(EDITORIAL from Korea Herald on Oct. 30)

Deepening asymmetry
Soaring chip profits and GDP gains mask strains in Korea's domestic economy

A nation can grow rich on paper even as its people feel poorer. South Korea's latest figures tell two different stories: Export earnings are soaring, but household fortunes are lagging.

An artificial intelligence-driven surge in chip demand has sent output and corporate earnings to unprecedented levels. Yet the gains are concentrated in a handful of exporters, leaving much of the domestic economy struggling to keep pace.

On Tuesday, the Bank of Korea reported that gross domestic product grew 1 percent from the previous quarter in July-September, lifting cumulative growth for the first three quarters to 3.6 percent. Real gross domestic income rose 18.8 percent year-on-year, its largest gain since 1977, and per capita gross national income is expected to exceed $40,000.

SK hynix on Wednesday reported third-quarter operating profit of 83.33 trillion won ($62.36 billion), up 632 percent from a year earlier. Samsung Electronics followed on Thursday with 107.44 trillion won, a 783.1 percent jump.

The scale of this windfall is extraordinary. The question is how much it says about the health of the wider economy.

The domestic data is far less buoyant. Private consumption fell 0.2 percent in the quarter. Consumer confidence weakened, and average monthly employment gains over the first nine months were the lowest in six years.

Small businesses are under pressure, too. The delinquency rate on loans from the Industrial Bank of Korea reached 1.04 percent, its highest since records began in 2011.

The composition of the boom helps explain the divide. About 78 percent of the recent increase in semiconductor exports came from higher prices rather than larger volumes.

The AI infrastructure race has given Korea's memory chip leaders extraordinary pricing power and record earnings. Samsung's semiconductor division generated nearly all its operating profit, offsetting an 800 billion won loss in consumer electronics and mobile operations. SK hynix reported an operating margin of 80 percent and said long-term agreements cover more than half of its production capacity for 2027-28.

The scale of the boom also distorts the national picture. Semiconductor exports accounted for nearly half of total shipments in September. The BOK has warned that a slowdown in US technology giants' AI spending could sharply reduce chip exports and shave 0.4 percentage point off growth.

Despite record earnings, recent swings in Samsung and SK hynix share prices show how heavily valuations depend on continued demand, particularly as Chinese competitors catch up.

Advanced manufacturing creates enormous value without generating jobs at the pace Korea needs. The share of young workers moving from precarious employment into permanent jobs fell from 3.5 percent in 2014-19 to 1.6 percent in 2023-24.

When large firms favor experienced hires and smaller employers lack the means to invest, young people can be shut out of the prosperity their work helps create.

Dividends and bonuses may support consumption at the margin, but the gains remain concentrated among shareholders and employees of a handful of large firms.

The government should raise productivity and encourage investment beyond semiconductors. It should also remove regulations that prevent new platforms and innovative services from expanding.

Labor reform must open routes into stable jobs for young people and narrow the divide between secure positions at large firms and precarious work elsewhere.

Public support should target vulnerable households and retraining. Financial oversight must also contain household debt, which constrains spending and leaves families exposed to higher borrowing costs.

Record profits and rising GDP are genuine achievements. Whether the economy is healthy depends on whether households and smaller firms share in the gains. Policymakers have had ample warning of the divide. The test is whether they can broaden the sources of income and employment before chip prices retreat.
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