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Automobile Trade Deficits with China and Their Implications

Author Kim, Kyungyou Date 2016.07.21 Issue No 630
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Car exports to China, which had been generating a significant trade surplus, posted an unexpected deficit of USD 2 million between January and May of 2016.
○ The massive reduction in exports to China along with the steady increase in imports accounts for the recent negative trade balance.

 

In 2015, exports of Korean automobiles decreased by 47.6 percent, recording revenue of USD 940 million. Between January and May of 2016, export revenue amounted to only USD 26.79 million, dropping by a whopping 93.7 percent from last year.
○ The slowdown in exports is believed to have originated with the increase in the overseas production of Korean cars and China’s growing import independence as its automobile industry grows stronger.
○ Chinese competitors are expanding their SUV production lines to satisfy the demand of the local market and making improvements to their products so they can replace imported automobiles.

With exports to China in a steep decline, imports showed a steady growth of 10.3 percent per annum from 2007 to 2015. As a result, Korea imported over USD 28.54 million in goods between January and May of 2016 alone.
○ Chinese automobile manufacturers produce mainly down-market compact cars, with a heavy focus on price and efficiency, rather than targeting the sedan market, where brand strategies are crucial.

In order to survive in China’s compact car market, a multidimensional approach would be required in terms of brand, merchandise, and production cost.
○ Sales of high-quality cars should maintain a price range between that of the luxury brands and the relatively cheap Chinese counterparts.
○ Introducing a new manufacturing system in factories, especially those located in China, will be vital in improving the overall efficiency of both domestic and foreign production lines.