Gov`t Plan to Restructure Car, Petrochemical Industries

The government will reduce the number of finished car manufacturers from five to three over the mid- and long-term, a confidential government report exclusively obtained by The Dong-A Ilbo said yesterday.

New industrial restructuring policies will seek the specialization of three petrochemical complexes in Ulsan, Daesan in South Chungcheong Province, and Yeosu in South Jeolla Province, through exchange of petrochemical items produced in the three areas.

The Knowledge Economy Ministry wrote the report in January and has begun to implement part of the policies.

The plan is to make Korea the world’s fourth-biggest carmaker by volume, rising one notch from fifth place, via “selection and focus” measures. Domestic petrochemical companies will be encouraged to exchange their petrochemical items.

The report contains restructuring principles and blueprints for ten industries: cars, petrochemicals, shipbuilding, steel, cement, general machinery, semiconductors, displays and mobile phones.

New basic policies will restructure each industry after considering industrial and financial aspects. In the process, the ministry will set up restructuring policies for all industries and the Financial Services Commission and financial institutions will analyze the financial soundness of each company.

Accordingly, creditors of a company will have the final say whether to force restructuring but the ministry’s report will suggest a broader framework.

While reporting to President Lee Myung-bak late last year, Knowledge Economy Minister Lee Youn-ho announced basic strategies to deal with emergencies in the car, shipbuilding, steel and petrochemical industries. In an interview with the monthly magazine Shin DongA, the minister said his ministry had drafted the report.

The report said the government will foster around three finished car manufacturers to grab 10 percent of the global car manufacturing market, up from 5.5 percent in 2007.

A senior government official said, “The business structure of Korea’s five finished car manufacturers considerably overlaps. Given that, we believe it far more efficient to reduce the number to three or four.”

Seoul will also encourage each petrochemical complex to pursue restructuring to achieve economies of scale. For example, three companies in Ulsan manufacture polyethylene, which is used to produce polyethylene cases for home appliances, and two polyethylene producers are in Yeosu.

The government is planning to encourage each petrochemical complex to have only one polyethylene producer.

The report considered “self-regulation” and “preemptive restructuring” as broad restructuring principles. In short, the government will create a market environment under which uncompetitive companies will be removed from the market and seek liquidation for insolvent or marginal companies with no possibility of survival.

Detailed principles of preemptive restructuring include strengthened core competitiveness in the global market, individual efforts by each industry, and proper competition.

lovesong@donga.com