More of China’s shipbuilders face bankruptcy due to overcapacity

By Liu Tian Source:Global Times Published: 2015-8-31 18:38:02

China's shipbuilding industry, which builds 40 percent of the world's ships, has been in trouble since the global financial crisis in 2008. Demand is weak due to struggling economies around the world. The industry also suffers from the problems of overcapacity and lack of financing channels. The situation has led experts to call on the government to institute more supportive policies for the industry, especially for private companies.

Men work at a shipyard in Chongqing on August 25. Photo: CFP

A court ruling came down on the last day of July announcing the bankruptcy of Nantong Mingde Heavy Industry Co (NMHI), a private shipbuilder in Nantong, East China's Jiangsu Province.

The ruling casts a cloud over the already faltering domestic shipbuilding industry, which has struggled since the global financial crisis of 2008.

Experts have said that half of China's shipbuilding enterprises will go bankrupt in the coming years.

As of July, five shipbuilding enterprises had gone bankrupt since December 2014, putting about 35,000 people out of work, the Beijing-based newspaper China Industrial Economy News reported on July 27.

"It is unlikely for the shipbuilding industry to rebound in the next one or two years," said Xue Tao, chairman of Shanghai-based Greatsail Marine Engineering Co, which creates design schematics for the shipbuilders. "The situation will even deteriorate."

Dead weight

Experts say that China's shipbuilding industry is in the midst of a "chilly winter." The ongoing downturn has been illustrated by two key indicators for the shipbuilding industry that have declined over the first seven months of this year.

From January to July, new shipbuilding orders collapsed 69.4 percent year-on-year to 14 million dead weight tons, the China Association of the National Shipbuilding Industry (CANSI) said on August 18.

By the end of July, total handling orders fell 10.9 percent year-on-year to 136.7 million dead weight tons. The figure had dropped 8.5 percent from the end of 2014.

Shrinking orders have taken a toll on shipbuilders' profits. The 88 major shipbuilding enterprises in the association reported their profits plunged 17.7 percent year-on-year to 3.35 billion yuan ($525.28 million) over the first seven months of the year, CANSI's data show.

The collapse of the shipbuilding industry will increase unemployment, reduce local government revenue and impact the upstream and downstream industries, such as the boat deck industry and iron and steel industry.

"My company is receiving fewer and fewer new orders these days," Xue told the Global Times on Friday.

Strong headwinds

In Xue's view, the decline in new orders is due to the weak economy, both at home and abroad.

That factor, along with massive overcapacity in the industry, have caused the recession in the shipbuilding industry.

The global economic gloom has dented demand for the shipping, thus reduced demand for new ships.

Many of the world's shipbuilding giants have been hit. South Korea's Daewoo Shipbuilding and Marine Engineering Co, one giant in the industry, has seen its stock price fall more than 50 percent this year, Shanghai-based news website reported on July 27.

Over the same period, the stock price of South Korean giant Hyundai Heavy Industries has fallen by 13 percent, the report said.

Shipbuilding has been one of the pillars of South Korea's economy since the 1970s. The country's shipbuilders constructed 8.5 percent of the world's ships, according to

Also, Japanese shipbuilding enterprises such as Mitsui Engineering and Shipbuilding Co have been developing more energy efficient ships to attract more orders.

The overcapacity problem is particularly prominent at times when demand is weak.

China builds about 40 percent of the world's ships - more than any other country, media reports said.

In 2012, there were more than 3,000 shipbuilding companies in the country, CANSI data show.

However, the global recession and subsequent collapse in orders just aggravated the overcapacity problem, industry expert Chen Daxi was quoted as saying by Beijing-based news website on Wednesday.

"Now many of them are facing bankruptcy," Chen said.

The technology of China's shipbuilding industry is also behind that of South Korea and Japan, Xue noted.

"China's shipbuilders aren't as competitive as their foreign peers because of the elementary level of their technology," Xue said.

Xue said the low-added value also makes it hard for China's shipbuilding enterprises to survive when the industry undergoes an adjustment.

Commercial banks have cut back on lending to shipbuilding enterprises in recent years, making it difficult for these companies to get enough funding to develop and combat the deteriorating operation environment.

"Our bank is not inclined to lend to shipbuilding enterprises other than the few State-owned ones," said Wang Haiyang, a risk-control specialist at a Shenzhen-based commercial bank, told the Global Times on Thursday.

Wang refused to disclose the name of the bank she works for.

"The imbalance in government policy support has also made it hard for private shipbuilders to compete with State-owned enterprises," Xue said. "The State-owned ones can get enough funding and also receive higher priority when bidding on projects."

There will be more enterprises in the industry that go bankrupt over the next few years, according to Xue.

"Even more than 50 percent of them," Xue noted.

Some experts have been appealing to the government to transform China's shipbuilding enterprises, stressing that an industry reshuffle has become inescapable.

They see oceanographic engineering as offering a promising new direction for the industry.

But it is easier said than done. "There is a high technological threshold in the oceanographic engineering sector, high risks in the area and diminished market demand in the oceanographic engineering sector due to violent fluctuations of international oil prices," Xue said. "All of these things make it a difficult area to break into."

About 80 percent to 90 percent of the designs, power systems and communication equipment for high-end engineering auxiliary ships are imported from abroad, Xue said.

Xue emphasized the importance of government policy support for this industry.

Newspaper headline: Against the current

Posted in: Insight

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