Chinese companies pose challenge for industrial complexes

(Gettyimagesbank)

South Korean industries are struggling under an all-out assault from Chinese companies armed with advanced technology, with the steel and petrochemical industries seeing a spate of plant closures due to the flood of cheap Chinese products.

To assess the situation, Maeil Business Newspaper recently visited four of the country’s major industrial complexes.

Pohang, North Gyeongsang Province, was in the grip of fears over plant closures when the newspaper visited last Friday. Workers at Hyundai Steel Co.’s Pohang Plant 2, which received a shutdown notice two days prior, reacted with resignation, saying, “It was bound to happen.”

Gazing at the heaps of raw materials piling up near the stalled plant, the workers collectively criticized the government and domestic steel companies for their complacency.

“The government should have imposed strong sanctions on Chinese dumping practices. Instead, it let things slide and now everything is falling apart,” a worker said. “Even worse, the government raised industrial electricity rates, further eroding our already weak cost competitiveness.”

Adding to the shock, even POSCO, Korea’s steel making giant, has announced plans to close the No. 1 wire rod mill at its steelworks in Pohang, which has been in operation for more than 45 years.

The petrochemical industry faces a similar dilemma; despite declining demand, factories cannot easily stop production due to the nature of their operations, leading to an unsustainable accumulation of inventory.

“We’re running factories 24/7 while barely breaking even,” an official from the Yeosu Chamber of Commerce and Industry said. “On top of that, high production costs and rising utility bills, including electricity, are creating a triple burden.”

The situation is no different in Osong Bio Valley in North Chungcheong Province, where the pharmaceutical industry is struggling under the onslaught of cheap raw materials imported from China.

The area seemed almost deserted, with banners advertising factory sales catching the eye.

“We are barely holding on as Chinese products are not only cheaper but have also significantly improved in terms of technology, making it nearly impossible to compete,” a pharmaceutical company official said.

There were even concerns in Ulsan, South Gyeongsang Province, where the shipbuilding industry is relatively better off.

The head of a ship component manufacturer in the region called for easing restrictions in designated shipbuilding zones, such as lifting the 52-hour workweek regulation and expanding E7 visa eligibility to all 12 processes in the industry.

“These regulations could push the shipbuilding sector into crisis,” he warned.

The sense of crisis stemming from Chinese companies armed with technology and low prices was palpable across all industrial complexes nationwide, exacerbating local economic downturns.

In the petrochemical sector, China’s production volume is particularly alarming with 56 percent of the global capacity for new or expanded naphtha cracking facilities opening in China over the past five years.

An industry insider from Ulsan’s petrochemical complex noted that ”while Korea has only a handful of large-scale petrochemical complexes, China reportedly has over 100 of similar size. Competing with them is out of the question.“

“It was not this bad even during the International Monetary Fund (IMF) bailout and the global financial crisis,” an owner of a partner company in Yeosu National Industrial Complex said. “It is the biggest crisis since the complex was established.”

His company, which packages and transports chemical products for major firms such as Lotte Chemical Corp. and LG Chem Ltd. in the complex, has seen a 30 percent drop in orders compared to a year ago.

He noted, “Overtime work for employees has vanished, and some companies are likely cutting staff altogether.”

The situation is similar in Ulsan’s petrochemical complex, where the only signs of expansion come from the “Shaheen Project” at the nearby Onsan National Industrial Complex that aims to diversifying production to less China-dependent petrochemical derivatives.