Government Discusses Restarting Chinese Factory and Supports Localization...On-site Says "Insufficient" (Comprehensive)

7th 'New Coronavirus Response Economic Ministers Meeting'... Emergency Support Measures for Automobile Industry Announced
Intergovernmental Restart Consultations, Alternative Production Support, Special Overtime Approval, Rapid Customs Clearance Support
Industry Anxiety Remains Over 'Domino Shutdown'... On-site Monitoring and Issue Response Planned

[Image source=Yonhap News]

[Asia Economy reporters Kiho Sung and Bokyung Kim] As the domestic automobile industry suffers direct damage from the adverse effects of the novel coronavirus infection (Wuhan pneumonia), the government urgently announced countermeasures on the 7th. However, these measures are being evaluated as insufficient to resolve the difficulties faced by domestic companies. On this day, the government held an 'Economic Ministers' Meeting on Novel Coronavirus Response' chaired by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki, announcing support for funds, workforce reinforcement, and research and development (R&D) necessary for domestic automobile parts alternative production.

◆Government supports restarting and localization... "Insufficient" on the ground= The government decided to accelerate consultations with the Chinese government to restart local parts factories in China. They plan to use all channels, including the Embassy in China, finished car manufacturers, and KOTRA, to negotiate with local Chinese governments. To prepare for the resumption of parts production in China, they will also minimize the time required for parts supply. They will support 24-hour customs clearance for parts imported from China to Korea and minimize document submission and inspection screening during import review.

The government will promptly support the funds needed for facility investments such as new or expanded factories and new equipment for alternative automobile parts production, while prioritizing management stabilization funds for companies experiencing liquidity crises due to sharp sales declines. If redevelopment is necessary for domestic alternative production, short-term R&D support of about one year will be provided. For parts companies needing manpower, additional employment will be supported through the 'Automobile Retired Workforce Reemployment Program.' The budget for this program this year is approximately 15.3 billion KRW. Employment training will be supported with 2 million KRW per person, and labor costs upon hiring will be supported with 22.5 million KRW per person annually. Additionally, the government plans to promptly approve special extended work hours applications from companies to respond to unexpected situations.

However, as the novel coronavirus spreads and local automobile parts factories in China have shut down, causing a 'domino shutdown' where domestic finished car companies and other partner firms also close, these government measures are evaluated as not being fundamental solutions. An industry insider said, "Measures such as allowing special extended work hours seem helpful in filling production gaps," but pointed out, "The fundamental solution depends on the supply of Chinese parts, so the outlook remains uncertain."

◆Despite Hyundai-Kia's 1 trillion KRW injection, partner companies remain uneasy= Although Hyundai-Kia Motors announced an emergency injection of 1 trillion KRW to partner companies, their unease is not easily alleviated. When finished car manufacturers go on temporary shutdown, partner companies inevitably face direct impacts. Because the parts and quantities desired by finished car manufacturers vary depending on vehicle options, production cannot be done before orders are placed. Even if produced, storage space until delivery is also an issue. Moreover, these difficulties are felt more acutely by second- and third-tier partner companies with poor financial conditions.

An official from an automobile partner company said, "Most factories of parts suppliers for Hyundai-Kia Motors, SsangYong Motor, Renault Samsung, and GM Korea have stopped," expressing, "This is an unprecedented situation, and we feel utterly helpless." Although the finished car industry has set a plan to sequentially resume factory operations starting from the 11th, it is difficult to predict when partner companies producing wiring harnesses in China will resume operations. A partner company official in Gwangju, where Kia Motors suppliers are located, lamented, "We have been holding emergency meetings since morning to devise countermeasures, but no effective solutions come to mind." He added, "We had somewhat anticipated this since other finished car manufacturers had already declared shutdowns, but now that it has actually happened, all aspects such as inventory and funds are equally overwhelming."

Meanwhile, China accounts for 29.2% of South Korea's total automobile parts imports. Last year, out of South Korea's total automobile parts imports worth 5.34 billion USD, imports from China amounted to 1.56 billion USD. In particular, South Korea depends on China for labor-intensive automobile parts such as wiring harnesses, steering wheels, and airbags.

This content was produced with the assistance of AI translation services.