China Has Plans to Rebuild Their Struggling Shipbuilding Sector

China has finally issued their long awaited three-year plan, that many hope will encourage financial institutions to support the country's struggling shipbuilding sector. Although widely recognized as the world’s biggest, China may see approximately 30 percent of its more than 1,600 yards shut down in the next five years, if appropriate measures are not taken. The shipbuilding sector, as well as the iron and steel, cement, electrolytic aluminum and flat glass industries, must implement measures to address overcapacity, or face a similar fate.

The largest shipbuilding company in China, the China Rongsheng Heavy Industries Group Holding Ltd., reported last month it had a net loss in the first half and said it was seeking financial support from the government and shareholders, after experiencing a large decrease in orders continued to put a strain on the company's cash flow. The company has also agreed to issue convertible bonds to raise a net $178 million for working capital and to support the development of its offshore engineering business. The State Council's plan also encourages local governments to:

• support shipbuilders’ innovation,
• strictly control new capacity,
• promote high-end products and
• stabilize the industry’s international market share with greater funding support.

Moreover, under the government’s current five-year economic plan that runs through 2015, the strategy specifically calls for the upgrading of shipbuilding standards and developing higher value-added products. About 464 shipyards in China won 18.7 million dead-weight tons of orders worth $14.3 billion last year, the lowest since 2004. This directly compares with contracts for 14.6 million tons worth $29.6 billion received by 88 yards in South Korea, the world’s second-biggest shipbuilding nation.