China Shipbuilding Corp (中船) agreed to halve its work force in return for NT$6 billion (US$173 million) from the Taiwan government as the builder of naval and commercial vessels tries to return to profitability within two years.
The state-run company will reduce its staff to 2,400 from 5,100 employees next year and cut the salary of remaining employees by 35 percent to stem losses, said Chang Kuei-lin, a director of the Council for Economic Planning and Development.
"The government is willing to put up more money to plug the leak, because there is still a chance to turn China Shipbuilding around with serious cost-cutting plans," Chang said.
While the Taiwanese government is pushing state enterprises to cut losses and repay debt, it is likely to continue to support defense-related industries, analysts said.
Taiwan's assistance to China Shipbuilding is also aimed at "maintaining a sustainable military defense" against China's threats, Chang said. "The navy has stressed the importance of keeping the shipyard as part of its basic military installations," he said.
The US government in April agreed to sell Taiwan four Kidd-class destroyers, eight diesel-electric submarines and as many as a dozen reconnaissance aircraft in a bid to maintain a balance of military power across the Taiwan Strait.
The government's efforts to revive China Shipbuilding are also aimed at preparing the company for selling shares to the public. Stock market rules require a company to be profitable before it can start trading shares.
The local shipbuilder is losing money as competition from Korean and Japanese rivals squeezed its margins. It will probably lose NT$3 billion this year after a NT$6.2 billion loss between July 1999 and December last year, according to the company.
"We are facing global competition, especially from Korean makers that are backed by the Korean government," Chang said.
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