IWSF – Ch 268

Zhou Auto is the largest automobile group in China.

It operates Zhou Toyota, a joint venture with Toyota, and has five of its own brands, including Zhou Auto.

Last year, it sold 2.7 million units in China alone, ranking first among Chinese brands. (This is just the sales volume of its own brands, excluding joint ventures.)

Since it is primarily a domestic Chinese company, it is not well known in Korea, but in China, it is practically a national car.

Zhou Auto has used the enormous capital accumulated from domestic sales to swallow up foreign companies.

The most famous example is the acquisition of Volvo Cars, and recently, it secured a 10% stake in Daimler AG (Mercedes-Benz).

It doesn’t end here.

It is still actively engaged in various M&A activities, such as investing in ride-sharing and car-sharing startups in Hong Kong, the United States, and the United Kingdom, and acquiring the London Taxi Company.

It is an open secret that the Chinese government’s support was behind the rapid growth of this small company, which was making scooters just 20 years ago.

Well, since automobiles are a key industry, it is natural for the government to provide support. If the Korean government had stood idly by, could Eunsung Motors have become a global company?

But even considering that, Zhou Auto’s growth is astonishing.

Its stock is listed on the Hong Kong Stock Exchange, and its current market capitalization is HKD 350 billion, equivalent to about 50 trillion won. Its stock price has jumped more than 80% in the last year alone.

I looked at the short, middle-aged man in front of me. He was Wang Yichang, Vice Chairman of Zhou Auto.

Chairman Zhou Kai rarely leaves Guangzhou, where the headquarters is located, and Vice Chairman Wang Yichang is in charge of most external activities.

He joined Zhou Auto after it officially started the automobile industry with the permission of the authorities and has a past career as the former secretary of the Princeling Party. As the Princeling Party currently holds power in the Chinese Communist Party, he is known to be close to high-ranking leaders, including President Zhang Pinghua. Because of this, there were many rumors that Vice Chairman Wang Yichang was the real power holder rather than Chairman Zhou Kai.

Usually, when a figure of this caliber visits Korea, articles are released in advance. But for some reason, he visited Korea quietly, accompanied by only a few attendants.

We received a request to meet the day before. I decided to meet him because I thought I should hear what he had to say.

I thought about asking Ellie to interpret, but Vice Chairman Wang Yichang brought a Korean-Chinese attendant.

The attendant, who identified himself as Liu Yixin, was able to speak fluent Seoul Korean, not the Yanbian dialect. Well, if he’s escorting the Vice Chairman of Zhou Auto, he must be quite elite.

Vice Chairman Wang Yichang greeted me and handed over a gift. I looked to see what it was, and there was a large disc-like object in the box.

“It’s Pu-erh tea, a famous tea from Yunnan Province.”

“Ah, thank you.”

Expensive Pu-erh tea costs tens of millions of won, and I heard that it’s exchanged as bribes among politicians. Surely it’s not that, right?

***

After greeting each other, we sat down in the conference room.

On their side were Vice Chairman Wang Yichang and his interpreter secretary, and on our side were me and Taek-gyu.

Vice Chairman Wang Yichang spoke simple words in English, but mainly conveyed his intentions through interpretation. In any case, there were no major problems in communication.

After some pleasantries over coffee and tea, he got to the main point. “I understand that CarOS is planning to release an electric vehicle within this year.”

CarOS has only released two types of cars, but it is evaluated as being at the forefront of the autonomous vehicle competition. Perhaps because of this, the world’s attention is focused on the electric vehicle that CarOS will release.

“That’s right.”

“As you know, CEO Kang, CarOS must enter the Chinese market to grow into a global company.”

China is a huge market that no company can give up.

China has already surpassed the US in GDP. GDP includes both production and consumption. Considering that it is the country with the largest population in the world, it is somewhat natural.

That’s why all global automakers are knocking on the door of the Chinese market.

