China's Semiconductor and EV Crisis: What's the Impact on Korea?

The recent increase in KOSPI index volatility has been excessively high. Dr. Kim Dae-ho diagnosed that this volatility does not stem from Korea's macroeconomic fundamentals or domestic corporate defaults. Instead, he analyzed it as an aftermath experienced by aggressive leverage investors who participated in the stock market since May, suffering losses when stock prices fell.

He stated, "This can be seen as a warning about high leverage volatility, not a warning that our macroeconomic fundamentals are bad or that Korean companies are unsound." He clarified that market instability was rooted in a specific investment method.

Therefore, the current market situation can be interpreted as an effect of short-term investor sentiment and capital flows rather than a fundamental problem of the Korean economy.

Paradigm-shifting revolutions in human history, like the heliocentric theory or the industrial revolution, have been extremely rare. Dr. Kim Dae-ho assessed that artificial intelligence (AI) represents such a historical turning point, calling it the third revolution in human history. He emphasized that it is fundamentally different from past revolutions that dealt with fire or tools to assist human physical labor.

Dr. Kim explained, "Revolutions of species involve handling fire or tools, which are human-led and auxiliary means to assist human physical labor. But this time, it assists human thought, human cognition, dealing with the human soul, which is profoundly intricate, and its depth is immeasurable." He suggested that AI has expanded into areas dealing with human thought and the soul.

It is predicted that due to this AI revolution, global capital will concentrate hundreds, even thousands, of times more intensely into related fields, leading to fundamental changes in the global economic structure.

Nvidia's Graphics Processing Units (GPUs) currently show irreplaceable demand in the market. This is not solely due to hardware performance. Dr. Kim Dae-ho pointed to the CUDA system as a key factor that could sustain Nvidia's dominance.

The CUDA system is a software platform for effectively utilizing Nvidia GPUs, serving as a powerful mechanism that ties the developer ecosystem to Nvidia products. Dr. Kim stated, "Even if new second and third companies emerge, they cannot adapt to the CUDA system, so as long as Nvidia dominates the CUDA system, its dominance is likely to continue for the time being, unless the CUDA system is shattered." He analyzed that it would be very difficult for latecomers to overcome the barrier of the CUDA system.

Criticism has emerged that Samsung Electronics' shareholder return policy is inadequate compared to its performance. Dr. Kim Dae-ho pointed out that Samsung Electronics mentioned a return plan of 80 to 110 trillion won, but the lack of specificity disappointed shareholders. In particular, even the 30 trillion won dividend plan was announced to be decided by the board of directors in October, postponing the specific execution time and increasing uncertainty.

Dr. Kim criticized the management's vague attitude, saying, "In Samsung Electronics' case, they talked about 80 to 110 trillion won, but there's no specificity at all. Even regarding the 30 trillion won dividend for the third quarter, they said it would be decided by the board in October. This kind of ambiguity is disappointing." (Korean idiom: 'Is this words or feet?').

He also analyzed that the structural contradiction where the principle of financial and industrial capital separation could undermine the governance structure by incinerating treasury shares also acts as a limitation of Samsung Electronics' shareholder return policy.

During Nvidia's rapid growth, the stock prices of major domestic semiconductor companies, Samsung Electronics and SK Hynix, relatively declined. In connection with this, Dr. Kim Dae-ho claimed that the two companies have contributed almost nothing to the field of artificial intelligence (AI).

He asserted, "I'm not criticizing Samsung Electronics or SK Hynix, but these companies have contributed almost nothing to AI." He offered the interpretation that the memory supply shortage during the transition to conversational and inferential AI tangled semiconductor supply and demand, regardless of Samsung Electronics' intentions.

Despite Samsung Electronics emphasizing its 'super gap' in technology, claims have emerged that the actual technological gap with Chinese companies is narrowing. Dr. Kim Dae-ho pointed out that the technological time difference between China's ChangXin Memory or Yangtze Memory and Samsung Electronics is no longer as large as it once was.

He said, "They talk about a 'super gap' all the time, but is there really a super gap? The time difference with China's ChangXin Memory or Yangtze Memory isn't that much now." He also evaluated that Samsung Electronics' reported innovation achievements at semiconductor conferences are insufficient.

This situation led to the suggestion that the technology development team needs a mental overhaul, emphasizing that Samsung Electronics needs more aggressive innovation to maintain its current technological leadership.

An analysis suggests that behind Hyundai Motor's stock price slump are issues related to the owner family's management succession and inheritance tax reduction. Dr. Kim Dae-ho explained that if the inheritance is not received, the position of Hyundai Motor's chairman could be precarious, and keeping the stock price high to reduce inheritance or gift taxes could be a burden for the management successor.

He said, "If they don't inherit, the chairman's position at Hyundai Motor is virtually precarious. But then, to inherit Hyundai Motor shares, if the stock price is high when someone passes away for inheritance or is alive for gift tax... from the perspective of the management successor who needs to inherit, the stock price should not go up." He claimed that there might be an incentive to intentionally keep the stock price low.

Furthermore, with the possibility of Boston Dynamics' independent listing being discussed, such cases were pointed out as clear examples illustrating the misalignment of objectives between the owner family and general shareholders.

Evergrande Group, a real estate developer, and its chairman Xu Jiayin were mentioned as prime examples symbolizing the collapse of China's economy. Dr. Kim Dae-ho expressed surprise that Xu Jiayin, despite being a poor farmer, had amassed immense wealth during his time as a professor at Renmin University.

