South Korea should step up to become a "rule setter" from being a "rule taker" by collaborating with Japan, as well as keep a balance between the United States and China, SK Group Chairman Chey Tae-won, who doubles as chairman of the business lobby group Korea Chamber of Commerce and Industry.

Underscoring that the current protectionist trend around the world is "very unfavorable" for South Korea, Chey said the country should come up with ways to expand its market size and attract foreign investment, in a year-end press conference held by the KCCI on Monday.

"The current protectionist trend where countries say they will use only what is produced on their own home ground is very unfavorable for countries like us, which has a small market but big production volume," Chey said.

As a way to boost key strategic industries such as semiconductors, countries are offering a tremendous amount of subsidies and incentives to attract investment.

While there are concerns of overheated investment, the Korean government should still come up with similar subsidy or incentive programs to attract foreign investment and maintain a competitive edge in the long term, Chey highlighted.

Over the next year's economic prospects, Chey said the country's recovery from the ongoing inflation and low demand, will depend on the timing of the Chinese economy's recovery. China, Korea's biggest trading partner, is also where the biggest demand for Korea's chips are created.

"Looking at the prospects now, I believe signs of recovery will show around the end of next year," Chey said.

The Korea Institute for International Economic Policy forecast China's growth rate in 2024 to stand at 4.5 percent, down from this year's 5.3 percent.

As China and the US vie for supremacy, South Korea should make "rational" decisions, and keep a cool head for balance, he said.

"There is almost no country that takes the strategy of choosing between the US and China. You can see more American companies visiting China and promising investment than Korean firms," Chey said, adding, "From a business perspective, it is not like they don’t sell products because they don’t like the customer."

Regarding the rising positive outlook on the semiconductor industry’s recovery, Chey noted that demand is increasing in only certain product categories in DRAM chips, and that the demand in the NAND memory chips sector remain "almost asleep."

Breakthrough in chip sector

Over his recent visit to the ASML headquarters in the Netherlands accompanying President Yoon Suk Yeol on his state visit, Chey said the country is on good terms with the chip equipment maker.

While global chipmakers are eager to secure orders of ASML's EUV lithography equipment -- limited to only 40 to 50 units produced per year -- its high price tag could force firms turn to other methodologies to make advanced chips, said the chairman of SK Group, which houses the world’s second-largest memory chipmaker SK hynix.

According to Chey, the semiconductor industry has been evolving around a "ultramicroscopic-level" manufacturing process in the past few decades.

However, technological limitations are becoming more apparent, and the high price of ASML's extreme ultraviolet lithography machine -- deemed key for making the most advanced chips -- is skyrocketing.

"Chipmakers may look for new methodologies to produce chips when they start to think it costs too much to buy expensive equipment for little profit," he said.

"ASML is also tasked with cooperating with its partners to make sure its products are in demand, as well as making the equipment more efficient."

Collaboration with Japan

For survival in this "fragmented" world, South Korea should transform itself from being a "rule taker" to a "rule setter," make rules for itself and come up with ways to defend its industries, Chey said.

To do this, joining hands with Japan would be key, as Korea needs to expand the size of its economy to make its voice heard, he said.

"I believe collaborating with Japan will be positive for Korea's national interest, without a doubt," Chey said, explaining that Japan and Korea are the second- and third-largest economies in East Asia after China.

The KCCI chief argued that Korea would be able to boost significant growth -- enough to nudge upward the first digit of the country's 1.4 percent forecasted growth rate this year -- by partnering with Japan and getting rid of the problems caused by the small market size.

Both South Korea and Japan face similar conditions and situations in terms of their economies, social demographics and geopolitical security -- all of which pose limitations for growth and breakthroughs.

"Japan has an economy that is about three times that of Korea’s, and the total GDP would round up to almost $7 trillion when the two countries' figures are combined," Chey said, adding, "I believe the two countries would be able to make synergy worth some $500 billion, when interpreting the potential output in GDP."

The areas for collaboration may include energy, of which the two countries are heavily reliant on outside sources.

“We could come up with a new framework to make group purchases and use the imported energy together to save costs and energy,” Chey said.

Issuing joint visas for expatriates could also be a way to increase the number of visitors in the two countries and boost their respective tourism industries.

Separately, Chey's chairmanship at the KCCI ends in March. Chey, who was appointed to the post in 2021, said he will think through the decision on whether to serve the position for another term.