More and more Chinese auto parts are entering South Korea by taking advantage of the South Korea-China FTA, which became effective in December 2015. An increasing number of Chinese auto parts manufacturers are building manufacturing facilities in South Korea to increase their presence in the fully-built car as well as electric vehicle (EV) market.
The Korea International Trade Association announced on May 2 that South Korea’s auto parts exports to China fell from US$6.5 billion in 2015 to US$3 billion last year whereas China’s auto parts exports to South Korea rose from US$1.3 billion to US$1.5 billion during the same period. Likewise, the respective figures fell more than 18 percent to US$600 million and rose more than 13 percent to US$400 million in the first quarter of this year.
This has to do with the fact that Chinese auto parts’ quality is about 95 percent of South Korean auto parts’, the former is 20 percent cheaper than the latter, and the tariff on the former is as low as 8 percent. Even with the tariff, Chinese auto parts are 12 percent cheaper than South Korean auto parts of the same quality.
The inflow is likely to further accelerate in and after 2025, when the tariff is scheduled to be completely eliminated with regard to EV parts and batteries as well as those for internal combustion engine vehicles.