Urgent Liquidity Issues in Key Industries like Electronics and Cars: 105 Trillion Won+α "Support Far from Enough"

On the 29th, at the 3rd Industrial Development Forum held in the Grand Ballroom of COEX, Gangnam-gu, Seoul, Prime Minister Chung Sye-kyun delivered a congratulatory message via video. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporters Kim Hyewon and Woo Suyeon] "The provision of a special guarantee worth 500 billion KRW for automobile parts companies is not the end but just the beginning. It signifies the intention to introduce additional financial support measures prioritizing industries facing severe management difficulties, not only automobiles."

Prime Minister Chung Sye-kyun's indication of additional financial support for companies suffering from a sharp drop in credit ratings or liquidity shortages due to the impact of COVID-19 is interpreted as a policy judgment that overcoming the short-term liquidity crunch is the most urgent task. In the industrial sector, voices have emerged calling for public-private cooperation to overcome the short-term liquidity crisis caused by COVID-19, including the additional expansion of the 40 trillion KRW Industrial Stability Fund and the enlargement of special guarantee scales by industry.

At the '3rd Industrial Development Forum' held on the 29th, hosted by 26 economic and industry-specific organizations including the Korea Automobile Industry Association, the Korea Federation of Medium-sized Enterprises, the Semiconductor Industry Association, and the Bio Association, Chung Manki, chairman of the Korea Automobile Industry Association, said, "Even just looking at automobile parts companies, they complain of a liquidity shortage of about 10 trillion KRW, which is a significant difference from the 500 billion KRW special guarantee fund, so the scale needs to be expanded going forward," adding, "Various government supports are needed for low-credit rating companies in other industries as well."

According to a survey conducted by 26 industry-specific organizations on the same day, the urgent liquidity needed in five industries including automobiles and petrochemicals amid the economic crisis caused by COVID-19 reached 105 trillion KRW. Specifically, short-term liquidity difficulties amounting to 105.3 trillion KRW were found in the five major industries: electronics and telecommunications (50 trillion KRW), automobiles (32.8 trillion KRW), machinery (15.5 trillion KRW), textiles (4.6 trillion KRW), and petrochemicals (2.4 trillion KRW).

Currently, the government operates a support fund of 135 trillion KRW mainly for small and medium-sized self-employed businesses, and the 40 trillion KRW Industrial Stability Fund was launched the day before, but the scale is still considered insufficient. Accordingly, the industry unanimously pointed out expanding liquidity supply and supporting cost reduction as the top priorities for short-term survival.

By industry, the automobile industry is experiencing a decline in production volume for four consecutive years, and the impact has been greater due to COVID-19. It was diagnosed that short-term domestic demand stimulation measures such as extension of individual consumption tax cuts and acquisition tax cuts, as well as financial support for parts companies, are necessary. The electronics industry is expected to see a 4% decrease in the global market this year, and it was pointed out that fostering downstream industries, responding to smart IT products, and building digital New Deal infrastructure are needed. The shipbuilding industry is at a survival crossroads due to a sharp drop in orders, and to overcome the crisis, support for orders such as early replacement orders for aging liquefied natural gas (LNG) ships and minimizing liquidity risks were mentioned.

The semiconductor industry faces an unpredictable situation due to the global economic recession in the second half of the year, and opinions were expressed that aggressive investment in new technologies is necessary to strengthen system semiconductor capabilities. The bio industry emphasized the importance of government support such as strategic alliances, significant research and development investment, and regulatory innovation. The steel industry is expected to experience a demand decrease of more than 10%, with a greater shock than during the financial crisis. Short-term support such as government expansion of social overhead capital (SOC) investment and reduction of the burden rate of the Strategic Industry Foundation Fund was urged.

These 26 organizations proposed 14 priority tasks to the government and the National Assembly, including ▲improvement of government research and development (R&D) policies ▲adjustment of corporate tax rates ▲measures for reducing working hours ▲regulatory improvements such as prevention of legislations requested by lawmakers ▲and improvements to labor-management relations laws related to strikes and negotiations. First, although South Korea's R&D investment accounts for 4.6% of GDP, the highest level in the world, it was pointed out that productivity and efficiency are insufficient due to outdated and complex management systems such as project selection and management methods and budget systems of government-funded research institutes, and they urged the preparation of a 'National R&D System Innovation and Productivity Enhancement Plan.'

Also, despite the Moon Jae-in administration raising the top corporate tax rate from 22% to 25%, tax revenue has fallen short of government expectations and only weakened companies' investment capacity. Therefore, they proposed lowering the corporate tax rate by 2 to 5 percentage points and simplifying the brackets from four to two. Regarding working hours reduction, they requested expanding the flexible working system period from three months to one year and relaxing the introduction requirements from written consent of employee representatives to individual employee consent. There was also an opinion that the special working hours exemption industries should include research and development and construction jobs.

Regarding labor-management relations laws, they said improvements should include extending the validity period of collective agreements from two years to three to four years, raising the approval rate for strikes, and allowing replacement labor during disputes. These organizations particularly argued for introducing an 'Industry and Job Impact Assessment System' for regulations to prevent excessive legislations requested by lawmakers and strengthening the regulatory coordination role and functions of the Office for Government Policy Coordination. Deputy Director Moon Seung-wook of the Office for Government Policy Coordination responded, "Within the scope that does not infringe on the National Assembly's legislative authority, we will consider the roles the Office for Government Policy Coordination can play in the legislative process of each ministry to prevent excessive legislations requested by lawmakers."

This content was produced with the assistance of AI translation services.