South Korean carmakers slash China production amid missile row

South Korean carmakers slash China production amid missile row
The top two South Korean automakers Hyundai Motor and Kia Motors have sharply cut vehicle production in China; sources told Reuters. The cut is because of anti-Korean sentiment and competition from Chinese brands, they said.

The carmakers’ combined China sales plunged 52 percent in March from a year earlier to 72,032 vehicles. It’s the first time since February 2016 the figure fell below the 100,000 level.

Falling production endangered not only the automakers' earnings but those of its South Korean suppliers, the sources said. The world's biggest auto market, China accounted for over a quarter of the companies' 2016 overseas sales.

Both companies have cut production shifts at their Chinese factories, according to people familiar with the matter. The manufacturers said they were "adjusting operations at Chinese plants in line with the market environment."

Lee Myung-hoon, an analyst at HMC Investment & Securities, told Reuters that operating one shift instead of two is a "drastic, rare move" for the South Korean duo and could cut daily output by more than half.

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He added the anti-Korean sentiment was unlikely to end soon, citing the example of the year-long backlash against Japan in 2012. The territorial dispute then forced Japanese automakers to slash production.

"But I don't think the problems will be prolonged because it will have more harm on Chinese partners and local employment," the analyst said.

The South Korean automakers’ problems follow a diplomatic standoff between the two countries. Beijing has piled pressure on Korean companies with operations in China over the deployment of a US missile defense system outside Seoul.

South Korea said the system was needed to thwart a growing threat from North Korea and was not aimed at China.

Experts say stiff competition with fast-growing local automakers is another problem for South Korean carmakers whose mainstay sedans have lost market share to Chinese sport utility vehicles.

The Hyundai and Kia sales downturn came despite the introduction of new models this year and a new Hyundai factory opening in China last year.