Korean Auto Parts Makers Hit as China's Middle East Export Route Narrows

The damage inflicted on Chinese automakers by Middle East instability is spreading to small and medium-sized Korean auto parts companies. As China's export routes to the Middle East narrow, Chinese companies' demand for Korean-made auto parts is declining. Combined with tariff risks and raw material supply disruptions stemming from the Middle East, the contraction in exports to China is creating a compound crisis for Korean auto parts SMEs. According to industry sources on Wednesday, Chinese automakers struggling with exports due to the Middle East situation are reducing orders from Korean auto parts SMEs or postponing supply contracts. Chinese automakers, which have particularly high export exposure to the Middle East, are estimated to be experiencing rapidly rising inventory burdens following Iran's Strait of Hormuz blockade. According to global market research firm Bernstein Research, the Middle East accounted for 17% of China's total automobile exports last year, making it a core market for Chinese automakers. Production adjustments by Chinese automakers could directly lead to reduced exports from Korean auto parts SMEs to China. According to last year's SME export data, Korean auto parts SMEs exported $300 million worth of products to China, making it the fourth-largest market after the United States ($1.15 billion), Mexico ($400 million), and Japan ($320 million). Company A, an automotive ultrasonic sensor manufacturer based in Gyeonggi Province, has received orders from China amounting to only about 30% of the same period last year. "As Middle East-bound export volumes from China were cut off, local automotive inventory surged, and as a result, our orders dropped sharply," a company official said. "With exports to China, which account for a significant portion of our revenue, declining, our business conditions are expected to deteriorate significantly this year." An official from the Korea Auto Industries Coop. Association said, "Abnormal signs are emerging in some companies, including delays in supply contracts with Chinese firms," adding, "If the Middle East situation drags on longer, damage to the domestic auto parts industry from reduced Chinese automaker exports could grow." With mounting challenges including tariffs and Middle East risks, small auto parts SMEs are expected to face serious business threats if exports to China also contract. According to the Korea Automotive Research Institute's 2024 auto parts industry survey, of 21,443 companies surveyed, 15,605 companies with annual revenue below 3 billion won accounted for 72.7% of the total. Companies with revenue below 500 million won also represented approximately 30% of the total. In response, the government has launched 44 billion won in voucher support and 24 trillion won in financial assistance to support the auto industry amid trade uncertainties caused by the Middle East conflict. However, experts unanimously called for medium- to long-term response strategies beyond short-term financial support, warning that if the domestic auto parts industry collapses amid this compound crisis, it could damage the entire automotive industry value chain. "With both exports and domestic demand sluggish, the crisis facing the auto parts industry is not a temporary shock but a structural problem shaking the very foundation of the industry," said Lee Ho-geun, professor of future automotive studies at Daeduk University. "The government needs to actively develop markets beyond North America and China and systematically support parts makers' overseas expansion."

Korean Auto Parts Makers Hit as China's Middle East Export Route Narrows

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