Photo = Hyundai Motor

 

[Alpha Biz= Reporter Kim Jisun] Kia has continued suspending the recognition of equity method gains and losses for its Chinese subsidiary for the fourth consecutive year due to ongoing losses in the Chinese market, which have made it difficult to reduce the scale of losses.

According to the Financial Supervisory Service's electronic disclosure system, as of the end of the first half of this year, the accumulated unrecognized equity method losses for Kia’s Chinese subsidiary (Jiangsu Yueda Kia Motor Co.) totaled 472.1 billion KRW. In the first half alone, an additional 30.6 billion KRW in losses was incurred. Although the company posted a profit in the second quarter, it was outweighed by losses from the first quarter, leading to an overall net loss.

Since Kia's Chinese subsidiary is a joint venture rather than a fully-owned subsidiary, its equity method gains and losses are reflected in non-operating income and expenses, affecting Kia's net income. This means that the losses generated by the Chinese subsidiary are a significant burden on Kia. Currently, Kia holds a 50% stake in the Chinese subsidiary, while the remaining shares are owned by Chinese companies.

The equity method refers to a situation where the investor company reflects a proportionate share of the investee company’s net loss or income based on its ownership stake, typically when the investor holds more than 20% of the voting shares in the investee company.

However, when the cumulative losses of an invested subsidiary exceed the amount of the investment, equity method accounting is suspended. Due to ongoing losses in its Chinese subsidiary, Kia stopped applying the equity method in 2021.

Market analysts believe that Kia is unlikely to resume recognizing equity method gains and losses for the Chinese subsidiary in the short term. The company faces challenges in recovering losses due to weak sales and tough competition in the Chinese market. Last year, Hyundai and Kia’s combined market share in China dropped to 1.4%, down from 1.7% the previous year.

Nevertheless, Kia is making efforts to improve its business structure in China, and there is optimism that the company could eventually turn the Chinese operation into a profitable venture in the long term.

 

 

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