S. Korean CKD Car Exporters Threatened by China's New Auto Policy

South Korean car exporters assembling cars on a complete knockdown (CKD) basis in China hit a snag after the nation Tuesday put into effect a new automotive policy that raises tariffs on CKD auto imports to the level of duties on completed car imports, industry sources said Friday. The tariff rate for CKD imports doubled to 34.2 percent in the world's third-biggest car market, they said. As a result, GM Daewoo Auto & Technology Co. and Ssangyong Motors Corp., which concentrate on CKD exports to China, are expected to rapidly lose their price competitiveness there. GM Daewoo shipped 45,648 units of its compact Lacetti and 720 of Matiz subcompact on a CKD basis to China last year. In the first five months of this year, the No. 3 Korean carmaker exported 41,632 Lacettis and 5,184 Matizs to the country using the same method. Ssangyong sent 3,054 vehicles on a CKD basis to China in 2003, with the figure amounting to 40 percent of its total exports to the world's most populated country. The company also recently started CKD production of its Istana van there. By contrast, Hyundai Motor Co., Korea's largest automaker, and affiliated Kia Motors Corp., the No. 2 carmaker, are not expected to be affected by the measure since they are far less dependent on CKD exports than GM Daewoo and Ssangyong. Moreover, Hyundai Motor and Kia, who each have a 15 percent share of the Chinese market, are expected to benefit from the new policy as spurs carmakers to merge into fewer, bigger groups, The new measure requires carmakers to provide from their own funds at least 40 percent of the 2 billion yuan ($241 million) of the investment needed before they are allowed to make cars, according to the sources. China's central government, which outlined a policy in 2002 to combine more than three dozen carmakers into three major automotive groups, wants the country's smaller producers to stay out of the industry to help prevent over-supply, U.S. news agency Bloomberg reported recently. Inventory at China's 13 biggest automakers rose 27.9 percent to 14.2 billion yuan in the first four months of this year from a year earlier, while profit was unchanged at 12 billion yuan during the same period, according to state-run Assets Supervision and Administration Commission data released on its Web site. - Source from Yonhap News (Jun 5,2004) -