By Choi Sung-jin
The concerns about mass bankruptcies of businesses that operated in the now-closed Gaeseong Industrial Complex (GIC) are becoming a reality.
According to the council of GIC companies, 120 out of the total 123 businesses that operated there until its shutdown in February have since suffered combined losses of 815.2 billion won ($713.2 million) – 568.8 billion won in fixed assets and another 246.4 billion won in liquid assets.
The council officials said some 50 firms that had made most of their products at the inter-Korean factory park or whose entire manufacturing facilities were there appear to be experiencing crises of insolvencies. Except for about 10 relatively large companies listed on the stock exchange, most of the others should be seen in similar situations, they added.
By most appearances, up to 70 of the GIC companies will have to close their businesses before long if the current situation continues, the council said. "We have yet to see a firm go bankrupt but too many of them have already suffered irreparable damages," a businessman at the council said. "The companies will first stop employing new workers and then begin to sell assets before going bankrupt."
Even listed companies are faltering as their profitability rapidly deteriorates because of sharp increases in labor costs. For example, Cuckoo, a maker of electric rice cookers, had manufactured 900,000 units at its GIC plant annually, 10 percent of its total output. Since the industrial park's shutdown, it has beefed up manpower in two other local factories to meet demands from China, Vietnam and Malaysia. The sales figures in the first quarter are not in, but company executives are bracing up for a decrease in the company's bottom line.
The Shinwon Group, an apparel maker that had made 12 percent of its total output at its GIC plant, has diversified its production to China and the Philippines, but is experiencing difficulties. Hit harder were some 90 suppliers of parts, materials and manpower, who do not even have the rights to demand compensation from the government, the council said.
Government officials are not exactly sitting idle but their support measures appear to be falling far short of satisfying the owners of damaged businesses.
In a press release Thursday, the government said it is working out steps to help protect the companies that operated in the GIC from diverse aspects of finance, job security, marketing and manufacturing bases, through varied agencies such as the Small and Medium Business Administration and the Ministry of Employment and Labor.
"We have finished accepting their reports about damages and are examining them," said a government official. "Based on its results, the government is planning to provide support based on reasonable standards and principles that the public can understand and within limits that the government's budget allows."
To prevent their possible bankruptcies, some government officials responsible for supervising corporate accounting practices have also suggested that the companies not reflect their losses resulting from the complex's shutdown on their financial statements immediately and record them on separate notes.
"If they immediately reflect asset losses caused by the seizure of their plants and equipment by North Korea on their accounting books, many of these companies will fall into crises of impaired capital or bankruptcies," another official said.
One company owner exploded in anger. "Even if we hide our losses, they do not disappear," exclaimed a CEO who had operated a company making leisure goods at the GIC. "If I cannot pay wages to my employees, the only thing left for me to do is to close my business."
Another manager took issue with the government's one-sided decision to close the complex, saying, "How can businesses operate if the government betrays them without even prior notice," he said. "Even now, the government's armchair policymakers are trying to conceal the situation without coming up with real compensation plans."
The concerns about mass bankruptcies of businesses that operated in the now-closed Gaeseong Industrial Complex (GIC) are becoming a reality.
According to the council of GIC companies, 120 out of the total 123 businesses that operated there until its shutdown in February have since suffered combined losses of 815.2 billion won ($713.2 million) – 568.8 billion won in fixed assets and another 246.4 billion won in liquid assets.
The council officials said some 50 firms that had made most of their products at the inter-Korean factory park or whose entire manufacturing facilities were there appear to be experiencing crises of insolvencies. Except for about 10 relatively large companies listed on the stock exchange, most of the others should be seen in similar situations, they added.
By most appearances, up to 70 of the GIC companies will have to close their businesses before long if the current situation continues, the council said. "We have yet to see a firm go bankrupt but too many of them have already suffered irreparable damages," a businessman at the council said. "The companies will first stop employing new workers and then begin to sell assets before going bankrupt."
Even listed companies are faltering as their profitability rapidly deteriorates because of sharp increases in labor costs. For example, Cuckoo, a maker of electric rice cookers, had manufactured 900,000 units at its GIC plant annually, 10 percent of its total output. Since the industrial park's shutdown, it has beefed up manpower in two other local factories to meet demands from China, Vietnam and Malaysia. The sales figures in the first quarter are not in, but company executives are bracing up for a decrease in the company's bottom line.
The Shinwon Group, an apparel maker that had made 12 percent of its total output at its GIC plant, has diversified its production to China and the Philippines, but is experiencing difficulties. Hit harder were some 90 suppliers of parts, materials and manpower, who do not even have the rights to demand compensation from the government, the council said.
Government officials are not exactly sitting idle but their support measures appear to be falling far short of satisfying the owners of damaged businesses.
In a press release Thursday, the government said it is working out steps to help protect the companies that operated in the GIC from diverse aspects of finance, job security, marketing and manufacturing bases, through varied agencies such as the Small and Medium Business Administration and the Ministry of Employment and Labor.
"We have finished accepting their reports about damages and are examining them," said a government official. "Based on its results, the government is planning to provide support based on reasonable standards and principles that the public can understand and within limits that the government's budget allows."
To prevent their possible bankruptcies, some government officials responsible for supervising corporate accounting practices have also suggested that the companies not reflect their losses resulting from the complex's shutdown on their financial statements immediately and record them on separate notes.
"If they immediately reflect asset losses caused by the seizure of their plants and equipment by North Korea on their accounting books, many of these companies will fall into crises of impaired capital or bankruptcies," another official said.
One company owner exploded in anger. "Even if we hide our losses, they do not disappear," exclaimed a CEO who had operated a company making leisure goods at the GIC. "If I cannot pay wages to my employees, the only thing left for me to do is to close my business."
Another manager took issue with the government's one-sided decision to close the complex, saying, "How can businesses operate if the government betrays them without even prior notice," he said. "Even now, the government's armchair policymakers are trying to conceal the situation without coming up with real compensation plans."
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