BIZCHINA> Center
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BIZCHINA> Center
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Plugging the leaks
By Qian Yanfeng (China Daily)
Updated: 2008-10-27 09:21 Saturated market It's a sign that the market has become highly saturated. China alone holds about 200 million deadweight tons in its order book. Ye says the financial crisis has accelerated the cooling down of the industry. Meanwhile, both the shippers and shipyards will suffer from worsening credit conditions as fallout from the financial crisis has made it increasingly difficult for ship owners to pay for the ships they ordered. However, industry watchers generally agree that Chinese shipyards' fully booked backlogs that extend three years down the road could provide a cushion against the overwhelming market slump, which, though, could also threaten many fledgling and privately owned yards. Private shipyards in China account for approximately 50 percent of the country's total production capacity. But the vast majority of them lag behind in technology and experience, and may have difficulties in generating enough financing to propel continued growth, says Cao Yousheng, deputy director of the Technology Research and Economy Development Institute under the CSSC. "While larger State-owned shipyards are better positioned to weather the current challenges, small private players may have difficulties in the timely delivery of ships," says Cao. "Apart from liquidity problems, they have to undergo stricter checks from ship owners who obviously have less interest in getting ships done during the market dive. This in turn may add to their liquidity squeeze and even drive many to bankruptcy." Newly opened yards, in particular, need to sign new contracts in order to maintain their production capacity and recover initial costs in equipment investment, Cao adds. "When the market is on a downward spiral, the risk is aggravated on the yards' side because ship owners may have a higher chance of canceling their orders," says Zhang Yao, corporate management director of Yangzijiang Shipbuilding (Holdings) Ltd, China's second largest private shipyard. It was also the first Chinese private yard to launch its IPO in Singapore. "Small yards in China usually lay down a very low downpayment ratio to secure contracts, which means they may have a higher risk of cancellations if the buyers can't find enough money to pay for their ships," Zhang says. The situation is further complicated by the fluctuation in steel prices and the yuan's appreciation, which has added to the risks for small shipyards that are less efficient in their production and cost controls. According to the statistics from China Association of the National Shipbuilding Industry, the over-6-percent appreciation in the yuan against the US dollar has cost China's shipbuilding industry a total of 1.4 billion yuan in the first six months of this year. If the appreciation continues into the next year, the impact upon Chinese ship exporters will increase. Thus it's important for Chinese shipyards, especially the small players, to increase their production and management efficiency while also stepping up design capabilities in high-value-added and hi-tech vessels, analysts say. They remain generally upbeat about China's shipbuilding industry, however. "Chinese yards still enjoy cost advantage compared with their counterparts in Japan and South Korea, and they have much greater room for improving production efficiency," Cao says. For Cheng from the Wuzhou shipyard, the current crunch also represents a good opportunity for the company to improve its corporate management and capability in shipbuilding while diversifying into new product lines. "The most important thing to do is to make ourselves stronger, so that we could become the winner in the next cycle." (For more biz stories, please visit Industries)
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