Tuesday, March 31, 2020
Chinese Companies Increasingly Penetrating South Korean Markets
In Contrast to Korean Firms Struggling in China
Chinese Companies Increasingly Penetrating South Korean Markets
  • By Michael Herh
  • July 5, 2019, 10:49
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The central and local governments of South Korea give a lot of subsidies to Chinese electric buses.

Chinese electric bus suppliers and steelmakers are increasing their presence in South Korea. For example, Tsingshan Iron & Steel recently submitted a letter of intent to Busan City to build a stainless steel manufacturing plant. The Chinese company is currently the world’s largest stainless steel manufacturer and it is planning to invest US$200 million in Busan.

Likewise, Mingtai Group is planning to set up an aluminum manufacturing plant in Gwangyang, where POSCO is located. Many are opposed to the Chinese companies’ plans, expressing concerns that the facilities will do damage to the regional economic ecosystems of the cities.

In the meantime, Chinese electric bus suppliers are given about 200 million won in subsidy every time they sell an electric bus to a South Korean city bus company and 92 million won is additionally given for each low-floor bus. Last year, more than 40 percent of the subsidies were given to Chinese companies such as BYD and Higer Bus and Chinese electric buses accounted for 43 percent of the total electric bus sales volume in South Korea. At present, Chinese electric buses are priced at approximately 300 million won whereas South Korean electric buses are priced at 400 million won to 500 million won.

Meanwhile, in China, South Korean battery suppliers are getting no subsidies at all. Under the circumstances, South Korean automakers in China are being compelled to release electric vehicles by purchasing batteries from Chinese instead of South Korean companies.

Hyundai Motor Group’s slump in the Chinese car market is significantly affecting its partner firms to the point of shaking the South Korean automobile industry to the foundations. The firms are still suffering from China’s THAAD retaliation.

Hyundai Motor Group procured every auto part within itself by means of vertical integration. However, its subsidiaries’ exodus for survival has begun. For instance, Hyundai Mobis more than tripled its supply contracts with foreign automakers from US$500 million to US$1.7 billion from 2015 to last year. The volume is estimated to reach US$2.1 billion this year.

Hyundai Wia, which produces engines for Hyundai and Kia cars, signed an engine supply contract worth one trillion won with a foreign automaker in February this year. As for Hyundai Glovis, which transports Hyundai and Kia cars by sea and land, the ratio of maritime transport of non-Hyundai Motor Group vehicles exceeded 50 percent for the first time in the first half of this year in terms of sales.

This trend is not limited to Hyundai Motor Group subsidiaries. Hankook Tire and Nexen Tire are concentrating on original equipment tire supply to European automakers. Mando, more than half of whose sales are derived from the group, recently initiated its first restructuring by receiving voluntary retirement applications and reducing the number of executives by 20 percent.