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The tears of Gunsan

Shipbuilding has lost competitiveness because it did not prepare for a downturn.
Feb 21,2017
The coastal region of North Jeolla is in a bad state. The home of dockyards of Hyundai Heavy Industries is in shock after the news that the Gunsan yard would be closed as a part of the shipbuilder’s restructuring as the result of the protracted global slump. About 6,000 jobs could be lost when including parts suppliers. The livelihoods of many are at stake. The business community that lived off the dockyards also would be affected. The whole Gunsan community is in jeopardy.

The company and the community are struggling to adjust. On a visit to Gunsan last month, Choi Kil-seon, chairman of Hyundai Heavy Industries, said the shutting of the dock was inevitable because there was no work. He reiterated that the choice was necessary to save the company. But Gunsan is equally desperate. Representatives of residents have been rallying in front of the home of Chung Mong-joon, director of the Asan Foundation and largest shareholder in Hyundai Heavy Industries. North Jeolla province residents have submitted petitions to the Ulsan headquarters of the shipbuilder protesting the shutdown.

Neither side can back down. Hyundai Heavy Industries does not have the money to run the shipyard without any work, and Gunsan residents cannot watch their economy go to ruins. Neither side imagined they would end up this way seven years ago. The small coastal city has emerged as a shipbuilding dynamo after the company built a shipyard there in 2010. Although there is one dry dock, the yard built for $1.2 billion is one of the world’s largest with an output capacity of 1.3 million tons and is equipped with 1,650-ton crane. It rolled out more than 12 large vessels a year and was responsible for 20 percent of the region’s total exports and 9 percent of outbound shipments from North Jeolla.

When the seven-year-old dock closes down, about 24 percent of the workers in the community will be out of work. The facilities and crane will start to rust. It will be the second “Tears of Malmö”-type situation after a crane from a dock in South Gyeongsang province was sold off earlier this year. Malmo was a flourishing dock in Sweden. Its landmark 138-meter Kockums Crane was dismantled and sold when the Kockums shipyard went bankrupt in 2002, and it earned the nickname “Tears of Malmö” because local residents wept as they watching the crane being towed away. The term is now used to refer to the collapse of a shipbuilder. A gantry crane at the Masan shipyard of Sungdong Heay Industries, which went bankrupt four years ago in South Gyeongsang, was sold to a Romanian company in a fire sale.

South Korea’s coast region is rapidly turning into a rust belt. Ulsan — home to 10 docks belonging to Hyundai Heavy Industries — is also shaken because of a lack of work. Other shipbuilding regions in Busan and Geoje, South Gyeongsang, are no different. The three shipbuilding majors — Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries, and Samsung Heavy Industries — let go 6,713 workers last year. They will lay off another 14,000 this year. There is talk of DSME going bankrupt in April. It has already used up most of the rescue fund of 4.2 trillion won ($3.67 billion) from state lender Korea Development Bank, and doesn’t have enough work to run its operations.

Presidential hopefuls have rushed to Gunsan and poured out solutions. Lee Jae-myung, mayor of Seongnam, has promised to advance state procurement of warships; Moon Jae-in of the Democratic Party vowed to place government ship orders; Ahn Cheol-soo of the People’s Party said the government would give the shipyard priority in government orders; and Chun Jung-bae, also of the People’s Party, offered to directly negotiate with Hyundai Heavy Industries. But that’s a lot of hot air.

As DSME’s case underscores, there is no end to bailing out an entire industry. Otherwise, Hyundai Heavy Industries would not have attempted to close down a shipyard it spent over 2 trillion won to build. Shipbuilding has lost competitiveness because it did not preemptively prepare for an industrial downturn and the government did not play its policymaking role. Companies invest because they have confidence in the future. But investment sentiment is at rock bottom with all of the presidential candidates out to bash large companies. They vow to toughen a law that could threaten management rights even at smaller enterprises. Their credibility has been impaired by the ongoing power abuse scandal involving the president.

Korean companies will have second thoughts about doing business at home. Industry leaders like Hyundai Motor, Samsung Electronics and LG Electronics are all looking overseas for facility investment. If companies migrate overseas, jobs at home will become scarcer. We must change the business environment. Otherwise, industrial sites all across the country will weep tears.

JoongAng Ilbo, Feb. 20, Page 28


*The author is an editorial writer of the JoongAng Ilbo.

Kim Dong-ho