One of the Hyundai factories in Beijing that has been shut down © Reuters

Hyundai Motor has stopped production at its China factories as the fallout from a political spat between Seoul and Beijing continues to inflict pain on South Korea’s largest automaker.

Shares in Hyundai slid as much as 3.8 per cent on Wednesday morning in Seoul, a day after the company said its Chinese affiliate Beijing Hyundai Motor had ceased operations at its four plants in China after a local supplier refused to provide necessary parts when it did not receive payment.

The development is the latest blow to the South Korean group, which last month reported a 65 per cent drop in sales in China — its largest market. 

Much of the pain is a direct result of Chinese economic retaliation against South Korean companies after Seoul earlier this year began installing a US-owned and operated missile shield on the peninsula to defend against North Korea.

Known as the Terminal High Altitude Area Defense, or Thaad, the platform has enraged Beijing, which claims it can be used to spy on its own military developments. Since then, it has waged a full economic war against South Korean companies with conglomerates Hyundai and Lotte bearing the brunt of consumer boycotts.

China once accounted for about a quarter of the automaker’s sales, while the now-shuttered plants have a joint capacity to produce about 1.35m vehicles a year.

Hyundai Motor said plunging sales in China meant its affiliate there could not make the required payments for plastic fuel tanks and that it was “working to find a resolution”.

A joint venture between Hyundai Motor and BAIC Motor, Beijing Hyundai produces solely for the Chinese market. Local media in South Korea have reported the outstanding bill to be as much as $17m.

The factories, three of which are in Beijing and one in eastern Hangzhou, closed gradually from the middle of last week and it is unclear when they will reopen, a spokesperson for Hyundai Motor said.

The South Korean company, which together with affiliate Kia is the world’s fifth-largest automaker, is not the first foreign business to feel China’s wrath. In 2012, Toyota saw sales in China tumble amid anti-Japan protests, sparked by a territorial row between Tokyo and Beijing.

For the quarter ended in June, Hyundai reported net profit of about $815m, down 48 per cent from a year earlier and way below analysts’ expectations. It was the 14th such decline in a row for the Seoul-headquartered group.

The company is also under pressure in the US — its second biggest market — where it is facing intense competition from rivals Honda and Toyota, as well as in South Korea, where both it and Kia are mired in labour disputes.

“The business environment was unfriendly overall,” said Choi Byung-chul, Hyundai’s vice-president, after reporting results last month. “We are facing an uneasy sales environment in the second half due to such external factors.”

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