Ssangyong Failure Sours China and South Korea Ties

A dispute between workers of South Korea’s Ssangyong Motors and the company’s largest shareholder in China has escalated, after Korean workers protested in front of the Chinese Embassy in Seoul against illegal transfer of technology.  Chinese media responded by rallying public support for the Shanghai Automotive Industry Corporation (SAIC) to put pressure on the South Korean government to bail out Ssangyong.  Nationalist sentiment triggered by the dispute has the potential of destabilising diplomatic ties between China and South Korea.

In 2004 SAIC paid 10,000 Korean Won per share (or around US$500 million in total) to acquire 51% of Ssangyong, South Korea’s number five car manufacturer, after an intense takeover battle with another Chinese competitor, the China Blue Star Group.  Since then the value of Ssangyong has plummeted to less than 960 Won per share.  As of November last year, Ssangyong’s total debt reached 1.46 trillion Won.  It also reported a net loss of 98 billion Won in the first to third quarters last year.  The company filed for bankruptcy protection last Friday because of “serious liquidity crisis” and had suspended production as of this Tuesday.

Conflicting stories continue to come out of the media in both countries.  According to the Korean Times, workers at Ssangyong accused SAIC of threatening to lay off half of the manufacturing workers, of illegally transferring vehicle development technology to China, and of failing to fulfil its contractual responsibility to inject capital into Ssangyong.  In today’s Caijing report, however, a public relations spokesperson from SAIC dismissed the allegations and claimed that all technology transfers were done according to the book.  SAIC also pointed out that capital injection to Ssangyong was tied to the company’s performance.  In other words, SAIC has no obligation to inject money to Ssangyong unless there is a reasonable return.  According to the Caijing report, the management of Ssangyong had submitted a revival plan to the court when it filed for bankruptcy protection.  No detail of the plan is contained in the report, however.

A popular Chinese news portal, sina.com.cn, conducted an online survey of its readers about the Ssangyong incident.  The survey result suggested that popular opinion in China was against SAIC bailing out Ssangyong.  Most respondents believed the responsibility for bailing out Ssangyong should rest with the Korean government.  They also blamed the Korean workers and their failure to cooperate with Chinese investors for the failure of Ssangyong.

I am rather taken aback by the nationalist rhetoric espoused by the media on both sides.  In summing up the dispute, the Korean Times reported: “The 5,200 member-strong union said Jan. 9 will be remembered as the day ‘South Korea was trampled by China,’ saying SAIC gave up its due share of responsibility by filing for the receivership.”   On the other hand, in the sina.com.cn survey report, the failure of Ssangyong was attributed to “Chinese people not being able to culturally conquer Korean people and that Korean people are hostile to Chinese people because they are unhappy about China’s rise to prominence”.  (中国人还不能从文化上征服韩国人,韩国人对中国人有不友好的情绪,特别对中国的崛起很不满意。)

I recommend this Bloomberg report for a more objective analysis of SAIC’s original intention of acquiring Ssangyong, the reasons behind Ssangyong’s failure and its implication for the future direction of China’s car industry.

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