Small shipbuilders may feel crisis pangs

Despite the positive impact of a stimulus package announced by the government recently, China's shipbuilders, especially the mid- and small-scale players, would be deeply affected by the financial crisis, an industry insider told China Daily yesterday.

Chinese shipbuilders should try to improve shipbuilding capability, tweak their product mix and focus on producing hi-tech ships instead of conventional vessels, he suggested.

Hu Keyi, the technical and marketing director of Jiangnan Shipyard (Group) Co Ltd, made the comments on the sidelines of the annual session of the Chinese People's Political Consultative Conference yesterday.

The financial crisis has badly hurt the global shipbuilding industry, especially that of the top three shipbuilding nations -- Japan, South Korea and China.

Although China is not as badly affected as the other two, the country has experienced a steep decline in contractual sales, especially since the last quarter of 2008.

"Since last October, majority of the local shipbuilders, including the leading players, have got no new orders. The building capacity is much more than demand," Hu said.

The situation, according to Hu, is worse than what the local industry experienced during the 1997 Asian financial crisis.

"At that time, domestic and foreign ship owners came to us for discussing possible deals, although few deals were eventually struck. But this time, nobody has even come to enquire," Hu said.

And the industry has not bottomed out, and cannot recover until at least the end of this year, Hu said.

What's worse, as the global trade is expected to be sluggish, ship owners will be in more trouble. China's shipbuilders, especially the mid- and small-sized ones, would have to face the risk of bankruptcy, he said.

"The second round of attack is coming," Hu predicted.

The orders that shipbuilders have on hand were finalized over the past two years and are due for delivery before 2012. The problem now is that "the ship owners do not need ships as they have no goods to ship, and they therefore have a cash problem," Hu said.

As a result, they will be much more demanding than before and will refuse to sign the consignment sheet and pay for the ship, he said. Those shipbuilders who are not technically qualified will easily go bust when they do not receive payments on time, he said.

In February, the State Council launched a stimulus package for the shipbuilding industry, covering research and development support and financing.

"The package will certainly work, but there should be more detailed measures such as tax reduction and training to foster more industry professionals," said Hu. The shipbuilders should find ways to weather the crisis, he said.

(China Daily March 4, 2009)