Korea rolls out welcome mat for Chinese EVs while cutting support for its own industry

Cars and buses awaiting shipment sit at an automobile storage yard in Yantai, Shandong Province, China, in July, ahead of export. [AFP]

Chinese electric vehicles have captured a 35 percent share of South Korea's passenger car market. The industry says the surge was inevitable — the result of competing bare-handed against rivals backed by massive Chinese government support, in a market with few barriers to entry and dwindling domestic industry assistance.

South Korea levies an 8 percent tariff on Chinese passenger car imports, a rate unchanged since passenger vehicles were excluded from tariff elimination under the Korea-China free trade agreement that took effect in 2015. Korean-made vehicles exported to China, by contrast, face a 15 percent import tariff.

MG vehicles produced by China's SAIC Motor await loading at the port of Lianyungang, Jiangsu Province, ahead of export, in June. [AFP]

The asymmetry has fueled complaints of an uneven playing field. China protects its home market with relatively high tariff barriers while distorting market prices and undermining fair competition through enormous state subsidies and other support that sharpen the price competitiveness of its own manufacturers, industry officials say.

South Korea has no separate tariffs or trade remedy measures to counter this, leaving domestic automakers at a structural disadvantage from the outset.

That stands in stark contrast to major economies racing to erect defenses for their own auto industries. The maximum tariff on Chinese battery electric vehicles reaches 127.5 percent in the United States and 45.3 percent in the EU, while Korea's is no more than 8 percent.

Comparison of tariff barriers against Chinese electric vehicles by major country

'Tariffs alone aren't enough': EU raises the bar with 'Made in EU' rules

Major economies have moved beyond simply raising tariffs, shifting toward directly supporting domestic production.

The EU is the clearest example. After imposing company-specific countervailing duties on Chinese EVs in October 2024, it has been tightening "Made in EU" requirements through its Industrial Acceleration Act. The framework links subsidies and public procurement benefits to conditions including final assembly within the EU, sourcing at least 70 percent of components from within the bloc, and local production of core battery components.

For small electric vehicles, the EU is also pursuing a "super credit" scheme that counts each unit sold as 1.3 vehicles toward compliance targets. As BYD, Chery and others shift to European local production, the bloc is raising the bar beyond simple assembly to require localization of components and batteries as well.

Chinese manufacturers are adapting by expanding local production. BYD has begun operating a factory in Hungary and is preparing a production base in Turkey, while Chery has entered a joint manufacturing venture with a Spanish partner. The EU is now moving to tighten requirements so that local assembly alone no longer qualifies for benefits — components and batteries must also be sourced within the bloc.

Domestic eco-friendly vehicle support shrinks amid Chinese EV offensive

Korea moves in reverse: EV production support dropped, tax breaks cut

The South Korean government, meanwhile, is moving in the opposite direction, trimming existing support. The tax reform package announced this month introduced a new domestic production tax credit, but finished electric vehicles were excluded from its scope. The government says it will support core battery components such as high-performance cathode materials, but the industry argues that direct support for finished EV production is essential to compete with Chinese manufacturers.

Consumer tax benefits are also being scaled back. The excise tax exemption for hybrid vehicles expires at the end of this year, potentially adding up to 1 million won ($707) to the purchase cost. The excise tax reduction ceiling for electric vehicles will be cut in stages from the current 3 million won to 2 million won in 2027 and 1 million won in 2028.

Production and purchase support are weakening simultaneously, even as the Chinese EV offensive intensifies. The industry plans to press its case during National Assembly deliberations, arguing that the domestic auto sector is in crisis and urging lawmakers to restore as many of the reduced tax benefits and support measures as possible.

Workers rally at the Volkswagen plant in Zwickau, eastern Germany, on July 9, protesting restructuring plans and large-scale layoffs. [AFP]

Penetrating the home market: price is the sharpest weapon

Chinese vehicles claimed a 35.0 percent share of South Korea's electric vehicle market in the first half of this year, up 8.2 percentage points from a year earlier. Counting only Chinese brands and excluding Teslas made in China, 17,660 units were sold, accounting for an 8.9 percent share. BYD led with 11,667 units sold in the first half, followed by Zeekr's entry into the Korean market, while Dongfeng is also reviewing a domestic launch. Chery has deepened its foothold by investing 108 billion won in KGM, extending cooperation into capital and technology.

Chinese manufacturers leverage massive state support and control over battery supply chains to cut costs, offering prices 20 to 40 percent below comparable domestic and global brands. Lee Hang-gu, a special professor at Pyeongtaek University, said China holds a cost advantage of more than 30 percent. "Even if domestic manufacturers reduce their costs, it is structurally very difficult to keep pace with Chinese competitors," he said.

Tariffs alone are also an insufficient answer. When tariffs rise, Chinese manufacturers expand local production; when subsidy requirements tighten, they maintain price competitiveness through their own discounts. Calls are growing for a comprehensive response combining trade remedies, data and connected-vehicle regulations, and domestic production incentives.

If the window for an effective response is missed, domestic manufacturers could find themselves forced into mass layoffs and production base restructuring on the scale seen at Volkswagen, industry officials warn.

"Policy support for production and investment is needed so that domestic EVs can at least compete on equal terms in their home market," an industry official said. "If the response is delayed any further, the very competitive foundation of Korea's auto industry could be shaken."

kwater@heraldcorp.com