“We at Zhou Auto are confident that we can be the best partner for CarOS and OTK Company.”

China’s automobile tariffs are around 25%. This means that if you manufacture cars abroad and send them to the Chinese market, the price will be 25% higher, excluding logistics costs.

Therefore, most automobile companies produce locally, and in this case, they must form a joint venture with a local company unconditionally.

Currently, Chinese law stipulates that foreign ownership cannot exceed 50%. In the end, they have no choice but to form a 50:50 joint venture with a local company, reluctantly.

In the beginning, no major problems arise. However, after a certain period of time, problems begin to arise once local companies have learned the technology and know-how of global companies. Local companies slowly raise their voices, and there are clashes in investment and management.

In a situation where both sides have the same stake, it is difficult to make decisions according to one side’s wishes. Moreover, even if the problem becomes serious and they file a lawsuit in court, Chinese courts are thoroughly biased towards domestic companies.

Nikola is also exporting by paying high tariffs instead of local production due to joint venture issues. Even so, people who want to buy will buy, but price competitiveness is inevitably disadvantageous.

“China and Korea have had friendly relations for a long time, and it is the same now. I believe that OTK Company and Zhou Auto Group can also be like that.”

Neighboring countries tend to have bad relations with each other, like Korea and Japan, Thailand and Vietnam, England and Ireland, Turkey and Greece, France and Germany.

Compared to the above cases, China and Korea are not on particularly bad terms. Above all, China accounts for the largest proportion of Korea’s exports.

Vice Chairman Wang Yichang continued, “China’s electric vehicle market has grown more than 50 times in the last five years, and currently accounts for 40% of the global market share.”

In other words, 40 out of every 100 electric vehicles are sold in China.

This is a high figure even considering the Chinese population. It was no different from a figure showing how much the Chinese government is paying attention to this.

In fact, China is much more active in promoting electric vehicles than Korea. They even force each automobile company to sell a certain portion of their sales as eco-friendly vehicles.

Looking down on “Made in China” is already a thing of the past. Especially in electric vehicles, their technology is superior to Korea’s.

BYD is exporting electric buses to Jeju Island and around the world, and its technology is being recognized. Zhou Auto is also selling electric vehicles, and last year’s sales volume was 120,000 units. Volvo, acquired by Zhou Auto, also announced a plan to release all cars as eco-friendly vehicles within the next five years.

Looking at this, the Korean automobile market was no different from Galapagos. The biggest reason for this is naturally Eunsung Motors’ monopoly. In a market where you can make money just by doing existing businesses well, there’s no need to take on new challenges.

“The Chinese government is sparing no support with the goal of supplying 10 million electric vehicles within 3 years. Guangdong Province, where Zhou Auto is located, has also promised to provide full support if CarOS builds a factory in joint venture with Zhou Auto.”

Judging by the way he’s talking, it seems they’ve discussed it with political circles to some extent. Are they drinking the soup before the rice cake is even offered?

I said cautiously, “There are many excellent electric vehicle companies in China. Compared to them, we are not yet ready to enter China. Also, we want to lead the business proactively. That’s why we remain a private company.”

Vice Chairman Wang Yichang nodded. “I am well aware of your concerns. The authorities are considering allowing foreign companies to own up to 70% of the shares in electric vehicle companies to foster the electric vehicle industry, and the law will be revised as early as this year.”

Of course, China would not change its policy for no reason.

“I understand that conditions such as technology transfer will follow.”

What are they aiming for? Autonomous driving technology? Battery technology? Naturally, both.

I shook my head. “I’ll have to think about it a bit more.”

Vice Chairman Wang Yichang presented various conditions.

Free provision of factory sites, guarantee of management rights, free provision of factory sites, improvement of brand value, increase in sales volume, etc. What was particularly good was that they would lend the joint venture’s investment funds at an interest rate close to zero.

In short, it was like saying they would roll out the red carpet, so we just had to come in.

