Korean manufacturers rush to downsize operations in China

By Park Jae-hyuk

Lotte Chemical sold its money-losing joint venture with a Chinese chemical firm recently, joining a slew of other Korean firms that have been downsizing their operations in the world's second-largest economy, according to the company's regulatory filing, Thursday.

“We sold our 50 percent stake in Lotte Sanjiang Chemical during the first half,” Lotte Chemical said, without disclosing the selling price. Its stake was sold to the Chinese partner, Sanjiang Chemical, which now holds the entire stake.

Founded in 2010 as a joint venture with Sanjiang Chemical in Jaixing, Lotte Sanjiang Chemical suffered a 13.8 billion won ($10 million) operating loss in 2021 and another 37.5 billion won loss in 2022, due to an excess supply of ethylene oxide from local competitors.

As the oversupply curbed the product price hike, Lotte Chemical explained its recent decision was intended to enhance its competitiveness by unloading non-core assets.

Hyundai Steel also recently decided to sell its two Chinese subsidiaries.

“We signed a memorandum of understanding to sell Hyundai Steel Beijing Process and Hyundai Steel Chongqing,” the steelmaker said in its regulatory filing.

After suffering consecutive operating losses between 2017 and 2021, Hyundai Steel stopped the operation of its Beijing subsidiary in 2022. Its Chongqing subsidiary has also suffered losses for the seventh year in a row since 2016.

Given that Hyundai Steel's subsidiaries in Tianjin, Jiangsu and Suzhou also suffered losses last year, the steelmaker is expected to sell its other subsidiaries in China.

Hyundai Steel attributed the poor performance to the sluggish sales of Hyundai Motor and Kia vehicles in the Chinese market, because both carmakers are the steelmaker's main customers.

HL Mando, which had supplied automotive components to Hyundai Motor in China, also sold its entire stake in its Chongqing subsidiary recently, as a result of the sluggish sales of Korean cars there.

Other Korean steelmakers, POSCO and Dongkuk Steel, finished withdrawing from China last year.

According to the business data tracker CEO Score's analysis of Korea's 500 largest companies, 46 Chinese subsidiaries of Korean conglomerates were sold or liquidated between 2016 and 2022. China has carried out economic retaliation against Korea since 2016, in protest against the deployment of a U.S. anti-missile Terminal High Altitude Area Defense (THAAD) system here.

As a result, the combined revenue of the Chinese subsidiaries dropped 13 percent during the period.

“As a polycrisis has continued since the retaliatory measures were introduced, Korea's major firms have experienced business slumps in China,” a CEO Score official said. “If we take into account their undisclosed operations in China, the Korean firms must have suffered larger losses from their investments there.”