Reports of Chinese interest in purchasing a shipyard at Subic Bay in the Philippines have triggered alarm in Manila and other regional capitals. It now appears as though Philippine banks will bail out the sinking shipbuilder, calming fears that China will gain a foothold, if not control, of a strategically critical location in Southeast Asia. The incident is another example of the implications of China's expanding reach and the strategic value of its investments.
Hanjin Heavy Industries and Construction (HHIC), a South Korean shipbuilder, established the 300-hectare facility in Subic Bay in 2006, and it has become one of the world's top 10 shipbuilders, producing 123 ships through last year. It employed 30,000 workers at its peak, but employment has steadily fallen to just 3,800 today after more than 7,000 people were laid off in December. Thousands of other jobs have also been lost as local support businesses suffered as well. The company has been hit hard by stiffening competition, overcapacity worldwide and high fixed costs at the facility.
Hanjin Heavy Industries and Construction Philippines (HHIC-Phil), the subsidiary of HHIC that runs the shipyard, defaulted in January on debts of $1.3 billion and filed for bankruptcy. The parent company had guaranteed more than $400 million of that debt, but it was having problems of its own: The losses at Subic made up over one-third of a total debt of 3.4 trillion won, which exceeded total assets by 742.2 billion won. Trading in HHIC shares was suspended earlier this month. The parent sought to sell the Subic operations to lighten its debt load.