FAR EAST: SOUTH KOREA REPORT
The economic relationship between China and the ROK has reached a turning point. According to statistics from the ROK, for the first time in 28 years, the ROK has a trade deficit with China. China has been the best customer of the export driven ROK economy, and this is causing concern in the ROK. At the same time, Chinese companies are intensifying their takeover of Korean companies, and in response to the escalation of the U.S.-China conflict, they have begun to pursue a strategy of using Korea as a foothold to capture the U.S. market.
A management official at South Korea’s Hyundai Motor’s joint venture plant in Chongqing, China, said that the passenger car assembly plant is idle and that negotiations are underway to sell it to a Chinese company. Hyundai Motor started operations in Chongqing in 2017, including an assembly plant with an annual production capacity of 300,000 units, but sales slumped due to the rise of Chinese automakers. At one point, the company occupied second place with a market share of nearly 10%, but recently it has fallen below 2% and slumped to 10th place.
In May, Chinese private automobile giant Zhejiang Geely Holding Group announced a 34% investment in Renault Korea Automobile, a Korean group company of French automobile giant Renault. A Geely official explained that the investment was made to use the company as an export base to the US market.
Geely reportedly is considering producing hybrid vehicles at Renault Korea and exporting them to the US through the US-Korea Free Trade Agreement (FTA). It is also a candidate for an EV production base for self-driving cabs for Waymo, a U.S. company that develops self-driving technology and is a subsidiary of Alphabet Inc.
Source: The Nikkei
PSR Analysis: If the profits that Korean manufacturers have earned in the Chinese market, especially in the automobile industry, were to shrink, this would be a major blow to the Korean manufacturers. This risk has been pointed out for a long time, and many Korean manufacturers, not only in the automotive industry, have been trying to develop new markets in the Middle East and Southeast Asia. However, the scale of the Chinese market is so large that there is no other market that can replace it. Therefore, they will increasingly seek to make larger profits in the North American market.
While there may be short-term gains to be made through buyouts as China, with its capital strength, acquires Korean companies, if such events occur more frequently, a decline in the presence of Korean manufacturers will be inevitable in the long run. PSR
