China just awarded $1.8 Billion Yuan (US$293.2 million) to its four largest shipping interests. Officials intent for the four shipping lines to update their ships, and scrap older, obsolete vessels. With a huge surge in steel exports over the past few years, the decision to update the fleet seemed obvious.
Currently, China Cosco received the lion share of the money (1.4 Billion Yuan or $224.6 million), while the sister shipping company Cosco Shipping got 182.9 million Yuan ($29.8 million). Additionally, China Shipping Development Company received 215 million Yuan, and China Shipping Container Lines (CSCL) received 40 million Yuan.
The fact of the matter is that China is still looking to increase their overall capacity. This sizable investment will allow the country to accommodate 2.5 million Twenty-Foot Equivalent Units (TEU), which is an increase of 8.2 percent from 2013. This figure is also in line with the steel production in China, which is up 11 percent this year, and increased 8 percent in 2013. Steel is one of China’s major exports, and a serious reason for the growth in the country’s economy, over the last five years.
The one challenge in this increase in export trade is the average wages of Chinese workers. Chinese labor rates are increasing 15 percent per year. This means that goods that used to be cheaper to produce in China and then ship to the United States and Europe are being produced locally in those regions, once again.
Although in the past the Chinese government pledged to reduce subsidies, officials have decided to make an exception, given that it is in the best interest of the nation to keep the shipping industry up to date.