Made in China Products Erode Korean Market with Gov't Subsidies

“Made in China” is making its mark in the Korean market, not only with solar power components but also in a variety of future-oriented products such as electric buses, drones, and robots.

According to data submitted to Han Moo-kyung, a lawmaker of the People Power Party, by the Korea Energy Agency on July 9, the domestic supply of Chinese-made solar cells from January to May this year was counted as 743,397 MW. This figure amounts to 68% of the total supply (1,093,279 MW) for the same period. This trend has accelerated over the past few years. The share of Chinese-made solar cells in the domestic market dropped from 45.2% in 2017 to 31.8% in 2018, went up to 33.5% in 2019, but jumped to 65.2% in 2020. It then recorded 59.3% in 2021 and 53.8% in 2022, sharply increasing this year. Despite fluctuations over the past few years, the overall trend is upward.

According to the Korea Automotive Mobility Industry Association, the market share of Chinese-made electric buses in Korea last year was found to be 44%. The share, which stood at 24% in 2019, rapidly increased to 33% in 2020 and 38% in 2021. Industry insiders predict that this trend will continue to accelerate as the demand for electric buses increases.

The number of electric buses in Korea is rapidly increasing every year due to the government’s “eco-friendly” policy. According to data compiled by the Ministry of Environment, the annual supply recorded 99 in 2017, 121 in 2018, 551 in 2019, 1,016 in 2020, 1,290 in 2021, and 2,074 in 2022, increasing more than 20 times over six years.

The main reason for the rapid increase in the proportion of Chinese-made electric buses is price competitiveness, but recently, it is said that Chinese products are leading in battery capacity. The transition to the era of electric vehicles has greatly reduced the technology gap with Korea in related fields, making it easier for Chinese companies to enter the Korean market. “Made in China,” which once penetrated the market with its cost-effectiveness, is now attacking the domestic market with technology as well. In the first half of this year, Hyundai Elec City ranked first in market share, but places two to five were all occupied by the Chinese companies HIGER, CHTC, BYD, and Zhongtong Bus.

The Ministry of Environment decided to provide differentiated subsidies according to the operation of repair and parts management (AS) centers and battery energy density through subsidy reform earlier this year, but it is not enough to block the Chinese assault. Voices in the industry are calling for urgent government policy support to maintain the ecosystem of the domestic electric bus industry.

Kim Yong-won, vice president of the Korea Automobile Safety Association, expressed concern, saying, “Cheap Chinese electric buses are rapidly occupying the quasi-public market. Some may argue that buying Chinese is good because it saves taxes, but if the domestic electric bus industry ecosystem collapses, the price of Chinese electric buses can increase significantly.”

The rapidly growing drone market in recent years has also been dominated by China. According to the Korea Transport Institute, the size of the domestic drone market grew about seven times from 70.6 billion won (US$54.1 million) in 2016 to 494.5 billion won in 2020. It is projected to expand to 2.2 trillion won by 2030.

In the midst of this, industry insiders estimate that the market share of Chinese-made drones is around 70%. Chinese drones are not only competitively priced but are also said to surpass domestic products in terms of technology. According to data from the “2nd Drone Industry Development Basic Plan Public Hearing” announced by the government earlier this year, Korea’s drone technology was analyzed to be only 60% of the level of leading countries such as China.

The serving robot market is also more than half dominated by China. In the robot industry, it is estimated that more than 70% of the serving robots currently distributed in Korea are products of Chinese companies such as Pudu Robotics and Keenon Robotics. Chinese serving robot companies entered the Korean market early and preempted the market by offering prices more than 20% cheaper than domestic products.

The Ministry of SMEs and Startups is providing a subsidy equivalent to 70% of the supply price to purchasers of serving robots through the Smart Store Technology Diffusion Project. Since the subsidy is paid out regardless of the country of manufacture, one can receive subsidies even if they purchase a Chinese serving robot. Therefore, from the perspective of the purchaser, they tend to prefer cheaper Chinese products. This is why the industry is calling for urgent protection measures for domestic industries.

One of the reasons Chinese serving robots were able to quickly take over the Korean market is the full support of the Chinese government. Since announcing the China Manufacturing 2025 Plan in 2015, China has provided massive subsidies to robot manufacturers and buyers.

Seong Han-kyung, a professor of economics at the University of Seoul, said, “With the help of large-scale subsidy policies from the Chinese government, Chinese companies have grown rapidly (in promising future industries), and are increasing their market share in Korea by highlighting price competitiveness, etc.” He added, “The way for Korean companies to overcome this and gain a competitive advantage is ultimately technology,” emphasizing that “the government needs to create an environment conducive to technology development.”