🚨 Taiwan Set to Surpass South Korea's Per Capita GDP After 22 Years with Semiconductor Investment
Today Korean Economic News for Beginners | 2025.10.01
0️⃣ TSMC-Led Economic Growth vs South Korea's Regulatory Constraints
📌 Taiwan's growth rate hits 5.1% with advanced semiconductor investment, while South Korea lags at 0.8%
💬 Taiwan is expected to surpass South Korea's per capita GDP for the first time in 22 years this year, led by its advanced semiconductor industry. Taiwan's economic growth rate is projected to reach 5.1% this year, while South Korea is expected to achieve only 0.8%. TSMC, the world's largest foundry company, has made massive investments in 2-nanometer process factories and advanced packaging facilities, becoming the key engine of Taiwan's economy. As AI chip demand surges, TSMC's orders have exploded, creating a positive cycle of capital investment and job creation. In contrast, South Korea faces slow investment from semiconductor companies due to the 52-hour workweek regulation and environmental restrictions, unable to escape structural low growth. Experts point out that "while Taiwan has strategically nurtured the semiconductor industry at the national level, South Korea has weakened corporate competitiveness with regulation-focused policies."
1️⃣ Easy Explanation
Taiwan's focused investment in the semiconductor industry is expected to result in a higher per capita GDP than South Korea this year. This is the first time in 22 years, drawing significant attention from the economic community.
Let me first explain what per capita GDP means. GDP is the total value of all goods and services produced in a country in one year. When you divide this by the population, you get per capita GDP, which simply shows "how much economic activity each person in the country did on average." The higher the per capita GDP, the higher the average income level of that country's citizens.
Since 2003, South Korea's per capita GDP has consistently been higher than Taiwan's. However, this year the situation is expected to reverse. Taiwan's per capita GDP is estimated to be around $37,000, while South Korea is expected to remain at around $36,500.
The main reason for this reversal is the difference in the semiconductor industry. Taiwan has TSMC, the world's largest semiconductor foundry (contract manufacturing) company. TSMC is a company that manufactures chips designed by global big tech companies like Apple, NVIDIA, and AMD. It holds a dominant position especially in producing popular AI chips.
TSMC is pouring over 40 trillion won (about $30 billion) into facility investments this year alone. It's particularly focused on 2-nanometer process technology, which is the smallest and highest-performing technology currently in mass production. A nanometer means one billionth of a meter, and the smaller the number, the more transistors can be packed into a small space, resulting in better performance.
TSMC is also making large investments in advanced packaging technology. Packaging is the final process of protecting completed semiconductor chips and connecting them to the outside world. Recently, advanced technology that bundles multiple chips together has become important. This advanced packaging technology is essential especially for products like AI chips that need to process massive amounts of data quickly.
These investments are greatly helping Taiwan's economy. As TSMC builds factories and brings in equipment, the construction and equipment manufacturing industries thrive together, and thousands of high-quality jobs are created as new factories start operating. Additionally, as TSMC exports the chips it produces, Taiwan's trade balance is significantly improving.
What about South Korea? South Korea also has excellent semiconductor companies like Samsung Electronics and SK Hynix. However, the investment pace has been slower than Taiwan's in recent years. The main reason is regulations.
South Korea has a law called the 52-hour workweek, which means even semiconductor factories must strictly follow working hour limits. Since semiconductor factories need to operate 24 hours due to their nature, shift work is essential, but the working hour restrictions have made workforce management difficult. Also, environmental regulations have become stricter, making it time-consuming and expensive to build new factories or expand existing ones.
The Taiwan government relaxes regulations and actively supports the semiconductor industry, while South Korea is moving toward strengthening regulations, which many point out is dampening companies' willingness to invest.
In the end, Taiwan has created a positive cycle of "investment expansion → production increase → export increase → economic growth," while South Korea is losing growth momentum as investment shrinks due to regulations.
2️⃣ Economic Terms
📕 Per Capita GDP
Per capita GDP is the value obtained by dividing a country's Gross Domestic Product (GDP) by its population, representing the average income level of citizens.
