Hyundai decides to downsize Beijing plants
China was once the land of milk and honey for Korean companies, which briskly made inroads into the world’s most populous country and chalked up handsome profits.
However, the promising territory has turned into a desert due to a diplomatic feud between the two countries after Korea decided to deploy an advanced U.S. missile defense system in 2016.
Seoul has often repeated that the Terminal High Altitude Area Defense (THAAD) system is aimed at tackling Pyongyang’s missile threats but Beijing did not buy this explanation as its radar could also monitor airborne objects in China.
The standoff prompted the Chinese government to “suggest” a boycott of Korean products and services. The first victim was Lotte Group, Korea’s fifth-largest conglomerate that had to provide land for the THAAD deployment at the “request” of the Seoul administration.
China ordered the suspension of operations at more than 100 Lotte Mart stores for dubious reasons. Eventually, the discount chain stopped doing business there in 2018. Resultant losses have been estimated to be around $2 billion.
Lotte’s cross-city rival Shinsegae acted more quickly as it withdrew from China in 2017, 20 years after it first advanced into the country.
Observers point out that the two had already suffered slumping demand as an increasing number of Chinese consumers began to purchase products online. But most agree that the THAAD conflict led to the premature exits of the two companies.
The former chalked up rapid growths since 1992 when the two countries first set up diplomatic ties, and its annual sales there topped $50 billion in 2011.
But things started to get bad in 2016. Watchers point out that Chinese consumers’ boycotts of Korean brands made things worse.
In 2018, Samsung closed its mobile phone factory in Tianjin. The firm was once a business bellwether in China’s mobile phone market but now it struggles even to make it onto the top five list.
And last week, Hyundai Motor decided to downsize its Beijing plants. Korea’s No. 1 automaker also recently reduced the workforce at its three Beijing factories by around 2,000.
“We made efforts to increase the efficiency of our Beijing factories. We are thinking of halting operations at factory No. 1 but have not decided anything yet. It’s not about closing a factory, it’s about suspending operations,” a Hyundai official said.
Experts point out that Hyundai is suffering from hardships in the face of its declining market share.
“Back in 2013, Hyundai Motor’s market share was higher than 20 percent. But it has more than halved to below 10 percent. Hyundai must seriously reconsider its China strategy,” a Seoul analyst said.