Despite Environmental Non-Compliance and Double Benefits... Chinese Advanced Industries Receiving Subsidies Again in Korea

Is South Korea's Subsidy Policy Okay as It Is?
'Eco-friendly Policy' Electric Vehicle Subsidies
Indirect Support for Non-recyclable LFP Batteries

China Directly Subsidizes Domestic Companies
Fostering Advanced Industries like Drones and Robots

Domestic Market Again Benefits from Purchase Subsidies
Domestic Products Struggle on a 'Tilted Playing Field'
Subsidy Policy Fails to Protect Domestic Industrial Ecosystem

Advanced industrial products made in China are flooding into the domestic market. These Chinese products have grown in technology and scale backed by massive subsidies within their own country. The problem is that the products they manufacture are again receiving subsidies related to eco-friendly and advanced industries domestically. Electric vehicle subsidies for carbon neutrality are supporting Chinese-made LFP (Lithium Iron Phosphate) batteries, which are unsuitable for eco-friendliness, and Chinese products exported with domestic subsidies and tax credits are receiving domestic subsidies again, causing a 'double benefit' issue. At a time when countries' prioritization of their own interests is becoming increasingly bold, there are concerns that if our government adopts an attitude of "there is no choice due to trade and diplomatic issues," it will not be able to protect the domestic industrial ecosystem.

Electric vehicles equipped with hard-to-recycle 'Chinese LFP' also receive subsidies in the 10 million KRW range

As of the 20th, there are six types of electric vehicles equipped with Chinese-made LFP batteries that have been released or are about to be released domestically. Hyundai Kona Electric, Kia Niro EV, Ray EV (upcoming release), KG Mobility Torres EVX, and others all use Chinese batteries. Tesla Model Y RWD and Mercedes-Benz EQE also have Chinese batteries installed. Except for the Mercedes-Benz, which is priced above 85 million KRW and thus does not receive subsidies, all receive domestic electric vehicle subsidies. The EV subsidy consists of 50% national subsidy plus 50% local government subsidy. The national subsidy is uniform nationwide, but local subsidies vary significantly depending on each local government's budget and charging infrastructure. The cheapest Ray EV receives a national subsidy of 5.12 million KRW and, combined with local subsidies, can receive about 6.47 million KRW in Seoul and about 7.75 million KRW in Daegu or Incheon. In Gwangyang, Jeollanam-do, where EV subsidies are generous, buying a Ray EV can be over 11 million KRW cheaper than the retail price. Purchase subsidies for other EVs equipped with LFP batteries are also expected to be around 10 million KRW. The Chinese-made LFP batteries installed in these vehicles are indirectly supported through domestic subsidies. If these EVs, which have enhanced price competitiveness based on subsidies, sell well, more Chinese batteries will cross the West Sea.

The key issue is whether LFP batteries are truly suitable for subsidy policies aimed at eco-friendliness and carbon neutrality. Recently, governments worldwide have been focusing on the eco-friendliness of batteries through the recycling of used batteries. Efficient recovery of raw materials such as lithium and nickel from spent batteries reduces carbon emissions. Higher efficiency reduces environmental destruction and carbon emissions caused by creating new mines or extracting raw materials from high-altitude salt lakes. Ultimately, a 'circular economy' linking battery production → use → collection → recycling → battery reproduction must be possible.

LFP batteries have limited recyclability once they reach end-of-life. Currently, the dominant method is a 'wet process' where used batteries are crushed into black powder (a black powder containing lithium, nickel, etc.) and then soaked in acidic substances to extract metals. This technology can only recover lithium from LFP batteries. Iron, phosphate, graphite, and other materials cannot be recovered. However, NCM (Nickel-Cobalt-Manganese) batteries can recover valuable raw materials such as nickel, cobalt, and manganese, as well as lithium.

Because of the low raw material recovery rate, recycling LFP batteries is economically unfeasible. The value of recovered metals per kWh by battery type is $68 for NCM811 (80% nickel content), $71 for NCA (Nickel-Cobalt-Aluminum), and only $45 for LFP. When the value is low, companies do not invest in recycling facilities. As a result, in China, LFP used batteries are not recycled but landfilled, causing serious environmental pollution. Currently, no company in Korea recycles LFP batteries. However, companies like Sungil Hightech plan to build plants using 'dry process' technology to recover most raw materials such as lithium, copper, and iron from LFP used batteries.

