Workers protested Samsung Heavy Industries’ brutal decision to shut down its 26-year-old shipyard in Ningbo in eastern China, demanding more compensation as the South Korean company pulls out of a low-cost operation profit.
Samsung Heavy Industries (Ningbo) plans to lay off staff and shut down operations by the end of the year, the world’s third-largest shipbuilder said on Monday. Thousands of workers have rallied at the site, demanding more severance pay, according to video clips provided by the workers. In a letter to employees, the company said the COVID-19 pandemic has caused serious hardship for the business.
The shutdown comes amid a seismic shift in Asian shipbuilding. Since 2019, the South Korean government has drawn up plans to revive the country’s shipbuilding and shipping industries. He fostered the merger of Hyundai Heavy Industries and Daewoo Shipbuilding to create the world’s largest shipbuilder. South Korea is set to overtake China in shipbuilding orders in the second half of this year, shipping services provider Clarksons PLC said in a report on the global shipping market.
At the same time, Beijing is pursuing policies aimed at consolidating the country’s bloated public sector in order to reduce debt and increase global competitiveness. China State Shipbuilding Corp. (CSSC) and China Shipbuilding Industry Corp. (CSIC), the country’s two largest state-owned shipbuilding conglomerates, are teaming up to form China Shipping Group under a restructuring plan approved by the State Council.
The Ningbo Operation Samsung, established in 1995, was the first Chinese shipyard in which the South Korean giant invested. It was also the first wholly foreign-owned shipbuilder in China. At its peak, the yard had 4,800 employees with an annual shipbuilding capacity of nearly 300,000 tonnes. The unit manufactures ship blocks or modules which are then assembled in South Korea into complete ships.
Samsung Heavy Industries has long considered pulling out of Ningbo’s investment. The company embarked on a return to ship block manufacturing in South Korea a year ago, according to an analyst from Lloyd’s Register of Shipping.
Samsung Heavy Industries has suffered losses for six consecutive years. For 2021, the company has set a target of $ 7.8 billion in new ship orders and said it expects to reach 7.1 trillion won ($ 6.35 billion) in consolidated operating revenue. , up from 6.86 billion won in 2020.
The materials used in the Ningbo shipyard were originally imported from South Korea under a system that allows these goods to enter China duty-free. The completed ship modules were exported to Samsung shipyards in South Korea for assembly. Under this model, Ningbo’s operation generated high profits for Samsung.
However, the Ningbo government later demanded that a certain proportion of the materials be purchased from China and urged the shipyard to make entire ships rather than just blocks of ships, a former executive told Caixin. ‘factory. Ningbo’s government requirement resulted in low profitability and lower tax revenue for Ningbo, the former leader said.
As South Korean law requires the protection of domestic shipbuilding technology, the Ningbo plant could only manufacture traditional ship models, while the South Korean inbound export model is more suitable for the production of high added value products such as liquefied natural gas carriers.
In its letter to employees, Samsung promised to provide full economic compensation. According to its proposal, Samsung would pay one month’s salary for each full year of employment, plus one additional month’s salary and re-employment assistance equivalent to two months’ salary, a so-called “N + 3” compensation formula.
However, many employees who worked at the Ningbo shipyard for more than 10 years said they were not satisfied with the N + 3 plan. Many of them suffer from hearing loss, lower back problems, knee injuries, excessive inhalation of benzene, and other occupational ailments common to heavy industry workers. They said they thought the compensation standard is too low.
Samsung still has a few blocks of ships under construction at the Ningbo Shipyard, but workers are going on strike. Equipment from some facilities that are no longer needed is being dismantled and transferred to another Samsung shipyard in Rongcheng, Shandong Province, with new orders.
The Ningbo site is in a chemical industry zone. The local government is adjusting policies to promote the chemical industry, and chemical companies are interested in the 200 acres occupied by the shipyard, the former Samsung executive said. Local authorities also hope to attract industries that will generate more tax revenue, the executive said.
Samsung has had merger talks with another Chinese shipbuilder, but the parties have not come to an agreement due to branding issues, the former executive said.
The Ningbo government signed an agreement with Samsung to take over the shipyard land, according to a local government statement. The government said in August that it was seizing the land as part of a clean-up plan for the Qingzhi Chemical Industrial Park, as some non-chemical companies in the park do not align with current national industrial policy and there is a significant potential risk to safety.
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Caixinglobal.com is the English-language online news portal for the Chinese financial and business news group Caixin. Nikkei recently agreed with the company to exchange items in English.