- It allows comparison of a country's economic size considering population, making it useful for gauging citizens' average standard of living.
- The higher the per capita GDP, the higher citizens' average income and the more economically prosperous they are.
- However, it has the limitation of not reflecting income inequality, so it should be viewed alongside other indicators.
📕 Semiconductor Foundry
A foundry is a specialized contract manufacturing company that produces semiconductors designed by other companies.
- Semiconductor design companies outsource production to foundries rather than building their own manufacturing facilities, which cost tens of trillions of won.
- TSMC and Samsung Electronics occupy most of the global foundry market, with fierce competition in advanced technology.
- As the AI era arrives, the value of foundries capable of producing high-performance chips is increasing even more.
📕 Nanometer Process
Nanometer process is a unit representing semiconductor circuit line width, where smaller numbers mean finer and higher-performance chips can be made.
- The current most advanced process is at the 2-nanometer level, with TSMC leading this technology.
- As processes become finer, more transistors can be integrated in the same size, improving performance and power efficiency.
- However, massive investment is needed for technology development and mass production, so only a few companies can compete in this field.
📕 Advanced Packaging
Packaging is the final process of protecting completed semiconductor chips and electrically connecting them to the outside.
- Recently, 3D packaging technology that bundles multiple chips together or stacks them in layers is receiving attention.
- Advanced packaging technology is essential especially for products like AI chips that need to process large amounts of data quickly.
- TSMC is making large-scale investments in this area as well, widening the technology gap.
3️⃣ Principles and Economic Outlook
✅ Taiwan's Success Factors and Strategic Investment
Let's look specifically at how Taiwan has driven economic growth through semiconductor investment.
First, TSMC's overwhelming market dominance is the core engine of Taiwan's economy. TSMC holds about 60% of the global foundry market, and particularly in advanced processes (7nm and below), it has over 90% market share. TSMC produces all the core chips of major global tech companies, including Apple's A-series chips, NVIDIA's AI chips, and AMD's processors. TSMC's revenue this year is expected to exceed about 90 trillion won, which is an enormous amount equivalent to about 15% of Taiwan's GDP.
Second, government strategic support and regulatory relaxation have promoted investment. The Taiwan government designated semiconductors as a "national strategic industry" and provided various tax benefits and land support. In particular, it flexibly applied working hour regulations to the semiconductor industry, allowing companies to operate 24-hour production systems smoothly. It also expedited environmental assessment procedures, enabling TSMC to quickly build new factories. This "business-friendly" environment led to massive investment.
Third, the arrival of the AI era fit perfectly with timing. As generative AI like ChatGPT grew explosively, AI chip demand surged, and TSMC is almost the only company that can produce them. High-performance AI chips like NVIDIA's H100 and H200 are all made with TSMC's 4nm or 3nm process. Next-generation AI chips to be released will use the 2nm process, so TSMC's dominance is expected to continue for the time being.
Taiwan's success is the result of corporate technology, government strategic support, and global demand timing perfectly aligning.
✅ South Korea's Structural Problems and Growth Slowdown
Let's analyze the fundamental reasons why the South Korean economy has fallen behind Taiwan.
First, regulatory strengthening has significantly slowed companies' investment pace. The 52-hour workweek introduced in 2018 became a major burden on the semiconductor industry. Since semiconductor factories cannot stop once they start operating, three-shift work is essential, but the working hour restrictions made workforce deployment difficult. Companies need to hire more people to maintain the same production volume, but it's difficult to increase skilled semiconductor workforce in a short time. Also, as environmental regulations strengthened, building new factories or expanding existing ones often takes more than 2-3 years.
Second, industrial structure imbalance is constraining growth. South Korea is at the world's top level in memory semiconductors (DRAM, NAND flash), but significantly lags behind TSMC in non-memory (foundry, system semiconductors). Memory semiconductors have high price volatility and high economic sensitivity, making it difficult to lead stable growth. In fact, Samsung Electronics and SK Hynix's performance deteriorated significantly due to memory price declines in recent years. In contrast, TSMC's main foundry business can generate stable profits through long-term contracts with customers.
