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Provincial Economies Hit Hard by Economic Slump

Posted November. 15, 2008 09:41,   


A 40-something CEO of a small auto parts company yesterday jumped off an apartment building in Gimhae, South Gyeonsang Province. He reportedly had difficulty expanding his market in the wake of the economic slowdown.

His suicide underscores the grave situation facing provincial economies.

The Bank of Korea said yesterday that large retailers operating in provinces saw negative growth for the first time since 1998.

One company at the Hanam industrial complex in Gwangju recently went out of business. Though the electronics components supplier had posted annual sales of seven billion won (five million U.S. dollars), it collapsed under the weight of soaring commodity prices and high interest rates 20 years after its foundation.

GM Daewoo Auto and Technology’s decision to temporarily stop production from next month has sent car parts manufacturers in Daegu into a panic. One auto parts supplier in Busan has sent its workers on leave when its operational capacity dropped below 50 percent. Workers at two neighboring companies are also on a collective 10-day leave. Yet another in the area is reviewing a second restructuring following the first in September that cut 40 employees.

The distress has also spread to the shipbuilding industry. The two economic pillars of the southeastern coastal city of Ulsan -- Hyundai Heavy Industries and Hyundai Mipo Dockyard – usually receive around 10 shipbuilding orders a month but have received nothing since last month.

SK Ulsan Complex temporarily shut down its naphtha cracking center Oct. 27, a first since the company’s foundation 46 years ago.

Provincial economies are bearing the brunt of the economic slowdown, but have failed to produce effective countermeasures.

Sales at large retail stores in the provinces fell in the third quarter, a first since the 1997-98 financial crisis. A central bank report on provincial economies said the retail sales index for large provincial retailers dropped 1.1 percent in the quarter from the same period last year.

The fall is the first for the index since 1998. Sales dropped 1.3 percent at department stores and 1.2 percent at large retail stores. The growth of manufacturing output also slowed to 5.9 percent year-on-year from 9.9 percent in the second quarter.

Unemployment reached 2.9 percent in the third quarter, unchanged from the same period last year. The number of new jobs, however, was 171,000, down from 216,000 in the same period last year.

shjung@donga.com straw825@donga.com