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BUSINESS, FINANCE AND LABOR EVENTSJanuary 2009Execs try to save Ssangyong (Jan 2009) A plan to salvage Ssangyong Motor Co. may emerge as early as next week as a top executive at the ailing automaker was scheduled to meet with heads of its largest shareholder in China over the weekend, according to informed sources on 3 Dec.Hai Tao Zhang, one of the company’s three co-chief executives, left for China earlier in the day to meet with officials at the Shanghai Automotive Industry Corp. to discuss a wide range of issues on the company’s management, according to informed industry officials. The parties were expected to discuss various means of normalizing management, including measures involving possible restructuring and provision of fresh funds from SAIC. Zhang planned to return to Seoul yesterday. The troubled carmaker has been in talks with SAIC for weeks over fresh funds in exchange for potential job cuts. (Source: Yonhap.) (SITE NOTE: Ssangyong received $45 million in funds from the parent company to restructure. Whether it will be enough -- or too little, too late -- will be seen.) Ssangyong Motor seeks court receivership on deteriorating finances (Jan 2009) Ssangyong Motor Co., the South Korean unit of China's Shanghai Automotive Industry Corp. (SAIC), said Friday it will apply for court receivership due to the company's worsening finances. Ssangyong has decided to file its application for court receivership to normalize its operations, the company said in a statement. The decision came after Ssangyong's board, led by SAIC, finished a meeting in China. No plan for layoffs was decided, but the company will cut costs throughout voluntary retirement and paid leave, according to the statement. (Source: Yonhap News.) Parent Company of Ssangyong Motor Bails Out (Jan 2009) Shanghai Automotive Industry Corp. of China, the parent company of Ssangyong Motor of Korea, has filed for court receivership, effectively abandoning its management rights over the carmaker. Ssangyong held board meetings in Shanghai Thursday and Friday and filed for court receivership. On 9 Jan, it filed for court protection and a blanket injunction at the Seoul Central District Court. If the court accepts the request, the Chinese company will be the first foreign business entity to withdraw its investment from Korea since the global economic crisis began. It will make a significant impact on all of Korea’s sectors as well as the process industry. If the court receivership begins, the Chinese company cannot exercise its management rights and an entity designated by the court will take charge of the troubled carmaker. In its announcement, Ssangyong said, “At the directors’ meeting in Shanghai, we decided to file for court receivership to deal with the pending liquidity crisis and become a sustainable company. We’ll set up measures to normalize management and drive them aggressively.” Measures to cut fixed cost including receiving applications for voluntary retirement; cutting the average income for those who temporary leave to 50 percent; cutting wages 10-30 percent and freezing promotions and new employment for two years; and temporarily suspending welfare benefits and negotiating with the union over the measures. Ssangyong also plans to pay overdue wages. Ssangyong Motor’s President Choi Hyeong-tak and CEO Zhang Haitao both resigned on 9 Jan. The government and the Korea Development Bank will decide whether to provide financial support after considering Ssangyong’s influence on the domestic economy and possibility of its revival when the court receivership request is accepted. Kim Yeong-hak, an official of the Knowledge Economy Ministry, said, “We first need to wait for the court’s decision. But we’ll put higher priority on issues related to suppliers and provincial economies related to the carmaker.” Certain experts, however, say the Chinese company will withdraw its request for court receivership. Auto industry sources said, “SAIC may use brinkmanship strategy to pressure on the union, the Korean government and the Korea Development Bank.” SAIC can withdraw its request before the court makes a decision. If the request is not accepted, ownership of Ssangyong will be returned to the Chinese company. (Source: Donga Ilbo.) Seoul court freezes Ssangyong debt (Jan 2009) The Seoul Central District Court decided on 12 Jan to freeze Ssangyong Motor Co.’s bonds and debts to protect the company from creditors. The decision comes prior to the court deciding whether or not to grant court receivership to Ssangyong and whether to keep the company afloat or liquidate it. Ssangyong, Korea’s fifth-largest automaker, filed for court receivership on 9 Jan, following a liquidity crisis. For months, it had asked its mother company, China-based Shanghai Automotive Industry Corp., for a cash injection. In 2004, SAIC bought a 49 percent stake in Pyeongtaek-based Ssangyong and has since added 2 percent. Through January to September of last year, Ssangyong saw a net loss of 98 billion won ($72.4 million) due to falling demand following high oil prices and the global economic slowdown. In a SAIC board meeting last Thursday, the group’s Chinese management expressed fury over what it said it considered the Korean government’s uncooperative stance toward Ssangyong. Last December, SAIC director Jiang Zhiwei met with the Vice Minister of the Ministry of Knowledge Economy, Rim Che-min, and officials at the state-run Korea Development Bank to request the Korean government’s financial assistance to rescue Ssangyong Motor. Rim commented at the time that in trying to abide by World Trade Organization standards, the Korean government was not able to give financial assistance to any one private company. Meanwhile, the government is looking into ways to support ailing Ssangyong subcontractors. “It’s hard for us to take concrete action at the moment but we are planning on protecting Ssangyong’s subcontractors so that they do not suffer further losses,” said Rhee Chang-yong, Financial Services Commission vice president during a radio program on 12 Jan. Rhee added that the financial regulator was considering providing liquidity to Ssangyong’s subcontractors. The government estimates that Ssangyong owes subcontractors 300 billion won to 400 billion won. “Ssangyong’s main shareholder [SAIC], its creditors and the court must all make efforts to revive Ssangyong Motor,” Rhee said. Additionally, through the “fast-track” system (which was made to protect SMEs from emergency liquidation), the government is looking to find alternative distribution channels for Ssangyong’s subcontractors who still have relatively robust businesses. Also on 12 Jan, unionized workers of Ssangyong Motor held a press conference and said they would prepare a lawsuit against SAIC for damages. Though Ssangyong’s workers voted in favor of a strike early last week to protest expected job cuts, the union will not go on strike for the time being, they said. “The labor union is prepared to discuss measures to revive Ssangyong Motor with the management,” union leader Han Sang-kyun said at the press conference held in Pyeongtaek, Gyeonggi, home to Ssangyong’s sole plant. “On the other hand, we will call SAIC to account for technology transfer, breach of trust, failure to honor the pledge to attract investment and other issues.” The labor union said it will collect signatures from the public supporting legal action against SAIC. And the union urged the Korean government to guarantee the survival of Ssangyong Motor, blaming it for selling the automaker to SAIC in 2004. Ssangyong now has about 7,100 workers including 5,200 union members (Source: Joongang Ilbo.) Ssangyong Motors wins Approval for Court Recievership (Feb 2009) A South Korean court said Friday (6 Feb) it has granted permission for Ssangyong Motor Co. to reschedule its debts with creditors under court. (Source: http://english.yonhapnews.co.kr/business/2009/02/06/0503000000AEN20090206002000320.HTMLYonhap News.) (SITE NOTE: Ssangyong assembly lines reopened on 1 Feb.) Management and labor propose infeasible survival plans for Ssangyong Motor (May 2009) Ssangyong Motor is racing toward a crossroads at the edge of a cliff. While a sheer drop lies before it, "liquidation" is on one side, and the road to "survival through restructuring" is on the other. As interested parties, creditors, met to determine Ssangyong Motor's fate on Friday, the car maker's union launched an indefinite strike, using containers to seal off the doors to the factory in Pyeongtaek located in Gyeonggi Province. While more than 3,000 members gathered instant noodles and water, and prepared for a long, drawn-out strike, fliers from the management advising workers to resign scattered through the air, reading, "We will do our best to consider those who resign voluntarily for priority rehiring at a later date." Differing opinions from labor and management on how to survive As of now, both the labor and the management acknowledge that the company is failing. But the solutions they offer for its survival are diametrically opposed. The management's recovery plan would involve first lightening the company's load with restructuring, laying off 2,646 workers or 36 percent of the entire workforce, and then searching for a survival plan afterwards, whether by a sell-off or self-rescue. Their calculations have the company saving 232 billion Won per year in personnel expenses through the layoffs, which would allow them to balance their revenues and expenditures. In contrast, the union is both calling on the management to withdraw their plans for layoffs that incur too great a social cost and claiming that the company can survive through a bold job sharing program. Currently, Ssangyong Motor has an 8 hour shift system, day and night shifts of eight hours each, and the union is saying that there would be no need for layoffs if this is reduced to a 5 hour shift system. Union members are promising to jointly provide 100 billion Won in collateral and contribute 1.2 billion Won for a labor-management security fund. "If we switch to a 5 hour shift system, it would result in a reduction of 30 percent or more in wages, and if you add in the 100 billion Won provided as collateral, we can ensure funding equal to the amount saved in personnel costs by the layoffs announced by the company," explained a union official. However, neither the management's plan nor the union's guarantees independent survival. Both assume financial support from outside. The management is demanding 100 billion Won in layoff expenses and 150 billion Won in R&D expenses for new models, for a total of 250 billion Won, while the union's figure is in the 800 billion Won range. Finding a model for Ssangyong Motor Experts are saying that neither of these methods represents the best path to Ssangyong's recovery. First, the management's plan is problematic in that it offers little sign of a long-term vision beyond an immediate restructuring. "Just as we saw the German government agree to provide a relief loan to Opel, no country is going to abandon a mainstay industry like the automotive industry, and Ssangyong Motor must also be reborn as a new company one way or another," said Jeong Myeong-gi, a business administration professor at Hannam University. "However, the recovery plan the management is currently presenting is myopic and does not take into account the social costs of layoffs and the shock to the regional economy," Jeong added. Meanwhile, experts say the labor side's plan lacks feasibility. "The union's proposal does not take into account the continuous burden of costs arising from the maintenance of the excessive workforce in light of sales figures," said Ahn Soo-woong, a research head at LIG Investment and Securities. Both the labor and the management have found themselves in a standoff at the edge of a cliff, with neither side giving an inch. The management is showing no response at all to the union's continuous calls for bargaining, while the union has begun its indefinite sit-down strike at the factory, insisting on a guarantee of total employment. Amid all of this, the date for which the management set to begin the layoffs, June 8, continues to march ever closer.(Source: Hankyoreh.) Losses rise in Ssangyong strike (Jun 2009) Ailing automaker Ssangyong Motor is facing further adversity as the labor strike that has continued for a month shows little sign of resolution. With production of vehicles at Ssangyong Motor’s plants at zero this month, the company’s sales have plummeted. As of last week some 90 Ssangyong vehicles were sold. Due to insufficient inventory even models on display in showrooms had to be put up for sale. The company expects it will be difficult to even sell 100 units this month, even if production lines restart. As of Friday, the strike, which started in April among some employees and gradually grew, the company’s manufacturing losses at its plants totaled 6,385 units. Sssangyong estimated sales losses during this period at roughly 140 billion won ($109.9 million). In the first quarter alone, the deficit stood at 270 billion won, and the company expects the figure to expand in the second quarter. “We’re seriously losing customers as productions are fully stopped,” said a Ssangyong official who asked to remain anonymous. “There have even been cancellations on overseas orders.” Even as the situation shows signs of worsening, management and labor still continue to find it difficult to narrow their differences. Some 4,000 Ssangyong employees tried to enter the plant in Pyeongtaek last week, only to be blocked at the entrance by the labor union. Park Young-tae, Ssangyong’s court-appointed court receivership manager, met with the labor union on Thursday and Friday, but failed to reach an agreement. The management said although the company offered to back off on several issues including layoffs, the union adamantly refused, emphasizing that it would not make concessions until layoff plans are scrapped and irregular workers’ job security is guaranteed. The union also held a press conference Friday immediately after the meeting with Park and insisted on government intervention. The union said that another option would be to turn the automaker into a public company with Korea Development Bank becoming its major shareholder. They also demanded that a public bailout fund be injected into the company. “There is a misunderstanding with labor,” said another Ssangyong Motor official who asked not to be named. “This is not an issue of management and labor, but a promise with our creditor,” the official added. “If we could, we would try to keep everyone at the company. But if we don’t follow the plan that the court and creditors approved, all will be lost.” Meanwhile, concerns are growing that as the situation worsens, Ssangyong Motor could finally go bankrupt. (Source: Joongang Ilbo.) Ssangyong workers clash with strikers (Jun 2009) Police yesterday (26 Jun) stepped in to prevent further clashes from occurring between Ssangyong Motor Company employees and striking union workers at the company’s only plant in Pyeongtaek, Gyeonggi. Tensions heightened after the labor union refused to accept a revised restructuring plan proposed by the management earlier in the day. Union workers have been protesting against layoff plans since May 21. Some 600 heavily protected riot police stormed the factory occupied by the union workers through a small hole in the fence surrounding the factory at around 5:15 p.m. and tried to stop clashes between striking and non-striking workers at Ssangyong, according to police sources. Some union workers have now moved to a nearby car-painting factory, making it dangerous for the police to try dispersing workers since chemicals are stored inside. Earlier in the day, around 20 people were injured when 300 security guards hired by the company confronted the striking workers, who were armed with steel pipes and fire extinguishers, according to witnesses. An alternative company restructuring plan proposed by company management but rejected by the labor union offers 450 of the 970 dismissed workers a chance for voluntary retirement and up to eight months’ pay in compensation. The company also proposed securing jobs for 320 of the 970 sacked workers and sending 100 workers on unpaid leave until 2012 when the company said it plans to rehire 100 workers. However, the striking workers have dismissed all offers and vow to hold off. “We will not end our strike unless management withdraws the restructuring plan,” said Lee Chang-keun, a spokesperson for the labor union. “The company’s proposal did nothing but say that it would proceed with the restructuring plan.” Meanwhile, Ssangyong Motor, the nation’s smallest automaker, filed for bankruptcy protection in January. The sluggish economy had led plunging sales and increased debt. The court accepted the filing and told the company to cut its workforce by 36 percent, around 2,646 employees. Some 1,670 workers have volunteered to take early retirement. The remaining 976 workers are currently on strike. The management says until the workers accept the company’s revised plans and end the strike, the company’s future remains cloudy. (Source: Joongang Ilbo.) Ssangyong Releases Photos of Union-occupied Plant (Jul 2009) Ssangyong Motor released yesterday some 20 aerial pictures of the inside of its union-occupied Pyeongtaek plant in Gyeonggi Province. The photos were taken in a helicopter July 1 when leaflets were distributed urging striking unionists to disperse. The union has occupied the plant since May 22 in protest of layoffs. "The union has turned the plant into a fortress and produced weapons to prepare for a police crackdown," Ssangyong management said in a statement. Tires shown stacked on the rooftops of the main buildings will apparently be dropped to the ground if police attempt to enter the buildings, the company said. Boxes near the wheels contain volts, which can be used as bullets for slingshots. Also seen in the photos were two containers of liquefied petroleum gas tied to a pipe. The company warned that if the end of the pipe is lit, the tanks will act as flamethrowers. Tires were stacked in several places inside the plant. When police approach, union workers will hurl Molotov cocktails to set the tires on fire, the company said. Certain tires will explode because butane gas containers are attached to them. Placards reading "We will survive when you die," or "You will die together," were placed on the streets. The union declined comment on these signs. Police in Gyeonggi Province Saturday took control of the four main gates of the plants and posted officers at the gates to control access to the plant. Near the gates, two union members were arrested but no clash occurred because all of the unionized workers on guard left the gates. In addition, police installed yesterday reticulated fences inside the gates and deployed 100 officers to each gate. Police plan to take control of all of the plant's buildings except a car painting facility occupied by union workers. After that, striking union workers will be dispersed. A police source said, "In preparation for the crackdown, we've secured the gates," adding, "We cannot enter the car painting plant immediately, however, due to the massive volume of inflammable materials." The union said in response, "If police want a second Yongsan tragedy (a January civilian-police clash in which six people were killed in Seoul), so be it." "But they must know that the company and the government will take responsibility for all consequences. We will fight to the end." (Source: Donga Ilbo.) (SITE NOTE: On Saturday, took a short detour on the way to Kunsan and drove by the Ssangyong plant. The police were out in force with more arriving as we drove by. We drove down the entrance to the plant and were turned back by riot police. The police had cordoned off the plant entrances up the hill and the main entrance. On Saturday night, when we came back from Kunsan, we drove by the plant again just out of curiousity and the police were still stationed at the entrance blocking entry. Other than that, it looked pretty quiet.) Tension Escalates at Ssangyong Plant (Jul 2009) Tension escalated yesterday after a local court approved an eviction of Ssangyong Motor Company's unionized workers, who have occupied a car paint factory in Pyeongtaek, Gyeonggi, for 60 days demanding their jobs back. At 10:05 a.m., five officials at Suwon District Court's Pyeongtaek branch passed through the main gate leading to the factory occupied by 600 workers. Officials attempted to hand workers the court's eviction order. Workers ignored the order and from the factory roof flung nuts and bolts from slingshots at officials, who backed down at 11: 35 a.m. "We tried to deliver the court's order three times, but left because they resisted," a court official said. With court approval, over 3,000 police officers were dispatched and surrounded four gates of the factory around 10 a.m. In case of a clash, 25 fire trucks, six ambulances, and a helicopter were also on standby.  Striking Ssangyong Motor workers yesterday use a slingshot to launch screw bolts and nuts to block the company's management and police from entering the plant in Pyeongtaek, Gyeonggi. Ssangyong Motor, maker of sport-utility vehicles and 51 percent owned by Chinese automaker SAIC Motor Corp., secured protection under court receivership in February and has called for more than 1,000 workers to be laid off, triggering protests from the labor union. Police attempted to enter the plant yesterday to evict the unionists. [REUTERS] Police warned workers through a loudspeaker that they would be forcibly evicted if they didn't end the strike. Police encroached on the factory by 50 more meters to set up barricades. "Police will pay the price if they attempt to get in," responded a spokesman for the workers. When police tried to get closer, workers responded by rolling flaming tires towards them. They also peppered officers with slingshots and threw Molotov cocktails. Ssangyong Motor Company said it cut off gas and water supplies to the factory at 11:20 a.m. "This is to urge the workers to end the protest and leave the factory as soon as possible," a company official said. The company stopped sending daily food and medical supplies on July 17. A woman surnamed Park, the wife of a senior unionized worker, surnamed Lee, hanged herself at her house yesterday morning. "My wife suffered immense stress after she received a summons sent by police and a document demanding compensation for damages from the company," Lee said. National Police Commissioner General Kang Hee-rak said police will not rush to get into the factory. "[Police] need to act patiently when entering the factory because there are flammable materials such as gasoline and paint thinner stored there," Kang said. "Presently, police only need the factory's main building and research building." Police said they will keep forces stationed at the Pyeongtaek factory to help the company resume work at the two buildings. Ssangyong says the car paint factory contains at least of 240,000 liters of flammables. "Just a spark will completely blow up the factory," Song Seung-ki, a senior worker in Ssangyong's production division, said. "The paint factory is much like a powder keg." Lee Youn-ho, minister of knowledge economy, warned that if Ssangyong Motor continues to halt production at its plant in Pyeongtaek, the automaker will have no other choice but to file for bankruptcy. "At a time like this, when the global vehicle market has contracted, the possibility that Ssangyong Motor - which has seen its market competitiveness fall - can survive is problematic," the minister said in meeting with lawmakers at the National Assembly. Lee said although it is the court's exclusive right to decide whether to keep the company afloat, bankruptcy would be inevitable if the illegal takeover of the plant by workers continues after the end of this month. Lee added that the government will do its best to minimize the loss suffered from Ssangyong Motor's parts suppliers due to the ongoing strike by helping them expand their markets overseas. (Source: Joongang Ilbo.) 1,000 Police Break Ssangyong Strike (Jul 2009) Bailiffs were dispatched on Monday (20 Jul) to Ssangyong Motor's Pyeongtaek plant in Gyeonggi Province to disperse striking workers who had occupied the plant for 60 days. But violent resistance by some unionized workers who occupied the plant's paint shop filled with inflammables thwarted execution of the warrant. (SITE NOTE: The Police are extremely cautious because of the Yongsan incident in 2008 in which protestors holed themselves up in an empty building; spread flammable liquids everywhere; and when the police tried to force entry using a crane with a container lowered to the rooftop, the protestors set off the fire. The end result was deaths of protestors and police alike. A scandal ensued with politicians making it into a national cause. Since then the police have been very cautious of frontal attacks on people with flammable liquids.) At 10 a.m. that day (20 Jul), some 1,000 police officers gathered at the plant, timed with the arrival of 1,100 non-union employees who resumed work at the main office building and the research and development building. A police officer said the officers will remain stationed at the plant to prevent clashes between workers.  Black smoke gushes out from a Ssangyong Motor factory in Pyeongtaek, Gyeonggi Province, Monday, as striking workers set fire to tires to keep riot police at bay. / Korea Times Photo by Kim Joo-sung Thousands of riot police moved into the Ssangyong Motor factory in Pyeongtaek, Gyeonggi Province, Monday, under a court order to disperse laid-off unionized workers who have occupied the factory for about two months. But they refrained from forcibly removing the protestors from a building in the plant to avoid possible deadly clashes. Officers succeeded in gaining control of most of the factory, except for a painting building in which about 700 of the fired workers had gathered in a last-ditch protest against the company's layoff plan. The building reportedly contains more than 33,000 liters of inflammable material including paint thinner. National Police Agency Commissioner Kang Hee-rak was cautious about raiding the building. "Police have a duty to put a court order into practice," Kang told reporters. "But I'm not considering pushing police into the building at the moment because it's packed with dangerous material. We succeeded in taking control of the main administrative building and the research building in line with an agreement with Ssangyong management." The operation began around 11 a.m. as five court officials and Ssangyong creditors arrived at the scene with a court-issued letter ordering the protesters to leave the plant. Ssangyong asked the court to order police to remove the striking workers in order to normalize operations. The request was approved early this month. The company cut water and electricity supplies at 11:20 a.m. despite the risk of damaging machinery. Food deliveries have been suspended since last Friday. "This is to get them out as soon as possible," a Ssangyong executive said. Previously, executives had been unable to meet the striking workers due to safety precautions, as some protesters shot steel nuts from rubber guns at the "invaders." The government and Ssangyong hope to disperse the protesters as soon as possible as the strike has already cost the automaker 230 billion won ($183.2 million) in lost production Should the deadlock continue, Knowledge Economy Minister Lee Youn-ho said Ssangyong will have no choice but to file for bankruptcy. "Ssangyong executives and associates believe that if assembly lines fail to resume operating this month, the automaker's bankruptcy will be inevitable," Lee said. "The government will map out a plan to provide support to Ssangyong after a court finally decides whether or not to keep it alive." The minister said the government has no plan to play an active role in reconciling the two parties, saying "government intervention in labor issues has never been successful." Ssangyong has laid off 36 percent of its work force, or 2,646 employees in a bid to survive the global economic turmoil. Meanwhile, creditors of Ssangyong subcontractors told the ailing automaker's joint receivers, Lee Yu-il and Park Young-tae, they are filing for early bankruptcy around Aug. 3 unless the plant is back operation by the end of July. A creditor said, "If the strike continues even after the end of July, Ssangyong Motor must be liquidated and a 'new Ssangyong' founded, just as GM was born again as 'New GM.'" Currently, 250 first-tier subcontractors and 1,900 second- and third-tier subcontractors have receivables of W300 billion (US$1=W1,251) from the automaker. (Source: Korea Times and Chosun Ilbo.) Ssangyong Strike Causes Huge Losses (Jul 2009) Ssangyong Motor suffered estimated direct and indirect losses of W600 billion from a strike that has lasted for 61 days, even as a court must decide whether the ailing SUV maker is worth saving from bankruptcy (US$1=W1,249). There have also been casualties. About 110 people have sustained injuries in clashes between striking workers and police, and between unionized workers and non-union employees, four of whom were seriously injured and taken to hospital. There has also been damage to the brand name, and if such intangible losses are calculated, the losses could amount to more than W1 trillion, according to experts. They estimate that Ssangyong suffered a loss of W245.6 billion due to disrupted production caused by the strike, based on the average per-car production cost of W21.31 million multiplied by 11,520 cars that have not been produced since the strike began. The sales network has also collapsed, with the number of its dealerships dropping from 210 to 140 and that of salespeople from 2,500 to 1,500. Before the strike, the court estimated that Ssangyong's survival value was W389 billion more than its liquidation value. But since the strike started, the loss amount has already exceeded W240 billion, making it seem likely that liquidation will soon be the more economical option. The automaker's subcontractors are suffering combined losses of W200 billion from lost sales during the strike, said Choi Byung-hoon, the secretary general of the Ssangyong Motor Subcontractors Association. The city of Pyeongtaek estimated the city's economic loss at W14 billion as a result of reduced consumption by about 40,000 people, or 10 percent of the population -- 4,500 Ssangyong staff, 5,500 employees of the automaker's subcontractors, and their families. (SITE NOTE: Because of the principle of having the supply sources in close proximity to reduce shipping times and storage of parts costs, many of the suppliers relocated their facilities to the industrial zones within the Pyeongtaek area. The impacts of the plant closure only multiplies the impacts to the area as subcontractors layoff workers. We witnessed the impacts in Kunsan in 1997-1998 with many companies going bankrupt -- and saw first hand the suffering it caused amongst the common people. Discussed this problem with some adult students and there is really no good solution. The government has refused to intercede-- ie, a bailout -- as this is an isolated company and it would set a precedent.) Ssangyong staff also lost out. Some 1,670 who applied for early retirement failed to receive a total of W130 billion including bonuses and severance pay. Striking workers themselves also lost money. Some 450 of them stood to receive bonuses of W11.2 billion, an average of W25 million per worker, if they applied for an early retirement package. Some 320 of them, who were entitled to other positions such as sales posts, have also lost out on monthly pay which they could have earned if they had kept working. Choi Jae-hwang, a director at the Korea Employers Federation, said the intangible loss is larger than the tangible loss. "Looking at the violent struggle by the unionized workers, more and more overseas investors will make a low estimate of the value of Korean enterprises," he said. The cost of police resource is also enormous. A total of 53,000 police officers had been mobilized until Tuesday to deal with the Ssangyong incident, the National Police Agency said. (Source: Chosun Ilbo.) February 2009Dining out, clothes, homes on back burner (Feb 2009) The protracted global economic slump has quashed Korean consumers' appetite for dining out, new clothes and property investments, government findings showed. The Ministry of Strategy and Finance and the National Statistical Office said yesterday that demand for clothes, fine dining, new homes and cars has been falling rapidly since the global financial crisis began invading the real economy in November.Government data revealed that average consumer spending in these categories plunged 7 percent in December compared to the previous year, making it the sharpest fall since the 1997-98 Asian financial crisis. Experts attribute the consumption slump to households that have become more frugal, scared by possible pay cuts and job losses. "We know that the nation's key economic indicators are not too pleasant, but it is the first time since the 1997 Asian financial crisis that demand for dining out, apparel and homes has been this bad," an unidentified Finance Ministry official was quoted as saying by the Yonhap News agency. "Private spending is slowing more quickly than the government has been predicting." New clothing items have been selling briskly during sound economic times, but the recession has forced consumers to push purchases to the bottom of their spending list. Experts noted that even the relatively colder winter months this year had prompted some households to settle for used clothing. Data showed that sales of household textile goods and clothing in December had merely totaled 2.83 trillion won ($2.06 billion), the first time the December figure had fallen below 3 trillion won in three years. December sales for textile and clothing goods plunged 18.2 percent compared to the previous year. It was also the worst since the government began compiling such data in January 2006. Demand for shoes and purses has also taken a big hit, with December sales recording negative growth of 11.5 percent compared to a year earlier. More and more households have also opted to dine at home rather than out. The productivity of eateries in the fourth quarter of 2008 fell 5.6 percent, the worst performance since the government began compiling such data in 1999. Sales of new homes, cars and furniture have also been thrown into the dark. In December, the number of apartment sale deals in December touched +57,000 units, a drop by nearly half compared to the total of 116,000 recorded the previous year. Just in Gyeonggi Province, apartment sales hit close to 10,000 units in December, a more than two-fold drop compared to the 22,000 recorded for April 2008. The slowdown in the housing market has dealt a big blow to the construction industry. Construction orders in November plunged by 47.7 percent compared to the previous year. Car production in December fell 26 percent compared to the previous year, while shipments declined 25.7 percent. Sales of new cars in November contracted 28.4 percent compared to a year earlier. Generous discount promotions, however, led to a slight pickup in December with a 7.1 percent rise in sales compared to the previous year. Coming into the new year, production of new cars in January nosedived by 48.4 percent compared to a year ago to total 189,360 units. The figure is the worst since a workers' strike in July 2006 hampered production. (Source: Korea Herald.) Pyeongtaek Riven by Ssangyong Strike (Jul 2009) "You know your dad's a commie?" "Well, your dad's a government tool." An employee of Pyeongtaek City Hall was shocked by what students were saying outside during a lunch break several days ago. Children were fighting over the two sides their parents were on in the Ssangyong Automotive situation. The employee said, "I was so upset that this kind of thing is happening in schools and on the street." A the 68th day of the dispute, the Ssangyong Automotive siege situation has now split children as well as public organizations into two groups. An apartment building about one kilometer from the Ssangyong factory. Almost half of its 750 households are Ssangyong employees, and after the situation began the atmosphere among them quickly grew cold. 44-year old Ms. Lee, who we met outside the building on the 28th, said, "after the situation began the atmosphere here really changed from what it was before. Nobody is open about it but everything now happens at arm's length." They spent a long time as co-workers and neighbors, and now they are re-arranging based on their opinions. 46-year old Ms. Choi, a real estate agency owner in Chilwon-dong in Pyeongtaek, said, "now people who used to spend time together don't even talk, and if you pretend you don't know anything you can see people splitting apart. It's sad." Family and friends are being divided into those who have been laid off and those who haven't. 43-year old Ms. Ji, who we met at an apartment complex in Chilwon-dong, said, "as the layoffs and strikes and siege go on and on, people's economic situations get worse, so there are a lot of spousal fights and families where the parents aren't getting along." One educator we met at an elementary school some 500 meters from the Ssangyong factory said, "a lot of my friends I've known since I was a kid work at Ssangyong and so do a lot of my close friends, but this thing has split them. They see each other but don't talk, and they're cold to each other and can't listen to the other's opinion. It's terrible." Song Myeong-ho of City Hall said, "as the Ssangyong situation has dragged on the breakdown in civil society has become serious." One teacher at an elementary school in the city said, "Pyeongtaek is in a bad situation where yesterday's friend is today's traitor. I hope that this Ssangyong situation can be resolved quickly and we can go back to the Pyeongtaek we used to have." (Source: Naver and Translation: Korea Beat.) Ssangyong Factory Turning Into "Refugee Camp" (Jul 2009) The fired workers, who have occupied the paint shop of a Ssangyong Motor factory for 68 days, are living in dismal conditions as they have been denied food and water for about a week. Visitors to the building, including doctors and medical staff said the situation will turn worse as dozens are already injured and around 10 occupants are suffering from depression. "It's like a refugee camp," said Baek Nam-joon, a member of a humanitarian doctors' association. "Protesters have been living in a hell-like environment." Baek said a sour, acid smell is lingering inside the building following days of tear-gas spraying by police helicopters. "It was hard to breathe," he said. Many of them are exposed to dehydration as drinking water was drying up. Doctors estimated that 200 were injured. "Six of them need an immediate surgery or medical care. Many have severe injuries, including broken ribs or joints incurred during clashes with riot police." According to Baek, they are given one or two rice balls per day. "Toilets are in dismal condition as the water supply has been cut off." Hundreds of protesters have complained of a lack of sleep, he said. "They sleep just two or three hours a day as police helicopters above the building generate unbearable noise." Lee Chang-geun, spokesman for the unionized protesters, said noise from helicopters and speakers installed nearby the building was adding to the terrible conditions. "We have no food, no water and no sleep." Compensation Suit The workers are also facing damage suits that could deprive them of all their remaining assets. The company said Wednesday it will seek compensation of 5 billion won from the occupants in a damage suit, raising the cumulative amount to 15 billion won. Meanwhile, Ssangyong creditors will submit a petition for early liquidation to the Seoul Central District Court. The court has set Sept. 15 as a deadline for the company's management to submit a self-rescue plan to avoid liquidation. Choi Byeong-hoon, spokesman for the creditors said, "We have reached an accord that liquidating the firm is a better option than waiting until the deadline." The petition will be submitted by Aug. 5. Choi said they will also file a compensation suit against the company, saying the production stoppage inflicted about 89 billion won ($71.7 million) in losses to creditors. Despite the warning, no development has been made in labor-management talks since the first round of negotiations broke down Saturday. The two sides have not moved from their original positions on key issues. The union is demanding the cancellation of the layoffs, while management said it would not begin talks until that demand was dropped. (Source: Korea Times.) 100 strikers leave Ssangyong factory after talks collapse (Aug 2009) As weekend negotiations between Ssangyong Motor and its union broke down, over 100 of the 600 sacked workers occupying the automaker’s car paint factory in Pyeongtaek, Gyeonggi, left the scene. Tensions soon escalated as the automaker mobilized five forklifts at 11:40 a.m. yesterday to gain access to the factory, which has been occupied by laid-off workers for 74 days. The forklifts removed barricades near the factory and managed to secure adjacent roads. Workers used slingshots to shoot nuts and bolts and threw Molotov cocktails at the forklifts. A company official said the removal of barricades was “a part of efforts to resume car production,” adding the company “does not have plans” to force the factory to open. The majority of workers at the plant, however, urged the company to let them disperse the strikers. Over 2,000 non-striking workers at the Ssangyong plant held emergency meetings to discuss ways to resolve the issue. “Many are afraid that the company would actually go bankrupt,” a Ssangyong worker surnamed Park said. “Many of them said we need to do something if police do not storm the factory to force eviction.” The automaker has cut the power supply to the factory since Sunday afternoon. “It’s even difficult for workers to communicate with others because they can’t charge their cell phones anymore,” Wu Byeong-kuk, deputy head of Korean Metal Workers’ Union, was quoted in the Munhwa Ilbo as saying. After the collapse of the negotiations, police mobilized helicopters and shot liquid tear gas onto the roof of the factory, which they had refrained from doing when marathon negotiations were under way. The laid-off workers fought back with slingshots. National Police Commissioner General Kang Hee-rak said police will block non-striking workers if they try to retake the factory. “Police should take charge of getting into the factory,” Kang told reporters yesterday. “Police can get tips from the company about where flammables are located inside the factory, but other than that, everything must be led by police,” said Yun Jae-ok, a senior official of the police information department. Police have refrained from storming the factory because of the risk of fire. According to an official with the automaker, labor union leadership has heightened its level of monitoring co-workers to prevent mass defections. The official said the union leaders require workers to move in teams of three. If a worker needs to go to bathroom, then two workers should accompany him. When workers go to sleep, they have their hands tied so they cannot leave. Some people who managed to leave the factory received text messages threatening death from the union leaders, the official said. Union leadership denied the accusations, saying management was “playing with the media.” They said they have never stopped workers who voluntarily wanted to quit the strike. Some sacked workers who left the factory backed up the leadership. “People left the factory because they wanted to,” said a worker who left the factory on July 26. “I no longer have the will to fight,” another worker who quit the sit-in on Sunday said. “I’m not interested in the survival of the company anymore.” Meanwhile, a government official who spoke on condition of anonymity said there’s not much the government can do. “The court needs to set the direction of the [fate of the automaker] and creditors and others involved need to solve this matter,” the official said. An official at the Ministry of Knowledge Economy said the future of Ssangyong Motor “grew gloomier” as the two sides failed to reach an agreement. “The government will craft measures to solve the Ssangyong issue after the court’s decision,” the official said. (Source: Joongang Ilbo.) (SITE NOTE: Police commandos had begun storming a paint shop at the Ssangyong Motor Co. plant Tuesday that has been occupied by hundreds of fired workers. The commandos raided the building to break up the sit-in as about 4,000 riot police surrounded the building. Firetrucks and police commanders also arrived inside the plant."Today (4 Aug), we will enter the painting shop as far as we can. So it can be said that operations have essentially begun," said a police official. Earlier in the day, police used forklifts to remove barricades and other barriers blocking off the facility where some 550 laid-off workers have remained holed up since May 22, demanding their jobs back.Police sprayed tear gas from helicopters as the protesters fought back by shooting nuts and bolts from large slingshots and rolling out burning tires. (Yonhap News.)) Ssangyong online after 11 weeks (Aug 2009) Ssangyong Motor Co.'s Pyeongtaek plant resumed operations for the first time since the 77-day sit-in strike began on May 22. "First, the company will complete the restructuring process and focus on drawing up revival plans that will be accepted by the court and the creditors by Sept. 15," co-court receivership manager Park Young-tae said before the official start of the working day. He said that the company will also complete the process of securing additional funds within the week and implement measures that will normalize sales and maintenance networks. (SITE NOTE: KDB loaned Ssangyong 1.3 billion won to restructure with the factory accepted as colateral.) Although some window panes in the main building remained broken, there was no glass on the floor and most of the damage caused by the sometimes violent strike appeared to have been repaired, with production facilities back in full working order. Starting with a unit of the luxury sedan Chairman W, the company was to produce 74 vehicles yesterday - 28 sedans and 46 sport utility vehicles. Ssangyong's managing director Choi Sang-jin said that if the company sells about 4,500 units a month for the rest of the year, this will be sufficient to cover operation costs and put some cash back into the company. "The 4,500-unit monthly sales target, 2,000 units on the local market and 2,500 exports, is realistic and sales of 21,000 units is possible during the remainder of the year," Choi said. "Adding that to the 13,000 units sold until July, there is little cause for concern whether the company will be able to meet the 27,000 unit output indicated in Samil's report." In its report, Samil PricewaterhouseCoopers, an accounting firm, indicated that the liquidated value of Ssangyong is less than its continuation value, given that the company's output exceeds 27,000 units this year. However, Ssangyong is not yet home free. Although it has managed to secure 130 billion won ($105 million) from its main creditor Korea Development Bank to cover the costs of restructuring, the company still needs to raise a similar amount to complete developing a new car, codenamed SUV C200. "The C200 is Ssangyong's new hope, so we will try to raise funds through various routes including selling some of our real estate," Park said. "Launching the vehicle within the year will be impossible and a definite schedule can't be given, but we will try to launch the vehicle as soon as possible." In addition, the government is said to be unwilling to lend a helping hand until investors capable of running the company present themselves. Analysts said that finding an investor to take control of the beleaguered company may not be as simple as it sounds, as the intentions of foreign companies that have shown interest in Ssangyong during the strike are now said to be unclear. But Ssangyong's co-court receivership manager Lee Yoo-il expressed confidence in the company's ability to attract new investors. "This is not yet the time to speak of investors, but I am confident that investors will appear," Lee said. "We are not restricting the search to local or foreign operations, and any company capable of normalizing Ssangyong will be considered." The troubled SUV-specialist's suppliers are facing even more dire problems. "Our position is somewhat different from Ssangyong as we are the only ones to have sustained financial damages. All the equipment damaged by the strike belonged to suppliers and Ssangyong's assembly lines have not sustained any damage," said Choi Byung-hoon, who represents some 600 of Ssangyong's suppliers. He added that suppliers have sustained 200 billion won worth of damages due to the strike and that many of the suppliers have halted production and cut their payrolls by up to 40 percent. Others are on the brink of bankruptcy, he said. "The government and the KDB need to realize the seriousness of the suppliers' situation and implement measures or many suppliers could go down in a series of bankruptcies." (Source: Korea Herald.) Won Plunges to Two-Month Low (Feb 2009) The won plummeted for a fifth day Monday, closing at W1,427.50 to the dollar, down W23.30 from the previous day and the lowest since Dec. 9. The plunge was caused by a slew of bad news for Korea's financial market. They included a selling spree by foreign stock investors, news of an impending missile launch by North Korea, and negative news from the European financial market. Weakening share values prompted foreign investors to sell W18 billion worth of Korean stocks. For last five days, foreign investors sold W680 billion. Endless rumors about a second global economic crisis caused investors to buy U.S. dollars, considered a safer bet in turbulent times. (Source: Chosun Ilbo.) Won's Value Falls to 11-year Low (Feb 2009) The Korean won yesterday fell to an 11-year low on news that Wall Street stocks hit their lowest level in 12 years. The Korean financial market will likely keep fluctuating as long as negative developments abroad remain unresolved. In Seoul yesterday, the won dropped 27.30 points against the dollar from Monday to close at 1,516.3, the lowest value since 1,521 on March 31, 1998. The cause was foreign net sales of Korean stocks that continued for the 11th straight day. The won-dollar rate has shot up as much as 256.8 points since late last year. The benchmark stock index KOSPI fell 35.67 points (3.24 percent) to close at 1,063.88 in the wake of the U.S. Dow Jones Industrial Average plunging 3.41 percent to hit a 12-year low. The sense of crisis weighed on Korean stocks, with market insiders fearing that the index could fall below 1,000 again after October and November last year. The U.S. government said it will inject more state funds into major banks after reviewing their financial situation. The move has heightened investor fears by spawning debate over the nationalization of private banks. Investor sentiment rapidly deteriorated on news that Washington is discussing the bailout of AIG, which has suffered record losses, amid mounting fears that the Big Three American automakers could file for bankruptcy protection. The spread of the financial crisis originating in Eastern Europe also weighed on global stocks. The crisis in Eastern Europe underscored the risk of investments in emerging markets, triggering a "sell Korea" spree and sending the won's value plunging. Oh Hyeon-seok, head of investment information at Samsung Securities, said, "Chances are high that GM could file for Chapter 11 at the government's initiative, and if that happens, the market will inevitably be affected in the short-term." "As expectations still remain for recovery, however, the KOSPI will fluctuate between 990 and 1,320 points for the time being." (Source: Donga Ilbo.) South Korea intervenes to prop up Won (Mar 2009) The South Korean won on Tuesday (4 Mar) rebounded from the weakest level in 11 years, helped by suspected intervention by the foreign exchange authorities. The won has lost about 18 per cent of its value against the dollar this year to become the worst-performing major currency in Asia amid growing concerns about the country's debt-financing ability. The Korean currency fell as much as 1.5 per cent on Tuesday morning as the stock market fell below the 1,000 mark. But it rebounded 1.2 per cent to close at 1,552.40 per dollar, ending a three-day losing streak. Traders say Won1,600 appears to be the dollar's short-term peak. Traders said the government repeated its intervention after the finance minister warned against currency speculation. "[Authorities] are resolutely watching the foreign exchange market," finance minister, Yoon Jeung-hyun, told reporters. "[The dollar/won] will not continue to go in one direction forever." Traders suspect that the authorities sold between $500m and $1bn in the market after selling more than $1bn on Monday to prop up the flagging currency. Government officials believe the foreign exchange market has been driven by sentiment, rather than economic fundamentals, with investors unsettled by AIG's huge losses, Citigroup's nationalisation, and financial unrest in Eastern Europe. Kim Ik-joo, director general in charge of currency and international affairs at the finance ministry, said this week that the country would do its best to stabilise the foreign exchange market. The Bank of Korea directly provided $3bn to local banks in 84-day swap agreements. The continued intervention reduced the country's foreign exchange reserves, the world's sixth-largest, from $201.7bn in January to $201.5bn at the end of February. However, analysts said the government needed to dispel growing concerns about the country's dollar funding shortages and high external debt. South Korea's short-term external debts stood at $194bn at the end of 2008, just covered by its international reserves. "The won's weakness stems from external factors rather than domestic problems. So the won would remain under pressure so long as global financial unrest continued," said Lee Sang-jae, economist at Hyundai Securities. "Government intervention could slow the pace of the won's slide, but can't reverse the trend." (Source: Financial Times.) Won Rallies on Trade Surplus Forecast (Mar 2009) The won rallied Monday (16 Mar), closing at W1,440 to the dollar, the strongest showing since W1,427.50 a month ago. The won was strong throughout on news that Korea could a record trade surplus in March. The fact that Philips sold off its share of LG Display last weekend also contributed to the surge. Foreign investors who bought LG Display bought won to pay for the shares, boosting Korea’s dollar reserves and thus the won. But the stock market closed down slightly, probably due to pressure from a short-term hike last week. The benchmark KOSPI closed at 1,125.73 points, down 0.3 point or 0.02 percent from Friday. The tech-heavy Kosdaq shed 0.5 point or 0.12 percent to 388.77 points. (Source: Chosun Ilbo.) (SITE NOTE: By May 2009, the won had stabilized around 1,260 won: $1. In Jul 2009, the won remained at about the same rate.) No. of Jobless in Korea Hits 3.46 Million (Feb 2009) The number of jobless including the unemployed, people looking for work, those who have given up searching for jobs, those idle without reason, and part-time workers seeking additional hours or new jobs has reached 3.46 million, up 260,000 in a year. The number of those choosing not to work without reason has set a new high since 2003, when the government began compiling the statistic. Data released by the National Statistical Office yesterday found 1.77 million people last month saying they are jobless for no reason, up from 1.62 million year-on-year. This category includes those who do not care for children or do house chores, study, prepare themselves for employment, or have health problems. (SITE NOTE: The significance is that people are losing hope that there are jobs out there -- and many college graduates have chosen to remain in school instead. Concerns are that these numbers are reaching record highs.) The number of unemployed people who looked for a job more than once over the past four weeks without success reached 848,000 last month. Those preparing to land a job numbered 529,000 and that of former workers who have given up looking for jobs 165,000. Accordingly, the number of the unemployed, jobseekers, those who are idle for no reason, and those who have given up looking for work reached 3.3 million last month. If the figure included 152,000 part-time workers who want to work more than 18 hours per week or are looking for new jobs, 3.46 million Koreans are effectively out of work. (Source: Donga Ilbo.) March 2009Economy may be near bottom The Korean economy may be close to bottoming out, data suggests. Productivity for mining and manufacturing industries in January climbed 1.3 percent to a month ago, the first on-month increase in four months, according to the Bank of Korea and the National Statistical Office. On-year productivity has fallen 25.6 percent. Other optimistic signs include the government projections for a month-on-month increase in February's industrial output rate, as well as an improvement in exports for that month. The government projects an 18.3 percent contraction in exports for February, an improvement from the 33.8 percent drop recorded in January. December recorded a 17.9 percent fall.The projections come amid fears the Korean economy may be shrinking at a faster-than-expected pace because of sluggish corporate investment and a slump in domestic consumption. Finance Minister Yoon Jeung-hyun last month predicted that the economy would contract 2 percent, which would mark the first recession in 11 years. The minister also projected companies to slash about 200,000 jobs this year. However, the latest data show that psychological indicators are also improving. The central bank's consumer sentiment index in February climbed to 85, a one point increase from the previous month, and the second straight monthly increase. The most positive signal, experts point out, is projections for a trade surplus. While February's current account surplus touched $3.5 billion, the trade balance is forecast to hit a record surplus of $4 billion. Experts say this would improve foreign currency liquidity and thereby help stabilize the financial market. The Ministry of Strategy and Finance said industrial productivity, psychological indicators, and trade data are better than expected. Although experts stress the need to be careful about reading too much into the data, they see them as possible indicators that the economy might not deteriorate much further. Quarter-on-quarter growth was around 0.8 percent during each of the first and second quarters of 2008, falling to 0.5 percent in the third. But in the fourth quarter, GDP sharply contracted by 5.6 percent from the previous quarter. Experts cautiously cite the possibility of a rebound in the first quarter of this year. "There is the possibility of an improvement amid the better-than-expected economic indicators, but we should be careful