China’s lessons and Korea’s challenge on the path of finance

Park Sun-young
The author is a professor of economics at Dongguk University.
 
 
Chinese technology stocks have returned to the spotlight in global markets this year. The Hang Seng Tech Index has risen 41 percent since the beginning of the year, while major firms such as Alibaba, Tencent and Baidu have climbed between 50 and 90 percent. A breakthrough in AI by DeepSeek marked a turning point, coupled with Beijing’s policy of semiconductor self-sufficiency and heavy investment in AI model development by large firms. Foreign investors are also returning, citing low valuations and growth potential. Uncertainty remains, from the results of the chip push to weak consumption and youth unemployment. Yet it is clear that China’s economy has shifted course after years of real estate turmoil, including the collapse of Evergrande.
 

Guests watch a promotional video via VR devices during the opening ceremony of the 2025 World Internet Conference Cultural Heritage Digitalization Forum in Xi’an, northwest China’s Shaanxi Province, Sept. 17, 2025. The forum opened on Wednesday in Xi’an, home to the world-famous Terracotta Warriors. [XINHUA/YONHAP]

 
The turning point came at the end of 2020. The People’s Bank of China and the Banking and Insurance Regulatory Commission introduced lending concentration rules to curb property-related loans. For large banks, the share of property loans was capped at 40 percent of total lending, with mortgages limited to 32.5 percent. For midsize banks, the caps were set at 27.5 percent and 20 percent, respectively. Analysts argued that some regional banks were overly reliant on property, making such regulation necessary for stability. Others noted it could push smaller banks back to their original role of supporting small businesses and the real economy.
 

Visitors watch a humanoid robot boxing game at the Internet Yuelu Summit 2025 in Xiangjiang New Area of Changsha, central China’s Hunan Province, Sept. 15, 2025. Focusing on cutting-edge technologies such as artificial intelligence, the summit kicked off here on Monday. [XINHUA/YONHAP]

 
Since the 2008 global financial crisis, China had leaned on infrastructure and real estate investment to sustain growth. Between a quarter and a third of its GDP came from construction and property, and more than 70 percent of household wealth was tied to housing. The result was a triple risk of soaring debt, inflated property prices and banks overloaded with real estate exposure. Smaller banks, especially, were vulnerable to local downturns, and shadow finance fueled further lending. Beijing’s decision to diversify bank portfolios was a structural necessity.
 
Policy then shifted toward advanced manufacturing. Through the 14th Five-Year Plan and its “Made in China” strategy, Beijing identified AI, semiconductors, robotics and green technology as priority sectors. The central bank rolled out low-interest credit through innovation loans and green finance programs, and in 2023 it expanded special lending for equipment upgrades. By the end of that year, outstanding medium- and long-term loans to manufacturing had risen nearly 32 percent, while lending to advanced manufacturing was up 34 percent. This redirection of capital from real estate to industry set the stage for this year’s rebound in technology stocks.
 
 
What stands out is that Beijing treated this as a financial reform, not merely an industrial policy. Restricting property loans, cutting off shadow finance and channeling capital into future industries were executed as a package. This showed that the question of where finance should flow was viewed as a matter of national strategy, not just short-term stimulus or market stabilization. Through structural reform of finance, China managed to shift its growth engine.
 
Korea faces similar challenges. The Financial Services Commission’s push for “productive finance” carries major significance. The plan includes adjusting bank capital rules to reduce dependence on property lending and expand corporate finance. Compared with China’s rigid quotas, this is a more market-friendly approach. Some question whether expanding corporate lending in a sluggish economy is wise, but banks exist to direct capital toward productive sectors. Their role is to finance innovative, high-risk ventures and to ensure funds flow into areas of higher productivity.
 

A view of an MG Community Credit Cooperative branch in Seoul. [JOONGANG ILBO]

 
The issue of the MG Community Credit Cooperative credit unions, often cited as Korea’s shadow finance, cannot be postponed. These cooperatives take deposits and issue loans like banks but fall outside direct supervision by regulators. This gap magnifies risks and delays responses. As of the first half of 2025, they held assets worth 288.4 trillion won ($206.8 billion) but reported more than 1.3 trillion won in net losses, much of it from property loans gone sour. President Lee Jae Myung described them as “in a blind spot of regulation,” urging formal oversight. China’s painful experience with shadow lending to property developers shows why such reform is urgent.
 
The shift to productive finance will only be complete when Korea brings property-focused shadow finance under regulatory control. Without that, the same structural risks that plagued China could constrain Korea’s growth.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.