China to strive for a capacity consolidation in shipbuilding

Feeling the heat: Policy support towards large state-owned shipyards has led to a wave of liquidation in independent and relatively small-sized shipyards. Credit: Getty

China’s shipbuilding industry, which had reported a shipbuilding orderbook of 2.9 million gt in the first half of 2017, is striving to consolidate capacity.

According to Plans on structural reform 2016-2020 in shipbuilding industry, released by China’s Ministry of Industry and Information Technology (MIIT), China’s top 10 state-owned shipbuilders will be responsible for 70% of the country's new tonnage by 2020.

“China’s shipbuilding needs a capacity consolidation, which perfectly aligns with sell-side reform that would address the serious economic issue in China – overcapacity and capital misallocation in non-performing sectors," said a senior official at MIIT.

Policy support towards large state-owned shipyards has led to a wave of liquidation in independent and relatively small-sized shipyards. The latest whitelist announced on 27 April, saw the removal of 10 yards that have declared or are close to declaring bankruptcy. These include Jiangsu Rongsheng Heavy Industries, Nantong Mingde Heavy Industry, Qingdao Yangfan Shipbuilding, Yangzhou Dayang Shipbuilding, and Zhejiang Shipbuilding.

Data collected from Clarkson Research show that 244 Chinese shipyards delivered at least one ship (1,000+ gt) in 2014, but this number had fallen to 117 in 2016.

Figures from the China Association of the National Shipbuilding Industry (CANSI) have shown that the 53 leading yards completed new-vessel tonnages of 27.34 million dwt, representing a 33.2% year-on-year (y/y) growth.

In an environment of tight liquidity and industrial oversupply, Chinese shipyards have been going through a rough time these past eight months. According to CANSI, Chinese yards have recorded an 11.3% y/y drop to 15.85 million dwt in new-order tonnage from January to August this year.

The downturn in new orders led to a decline in order backlog at China’s shipyards, which stood at 81.11 million dwt as of 31 August this year.

In addition to the capacity consolidation, several mergers and asset restructuring have reflected the government’s drive to reduce overcapacity and improve efficiency.

In August, Chinese state shipbuilding conglomerate China Shipbuilding Industry Corporation (CSIC), which owned several large shipyards in northern China, signed an asset restructure agreement with eight state-backed investors, which agreed to invest up to USD3.28 billion into CSIC’s subsidiary shipyards, Dalian Shipbuilding Industry, and Wuchang Shipbuilding Industry. According to CSIC, financial support would enable them to better support their activities on shipbuilding and optimise capital structure.

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