not to get too excited just yet, as there is still a long way to go before this global economic crisis disappears completely," Kwon Soon-woo, an economist at Samsung Economic Research Institute, told The Korea Herald. He noted Korea's dependence on major overseas markets for exports, such as Europe and the United States, whose financial conditions could worsen. Kwon cited the need for a balanced view of looking at the economic conditions. "We need not lean too much toward negative news and then on positive news, we need to find a balance and interpret the signs in an objective way, rather than magnifying the figures and seeing them as bigger and better, or smaller and worse than they really are," the expert said. Lee Geun-tae, an economist at LG Economic Research Institute, has projected flat growth. The Bank of Korea has also projected economic growth to be flat. Kim Chang-bae, an economist at the Korea Economic Research Institute, has predicted the economy to start healing within the first quarter and then start to pick up in the fourth quarter. (Source: Korea Herald.) June 2009Strike leads Ssangyong to close down its factory (Jun 2009) Ssangyong Motor, the first Korean corporate casualty under the pressure of the global financial crisis, closed its factory in Pyeongtaek, Gyeonggi, yesterday (31 May). It is the first, but not the only, currently troubled Korean auto manufacturer. The fate of GM Deewoo is also up in the air. Ssangyong’s move came in response to a strike called after the company announced plans last month to lay off around 36 percent of its workforce. The company, 51 percent owned by China’s Shanghai Automotive Industry Corp., has been under bankruptcy protection since February. By cutting its workforce and offering its main plant in Pyeongtaek as collateral, the company hopes to receive 250 billion won ($199.5 million) in new loans. “It was inevitable,” said Lee Yoo-il, one of two court-appointed managers at Ssangyong. “The company will do its utmost to normalize management through rapid completion of restructuring and stabilizing labor-management relations.” While it has been ordered to submit a turnaround plan by September, the Seoul Central District Court this month said that Ssangyong is worth saving but warned it could still be liquidated if the company does not follow through with job cuts as planned.Meanwhile, the parent company of GM Daewoo Auto and Technology is on the verge of bankruptcy in the United States. General Motors, the ailing American auto giant with the No.1 market share in the U.S., has a June 1 deadline for unveiling restructuring plans. The company’s board of directors met on Saturday to reach a final decision on whether it would file for bankruptcy protection today. It has faced tough negotiations with its bondholders on a debt-for-equity swap. Although GM has yet to confirm whether it will declare bankruptcy, it has scheduled a press conference on Monday morning (local time) in New York. GM Daewoo has asked state-run Korea Development Bank to provide 1 trillion won in financial support, but KDB has been reluctant to do so, citing the dire state of GM. GM Daewoo, owned 51 percent by its mother company and 28 percent by KDB, is a major source of money for GM. Last year, 23 percent of GM cars sold worldwide were manufactured by GM Daewoo. KDB said Friday that it has called for GM to make GM Daewoo its main production base for its hybrid and small-sized cars as a precondition for financial support. On the other hand, GM’s expected bankruptcy filing is seen to be an opportunity in disguise for Korean automakers to broaden their share of the U.S. auto market. “GM and Chrysler’s market share in the U.S. has been plummeting,” said Suh Sung-moon, an analyst at Korea Investment and Securities Co. “Market share growth for Hyundai Motor and Kia Motors in the U.S. however, are No. 1 at the moment. It is likely that the two companies’ market share will go above 10 percent there with the probable GM bankruptcy.” Some caution against over-optimism, however. The Korean Metal Workers’ Union yesterday announced that its members will start a strike on June 10 for two hours a day. The union will ask member labor unions of Hyundai Motor, Kia Motors and GM Daewoo - which have not yet decided on participating in the strike - to finish a vote by June 12. The union, which includes Korea’s four automobile manufacturers as well as numerous domestic parts companies, is requesting a stop in further employee cuts, a 4.9 percent raise in basic pay, a guaranteed 1.07 million won for minimum monthly wage at companies related to metal or parts production and a reduction in working hours. (Source: Joongang Ilbo  9 Troubled Chaebol Given Ultimatum (Jun 2009) Nine troubled chaebol ? Dongbu, Kumho Asiana, GM Daewoo Auto & Technology, Aekyung, Hynix Semiconductor, Eugene, Daeju, Tong Yang Major and Taihan Electric Wire -- have signed contracts on restructuring programs with their creditors. ``The nine completed the signing of restructuring accords with creditors. The reconfiguration work will gain speed in the months to come,'' an official of the Financial Supervisory Service (FSS) said Tuesday on condition of anonymity. Taihan's main creditor is Hana Bank while Eugene's chief creditor is the National Agricultural Cooperative Federation, otherwise known as Nonghyup. Korea Exchange Bank is in charge of Hynix. The state-run Korea Development Bank signed restructuring pacts with the remaining six groups. Seven banks checked the financial health of 45 groups based on their 2008 balance sheets and income statements in April and listed the nine as financially problematic. Measures enforceable by banks include keeping chaebol affiliates from investing in new businesses and urging them to divest from non-core units. Attracting the biggest attention is Kumho Asiana, one of Korea's top 10 chaebol. Kumho Asiana has aggressively expanded its business horizon in the past several years by taking over Korea Express and Daewoo Engineering & Construction. Such all-out takeover attempts have turned out to be a headache now due to the global financial crisis and credit crunch, which ended up financially jolting Kumho. Through the restructuring agreements, creditors reportedly asked Kumho to sell off Daewoo Construction as well as shares in Kumho Life Insurance and Seoul Express Bus Terminal. Kumho said that it will try to induce new investors, who will channel fresh funds into the cash-strapped chaebol. Creditors will give a two-month grace period for Kumho till the end of July, but should it fail to find new investors, it will be forced to dispose of Daewoo Construction. The announcement is expected to boost mergers and acquisitions (M&A). ``This is a good chance for deep-pocketed groups to acquire firms, which have a respectable long-term outlook,'' Shin Young Securities analyst Kim Se-jung said. M&A is already underway early this year, Lotte Group gobbled up Doosan's liquor unit for 503 billion won, while GS Group took over Ssangyong Corp. (Source: Korea Times.) Gov`t Committee Asks 17 Public CEOs to Resign (Jun 2009) The Steering Committee of State-run Organizations under the Strategy and Finance Ministry has asked 17 public CEOs to resign based on an evaluation of how the heads of public agencies have kept their management proposals. At the government complex in Gwacheon, Gyeonggi Province, yesterday, the committee evaluated the performance of 92 public CEOs with terms of more than six months as of late March among 117 who suggested management proposals. Twenty-three percent were asked to resign or received warnings. The ministry plans to ask President Lee Myung-bak and Cabinet ministers to dismiss four heads who received a poor grade. The four are expected to be fired since they promised to put up with any hardship, including resignation, if judged to have had a poor performance when they handed in management proposals. Among 64 heads who received an average grade, 17 whose score stayed between 50 and 60 received warnings. If the 17 get another warning next year, they will be asked to resign. Twenty-four heads including Korea Water Resources Corp. President Kim Geon-ho and Korea Minting & Security Printing Corp President Jeon Yong-hak received a “good” grade, but none earned the highest rating of excellent. The evaluation was conducted by a team of 45 non-governmental experts including professors, lawyers and accountants. Led by Korea University economics professor Lee Man-woo, the study divided performance into four grades of “excellent (above 90 out of 100 points),” “good (71-89),” “average (61-69),” and “poor (under 50).” The government also released its evaluation of 24 state-run corporations and 76 quasi-government agencies consisting of six grades. Eighteen organizations including the Korea Water Resources Corp., the Korea Electric Power Corp., and the Korea Resources Corp. received the second-highest grade of “A” and the Korean Film Council received the lowest grade of ”E.” No organization earned the highest grade of “S.” Strategy and Finance Minister Yoon Jeung-hyun said, “I hope the heads of state-run organizations take the evaluation as a chance to understand the government’s strong will to advance state-run organizations. They should understand that the evaluation is just the first step and strongly pursue reform." (Source: Donga Ilbo.) Minimum wage increased by 2.75% (Jun 2009) July 01, 2009 The minimum wage in Korea will be raised by 2.75 percent next year, the smallest wage increase in 11 years. The Minimum Wage Council Republic of Korea, a three-party group involving corporate management, labor unions and the government, reached a compromise yesterday after marathon overnight talks. From the beginning of next year, the minimum wage for corporate workers will be 4,110 won ($3.23) per hour, the amount guaranteed by law, 110 won higher than the amount they receive this year. In terms of monthly salary, employees working a 