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Tough road ahead for Chinese yards: Yangzijiang

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It has been 10 years since the onset of the 2008 global financial crisis, which also marked the start of a prolonged downturn for China’s once bustling and sprawling shipbuilding sector. Ren Yuanlin, executive chairman of Yangzijiang Shipbuilding, foresees that the outlook for Chinese yards will continue to be tough.

Between 2009-2016, more than 140 Chinese shipbuilding enterprises have shut down, while more than 90 others have merged or been acquired.

“Today, a mere 4% of shipbuilders in China account for 64% of newbuild orders,” Ren said in an interview. “More than 1,000 shipyards are still registered as being in business in China. But those that have done deliveries or won orders in the past one year number at just slightly more than 100. In my opinion, there are really only 30-40 active yards,” he said.

“These numbers will only shrink further. Many subsidiary yards of state-owned enterprises have merged; privately-owned yards are going through a consolidation phase.”

Ren recalled that Yangzijiang had acquired Changbo yard and Xinfu yard in 2010 and 2012 respectively, resulting in its bigger scale today.

The prospects for privately-owned Chinese yards are tough as the local market has always been dominated by the two giant state-owned enterprises – China State Shipbuilding Corporation (CSSC) and China Shipbuilding Industry Company (CSIC). There is now another heavyweight state-owned shipbuilder Cosco Shipping Heavy Industry established in December 2016.

In regional competition, Japan’s shipbuilding market still retains a reputation for quality even as the sector has weakened significantly. South Korea, on the other hand, continues to pose serious competition as the Korean government and banks are pumping in money to salvage the ailing shipbuilders, Ren said.

But the global shipbuilding market will continue to be concentrated in Northeast Asia, as Ren did not believe any sizable market share will shift back to Europe or to a new region such as Southeast Asia.

Ren pointed out that the weather of Southeast Asia is too hot which would raise operational costs. Southeast Asia also lacks a mature and extensive equipment supply chain, as well as a lack of business capital and labour.

Looking ahead, a near-term recovery for shipbuilding is unlikely. Rather, the market is much like in a ‘L’ shape – a stable weak market after the plunge. “We are unlikely to see another super peak, neither should we expect a further weakening of the market,” Ren observed. “Even though shipbuilding is a sunset industry now, the sun will never disappear on the market.”

Even as more shipyards are expected to exit, the fact is that shipbuilding capacity has not been drastically compromised. Ren said this is because the active yards have been upgrading and streamlining their operations to raise the efficiency of capacity output.

Yangzijiang, for example, had required two to three years to complete the construction of a 10,000-teu containership a few years ago. Today it only needs 12 months to finish the job, according to Ren.

He added that as long as the oceans do not dry up, there will be demand for ships and shipbuilding. Moreover, the shipping market is going through a technological transformation requiring more environmentally-friendly and bigger ships, leading to the phasing out of many existing vessels including those that have not reached the end of their operational lifespan.