The surge in US artificial intelligence infrastructure demand has\nsignificantly boosted economic growth in East Asia\u2019s advanced economies.\nLatest economic data shows Taiwan\u2019s output grew by 14% year-on-year,\ndriven by a spike in chip and data centre server sales.<\/p>\n
South Korean memory chip manufacturers have also recorded operating\nprofits exceeding 500% over the past year. Japan has similarly benefited\nfrom this cycle, despite having long since lost its status as the\nworld\u2019s leading chip producer.<\/p>\n
In 2025, the three nations enjoyed record exports and solid current\naccount surpluses. However, behind these records lies a structural shift\nindicating East Asia\u2019s advanced economies are undergoing\ndeindustrialisation in non-high-tech manufacturing sectors.<\/p>\n
Supply Chain Transformation and Deindustrialisation Threat<\/p>\n
China\u2019s intensifying competition has disrupted East Asia\u2019s old\neconomic model, which previously relied on manufacturing diversification\nto create prosperity during the 1980s and 1990s.<\/p>\n
China\u2019s trade relations with its neighbours have undergone\nfundamental transformation. Once importing high-value components and\nfocusing on final assembly, it now competes across the entire supply\nchain.<\/p>\n
These macro conditions have drastically altered regional trade\nbalances. Taiwan\u2019s longstanding goods surplus with mainland China has\nreversed into a deficit. South Korea experienced a similar shift years\nago, though recent chip exports have helped restore its surplus.<\/p>\n
In Japan, bilateral trade deficits with China have plunged to record\ndepths this year. Traditional industries\u2014from automotive to\nchemicals\u2014are under intense competitive pressure. Perceptions of\ngovernment-subsidised Chinese goods are fueling protectionist\nsentiments.<\/p>\n
Semiconductor Export Concentration Vulnerability<\/p>\n
Deep specialisation in the chip industry reflects economic maturity,\nbut this narrow focus has created significant structural\nvulnerabilities.<\/p>\n
Tech hardware cycles are notoriously volatile, with their\nfluctuations increasingly undermining regional economic stability. The\ntech supply chain is deeply dependent on both the US and China for\ncritical inputs and end-user demand.<\/p>\n
According to export concentration indices, East Asia\u2019s exposure is\n73% higher than the average for other advanced economies. This\nconcentration has risen steadily since 2019.<\/p>\n
This extreme concentration leaves East Asia vulnerable to\nprotectionist policies by the two superpowers.<\/p>\n
Urgency for Structural Reform and Domestic Stimulus<\/p>\n
To tackle deindustrialisation, East Asia should not respond by\ndoubling down on aggressive industrial policies. South Korea\u2019s $530bn\nsemiconductor subsidy pledge and Japan\u2019s $61bn strategic goods\ninvestment are deemed irrelevant.<\/p>\n
Government interventions to boost exports worked when economies were\ncatching up, but are no longer optimal for high-income nations. East\nAsia must reform outdated systems suppressing domestic consumption.<\/p>\n
Labour market reforms are needed to address wage inequality and boost\nreal incomes. Pension systems must be overhauled, given the region\u2019s\nhighest relative elderly poverty rates among advanced economies.<\/p>\n
Governments should reduce financial engineering to ensure efficient\nresource allocation. Excessive subsidies for established firms like TSMC\nand Samsung Electronics should cease to allow outdated industries to\nundergo natural selection.<\/p>\n
Externally, local barriers must be cut by pursuing bilateral free\ntrade agreements between South Korea and Japan, or advancing South\nKorea\u2019s entry into the CPTPP pact.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/chinas-surge-leaves-neighbours-on-the-brink-1780299454", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }