China's AI, supply chain push demands South Korea expand manufacturing irreplaceability: report

South Korea must develop strategies to expand the irreplaceability of its manufacturing sector and deepen multidimensional trade cooperation in response to China's structural shifts in AI and supply chain strategy as Beijing intensifies its technology rivalry with Washington, a new report argues.

The Korea Institute for Industrial Economics and Trade made the recommendation Sunday in a report titled "US-China Competition 2.0: China's Shifting AI and Supply Chain Strategy and Korea's Response — Strategic Cultivation and Utilization of K-Manufacturing Irreplaceability."

The report found that as the effectiveness of US semiconductor export controls on China has weakened, Beijing has aggressively reoriented its AI and supply chain strategy — leveraging its domestic market, building a self-reliant ecosystem, upgrading traditional manufacturing through AI applications, and pushing to set global standards for physical AI.

In the semiconductor sector, China is building a self-reliant ecosystem by working around US restrictions through Huawei's proprietary architecture — which bypasses the need for EUV lithography equipment through system-level design — alongside domestic production of materials, components and equipment and memory chips, and the internalization of an ecosystem combining homegrown chips, software and AI models. The report described a virtuous cycle in which domestic AI models, domestic software (CANN) and domestic chips mutually reinforce one another.

In the physical AI space, China accounted for more than 88 percent of global humanoid robot shipments last year and is rapidly expanding its influence. The report projected that China will deploy AI-driven robots at scale in manufacturing and logistics operations to establish its own work standards as the global benchmark, with an eye toward leading international standard-setting.

The report called on South Korea to undertake a paradigm shift that would allow it to redesign its role as an active agent in manufacturing.

"Moving beyond the traditional view that treats technologically superior products merely as trade goods, South Korea needs a paradigm shift in trade cooperation — one that positions it not just as a component supplier but as a co-designer of the global AI technology ecosystem," the report said.

It went on to say that "turning K-manufacturing architecture into an asset — combining individual strengths in technology, production capacity, standards and on-site data into a single architecture that can be cultivated into a sustainable competitive advantage — is essential," adding that "a new trade strategy must be established that links this irreplaceable asset base to supply chain cooperation, market access and standards strategy."