By Joyce Lee

GEOJE, South Korea, June 1 (Reuters) – Geoje Island, off the southeastern tip of the Korean peninsula, seems as affluent as ever: international automobiles cruise the streets, younger moms pushing strollers converge on espresso retailers, and staff on bikes pour into bustling shipyards.

It is what comes subsequent that worries individuals in Geoje, the world’s largest producer of ships by tonnage.

South Korean shipbuilders are dealing with their largest ever disaster, with mass layoffs anticipated later this yr as completed vessels go away the shipyards and few new orders are available in.

“We’ve never had a serious downturn – ever,” Kim Hyeon-gyu, director of Geoje’s principal industrial park, stated on the sidelines of a public listening to to debate looming layoffs.

Because it takes about two years to construct a ship, Geoje’s docks are nonetheless busy. But with no main uptick in orders by September, which appears unlikely, 20,000 shipbuilding jobs in Geoje will likely be misplaced by March, metropolis officers say.

Some 70 % of Geoje residents rely for a dwelling on shipbuilding, an trade that for 4 many years was a key engine of South Korea’s export-driven progress and nonetheless employs about 200,000 throughout the nation.

Now, a world droop in commerce and commodities, plus rising competitors from China, is forcing Geoje to seek out methods to ease its dependence on the shipyards.

“Past strong shipbuilding growth made us lax in finding ways for the tourists to spend money here instead of driving through,” stated Kwon Min-ho, the mayor of Geoje, which is constructing a 424-room resort as a part of a plan to broaden its vacationer infrastructure.

HEAVY LOSSES

But the shift is painful.

Subcontractors on the large Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries Co Ltd yards in Geoje and at Hyundai Heavy Industries Co Ltd in close by Ulsan are particularly hard-hit.

“The number of subcontractors going out of business has exploded this year,” stated Kim Dong-sung, an official with a foyer group representing them. “Unpaid wages and bonuses plus 20-30 percent pay cuts are now seen as the norm.”

In the primary quarter of this yr, South Korea’s complete shipbuilding trade landed simply eight orders totalling 171,188 CGT (compensated gross tonnage).

That compares with 68 ships totalling 2,886,589 CGT in the identical interval final yr and roughly 100 per quarter throughout a 2003-2008 trade growth that noticed large capability enlargement.

The legacy of these growth days remains to be obvious, whilst exercise slows.

Geoje’s gross regional home product exceeded $50,000 per particular person in 2013, practically double the $27,214 nationwide common in 2015, in response to the Bank of Korea.

A brief drive from conventional fishing villages and the huge shipyards stand good condominium blocks resembling these of Seoul’s well-to-do suburbs. The island’s 270,000 residents embody 14,800 foreigners primarily working within the shipyards as shipowner representatives or staff, giving Geoje’s metropolis centre a cosmopolitan really feel.

“Business is alright near tourist spots, but it has slowed down in downtown stores,” stated Lee Mi-eun, proprietor of a giant beef rib soup restaurant close to one in all Samsung’s shipyards. “People ask for lower-priced menus, come in smaller groups.”

Shipbuilding right here was largely spared the state-driven restructuring many different South Korean industries went via in the course of the 1997-98 Asian monetary disaster because it earned helpful {dollars} and had years of orders in place.

While within the aftermath, some shipbuilders have been bankrupted or offered, and Daewoo Shipbuilding was bailed out by a state-run financial institution, trade heavyweights constructed a dominant place in opposition to European and Japanese rivals.

More not too long ago, as orders for conventional ships dried up or moved to China, Daewoo, Samsung and Hyundai – the world’s three largest shipbuilders – bid aggressively to construct advanced, costly offshore oil and fuel amenities.

That stored the yards buzzing however value overruns and delays led to mixed web losses of $4.9 billion for the three giants in 2015.

Under prodding by Seoul, shipbuilders have been shedding property and slicing workers and wages in hopes of using out the downturn.

Clarksons Research beforehand stated it expects international business ship orders to start resuming a while round late 2017, with a full restoration solely rising in 2020.

Seen as “too-big-to-fail”, the federal government is searching for methods to shore up the solvency of state-run creditor banks within the occasion that they should step in to save lots of one of many big shipbuilders earlier than then.

Cho Hyun-woo, planning supervisor on the Daewoo Shipbuilding staff’ union, stated restructuring shouldn’t lower so deeply that the trade loses experience it has developed for high-end buildings, which it ought to bid on as soon as demand returns.

“If you kill the technology that can make these ships when they are ordered en masse starting 2018, it’s painfully obvious the technology will go to China or Japan,” he stated. ($1 = 1,181.1300 received) (Editing by Tony Munroe and Lincoln Feast)

(c) Copyright Thomson Reuters 2016.