[Reporter’s Notebook] Have We Forgotten How Chinese Electric Buses Once Swept Up Government Subsidies?

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"From now on, only Hyundai and Kia will be eligible for electric vehicle subsidies."

A controversy over "favoritism" has erupted regarding the selection criteria for companies eligible for electric vehicle subsidies in the second half of the year, which was recently released by the Ministry of Climate, Energy and Environment. The news that only domestic companies Hyundai Motor and Kia will receive subsidies, while imported car brands will be excluded, has sparked immediate criticism, especially among imported car enthusiast communities. When even members of the ruling party joined in criticizing the Minister of Climate, Energy and Environment, the government announced it would review the detailed criteria, seemingly bringing the controversy to a temporary close.

A closer look at the evaluation criteria reveals why imported brands are at a disadvantage. Unless a company is engaged in domestic procurement of parts, job creation, shared growth, domestic research and development (R&D), and public service vehicle development, it is virtually impossible to obtain a high score in the evaluation. This has led to concerns that tax revenue intended to promote eco-friendly vehicles will essentially be used to support specific companies.

However, this issue requires a broader perspective. Recall the incident just a few years ago, when Chinese-made electric buses swept up all the subsidies. Chinese bus manufacturers, supported by production subsidies from their own government, produced and exported buses at low prices. At the same time, Korea's subsidy policy provided subsidies across the board, regardless of whether the vehicle was domestically produced or imported, under the banner of "promoting eco-friendly vehicles."

With low prices stacked on top of subsidies, Chinese electric buses were practically brought into Korea free of charge, taking over the domestic market to such an extent that, by 2023, more than half of all buses in the domestic market were Chinese-made.

This led to criticism that "our tax money is only fattening Chinese companies," and President Lee Jaemyung remarked last year, "Giving all subsidies to Chinese products has killed domestic electric bus manufacturers," adding, "We need to shape our subsidy policy to protect our domestic industry." In other words, it is important to recognize that the current evaluation criteria stem directly from this context.

'Neo-protectionism' is spreading across the globe. It is easy to find cases where policies have been designed to protect domestic industries. The United States, several years ago, sought to foster its own industries with the Inflation Reduction Act (IRA) targeting advanced technologies, and now openly wields tariffs as a weapon. The European Union (EU), in its 'Net-Zero Industry Act' (IAA) announced this March, stipulated that, to receive subsidies, at least 70% of the value of parts-excluding batteries-must be produced within the EU, in addition to final vehicle assembly.

After fierce competition, the era of 300,000 imported vehicles sold annually has arrived. But this is only the beginning. The influx of Chinese electric vehicles, armed with low prices, is likely to intensify. It is necessary to objectively consider the approach of differentiating subsidies between companies that contribute to the domestic industrial ecosystem and those that do not.

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