New pol­icy to end that sink­ing feel­ing

‘Ca­pa­ble ship­yards’ to re­ceive tax in­cen­tives and tech­ni­cal sup­port to de­velop ‘green ocean ves­sels’

China Daily (Hong Kong) - - BUSINESS DIGEST - By ZHONG NAN zhong­nan@chi­

China is tak­ing an­other round of de­ci­sive mea­sures to sta­bi­lize the rev­enue growth of its ship­build­ing in­dus­try on a solid foothold amid a de­clin­ing global ship­ping mar­ket, said a govern­ment of­fi­cial.

Chen Bin, di­rec­tor-gen­eral of the depart­ment of in­dus­try of China’s National De­vel­op­ment and Re­form Com­mis­sion, said the Chi­nese govern­ment will of­fer fa­vor­able tax poli­cies and tech­ni­cal as­sis­tance to ca­pa­ble ship­yards to de­velop greener ocean ves­sels, re­gen­er­a­tion of ag­ing ships and sup­port new or­ders of law en­force­ment and other pub­lic ser­vice ves­sels for do­mes­tic needs.

“The de­vel­op­ment of off­shore en­gi­neer­ing prod­ucts will be treated as a pri­or­ity to di­ver­sify the pro­duc­tion cat­e­gories in Chi­nese ship­yards be­cause the de­mand for off­shore en­gi­neer­ing prod­ucts such as en­ergy ves­sels, off­shore pipe-lay­ing ves­sels and oil drilling rigs has steadily in­creased in re­cent years,” Chen said.

“Even though off­shore en­gi­neer­ing prod­ucts are more ex­pen­sive and com­plex to build, the bur­geon­ing global de­mand for en­ergy re­sources is ex­pected to keep or­ders flow­ing,” Chen said.

Boosted by a pre­vi­ous in­vest­ment pack­age of in­fra­struc­ture projects such as road, air­port and port, as well as dy­namic in­ter­na­tional trade ac­tiv­i­ties, China’s ship­build­ing sec­tor en­joyed a golden de­vel­op­ing era be­tween 2005 and 2008.

How­ever, the coun­try’s ship­yards be­gan to face weaker mar­ket de­mand in 2009, when an over­ca­pac­ity in the in­ter­na­tional ship­ping busi­ness and a sharp drop in global trade vol­umes oc­curred.

Chen said the tur­moil in the global ship­ping in­dus­try has caused Chi­nese ship mak­ers dif­fi­cul­ties. Be­cause they are heav­ily re­liant on for­eign or­ders for prof­its, it is time for them to seek new mar­ket growth points.

The Chi­nese As­so­ci­a­tion of the National Ship­build­ing In­dus­try re­ported sink­ing prof­its in the first half of 2013. Prof­its of 80 ma­jor ship­builders mon­i­tored by the as­so­ci­a­tion to­taled 3.58 bil­lion yuan ($580 mil­lion), a 54 per­cent drop from the same pe­riod a year ear­lier.

A to­tal of 20.6 mil­lion dead­weight tons of new ves­sels have been com­pleted for both do­mes­tic and in­ter­na­tional shipown­ers in the first half of the year. This rep­re­sents a 36 per­cent de­crease from the pre­vi­ous year.

Cur­rently, China has 1,600 ship­build­in­gre­lated en­ter­prises (in­clud­ing 800 large ship­yards), with an an­nual in­dus­trial out­put value of 800 bil­lion yuan. A to­tal of 1.5 mil­lion peo­ple work in the in­dus­try.

Chen said a de­clin­ing Chi­nese ship­build­ing in­dus­try can cause a di­rect fi­nan­cial ef­fect on in­dus­tries such as steel and ma­chin­ery be­cause they are all closely re­lated.

Ear­lier this month, the State Coun­cil, China’s cabi­net, laid out a plan to im­prove and read­just the coun­try’s ship­build­ing in­dus­try be­tween 2013 and 2015, to re­shape the in­dus­trial struc­ture of this mas­sive sec­tor, urg­ing gov­ern­ments in Liaon­ing, Jiangsu, Zhe­jiang and Guang­dong prov­inces to stop ap­provals of new ship­yards and up­grade the value chain to build high-end ves­sels.

“Many Chi­nese ship­builders are now bet­ting on ves­sels deemed to be higher in value, such as liq­ue­fied nat­u­ral gas and liq­ue­fied pe­tro­leum gas car­ri­ers, as well as marine fish­ing ves­sels, off­shore pipe-lay­ing ves­sels, large ice­break­ers and chem­i­cal tankers,” said Li Lei, an in­dus­try an­a­lyst with Shanxi Se­cu­ri­ties Co.

Li said many ship­yards in Jiangsu and Zhe­jiang prov­inces hope this trend will help them tap into more in­ter­na­tional buy­ers and reach new mar­kets.

The State Coun­cil said the Chi­nese ship­build­ing in­dus­try should be able to main­tain 25 per­cent of the global mar­ket share for high-end ves­sels and one-fifth for the global off­shore en­gi­neer­ing-prod­uct mar­ket by 2015.

As part of this plan, the govern­ment will of­fer in­cen­tives to ship own­ers who want to re­place their ag­ing ships by or­der­ing new ves­sels. Vol­un­tar­ily scrap­ping high-car­bone­mis­sion and old ships is also wel­comed. The govern­ment cur­rently is in the process of draft­ing a plan to de­cide how many years should pass be­fore a ves­sel can be de­fined as an ag­ing ship.

Cao Jian­hai, a re­searcher at the in­sti­tute of in­dus­trial economics with the Chi­nese Acad­emy of So­cial Sciences in Bei­jing, said it is still too early to pre­dict what im­pact this pol­icy will bring to Chi­nese ship­ping com­pa­nies.

“Large ship­ping com­pa­nies such as China Cosco Hold­ing Co Ltd and China Ship­ping Con­tainer Lines Co Ltd will for sure be keen on such an ad­van­ta­geous pol­icy in re­duc­ing the mar­ket com­pe­ti­tion among medium and small ship­ping com­pa­nies be­cause the ma­jor­ity of their ocean ves­sels are rel­a­tively new and large,” Cao said.

“On the other hand, medium and small Chi­nese ship­ping com­pa­nies will not be keen to spend money on new ships be­cause their fi­nan­cial sit­u­a­tion is quite mod­est and many of them can­not af­ford to equip new ves­sels. The ships they have are all ag­ing ves­sels with a ser­vice pe­riod of be­tween 15 and 20 years.”

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