Third, structural low growth due to low birth rate and aging is intensifying. South Korea's total fertility rate is in the 0.7 range, the world's lowest level. As the working-age population (15-64 years) rapidly decreases, the overall economic growth potential is declining. Also, while welfare spending increases due to aging, tax revenue decreases, worsening fiscal capacity. In this situation, it's difficult to raise the overall economic growth rate no matter how hard companies try.
South Korea's growth slowdown is not simply a temporary phenomenon but a structural problem where regulations, industrial structure, and population structure act in combination.
✅ Future Outlook and Response Strategy
Let's look at how the economic gap between South Korea and Taiwan might change, and what South Korea should do.
First, the gap is likely to widen further in the short term. TSMC plans to invest about 150 trillion won over the next three years, with a significant portion focused on next-generation 2nm and 1.4nm process development. It's also expanding global influence by building large-scale factories in Arizona, USA, and Kumamoto, Japan. Meanwhile, South Korean semiconductor companies are proceeding cautiously with investment due to memory price uncertainty and regulatory burden, raising concerns that the technology gap may widen further.
Second, South Korea must respond with regulatory reform and strategic investment. The most urgent task is to make working hour regulations flexible for the semiconductor industry. Advanced countries like Germany and Japan also make exceptions for industries that require 24-hour operation like semiconductors. Also, environmental assessment procedures need to be reasonably improved to shorten the time from investment decision to factory operation. At the same time, strategic investment is needed to strengthen competitiveness in foundry and system semiconductor fields. Samsung Electronics' foundry business should be intensively nurtured, and the government and private sector must cooperate in developing high-value products like AI chips.
Third, in the long term, new growth engines beyond semiconductors must be found. Semiconductors remain important, but they alone cannot guarantee sustainable growth. Competitiveness must be secured in future industry fields such as bio, secondary batteries, aerospace, and advanced materials. In particular, secondary batteries are a strength area where South Korea ranks in the global top 3, but since China's pursuit is fierce, active investment in technology development and production capacity expansion is needed. Also, fundamental policy transformation to solve the low birth rate problem is urgent.
For South Korea to narrow the gap with Taiwan and achieve sustainable growth, regulatory innovation, strategic investment, and discovery of new growth engines are all necessary.
4️⃣ Conclusion
Taiwan surpassing South Korea's per capita GDP after 22 years is not a simple coincidence, but the result of strategic industry development and business-friendly policies. Meanwhile, South Korea is losing growth momentum due to regulatory strengthening and structural problems, requiring fundamental transformation.
The most noticeable difference is in government industrial policy direction. The Taiwan government strengthened global competitiveness by actively supporting the semiconductor ecosystem centered on TSMC. It created an environment where companies could freely invest and grow through working hour regulation relaxation, swift licensing, and tax benefits. In contrast, South Korea has dampened companies' willingness to invest with the 52-hour workweek and strict environmental regulations.
TSMC's success was not achieved by technology alone. Bold investment in 2nm process and advanced packaging, capturing the golden opportunity of the AI era, was effective. Since TSMC will continue next-generation technology development and global production network expansion, Taiwan's economic growth is expected to continue for the time being.
This reversal is a warning light for South Korea. If the triple challenges of an industrial structure dependent only on memory semiconductors, regulations constraining corporate activities, and population decline due to low birth rate are not resolved, the gap will inevitably widen further.
Fortunately, South Korea also has opportunities. SK Hynix's High Bandwidth Memory (HBM) technology is essential for AI chips, and global companies like NVIDIA are actively seeking it. Samsung Electronics is also making large-scale investments in the foundry business, potentially narrowing the gap with TSMC in the future. It also has competitiveness in other future industries such as secondary batteries and bio.
What's important is speed. If regulatory reform is delayed, investment hesitated, and new challenges avoided, the gap with Taiwan will expand not only in per capita GDP but also in technology and overall industrial competitiveness.
In the end, this reversal is both a warning and an opportunity for the South Korean economy. If we change direction with bold reform and strategic investment even now, we can make another leap forward. For young professionals, it's important to understand these macroeconomic trends and pay attention to growing industries and companies.
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