In December 2013, Beijing unveiled a two-tranch subsidy scheme for domestic shipowners. The first tranch subsidy will be given out upon completing the demolition of a vessel before its operational expiry date, and a second tranch will be given after an order confirmation for a new replacement vessel. The subsidy scheme will last until the end of this year.
Gao, however, suggested that the second tranch of the subsidy on the replacement vessel should be extended to 31 December 2018 so as to prevent owners from adding on to the tonnage supply.
He was quoted as saying that while the subsidy end date for the ship demolition will work, the subsidy deadline for firming a newbuilding order will only serve to magnify the oversupply problem that the shipping market has been trying to overcome.
Gao explained that the shipping industry slump has already seen many owners delaying its newbuilding deliveries to 2016-2017. If Beijing’s subsidy scheme again encourages owners to confirm new orders within this year, it will amplify the delivery tonnage over the next two years, bringing about a greater imbalance in demand-supply to the shipping market.
The Chinese policy states that the total tonnage of the newly ordered ships should not be less than the total tonnage of the vessels scrapped. Shipowners can choose to tabulate their tonnage based on a cumulative basis from all the scrapped vessels and newbuildings or on a one-for-one basis.
The subsidies offered will be RMB750 ($120) per gross tonne for the recycled vessel, and the same level of subsidy will apply for the replacement newbuilding that must be built at Chinese shipyards.
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