Ships, which are currently under construction, are seen at Hyundai Heavy Industries’ shipyard in Ulsan, South Korea. The port of Ulsan was the cradle of the country’s breakneck industrialisation. Now, the main production site for big manufacturers such as Hyundai and oil refiner SK Innovation risks becoming the country’s rust belt.
Reuters/Ulsan, South Korea
The port of Ulsan was the cradle of South Korea’s breakneck industrialisation. Now, the main production site for big manufacturers such as Hyundai Motor and oil refiner SK Innovation risks becoming the country’s rust belt. In effect, Ulsan is a real-time warning signal for South Korea, a nation that has the world’s fastest-ageing society and an economy struggling to shake its dependence on manufacturing and exports in favour of a model based on consumption and services.
“There’s a sense of crisis spreading among people and companies here after pretty much all major companies suffered their worst losses in recent years,” said Choi Chan-ho, a director at the Ulsan Chamber of Commerce and Industry.
The world’s largest shipbuilder, Hyundai Heavy Industries Co, suffered an operating loss last year of about $3bn and recently laid off hundreds of workers in the city about 380 kilometres (235 miles) southeast of Seoul.
Near the vast shipyard, stores and restaurants have cut opening hours, and an increasing number of single-room flats go empty as thousands of temporary workers have lost work since the winter.
“It’s getting ever more difficult for landlords to find new tenants for their ‘one rooms’ and rental fees have kept falling since the winter,” said Lee Young-hyon, who runs a real estate agency a block away from the shipyard.
Chemical maker Capro Corp, hit by competition from cheaper Chinese rivals, has slashed output by about 40% since mid-2014, and late last year cut 100 of its 320 jobs. Other chemical firms in Ulsan have also reduced operations. Hyundai Motor’s auto plant in Ulsan is the world’s biggest, with the capacity to make 1.5mn cars a year. But the company has not built a new plant in Korea for almost 20 years, and is instead expanding overseas.
“The lesson that Ulsan’s situation gives is that you should respond to the ever-changing global economy swiftly and continuously before it’s too late,” said Goohoon Kwon, an economist at Goldman Sachs.
Policymakers have called for greater focus on developing domestic demand and services, but the reality is different: Exports were equivalent to more than 50% of South Korea’s gross domestic product last year, up from 39% in 2007.
In 2013, Ulsan’s economic output shrank 4.4%, while the national economy grew 3.6%. Figures for 2014 are not yet available, but output is expected to have contracted again in the city.
That is ominous news for Ulsan, where manufacturing accounts for nearly 40% of jobs, more than double the national average of 18%.
In the city of 1.2mn, the employment rate fell to 57.3% in the first quarter from 57.9% for the whole of 2014, which was the second-worst annual reading.
Job prospects for young people are especially scarce. Only 34 of 100 residents aged 15-29 were employed during the first quarter in Ulsan, a record low for the city and fewer than the 41 for the national average, official data shows.
South Korea’s population profile is ageing more rapidly than other advanced economies, throwing up more challenges to the economic model that propelled it to the membership of the Group of 20 leading economies.
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