40-hour week will earn 858,990 won. Those on a 44-hour week will make 927,860 won. The average monthly salary of all workers in Korea stands at 2.15 million won per month, based on 40 hours a week. The government estimates the minimum wage will apply to 2.57 million employees. The committee submitted the wage plan to Labor Minister Lee Young-hee yesterday, and he will make a final notification on Aug. 8, after giving labor unions and management a period for filing opposition. The wage decision was finalized yesterday morning, a day after its legal deadline, which is June 29, following a 10-hour round of negotiations. Negotiations have been stalled for the past month mainly due to disagreements between management and labor unions over the size of the wage hike. Corporate managers had proposed a 5.8 percent cut to the minimum wage of 3,770 won, and labor unions wanted an increase of 28.7 percent to 5,150 won, a 34.5 percent difference. Management has not offered a wage cut since the financial crisis in 1998. That year, the minimum wage edged up 2.7 percent, the lowest level since Korea adopted the minimum wage system in 1988. The Korea Confederation of Trade Unions, one of the two umbrella labor unions, said in a statement that the 2.75 percent increase is no better than a reduction, given that consumer prices in May posted a year-on-year increase of 3.6 percent. "We are hugely disappointed that the amount is unreasonably low for the livelihood of low-income laborers," said the union. The Federation of Korean Trade Unions, the other umbrella group, said, "Forcing workers earning the least to sacrifice in the name of helping economic recovery and strengthening corporate competitiveness is extremely antisocial and inhumane." On the other hand, the Korea Federation of Small Business, a lobby group representing smaller firms, said the wage increase rate is still "burdensome," given the harsh economic conditions. The corporate sector has claimed that should the minimum wage climb, firms have no choice but to lay off more workers. (Source: Joongang Ilbo.) July 2009S. Korea, Sweden declare end of Korea-EU FTA talks (Jul 2009) South Korean President Lee Myung-bak said Monday negotiations for a South Korea-EU free trade agreement (FTA) have been concluded and called on negotiators to quickly sign the accord. "We two leaders welcomed the final agreement on the Korea-EU FTA," Lee said in a joint press conference with Prime Minister Fredrik Reinfeldt of Sweden, which holds the six-month rotating EU presidency until the end of this year. (Source: Yonhap News.)Ratchet mechanisms are the most poisonous articles in the Korea-EU FTA (Jul 2009) The negotiations wrapping up the free trade agreement (FTA) between South Korea and the European Union (EU) that commenced in 2007 has received scant attention. This is because not only has it been less politically symbolic in comparison to the South Korea-U.S. FTA, but because of the understanding that it contains almost no poisonous articles. However, in the draft copy of the South Korea-EU FTA that is reportedly close to conclusion obtained by the Hankyoreh, analysts say there are “bombs” here and there on the level of those in the South Korea-U.S. FTA. To begin with, the draft includes ratchets in the product, service and investment sections. In looking at the agreement’s seven articles, South Korea and the EU have agreed not to take trade measures that will weigh down the level of the agreement, including blocking “retreats” from negative side effects that would lower the level of openness of the agreement. This very same issue had come under concentrated fire in the South Korea-US FTA. Also controversial is the future most-favored-nation treatment conferred to the EU. In the draft, it says that if South Korea were to conclude additional FTAs with other countries granting greater openness in a sector, any benefit would automatically be conferred to the EU. Hanshin University professor Lee Hae-yeong confirms that if South Korea signs additional service or investment deals with Japan, China or another country besides the EU or the U.S., any benefits would have to be granted to the EU. This very same item had caused trouble during the South Korea-U.S. FTA negotiations. Analysts have confirmed the most typical of the noxious articles in the South Korea-U.S. FTA, the article on investor and national lawsuits, has been left out of the South Korea-EU draft, however. Despite this, it is difficult though to say this means the problem has been resolved. Since the EU has not received the negotiating authority on matters pertaining to investor and national lawsuits from member states, the possibility still remains that individual EU nations may demand such an article be included as they conduct individual negotiations with South Korea. The article on financial safeguards is stronger in the draft of the South Korea-EU FTA than in the South Korea-U.S. FTA. According to the draft, in the case of foreign currency market instability owing to capital movements, both sides can take safeguard measures for up to six months. The South Korea-U.S. FTA allows for safeguards to last for one year. Lawyer Song Gi-ho says that in an emergency situation like a foreign exchange crisis, strict conditions are in place for taking safeguard measures. Moreover, in regards to opening the financial market, the two sides agreed to open derivatives trading services, the source of the latest financial crisis, to the level of the South Korea-U.S. FTA. On the matter of copyrights, the two sides are agreeing to recognize copyrights for 70 years past the death of the copyright holder. This is expected to have a significant impact on South Korea‘s publishing and art sectors. In regards to opening the beef market, the two sides are agreeing to do things based on the OIE standard, opening up for beef imports from certain EU nations that have experienced multiple outbreaks of Mad Cow Disease. An article covering permits and licenses in the pharmaceutical sector has also been included in the draft. In comparing the negotiation of the FTA with the EU compared to the U.S., economists cite that South Korea conducted 98.4 billion dollars worth of trade with the EU last year, more than it conducted with the U.S. (84.7 billion dollars). Moreover, in terms of investment in South Korea, the EU ranks first by a considerable margin as it invested 4.33 billion dollars in South Korea in 2007, compared with only 2.34 billion dollars by the U.S. (Source; Hankyoreh.) October 2009Korea Fails to Persuade Foreign Investors to Stay (Oct 2009) Foreign manufacturers are leaving Korea in a situation where every job is vital. An increasing number of foreign manufacturers are closing plants in Korea to cut costs because labor expenses are high here. Foreign companies took as much as US$1 billion (US$1=W1,183) abroad when they sold their plants or stakes in the first half of this year. Retrieved investment reached $7 billion in 2008, more than 80 percent of the foreign direct investment of $8.3 billion in the same year. By contrast, foreign direct investment in plants or corporate stakes in Korea amounted to only $2.6 billion during the first half of this year, down $1.4 billion from the first half of 2008.Why are they leaving? The aftereffects of the global financial crisis are one reason, but experts put the chief blame on militant unions, red tape and lack of incentives. Unlike the Roh Moo-hyun administration, which was apparently against foreign investors, the current government claims to be business-friendly. But direct investment, including building of plants in Korea, has shrunk, and a growing number of foreign companies are leaving. ? Belligerent Unions Hardline unions are posing a decisive hurdle to foreign investment. The general strike by the union of the moribund SUV maker Ssangyong Motor, which lasted 76 days from May 22, dealt a severe blow to the country's overall credit standing. Korea ranked 19th this year, down six notches on-year, in the World Economic Forum's Global Competitiveness Report because it had received very low points in the labor category due to the Ssangyong strike, which took place at the time of the survey. In a survey of 281 executives of foreign corporations conducted by the Korea Trade-Investment Promotion Agency last year, the largest portion or 26.7 percent of respondents cited improved labor relations as a condition for inducing more investment. ? Weak Incentives A support policy for foreign firms' R&D centers, which came to an end in late March, graphically shows how stingy the Korean government is toward foreign firms. The policy, which was introduced in 2004, promised to give W50 million per staffer if a foreign firm set up an R&D center and employed Korean research staff. Over the past five years, the government spent W11.8 billion persuading 27 leading foreign firms, such as Google, Dupont, GE and Health Care, to build R&D centers here. As a result, a total of 693 Korean researchers, including 294 masters and doctoral degree holders, are currently working at these foreign R&D centers. A Ministry of Knowledge Economy official said, "We decided to end the support program because there was criticism about reverse discrimination against domestic enterprises and the program focusing on personnel expenses was considered problematic." Other cash grant programs are also ineffectively operated. In the five years since 2004, only four foreign firms benefited from them, with a mere W23.7 billion doled out. Such cash incentive programs are widely used in the U.S and Europe. But while European countries pay out 20 to 50 percent of foreign firms' investment in cash grants, Korea pays out a mere 10 percent of investment -- and that is based on harsh criteria. (Source: Chosun Ilbo.) (SITE NOTE: Roh Moo-hyun created a xenophobic business environment. The conditions he created persisted to the present day with labor costs high, but productivity low.) |
