Hyundai Motor to boost localization in China after FTA

Hyundai Motor, South Korea's Number One automaker, is expected to speed up a strategy of "localization " by expanding its production capacity in China after China-South Korea free trade agreement (FTA) is implemented.

China and South Korea initialed the bilateral trade pact on Feb. 25, about three months after the two countries concluded negotiations on it. Beijing and Seoul began talks on the deal in May 2012.

Under the accord, China and South Korea will eliminate tariffs on more than 90 percent of all products from each other within 20 years after the FTA implementation. The South Korean government aims to sign the pact and get a parliamentary approval by the end of 2015.

In the auto sector, South Korea will abolish tariffs on gasoline buses and trucks from China within 15 years after the implementation. China will eliminate duties on buses and trucks from South Korea within 20 years. Passenger cars were excluded from the negotiation table.

"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) and secretary general of Seoul Motor Show, said in a recent interview with Xinhua.

Hyundai and its affiliate Kia have a combined production capacity of 1.9 million, which is expected to increase to 2.5 million in the medium term, according to the KAMA data. China is the world's largest auto market, which held 24.2 million in total demand for cars in 2014. The demand is forecast to grow to 40 million in the long term, Kim said.

"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, which would sign the free trade pact with China. Leading auto-producing nations, including the United States, Germany and Japan, had yet to ink the FTA with China.

It will help enhance South Korean carmakers' access to the Chinese market. Unlike premium sedans from BMW and Mercedes Benz, South Korean models are relatively cheap in price and high in quality. Such combination may be emotionally attractive to Chinese consumers, Kim said.