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Rongsheng’s troubles: looking beyond the shipyard gates

Rongsheng’s troubles: looking beyond the shipyard gates
Recent news that China Rongsheng Heavy Industries Group has been talking to several parties for help with a bailout may provide an idea what direction the restructuring of China's shipyard industry may take.

Rongsheng was reported to be in talks with the cities of Rugao and Nantong for financial help. The company was also said to be discussing plans for help with some ministry-level departments related to the shipping industry.

The company had earlier said it was asking the government for financial assistance and it has also recently been hit by protests from workers demanding months in back pay.

Along with the rest of China's shipbuilders, the past year or so has been tough for Rongsheng, as revenue last year fell by half to $1.3bn amid continued erosion of its orderbook. It issued a profit warning on 5 July while also responding to allegations of its financial distress in the press that had caused its share price to tank.

What the protests and the talks with the local governments seems to suggest is that there are certain companies within the industry that have greater importance than others due to their disproportionate effect on the local economy.

Rongsheng's troubles for example, which at its peak employed some 28,000 workers at its main Rugao yard, have had a serious effect on the city's fortunes. As the company cuts back its workforce and scales down production while it tries to resolve its cash crunch, the supporting services and subcontractors have also suffered.

This is quite different from the thousands of small private shipyards that mushroomed on China's coast and riverbanks to try and jump on the newbuilding bandwagon. Many of them did not have much supporting infrastructure around them or other businesses that relied on them. These are the ones that have quietly been allowed to fade into oblivion.

While at an aggregate level these failures may have had a fairly large effect, the consensus opinion has been that the workers and skills employed were not so specialised that they could not be redeployed elsewhere. Companies such as Rongsheng in contrast have been building some of the world's biggest dry bulk carriers and has recently diversified into the offshore space. The pool of expertise that will be lost if it fails is potentially much larger.

As the industry waits to see the outcome of the shakeup in the Chinese shipbuilding industry, it will watch with interest the way the Rongsheng case is treated. It may be that despite the rush towards capitalism, China has really not strayed that far from its socialist roots.

TAGS: China