Korea had seen a surplus until last year, although the surplus amount had continued to decrease to $870 million in 2015 from $1.7 billion in 2014.

For the first five months of this year, the Korean automakers -- Hyundai Motor, Kia Motors, GM Korea, Ssangyong and Renault Samsung -- shipped a total of 1,231 units to China, a 94.8 percent drop year-on-year.

The report cited the Korean automakers’ growing production capacity in China as the biggest reason behind the deficit. The shipment volume to China has rapidly decreased since last year when the nation‘s largest automakers Hyundai Motor and Kia Motors secured the production capacity of 2.1 million units in China.

Hyundai and Kia currently produce their key vehicles such as mid-size sedans and sport-utility vehicles in China and export only large-size cars and multi-vehicle vehicles from Korea.

Apart from the Korean firms’ growing production capacity in China, Chinese automakers are narrowing the competitiveness gap with Korean cars with the expansion of facilities and research and development. Chinese companies’ market share has risen to 41 percent in 2015 from 38 percent from the previous year.

Korean companies are recently betting on premium brands, but they are still behind other German car makers present in the neighboring nation in terms of technologies, brand images and prices, the report said.

“Korean firms will be hit harder by the growing Chinese low-end companies than other German and Japanese brands viewed as premium brands in the nation,” said Kim Hyun-cheol, a professor of Seoul National University and former head of the Korean Academy of Motor Industry.

Meanwhile, the Chinese auto makers are also jumping into the Korean commercial vehicle markets, where prices matter more than technologies and brands, the report said.

Last year, around 1,000 Chinese cars were sold in the Korean market, accounting for one percent of the total market. The figure is predicted to grow with the Chinese largest electric car maker BYD making inroads into Korea in 2017.

By Shin Ji-hye (shinjh@heraldcorp.com)