South Korea’s Hyundai Motor to expand localization strategy in China

Hyundai Motor, South Korea’s number one automaker, will speed up “localization” by expanding its production capacity in China after the implementation of the China-South Korea free trade agreement or FTA.

The two countries signed the bilateral trade agreement on 25 February, three months after concluding negotiations and close to three years of talks.

Under the accord, China and South Korea will eliminate tariffs on more than 90% of all products within 20 years after the FTA is implemented. South Korea aims to sign the agreement and get parliamentary approval by the end of 2015.

In the automotive sector, South Korea will abolish tariffs on Chinese buses and trucks within 15 years after implementation. China will eliminate duties on buses and trucks from South Korea within 20 years. Passenger cars were excluded from the agreement, however.

“China excluded passenger cars from the negotiating table to protect its own industry. South Korean carmakers, centered on Hyundai Motor and Kia Motors, will deepen a localization strategy rather than increase exports,” Kim Tae-Nyen, executive director of the Korea Automobile Manufacturers Association (KAMA), said in a recent interview with Xinhua.

“China will account for about one-third of global production and demand for cars. Now, it is meaningless to think about an auto industry without having China in mind. The China-South Korea FTA would contribute greatly to the development of car industries in both countries,” said Kim.

With the FTA, South Korea would become the first car-producing country in the world to sign a free-trade agreement with China. Others, such as the United States, Germany and Japan, have yet to ink an FTA with China.

Hyundai and its affiliate Kia have a combined production capacity of 1.9 million units in China, which is expected to increase to 2.5 million units in the medium term.

Hyundai currently has three factories in Beijing, with a production capacity of 1.05 million vehicles a year. It will build its fourth factory in Chongqing, in southwest China, by late 2016, and a fifth factory in Cangzhou, in Hebei province, by early 2017. When these are completed, Hyundai’s production capacity in China would increase to 1.65 million vehicles a year.

Hyundai aims to become the number-three brand in China, after Germany’s Volkswagen and the U.S.A.’s General Motors.

“Hyundai plans to complete the construction of an R&D center in Yantai by the end of this year to develop new models that meet the needs of Chinese consumers. We will also strengthen design, enhance fuel efficiency and improve product quality aimed at Chinese consumers,” the company said.