(Han Joo-hyung)

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South Korea’s manufacturing competitiveness has largely been overtaken by China, with the exception of semiconductors, prompting an urgent need for painful innovation centered on artificial intelligence and regional revitalization, Industry Minister Kim Jung-kwan said.

Speaking at the Maeil Business Economist Club forum held Tuesday in Seoul, Kim said the manufacturing gap between South Korea and China has effectively disappeared, noting that China now holds a clear advantage across most manufacturing sectors other than semiconductors. He stressed that Korea must preserve its semiconductor edge at all costs while pursuing sweeping transformation through artificial intelligence, or AX, to survive.

Kim shared his recent observations from a visit to China on Dec. 12, where he attended the Korea-China commerce ministers’ meeting for the first time in seven years and toured Xiaomi’s electric vehicle plant. He said the factory, where 91 percent of the production process is automated using AI, vividly demonstrated China’s manufacturing prowess.

The Xiaomi facility operates around the clock in three shifts and produces one vehicle every 76 seconds, with manufacturing beginning immediately upon order placement, leaving virtually no inventory. Kim said he was struck by how far ahead the plant appeared compared with Hyundai Motor’s Ulsan factory and Kia’s Georgia plant. The Beijing-based Xiaomi factory has an annual production capacity of 150,000 vehicles.

Kim said China’s rapid ascent demands “painful innovation” from Korea’s manufacturing sector, with AI at the core. He likened today’s global landscape — marked by U.S.-China rivalry and intensifying competition — to the Warring States period in ancient China, arguing that AI now plays the role that iron technology once did in determining national survival.

He said one of his top policy priorities during tariff negotiations with Washington earlier this year was the Manufacturing AI Transformation, or M.AX, initiative. Under the plan, the government aims to launch an alliance involving around 1,000 large companies, small and midsized firms, universities and research institutes to boost manufacturing competitiveness through AI adoption.

The M.AX Alliance, launched in September under the Ministry of Trade, Industry and Resources, is a public-private partnership designed to accelerate the AI-driven transformation of manufacturing. The initiative connects Korean companies with rich manufacturing data to academic and research institutions developing AI models, with the goal of maximizing productivity and strengthening the industrial ecosystem. Kim said core industries such as automobiles, shipbuilding and all-solid-state batteries must be reinvented through AI to secure Korea’s future.

AI transformation also featured prominently in the ministry’s policy briefing to President Lee Jae-myung on Wednesday. The ministry said it plans to expand the number of AI factories from 102 this year to 500 by 2030, develop AI semiconductors linked to demand industries such as automobiles, home appliances and robotics, and increase the number of AI demonstration industrial complexes from 10 to 13. It also reported plans to establish a dedicated Industrial AI Bureau within the ministry.

The AX strategy is closely tied to regional development, with Gwangju set to become an AI-based autonomous driving demonstration city and Daegu to be transformed into a hub for AI robotics infrastructure.

Kim also underscored the importance of nuclear power as a stable energy source in the AI era, citing cooperation with the United States — which plans to begin construction on 30 new nuclear reactors by 2030 — as a key opportunity. He said reliable electricity is essential for AI infrastructure, including semiconductors and data centers, describing energy as the “heart” that enables the “brain” of AI to function.

Nuclear power, he said, offers stable, carbon-free electricity that can complement intermittent renewable energy sources. Kim added that expanding nuclear power has become unavoidable despite social controversy, noting that the United States is also moving in that direction.

Kim expressed optimism about Korea’s prospects for nuclear cooperation with the United States, saying Korean firms possess strong construction capabilities that could complement U.S. nuclear technology. He said combining Korea’s manufacturing strength with U.S. original technology could create global competitiveness not only in the U.S. market but elsewhere as well.

Separately, Kim said the 21st-century trade order resembles another “Warring States” era, marked by weakening U.S. dominance and China’s rise as a new global power. In such an environment of heightened uncertainty and eroding rules, he said Korea must pursue flexible alliances to survive.

He stressed the importance of maintaining good relations with both the United States and China while also strengthening ties with middle-power economies such as the Association of Southeast Asian Nations and the European Union. Kim said Korea must build strategic flexibility by forming strong, diverse coalitions capable of speaking with a unified voice to both Washington and Beijing.