL: Regarding EVs, China is innovative and competitive, and its global market share is expected to reach 45% in 2024³. Given this, a number of German automotive firms are looking to seize new opportunities in the country. Mercedes-Benz and BMW, for instance, have announced a joint venture to operate high-power charging stations in China that provide Chinese customers with premium charging services.

FM: The dynamics of Germany’s relationship with China have shifted as there is now a bit more rivalry and competition than in the past. China has taken over Germany’s leading position in industries such as automotive and advanced manufacturing goods. But this competition is a good thing for the economy as it drives innovation, ultimately creating new opportunities and supporting the efficient and cost-effective production of goods and services.

MH: A challenge we must all consider is that, despite the efforts and investment that are going into producing technology like EVs and solar power, these processes are currently less efficient than nuclear. With renewables technology still relatively new, more innovation needs to take place to address this issue.

YL: I agree. Renewable technology efficiency needs to be improved, and conversations on how to dispose of EV batteries in a sustainable way also need to take place. Making the case to transition from coal to renewables will also take time, especially as the industry accounts for over half of China’s power generation and brings US$218 billion to its economy⁴. Moreover, persuading the private sector to close down mines requires decisive action.

What innovative developments are you seeing in China and South Korea? What are each doing in terms of AI, for example?

MH: South Korea’s so-called “soft power” market has seen tremendous growth in recent years, creating a host of new economic opportunities. Its K-pop music industry brings in an estimated US$10 billion annually⁵, for example, with even tourism benefiting as a result. Its soft power status extends to “K-beauty”, which includes plastic surgery. South Korea is often now described as the “cosmetic surgery capital of the world” and the government has taken measures to ease immigration to capitalise on the growing trend of medical tourists coming to the country for procedures⁶.

Gerald Dannhaeuser: South Korea has also emerged as one of the most innovative players in AI, with over 370 scaleups in 2023. New policies have helped to create a favourable regulatory environment that supports AI innovation and R&D in sectors such as manufacturing, fintech and education. We will continue to see growth and competition among both South Korea and China in this area.

FM: China has ambitious plans to become an AI world leader by 2030. Areas of particular interest include healthcare, as well as autonomous driving, with assisted driving systems and robotaxis commonly being tested in Chinese cities. Regarding healthcare, AI is unlocking solutions to address a fundamental and pressing issue within China: its aging population. The application of AI in medical imaging devices, diagnostics, healthcare tools and drug discovery will help to improve the delivery of care to elderly patients, especially at a time when healthcare professionals are in short supply and there are concerns over affordability and accessibility.

GD: East Asia is predicted to be the world’s fastest-aging region in the coming decades and will suffer from the old-age dependency ratio problem. This ratio highlights the size of the population who are 65 years of age and older as a share of the working-age population. Between 2025 and 2050, South Korea and China will both see their ratios more than double, from 29.4% to 65.8%, and from 20.4% to 46.7% respectively⁷.

MH: There is also a lack of money within the national pension fund, with fewer working people contributing to the fund than the number of retired people receiving money.

Demographics is certainly a factor affecting the economic outlook of both countries. Are there any other potential barriers to growth that are having to be navigated?

MH: Exacerbating the ageing population problem is the fact that China and South Korea are both experiencing shrinking populations. In South Korea, the average birth rate has fallen to 0.72 per woman, which is creating new problems for the country. A reduced working-age population significantly affects productivity, and the South Korean government has subsequently raised the retirement age from 60 to 64 to address this.

Adding to the issue is a lack of immigration acceptance. Both China and South Korea are relatively closed societies. This, combined with unfavourable labour and employment policies as well as cultural and language barriers, make it very difficult to boost workforce numbers via immigration.

FM: China too has recently increased its retirement age, and its declining population and lower productivity levels are key catalysts behind its focus on high-value innovative industries, such as AI and semiconductors.

YL: Another trend impacting China is that manufacturing operations are increasingly moving away to neighbouring countries. This is being driven by the adoption of the China Plus One strategy by many companies, as they seek to diversify their supply chains to reduce overdependence on China, and rising costs relating to regulation and labour within China’s business environment.