South Korea’s auto industry has become increasingly dependent on China for parts, leading to calls for supply chain diversification.
Cho Chul, an analyst with the Korea Institute for Industrial Economics and Trade (KIET), a government-funded think tank, recently highlighted how automobile parts imports from China have increased over the past two years.
“China only accounted for 1.8 percent [South Korea’s automobile parts imports] In 2000, but that share jumped to 36.2 percent by the first four months of 2022. In contrast, Japan’s share of auto parts imports has declined from 45.5 percent in 2000 to 11.1 percent in the first quarter of this year, ”Cho said local media Hankyoreh.
Cho made his remarks at the Auto Industry Development Forum held in Seoul on June 14.
Making Batteries for Required
According to the Korea International Trade Association, the country’s auto industry depends on China for 83 percent of its anode materials, four of its main battery components, and at least 60 percent of its other primary components: cathode materials, electrolytes, and separators.
Among the raw materials needed for making batteries, graphite is 100 percent sourced from China, manganese 93 percent, cobalt 82 percent, nickel 65 percent, lithium 59 percent, and other materials with similar issues.
“It’s worrisome that we’re becoming more dependent on China as we move into electric vehicles. We need to diversify our supply chain through the region while also strengthening the supply ecosystem at home, ”Cho said.
China has been the largest automotive manufacturing nation and automotive market since 2009, with a number of small and large auto parts factories and multinational carmakers.
Chinese Lockdowns Caused by Production Halts
Such a high level of reliance on China has led to a series of production halts in South Korean automakers in recent months due to stringent lockdowns.
In March and April, South Korean automakers faced a shortage of airbag control units (ACUs) —a device that detects accidents and triggers airbags — as parts from China were delayed.
Hyundai Motor reportedly left its assembly lines at its Ulsan plant partially idle for weeks from April 18 due to procurement of ACUs.
Gwangju Global Motors, which makes the Hyundai Casper, halted production from April 18 to 21 due to ACU shortage. In the meantime, GM Korea, the Korean unit of General Motors, has one of its Bupyeong plants at adjusted production output and its Chinese suppliers failed to meet the brake system parts in time.
GM Korea also reportedly ran the auto chip shortage on top of many parts of China. The company produced 60,408 vehicles in the first quarter, down 30 percent from the same period last year.
In March, Hyundai and Kia were unable to find the source of the wiring harnesses in Shandong, which occurred before the Shanghai lockdown. The companies reportedly had two to four weeks for cut production.
According to data from the Korea Automobile Manufacturers Association, Korean automakers import about 87 percent of their wiring harness from China.
75 Percent of Key Imports Camera from China
A recent analysis published by the Federation of Korean Industries (FKI) showed that 75 percent of South Korea’s key imports came from China.
According to Hankyoreh, the study was published May 30 by Chonbuk National University professor Choi Nam-suk at the request of FKI.
The study analyzed South Korea’s import reliance on the United States, China, and Japan, which account for 90 percent of the country’s imports. The category of “key imports” was assigned to 228 items that rank in the top 30 percent of import value.
The study found that 172 out of 228 items (75.5 percent) came from China, 32 (14 percent) came from Japan, and 24 (10.5 percent) came from the United States.
Some of the key imported goods from China include “electronics, machinery, computers, steel, organic and inorganic compounds, glass, medical products, and industrial raw materials such as non-ferrous metals,” the report says.
“Prominent examples of Chinese imports include manganese, which is critical for steel manufacturing; graphite, which is an essential electric vehicle battery anode material; and magnesium, which is important for lightweight automobile production. ”
The report also identified 133 products with high volumes of transactions between companies, suggesting they may become global supply chain stability vulnerabilities. Among them, Chinese-made items accounted for 127 or 95.4 percent, including “tungsten oxide (used in semiconductors), calcium chloride, graphics cards, solar cell modules, and pesticide ingredients.”
Choi called on the government to establish an early warning management system for these critical commodities.
“Failure to manage and supply key demand items could result in a supply crisis that could be witnessed at any time, as evidenced by the urea water solution situation,” Choi said.
“An ongoing monitoring system will be required to establish 228 items, along with measures such as import diversification.”
Last year, a shortage of urea supplied by China threatened to cripple economic activity in South Korea. Among other uses, urea is used to cut emissions in diesel vehicles and make fertilizer.
In mid-October, China reduced its urea exports to a coal shortage, putting the country’s nearly 4 million diesel vehicles in a state of deep crisis.
The event highlighted the resource-poor country’s heavy reliance on China’s essential items. Since then, major South Korean industries have begun accelerating plans to build diversified production bases worldwide.