China is Separating its Old and New Economies

Ahn Yu-hwa, Director of the China Securities and Administration Research Institute, emphasized that the Chinese economy should be analyzed by distinguishing between Old China and New China. Old China refers to the existing real estate-based economy, while New China signifies the future economy centered on advanced industries. Analyzing China through these two perspectives, she explained, can provide practical insights beneficial to Korea.

The Chinese economy is built around real estate, so the downturn in the property market is severely impacting household consumption and local government finances. Falling real estate prices reduce household asset values and increase loan repayment burdens, leading to a decline in consumption. Additionally, local governments, heavily reliant on real estate, are experiencing delays in civil servant salaries due to reduced land sales revenue.

Since 2020, the Chinese government has pursued policies to channel funds tied up in real estate towards advanced industries and capital markets. However, since most real estate purchases were made with loans, a decline in property values leaves little room for investment due to reduced asset value. Thus, the massive capital invested in real estate faces structural difficulties in flowing smoothly into future industries.

China recorded a robust 4.3% GDP growth rate in the second quarter of this year, but this was largely dependent on strong exports. In contrast, consumption and private investment indicators are very sluggish, with real estate investment, in particular, showing a negative 19.8% year-on-year decline, indicating severe internal stagnation. The discrepancy between macroeconomic indicators and the actual perceived economy is deepening.

The Chinese authorities' continued preaching of economic optimism is interpreted in the same vein as a commander in wartime emphasizing victory to soldiers. By reporting primarily positive news through the media, they aim to prevent the spread of crisis sentiment and maintain the confidence of economic actors. This is analyzed as a psychological strategy to overcome current difficulties.

The Chinese government's real estate policy changed significantly from 2023. Before 2023, it tried to curb the real estate market with strong regulatory policies, such as announcing red-line indicators. However, as the threat of successive bankruptcies among large companies became a reality, the policy completely shifted to a drive to boost the economy after 2023. China is the only country in the world that continues to cut interest rates to stimulate the real estate market.

Director Ahn Yu-hwa compared China's current economic situation to 'changing the wheels' of an old car. This describes the instability and shock that inevitably occurs during the transition from the existing Old China economic model to New China. This shock is presented as a necessary maintenance process for growth and an unavoidable cost.

Current US-China relations were defined not as divorce (Cold War) or war (Hot War) but as a state of 'separation (Yangzhan).' If US-Iran relations are seen as a hot war and past Soviet-US relations as a cold war, then current US-China relations are a 'separation' where they meet when necessary but the fundamental relationship is not good. This reflects an aspect where cooperation and conflict coexist, rather than a complete severance.

The U.S. has shifted its strategy against Iran from direct military operations to economic isolation, as direct war would entail immense costs and political burdens. The core of U.S. sanctions was to completely block Iran's oil sales and restrict financial services. However, China's continued import of Iranian oil has significantly offset the effect of U.S. sanctions. This shows that China acts as a crucial variable weakening U.S. sanctions against Iran.

The U.S. heavily relies on China for semiconductor equipment, especially key technologies like EUV, while China is influenced by the U.S. in rare earth technology. This interdependence is described as both nations 'holding each other's leashes.' Whether this relationship will ultimately lead to complete severance (divorce) is an uncertain situation that no one can predict. The complex dynamics between the two countries act as a major variable in the international economy.

It has been claimed that about 50% of AI engineers working in the United States who hold U.S. nationality are Chinese. This figure suggests that the U.S. heavily relies on Chinese talent in the AI field. This highlights the complexity of the US-China tech rivalry while emphasizing the diversity and importance of talent inflow into the U.S. tech ecosystem.

The core limitation of Chinese technology was pointed out not as mere technological development or sample production, but as the 'mass production rate.' There is a significant difference between successful development and its application in actual industrial settings through mass production. The Chinese semiconductor industry, in particular, faces low yield rates, which is an area that cannot be solved by talented personnel alone and requires time.

Korea possesses diverse manufacturing sites, accumulating a wealth of on-site data. It was analyzed that combining this data with robotics technology will be a key competitive advantage in the humanoid era. U.S. regulations against China could present new opportunities for Korea, and it was emphasized that the country should accelerate the integration of data and robot technology within the next 3-5 years. The strategic period has arrived for Korea to leverage its manufacturing-based strengths to secure an advantage in the robotics industry.

The main reasons Chinese companies are accelerating their overseas expansion are excessive competition in the Chinese domestic market, leading to declining profitability, or a 'bloodbath economy.' Additionally, a crucial factor is the strategy to shift production bases overseas to circumvent U.S. export regulations on Chinese products. Consequently, many Chinese companies are establishing production facilities in third countries like Korea and Vietnam, aiming to enter the global market with 'Made in Korea' labels.

True wealth, it was explained, is not merely the amount of assets, but whether one has the 'option' to incur costs during a crisis or a crucial decision-making moment. This connects to 'lifetime asset theory,' which examines whether one's monthly living expenses and anticipated expenditures can be covered by asset income without working. The perspective suggests that even with 5 billion won in assets, if one lacks options in life, they cannot be considered truly wealthy.

It was emphasized that assets should be allocated by assigning roles based on time. Funds needed within 1-3 years should be categorized as living expenses and emergency funds, managed safely and never invested. Funds for 3-5 years should be used for mid-to-long-term investments like bonds, S&P 500 ETFs, and dividend stocks, while long-term funds for over 10 years should be invested in growth stocks or growth assets to hedge against inflation. This strategy aims to diversify risk and optimize returns according to each fund's purpose and timeframe.