As at end-2015, China’s total shipyard capacity was estimated at 65m dwt, down from around 80m dwt in 2012. “But the current capacity is still too excessive, and China’s shipbuilding industry needs to ‘slim down’ further by removing another 30% or more of capacity,” said Li Dong, head of the equipment industry under the ministry of industry and information technology.
The 30% reduction in yard capacity from 65m dwt would translate to around 19.5m dwt.
Guo Dacheng, president of China Association of the National Shipbuilding Industry (Cansi), said the 30% reduction is considered conservative, in view of the sorry state of the market with a dearth of demand and equally excessive vessel tonnage. He cited analysts’ reports pointing to a global need for just 60m dwt of shipbuilding capacity for the 2016-2020 period.
But this begs the question of which shipyard then needs to cease operation and hence contribute to capacity cutting?
Wang Qi, director of Shanghai Waigaoqiao Shipbuilding (SWS), subsidiary of state-owned China State Shipbuilding Corp (CSSC), observed that China needs to prevent the emergence of speculative private yards, which he referred to them as “cancer cells” of the industry.
“If the market starts to recover and you have this influx of speculative yards, they will throw the demand-supply equation off balance again,” Wang was reported saying.
Ni Tao, deputy general manager of state-owned Cosco Shipyard Group, concurred that private yards can “open and close as they like”, unlike state-owned yards that carry national responsibility and are needed for any nation.
Zhu Bingkang, deputy director of privately-owned Jiangsu New Century Shipbuilding, however, disagreed that private yards are largely to be blamed for the overcapacity. “There is nothing wrong for private companies to build their businesses upon opportunities in the market. In fact, state-owned enterprises are given all sorts of protection such that they have contributed little to reducing capacity. Most of the capacity cuts have come from private enterprises that shut down,” Zhu said.
Industry players in China’s shipbuilding market are looking forward to more favourable policies from Beijing over slashing of yard capacity. For example, distressed shipbuilders are hoping that they can demolish their unwanted yard facilities and free up the land, in exchange for a cash amount from the local government to cover the costs of tearing down the facilities. But this has been met with resistance from the local governments.
Since 2015, more than 20 large to medium sized Chinese shipbuilders have either declared bankrupt or stopped production altogether. There was no mention of tearing down the idled shipyard facilities. Huarong Energy, renamed from Rongsheng Heavy Industries Group which was once China’s largest privately-owned shipbuilder hiring more than 30,000 workers, is now touted as a ‘ghost shipyard’ with its sprawling facilities left standing.
On the back of the protracted slump of China’s shipbuilding sector, Chinese shipyards received 18.83m dwt of newbuilding orders in the first 10 months of this year, down 7.6% year-on-year, and orderbook backlog as at 31 October 2016 stood at 106.02m dwt, a drop of 20.6% from the year-ago level.