China's Economy Shifts Focus from Real Estate to AI

Industrial competitiveness in the AI era depends on data center construction capabilities and power battery efficiency. Particularly with the increase in mobile AI devices, batteries and semiconductors that can optimize power consumption have emerged as critical factors. Such technological superiority is an important determinant of success in industrial settings.

Restrictions on the use of Chinese-made memory semiconductors have led to a monopoly in the memory market by three companies: Samsung Electronics, SK Hynix, and Micron. This has intensified the monopolization of profits from memory semiconductors, leading to major IT companies like Apple increasing the prices of all devices by at least 20%, often 50%, and sometimes even 100%. This demonstrates the direct impact of changes in the global supply chain on the prices of final consumer goods.

Recently, the cost of cloud services and data for companies has risen sharply, increasing their burden. In this situation, even U.S. artificial intelligence (AI) companies are increasingly utilizing China's AI ecosystem, particularly lower-level technology foundations like open-weight models, for cost efficiency. Korean AI models are also developing in a way where the core and algorithms are based on Chinese technology, while the 'brain' utilizes U.S. technology.

China is in a favorable position to rapidly train physical humanoid robot industrial site data, leveraging its extensive manufacturing supply chain. Particularly in high-safety battery technologies such as LFP (lithium iron phosphate) and salt batteries, China holds a global lead. This suggests that China could also dominate the future energy storage system (ESS) sector, and its manufacturing and battery technologies are expected to be key competitive strengths in future industries.

Current major Chinese stock market indices, such as the Shanghai Index, fail to adequately include rapidly growing advanced new industries like artificial intelligence (AI). As a result, the Chinese stock market index has been fluctuating between 3,000 and 4,000 for nearly 10 years since 2015, showing limitations in reflecting actual economic growth. The Chinese government is pursuing capital market reforms to address this issue by incorporating new industry companies into the index.

China possesses vast human resources, producing 900,000 excellent engineering talents annually, comparable to Seoul National University. It particularly maintains a 24-hour development system, working day and night on advanced technologies such as High Bandwidth Memory (HBM). This contrasts with Western countries like Korea and the U.S., which prioritize workers' rights and rest, and is one of the main reasons China has emerged as a manufacturing powerhouse. In fact, a significant portion of the U.S. AI industry workforce is comprised of ethnic Chinese talents.

Shanghai, an international city, grew in the past based on consumption by foreign companies and China's middle class. However, recently, the exodus of foreign capital and high-income earners has become prominent, weakening its consumption base. This, coupled with the collapse of the middle class, is leading to an overall economic downturn in the city.

In China, past real estate investment has created extreme disparities in personal wealth. Those who invested in real estate and those who didn't saw a 'heaven and earth' difference in their assets, a reality starkly evident in gatherings like alumni reunions. Especially those who did not invest in real estate were hit hard by inflation without adequate preparation for old age.

The labor income an individual earns through hard work and the unearned income suddenly gained through investment show different utility functions in consumption. Money easily earned through investment tends to be spent easily, without rigid consumption psychology. This wealth, generated by rising asset values, can also lead to conspicuous consumption patterns such as luxury goods.

With real estate prices in major Chinese cities falling by nearly 50% from their peak, the established wealthy class who accumulated wealth through real estate in the past are becoming 'real estate paupers.' The overall decline in real estate values, including in major cities like Shanghai and Beijing, has led to a reduction in their assets, becoming a primary cause of overall loss of consumption power and economic contraction.

Hongbao (the act of gifting money online), a traditional cultural practice during the Chinese Lunar New Year, has recently become hard to find. This is a clear example of the sharp decrease in consumption activities by the traditionally wealthy elite. The change in holiday culture indicates an overall tightening of consumer sentiment, reflecting the severity of the economic contraction.

China's wealth rankings have significantly shifted from being centered around real estate moguls. Currently, 'AI billionaires' involved in artificial intelligence-related businesses have firmly established themselves as the new center of wealth. While platform-based magnates like Alibaba's Jack Ma once dominated the top ranks of wealth, AI entrepreneurs driving technological innovation are now replacing them. However, opportunities for individual investors in the AI sector remain limited.

The pattern of luxury consumption in China is showing a regional trend of spreading from Tier 1 cities to Tier 2 cities. Simultaneously, there are qualitative changes in consumption. While ostentatious luxury consumption of brand-name goods used to be dominant, it is now evolving towards practical luxury consumption focused on improving personal quality of life, such as good cosmetics and health foods. This indicates that consumers' preferences are shifting towards valuing utility and satisfaction.