Japan worried about effect of DSME bailout

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Japan worried about effect of DSME bailout

Japan is voicing concern Korea’s $3.5 billion state-backed bailout of Daewoo Shipbuilding & Marine Engineering could distort the global market already hurt by overcapacity and lower prices.

“We see this case as a problem because Daewoo is a major player in the global shipbuilding market,” Shinichiro Otsubo, director of the shipbuilding division at the Ministry of Land, Infrastructure and Transport and Tourism, said last week in an interview in Tokyo.

“If this aid package keeps the firm from cutting capacity, the effect will be potentially big.”

Creditors of Daewoo Shipbuilding, the world’s second-largest shipbuilder, said Oct. 29 they will provide 4.2 trillion won ($3.5 billion) in loans and equity to help ease a cash shortage after two quarters of large losses. Global shipbuilders are suffering from a supply glut that has driven prices lower, due to excessive investment before the financial crisis in 2008 and the subsequent slump in demand.

Japan hasn’t ruled out the possibility of filing a complaint to the World Trade Organization over the aid by the Korean state lenders, according to Otsubo. Japan will need to check the content of the aid package, including the terms of loans, compared with those generally provided by commercial banks, and whether the aid will be used to order new ships for export markets or fund for capacity cuts and other operational costs. Japan wants to see those details in a report from Korea by April, he said.

Korea’s Ministry of Trade, Industry and Energy declined to comment in an emailed response.

Japan’s comment comes amid rising global trade tension in industries from shipbuilding to steel-manufacturing, sparked by the economic slowdown in China that’s curbed demand for everything from metals and energy to vessels, a further blow to global manufacturers already battered by excess industry capacity.

Korea remains home to the global top three suppliers - Hyundai Heavy Industries, Daewoo Shipbuilding and Samsung Heavy Industries.

China and Korea were tied to lead the global market last year with a 35 percent of share by total output, while Japan’s share made up for 21 percent, data shows.

After reigning the global market for more than 40 years, Japan conceded the top spot to Korea in 2000 and lost more share to the cheaper Asian rivals. BLOOMBERG

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