[Car Talk Forest] The Biden Era... Why China Is Eyeing Korean Cars

[Image source=Yonhap News]

[Asia Economy Reporter Kiho Sung] Chinese companies are continuously showing love calls for Korean automobiles. There are talks about BYD's (Build Your Dreams) acquisition of the Daewoo Bus factory, which is developing electric vehicles with SsangYong Motor, and HAAH Automotive Holdings is negotiating with India's Mahindra Group to acquire SsangYong Motor. Of course, Daewoo Bus denies the BYD acquisition rumors as groundless, and HAAH also denies any connection with China, but why do these stories keep emerging? The background lies in the 'Biden era,' which has opened wide the era of eco-friendly vehicles originating from the U.S. and the ongoing U.S.-China trade conflicts.

China has boasted the world's largest domestic market for 11 years since 2009. However, recently, that momentum has slowed. The Chinese domestic automobile market peaked at 28.88 million units in 2017, dropped to 28.08 million in 2018, and decreased further to 25.77 million last year. The same applies to eco-friendly vehicles. After continuous growth, eco-friendly vehicles recorded their first decline last year with 1.206 million units, down 4% from the previous year. This year, it is difficult to expect a turnaround due to the COVID-19 pandemic.

With domestic demand weakening, naturally, attention turns to exports. Fortunately for Chinese companies, exports of Chinese cars were only 1.024 million units last year, indicating growth potential. Especially with the U.S. presidential election resulting in the victory of Democratic candidate Joe Biden, demand for eco-friendly vehicles in the U.S. market is expected to surge. Biden consistently announced plans to promote eco-friendly vehicles during his campaign.

The problem is that due to ongoing U.S.-China trade conflicts, eco-friendly vehicles made in China face difficulties selling in the U.S. Although the U.S. administration has changed, it is unlikely that U.S.-China relations will recover quickly. At this point, the importance of the Korea-U.S. Free Trade Agreement (FTA) is highlighted.

Some attribute one reason Mahindra is selling SsangYong Motor to the FTA. Korea and India signed the Comprehensive Economic Partnership Agreement (CEPA), equivalent to an FTA, in 2009, but tariffs on finished vehicles were not eliminated. At the time of the Korea-India CEPA signing, India's tariff on finished vehicles was 100%, and it currently stands at 60%. Low-priced cars are still popular in India, and such tariffs are a difficult barrier to overcome. This is why Mahindra cannot dare to import and sell SsangYong Motor, which has relatively superior performance, in its own country.

If a Chinese company invests in a Korean automobile company to produce eco-friendly vehicles, those products become 'Korean-made.' Simply put, it is a form of 'rebranding.' The controversy over the acquisition of Daewoo Bus should be understood in this context. Last year, the U.S. Congress agreed on the National Defense Authorization Act, which prohibits the federal government from purchasing Chinese-made electric buses, rail vehicles, drones, and so on. Biden plans to replace 500,000 school buses and 3 million federal government vehicles with electric and other eco-friendly vehicles.

Given the current situation, love calls for acquisitions and joint ventures by Chinese companies are expected to continue. However, we have a painful memory of 'Shanghai Automotive.' While investment from Chinese capital is welcome, careful policies considering these circumstances are also necessary.