Corporate bankruptcies hit all-time high

The number of companies filing for bankruptcy in the first 10 months of this year has already surpassed the highest number ever recorded on an annual basis. The number of corporate bankruptcies (court cases) processed by courts nationwide from January to October was 1,380, up 27.7 percent from the same period last year (1,081). The number of bankruptcy filings has already surpassed the total for all of last year (1,302), which was the peak year for bankruptcy filings. Businesses that survived the COVID-19 pandemic are collapsing because they can no longer withstand the prolonged recession and high interest rates.

The companies that went bankrupt included firms in all different industries ranging from wholesale and retail trade, manufacturing, information, communication, and construction. In the manufacturing sector, they were concentrated in machinery and equipment, electronics, and metalworking. In the Pyeongtaek-Hwaseong area of Gyeonggi Province, where The Dong-A Ilbo team visited, there are many factories that have recently shut down operations. In front of an electronics manufacturer's factory, only broken TVs and other inventory were lying around, and at the factory of a vendor for a final assembly company, factory equipment was being loaded onto trucks to be sold. “We are just trying to survive this year,” said one of the companies interviewed.

While exports have picked up this year, led by semiconductors and automobiles, small and medium-sized enterprises said they have not felt any recovery. This is because the warmth of the export boom has not spread to small and medium-sized enterprises, which are facing financing difficulties due to high interest rates and high labor costs, as well as an onslaught of cheap goods from China. Large companies are not necessarily doing well either. Due to the downturn in the construction industry and China's low-cost production, POSCO closed two of its plants this year, and Hyundai Steel decided to shut down its Pohang plant in North Gyeongsang Province. With a liquidity crisis, conglomerates are shedding even profit-making small subsidiaries to be prepared for business uncertainty.

The problem is that things are not likely to get any better next year. On Wednesday, the International Monetary Fund (IMF) lowered its forecasts for South Korea's economic growth this year and next. It lowered its forecast from 2.5 percent to 2.2 percent for this year and from 2.2 percent to 2.0 percent for next year, citing greater “downside risks” next year due to uncertainty in the global economy. It did not rule out the possibility that the growth rate could fall to the 1 percent level if the trading environment changes after U.S. President-elect Donald Trump begins his second term.

Seoul should actively support healthy companies to prevent them from collapsing due to temporary crises by easing regulations, providing tax and financial support, and taking other measures. Fundamental structural reforms, such as improving the wage and employment system and reorganizing the industrial structure, are also urgently needed. The IMF also noted that strong economic policies are needed to strengthen economic resilience. Now is the time to act before companies that have said they can hardly survive through the year actually go belly up.