Professor Kim Pil-su of Daelim University’s Department of Automotive Engineering said, "In China, LFP used batteries are actually being landfilled without proper treatment, causing environmental problems," and added, "If LFP used batteries released domestically are not properly recycled, our country, which has limited land, cannot landfill them either." He also said, "Considering the cost of used battery disposal and environmental pollution, it is necessary to examine whether LFP batteries are truly cheaper than NCM batteries."

Major countries are strengthening regulations on used battery recycling with a focus on eco-friendliness. The European Union (EU) approved a new battery law in June this year requiring that from 2031, at least 6% of lithium and nickel used in electric vehicle battery production must come from recycled materials.

In Korea, there are calls for regulations such as differentiated or exclusionary subsidies for LFP batteries, which have low recycling rates. However, experts say that since the domestic market is small but the global market is large, caution is needed regarding domestic market regulations. Professor Lee Ho-geun of Daeduk University’s Department of Automotive Engineering said, "Because the policies of hegemonic countries are very strong, it is difficult for our economy not to follow them."

Chinese future industries receiving 'double subsidies' in Korea... Europe has declared war

In industries considered next-generation advanced manufacturing sectors such as robots and drones, there are also concerns that Chinese products are receiving double subsidies.

The serving robot industry, which has recently shown remarkable growth, is a representative example. As of the end of last year, the number of major serving robots domestically was about 5,000 units, of which 70% were Chinese-made. Although LG Electronics and KT have serving robots, their market share is still low.

Since 2015, China designated robots as one of its 10 core industries and provided direct subsidies not only to buyers but also to manufacturers. This was the secret to the growth of Chinese robot companies. Companies located in robot industrial complexes in Beijing, Shanghai, and other cities received a 10% refund on investment and subsidies amounting to 20% of sales. These large Chinese robot companies export serving robots that again receive subsidies domestically. This is through programs such as the Ministry of SMEs and Startups' 'Smart Store Technology Diffusion Project,' which provides subsidies covering 70% of the supply price to buyers. Although subsidies are not given directly to Chinese manufacturers, structurally, Chinese companies are expanding their market share and securing future industries through subsidies both domestically and overseas.

Chinese drone companies, represented by DJI, dominating the domestic industry is similar to the robot industry. The domestic agricultural drone distribution scale is about 6,000 units, with Chinese companies like DJI occupying 70% of the market. Since agricultural drones are expensive, priced from 17 million KRW (10L pesticide spraying) to over 20 million KRW (20L pesticide spraying), local governments provide subsidies covering about 50% of the purchase price to farmers or farming corporations. Metropolitan governments set the number of units eligible for support and provide 15% of the drone price, while city and county governments select products and provide 35% support.

Most of the subsidies from metropolitan and local governments are used to purchase Chinese products. A local government in Chungnam provided subsidies for 18 drones under the government’s agricultural drone support project this year; 17 were imported Chinese finished products, and one was a Chinese-made domestically assembled product. The entire subsidy amount of 180 million KRW was spent on purchasing Chinese products. Chinese drone companies gain industrial competitiveness through various subsidies and tax benefits, including purchase subsidies, tax reductions, and production subsidies.

The European Union (EU) has declared war on such 'double subsidies' and market distortions caused by subsidies, targeting subsidy policies of countries outside Europe, especially China, which implements massive subsidies for advanced industries. The EU enacted the foreign subsidy regulation in January this year and began enforcement in July. This regulation allows the European Commission to prohibit related contract conclusions if market distortion is found. Corrective measures such as subsidy refunds, temporary restrictions on activities within the EU, bans on specific investments, or sales of certain assets can also be imposed.

Ursula von der Leyen, President of the European Commission, said in her annual policy speech at the European Parliament in Strasbourg, France, on the 13th (local time), "We will launch an anti-subsidy investigation into Chinese electric vehicles," adding, "Cheap Chinese electric vehicles are flooding the global market. Thanks to massive state subsidies, prices are set low, distorting the market."

There are also calls for domestic subsidy policies to consider the total amount of subsidies received abroad and to provide differentiated subsidies accordingly. Professor Lee Jung-hee of Chung-Ang University’s Department of Economics said, "A characteristic of China’s next-generation advanced industrial policy is direct subsidies to companies, which is hitting the domestic industry, geographically closest and with similar industrial characteristics, the hardest," and added, "We must be cautious not to boost the price competitiveness of Chinese products through domestic subsidy policies, effectively giving them wings."

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