South Korean shipbuilding giant Samsung Heavy Industries (SHI) has recently announced the closure of its plant Ningbo in the eastern Chinese province of Zhejiang after allegedly agreeing to hand over its land to the local government for industrial renewal, sparking days of protests by laid-off workers seeking better severance pay.
The SHI has two plants in China, SHI Ningbo and SHI Rongcheng. Established in 1995, the Ningbo plant is focused on the production of ship blocks with iron structures as well as shipbuilding for overseas and domestic markets. It has produced and supplied nearly 200,000 tonnes of ship blocks per year.
The closure takes place amid a seismic shift in Asian shipbuilding, ET has learnt. Since 2019, the South Korean government has laid out plans to revive the country’s shipbuilding and shipping industries. It promoted the merger of Hyundai Heavy Industries and Daewoo Shipbuilding to create the world’s largest shipbuilder.
Thousands of workers gathered at the site, demanding more severance pay, according to reports. In a letter to employees, the company said the COVID-19 pandemic caused serious difficulties for the businesses. In its letter to employees, Samsung promised to provide full economic compensation.
According to its proposal, Samsung would pay one month of salary for every full year of employment, plus one more month of salary and reemployment aid equivalent to two months’ salary, a formula known as “N+3” compensation, sources said.
According to its proposal, Samsung would pay one month of salary for every full year of employment, plus one more month of salary and reemployment aid equivalent to two months’ salary, a formula known as “N+3” compensation, sources said.
The Ningbo yard is in a chemical industry zone. The local government is adjusting its policies to promote the chemical industry, and chemical companies are interested in the 200 acres occupied by the shipyard.
Samsung held merger talks with another Chinese shipbuilder, but the parties failed to reach an agreement because of trademark issues. The Ningbo government signed an agreement with Samsung to take back the shipyard land, according to a statement by the local government. The government said in August it was taking over the land as part of a cleaning plan for the Qingzhi Chemical Industrial Park as certain nonchemical enterprises in the park don’t fit with current national industrial policy and there is a significant potential safety hazard
Dr. Satoru Nagao, Fellow (Non-Resident), Hudson Institute told ET that despite South Korea’s economy being heavily dependent on China’s market, South Korean companies have started to relocate their factories. Such a move appeared at the end of 2010s(2018 and 2019) and continued after that.
“The timing indicated reasons. Firstly, China’s retaliation toward South Korean companies when the South Korean government accepted the US to deploy their missile defence system in South Korea in 2017. That time, government supported the boycott movement against South Korean products spurred in China.
This move forced the Lotte group(South Korean company) to give up supermarket business in China because the missile defence system was deployed in the land of the Lotte group. The incident proved that the South Korean companies in China are “hostage” if US-China competition escalates. And indeed, the US-China competition has really been escalating. That is second reason for South Korean companies to relocate their factories out of China,” according to Dr Nagao.
Samsung could be an easy target of China’s retaliation. The US-China “high tech war” has started since the Donald Trump administration(when they published the latest National Security Strategy in Dec 2017). The Joe Biden administration continued these policies, Dr Nagao pointed out.
Rivals of Samsung such as Huawei, ZTE etc are banned from government procurement in the US and its allies. Under such a situation, the products of Samsung could be alternative products to fill the gap after the ban of products made by Huawei. But in this case, there is a possibility that the Chinese government will retaliate against these South Korean companies like Samsung, according to Dr Nagao.
Originally, South Korean businesses were gathering parts to the factories in China and produce South Korean products made in China to export to the US market etc. But now, these South Korean companies need to relocate their factories outside of China, he suggested.
Source : Economic Times