However, as the real estate-based economic stimulus policies reached their limit, Evergrande Group faced bankruptcy due to massive debt, and Chairman Xu Jiayin also fell, with his assets confiscated. This is a clear example of the side effects of excessive population movement and indiscriminate liquidity policies, and it is evaluated as an incident that exposed the fragility of China's economic system.

Analysis suggests that U.S. semiconductor sanctions are having a fatal impact on China's economy. Dr. Kim Dae-ho assessed that control over semiconductor equipment is causing devastating results across Chinese industry and is the most effective means for the U.S. to curb China.

He stated, "I believe the most painful sanction is the semiconductor sanction. Preventing them from using semiconductor equipment is truly unfair, but it's the most effective point when semiconductors are regulated." He emphasized that as China becomes isolated in the global division of labor ecosystem, the weakness of its semiconductor industry structure, making self-reliance impossible, is being exposed.

As the rapid growth of IT companies within China began to shake the country's foundations, the Chinese government started to strongly curb and control them through the 'Common Prosperity Policy'. Dr. Kim Dae-ho diagnosed that the growth of IT companies created a large number of instant millionaires, causing fundamental instability in Chinese society.

He explained, "With the sudden rise of IT companies in China, an influx of instant millionaires somewhat shook the foundation of Chinese society. So, the Common Prosperity Policy was strongly pushed forward." He noted that this policy led to strong regulations, such as the complete abolition of the private education market.

This is interpreted as reflecting the Chinese government's will to prevent the monopolization and wealth concentration by giant IT companies and to re-establish socialist values.

As Korean semiconductor companies focus on High Bandwidth Memory (HBM), the shortage of low-end DRAM supply is worsening. This led to a situation where the price of low-end memory once surged by as much as 20 times. Taking advantage of this situation, Chinese companies like ChangXin Memory and Yangtze Memory are rapidly growing in the low-end memory market.

Dr. Kim Dae-ho warned, "If ChangXin Memory floods the market with low-end memory, it will immediately affect the unit price of low-end memory in Korea." He expressed concern that the entry of Chinese companies into the market could lead to a decline in profitability for domestic semiconductor companies in the low-end memory sector.

Consequently, the void in the low-end market created while Korean companies focused on high-value-added markets is becoming an opportunity for Chinese companies to grow, suggesting that this could form a new competitive landscape for the Korean semiconductor industry in the long run.

The rapidly changing global electric vehicle (EV) market environment is causing China's EV industry to face a crisis. Europe is showing signs of policy shifts, such as backtracking on plans to phase out internal combustion engine vehicles, and with the possibility of former President Trump's re-election, the growth in EV demand is slowing more than expected.

Dr. Kim Dae-ho emphasized the impact of slowing demand in major markets on China, stating, "Europe decisively reversed its plan to completely phase out internal combustion vehicles if they don't switch to electric vehicles. So, with demand not materializing as expected in Europe and the U.S.," he added.

These external environmental changes, coupled with reduced local government subsidies and overinvestment leading to corporate insolvency within China, are further exacerbating the crisis in the EV industry.

Artificial intelligence (AI) has the potential to revolutionize the concept of supply in future society. Dr. Kim Dae-ho emphasized that as AI technology develops, supply can be expanded infinitely, predicting an unprecedented supply revolution. He stated, "With AI, there will be no worries about supply in the future. Supply can be increased infinitely," asserting AI's potential to maximize productivity.

Korea, with its strong manufacturing base, can particularly seize opportunities in this AI-driven supply revolution. By increasing production efficiency and creating new value through AI, it can secure leadership in the global economy.

Dr. Kim also added that AI can serve as an essential factor in solving Korea's societal challenges such as youth unemployment and population decline. He suggested exploring ways to resolve labor shortages and revitalize the economy by establishing new industrial ecosystems through AI technology adoption.

The realistic limitations of Korean artificial intelligence technology have been pointed out, and a crisis theory for domestic platform companies is emerging. Dr. Kim Dae-ho criticized Korea for failing to properly create internationally recognized large language models (LLMs).

He warned, "We haven't properly created anything that is internationally recognized. If things continue like this, Naver, Kakao, all could fail." He diagnosed that if the current situation persists, even leading domestic platform companies like Naver and Kakao could face a crisis.

The introduction of stablecoins could pose a potential threat to Bitcoin, it has been argued. Dr. Kim Dae-ho warned that if stablecoins become widespread, they could negatively impact Bitcoin's value.

He advised investors to be cautious, stating, "If stablecoins emerge, Bitcoin could lose its appeal. So, one must be very careful." He specifically mentioned that the U.S. government is strategically promoting the issuance of stablecoins, analyzing that such policy changes could cause significant ripples in the virtual asset market.

Therefore, he emphasized that Bitcoin investors should pay close attention not only to macroeconomic indicators but also to policy changes related to stablecoins.

The U.S. economy, based on the hegemony of the dollar as the key currency, has 'zero chance of collapsing,' it has been claimed. Dr. Kim Dae-ho explained that because the U.S. holds the status of a reserve currency country, it can respond to economic crises by printing more dollars.

He asserted, "The U.S. will never collapse. Almost 99% — how can a reserve currency country collapse? They can just print more dollars." He emphasized that this exclusive status of the U.S. ensures economic stability.