China's turf war hampers Hyundai Motor's major expansion plan

By 정주원
  • Published : Jun 23, 2014 - 16:56
  • Updated : Jun 23, 2014 - 16:56
A bureaucratic turf war between China's central government and its provincial government of Chongqing has delayed granting a final approval for South Korea's top carmaker, Hyundai Motor Co., to build its fourth plant in China, a diplomatic source and company officials said Monday.

The diplomatic source, who spoke on the condition of anonymity, also said South Korean President Park Geun-hye and Chinese President Xi Jinping could discuss the issue on the sidelines of their summit meeting in Seoul, which is widely expected to take place in the first week of July.

Hyundai Motor Chairman Chung Mong-koo signed a preliminary deal with the Chongqing provincial government in late March to build the fourth plant in the southwestern mega-city, with the aim of making it another production hub in China to gain a bigger slice of the potentially booming auto market in the country's vast western regions.

However, China's powerful National Development and Reform Commission under the State Council, which has the authority to allow foreign carmakers to build a plant in China, has not given the final nod to Hyundai, which had originally planned to break ground on the new plant on June 1, according to the source and Hyundai officials.

The main obstacle is that the Chinese central government wants Hyundai to build the fourth plant in Cangzhou city in eastern Hebei province, as part of its national development plans, rather than Chongqing.

Hyundai's Chinese partner, Beijing Automotive Industry Holding, and the city of Beijing, where the Korean carmaker already has three plants, have also opposed building the fourth plant in Chongqing.

"Hyundai Motor is currently considering a number of options to meet the demand by the Chinese central government, while pushing ahead with its plan to build the fourth plant in Chongqing," the diplomatic source said.

"Hyundai Motor views Chongqing as the most optimal site for its expansion plan in China's western regions. So, it will not give up its Chongqing bid," the source said.

Asked whether the issue could be on the agenda for a bilateral meeting between Park and Xi, the source replied, "The South Korean government is considering raising the issue."

Apparently mindful of the central government's leadership, Sun Zhengcai, the Communist Party chief of the sprawling Chongqing municipality, has given lukewarm support for Hyundai, while repeatedly asking the Korean carmaker to build the plant in Chongqing, two Hyundai officials said.

In a sign of frustration, Hyundai replaced in April the head of its Chinese headquarters, Vice Chairman Seol Young-heung, who had overseen Hyundai's expansion in China over the past decade.

"It's a stage where a shrimp's back breaks in a fight among whales," a Hyundai official lamented, comparing Hyundai with a shrimp that is locked in a turf battle between the Chinese central and provincial governments. The Hyundai official also spoke on the condition of anonymity, citing the sensitivity of the issue.

Another Hyundai official said the prospects for receiving a final approval for the Chongqing plant were still uncertain.

"There has been no response from the Chinese National Development and Reform Commission so far since we formally submitted our application for approval," the second Hyundai official said.

Hyundai aims to build the Chongqing plant with an annual production capacity of 300,000 vehicles, in what would be the company's first overseas investment since 2012.

Last year, Hyundai sold some 1.03 million units in China, up

20.3 percent from 2012. It was the first time that Hyundai's annual sales surpassed 1 million vehicles since entering the Chinese market in 2003. (Yonhap)