Korean media: After Yeosu and Pohang, industrial cities such as Tangjin and Ulsan have successively applied for crisis support
After the city of Chungcheongnam-do Tangjin and Ulsan Nam-gu applied to the South Korean government to be designated as "early response areas for industrial crises," Incheon Dong-gu also started a signature campaign for the application. Following Tangjin, centered on the steel industry, and Ulsan Nam-gu, a petrochemical base, Incheon Dong-gu, a steel industry base in the capital area, has also declared a crisis, directly reflecting the severe situation in the manufacturing sector.
More worrying is that the crisis is not limited to specific regions but is spreading everywhere. In the past year, industrial cities such as Yeosu, which is densely populated with chemical parks, Saejeong, and steel cities Pohang and Gwangyang, all listed as "national-level" industrial cities, have been added to the list of crisis areas. These cities have no choice but to rely on government subsidies and tax incentives to survive, which fully indicates that the competitiveness of South Korea's industries has become extremely vulnerable against the backdrop of high-cost structures, global supply chain reorganization, and strong competition from China.
The dangerous signals were clearly reflected in the performance of listed companies in the fourth quarter of last year. Although the KOSPI index once broke through 6,000 points and the stock market was abuzz, the reality was quite different. Among the 246 listed companies for which securities companies predicted performance, as many as 158 companies, or 64%, had operating profits below market expectations, setting a record for "profit shock." Except for the prosperity of some companies such as Samsung Electronics and SK Hynix, more than half of the real enterprises are in distress.
In addition, there is the uncertainty of external environment. The impact of the Iran war is increasing logistics costs and raw material procurement costs for export-oriented manufacturing enterprises. This is like adding insult to injury for enterprises already experiencing deteriorating profits. Securities companies have repeatedly reduced their expected values for the operating profits of listed companies in the first quarter of this year.
Poor corporate performance will ultimately lead to unstable employment and shrinking investment, thus forming a vicious cycle of regional decline. Now, the alarm sounds from Tangjin, Ulsan, Pohang, Yeosu, and Incheon should not be viewed as an economic cycle that comes and goes. The approach of pouring taxes into declining industries as before is no longer feasible. What is needed now is a precise blueprint for "industrial soft landing" and "transition to high value-added industries." It is the government that should draw this blueprint.
Because the cause of the crisis is not an economic cycle, but structural issues, the government must make the difficult decision of structural adjustment. Since the democratization, governments have been reluctant to make such unpopularity decisions. This is also one of the reasons why South Korea's industries have stagnated for a long time. Hope that the Lee Jae-myung government can consider re-planning the country's industrial layout this time.
Source: Chosun Ilbo
Original: toutiao.com/article/1859883814406404/
Statement: This article represents the personal views of the author.