Looking at the conditions alone, it was the best. No automobile company has ever entered the Chinese market with such generous conditions.

But there’s no such thing as a free lunch in the world.

No matter how much capital we have, compared to the Chinese government, it’s just a drop in the ocean. What we have ahead of them is technology for now, but if we ever have that technology taken away, that’s the end of it.

The persuasion continued, but I said that it was not yet time to enter China. When I did not budge from my position despite almost half a day of persuasion, Vice Chairman Wang Yichang’s expression gradually hardened.

Eventually, he stood up from his seat. And he said something in a cold voice, and Liu Yixin interpreted for me. “An old saying goes, ‘A small country that opposes a large country will suffer disaster.'”

Is this a threat?

Hearing these words, I thought I had made the right decision to refuse.

I laughed in disbelief. “Translate it exactly as I say it. Ask him if he would be able to say such a thing if this were America and I were American.”

***

In the end, Vice Chairman Wang Yichang returned to China empty-handed.

CarOS has no sales network in China and does not export, so what exactly can they do?

However, not long after the meeting, things happened.

China mentioned the previous airbag recall incident and, suspecting Eunsung Motors of exhaust gas manipulation, ordered a sales suspension for some models until the results were released.

Eunsung Motors, which was about to launch a new car in China and had received pre-orders with massive advertising, was taken aback.

And the Seosung Electronics appliance factory in Qingdao, China, was shut down for reasons such as fire inspections.

Everyone reacted with bewilderment at the sudden sanctions movement by the Chinese government. But what was even more frightening was the local reaction.

Companies and local governments, reading the mood of the Chinese government, postponed or canceled events related to Korea one after another.

To put it simply, Korean products that were on the main screen of internet shopping malls all disappeared to the back pages, and articles about Korean celebrities, dramas, and movies that were posted on portal sites also disappeared completely.

Taek-gyu asked, “Eunsung Motors is in a joint venture with Beijing Auto in China, right? Then Beijing Auto will also be harmed, won’t it?”

“They do have their own brands, but…”

Of course, even so, they cannot avoid some damage.

In a normal country, companies would immediately file a lawsuit against the government. However, Chinese companies followed government policy without saying a word, even though it was clear that they would suffer losses. This can also be said to be a peculiarity of the country called China.

Are they targeting related companies first because they can’t directly harm us?

“Is this okay?”

“If you have power, this is okay.”

If Korea did something similar to Chinese companies operating in Korea, the Chinese government would immediately retaliate.

However, the Korean government could not find a proper countermeasure. This is the difference between a country with power and a country without power.

I added one word, “Still, they shouldn’t do this just because they have power.”

Which country would trust and follow a country that acts arbitrarily just because it is more powerful than its counterpart? This is why China can’t be called a great power.

If they formally impose sanctions with some reason, we can protest or file a complaint with the WTO. But if they drag out time while considering measures, there’s no answer.

Various sanctions immediately had a negative impact on stock prices.

Seosung Electronics and Eunsung Motors’ stock prices, which had been on a steady rise since the announcement of the electric vehicle industrial complex plan, fell by 3% and 5% respectively on the news that the Chinese government had taken sanctions.

Chairman Im Jin-yong came over to our building for countermeasures.

Taek-gyu said again, “But OTK Company is an American company, and CarOS is also an American company. Shouldn’t they retaliate against American companies too?”

But in reality, they are not touching American companies at all, and are venting their anger on Korean companies.

Chairman Im Jin-yong said with a hollow laugh, “If they did that, Ronald wouldn’t stand still.”

In the end, is Korea the easy target?

Taek-gyu said, sounding dumbfounded, “No, what is this, like some kind of thug, strong against the weak and weak against the strong? What kind of great power is this?”

Retaliation did not end here.

I received a call from Yao Min, CEO of Tenwei, a logistics truck brokerage service in China.

[The authorities have issued a business suspension order.]

This was the same for other startups that OTK Company had invested in in China.