[Editorial] New Factory Construction Down to a Third

The Ministry of Commerce, Industry, and Energy said yesterday, “The Korean economy can become an advanced one with a per capita national income of $20,000 only when it is based on the manufacturing sector and exports.” The remark is well-grounded given that 70 percent and 95 percent of manufacturing and exports, respectively, contribute to growth. We should foster the manufacturing sector more actively and build more factories in order to create decent jobs and develop our growth potential.

However, since this government took office, new factory construction has declined. This is a sign of hollowing-out. Last year, 597 new factories of small- and medium-sized enterprises got the green light for construction-- just a third of the 1,715 new factories built in 2002. The figure only accounts for 60 percent of the 978 factories built in 1998 immediately after the Asian financial crisis. The number of total factory constructions, including those of large companies, also declined from over 9,500 in 2001 to 6,900 last year. The number of newly established enterprises fell from over 39,000 in 2001 to 30,000 last year.

If this trend continues, our growth potential will be further weakened and we will have fewer jobs available not just for this generation, but for generations to come. Nevertheless, regulations on and barriers to starting manufacturing businesses do not show signs of giving way, and are seemingly growing.

The Federation of Korean Industries pointed out that stronger land-related regulation and higher land prices caused by relentless development plans push up factory location costs. As of 2004, the industrial complex distribution cost in Korea was two to six times that of China, India, and Malaysia. Various evaluations prolong the process toward authorization and permission. The administrative cost associated with building one sewing factory on land of 10,000 m² in a non-metropolitan area reaches up to 150 million won. It takes 68 types of examinations over a period of six months to finalize the authorization and permission of building a single factory, which makes it even harder to even think about building one. It would seem odd not to turn to China with easier access to land and lower income.

If factory building gets easier, that would stimulate investment, which in turn would advance economic recovery and create a virtuous circle. To make this happen, the government should streamline the factory building process, shorten the time spent on authorization and permission, cut related administrative costs, lower industrial land prices, and greatly relieve factory building regulations in the Seoul metropolitan area.