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China’s scrap-and-build policy may be discontinued

China’s ship scrapping and newbuilding subsidy scheme aimed at encouraging owners to renew their fleet and creating jobs for shipyards may no longer be a feasible policy, according to an industry veteran.

Li Shaode, ex-chairman of the former China Shipping Group, said a further extension to the expiry of the policy is not expected to benefit the market in a significant way.

Beijing first announced the scrap-and-build policy in December 2013, offering shipowners a two-tranch subsidy to encourage scrapping of vessels before their operational expiry date, and to build new and more energy efficient ships as replacements.

The policy, originally due to expire in 2015, was extended by to 31 December 2017.

Li, who is also a member of the National Committee of the Chinese People’s Political Consultative Conference, said he had called for an extension to the policy to 2017, but the scheme should now be allowed to lapse.

Li told reporters that under current market conditions, the continuation of the policy would lead to very low margins or even unprofitable deals for shipyards, while the tonnage overcapacity problem will persist.

In the absence of the policy, the industry would be allowed to consolidate and restructure further even if more bankruptcies are needed, according to Li.

In 2016, Chinese yards delivered close to 100m dwt of vessel tonnage and received 27.41m dwt in new orders, while 44m dwt of tonnage were demolished, giving rise to signs of a deflation to oversupply as the market continues to consolidate.

Li retired as chairman of China Shipping Group in November 2013 and passed the baton to Xu Lirong, who is now chairman of the merged China Cosco Shipping Corporation Limited (Cosco Shipping).

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