SOUTH KOREA has profited so much from the explosion in demand for semiconductors that its economy is now vulnerable to any downturn in the market for these electronic components.

They now account for more than 21 percent of exports and two-thirds of earnings at Samsung Electronics Co., South Korea’s biggest company. The firm is the nation’s largest private employer and its revenue is equivalent to 15 percent of annual economic output. The stock market is similarly exposed.

While the profits have kept pouring in for Samsung and its smaller rival SK Hynix Inc., their share prices are under pressure amid concern that chip prices may fall next year. Equally worrying, Chinese regulators have taken aim at the pair and their American peers for alleged anti-competitive behavior.

“If chip exports were to collapse, the pain would be brutal for the South Korean economy,” according to Lee Sang-ho, the head of the Innovative Growth Department at the Korea Economic Research Institute. He’s not saying that this will necessarily happen, but sees an urgent need for alternative growth engines as the dependence on semiconductor exports increases.

Shipbuilding remains an important industry for South Korea, but its relative decline is clear amid competition from China. The auto industry is still a powerhouse, yet much production has headed offshore and the weaker Japanese yen has been a competitive challenge to Seoul-based carmakers such as Hyundai Motor Co. The petrochemical industry is buffeted by shifting oil prices and steel exporters have been forced to accept limits on sales to the United States.

Years of looking for the next cash cow, be it cosmetics or bio-pharmaceuticals, has done little to change the picture. Meanwhile, Samsung and Hynix have announced about US$60 billion in investments in facilities that each year could pump out millions of silicon wafers — the building blocks of semiconductors.

In the wake of a bumper third-quarter earnings season in South Korea, CLSA analyst Paul Choi pointed out that almost a third of the country’s corporate profits come from one specific type of chip, known as DRAM. Looking broadly, forecasters at IHS Markit see a peak in revenue growth for DRAM, and another chip category known as Nand.

U.S.-China trade frictions are another big worry, given the huge volumes of South Korean chips that go into electronics assembled in China for shipment to the U.S. market. (SD-Agencies)