2017, shipbuilding industry’s battle in cutting overcapacity

In the past 2016, the shipbuilding enterprises faced more severe difficulties than the performance of numbers. Basically only the 30 Valemax ore ships built in the Chinese shipyard are listed in bulk carrier orders, which means that most shipyards still have no new orders. Overcapacity in shipping industry is still very prominent, therefore, in 2017 there will be more difficulties in cutting overcapacity.

According to industry analysis, although the task of addressing overcapacity in 2016 has been completed, but the removed capacity mostly consists of inefficient capacity, that is, production capacity that have been stopped over one year. From this year, steel price has continued to rise, increasing the difficulty of addressing overcapacity in shipping industry. So how exactly overcapacity should be addressed? What overcapacity should be removed? How to distinguish between backward production capacity and advanced production capacity? Deputy Secretary-General of China Association of the National Shipbuilding Industry, Mr. Li Zhengjian, pointed out that production capacity that cannot meet environmental safety standards should be classified into the scope of backward production capacity. As long as the environmental index is over the industry average with a high accident rate and potential safety hazard can be identified as backward production capacity. Ms. Xia Xiaowen stated that it’s not easy to purely define backward production capacity, but we can define advanced production capacity. We can approximately take shipping companies in a white list as relatively advanced production capacity, but it does not mean that the rest is backward production capacity. What the government should do is to give priority to support or help advanced production capacity to further improve their market competitiveness, so that more market resources can concentrate to the advanced production capacity, thus the power of the market can be utilized to eliminate some backward production capacity. The market is a touchstone, and ultimately it is to test which is the advanced production capacity and which is backward.

For backward production capacity, Mr. Li Zhengjian proposed they can be futher removed by limiting their time of withdrawing from the market. The current steel and coal industry has specific time limits for backward production capacity; the shipping industry has not yet specific time limits and mainly relies on the market to adjust.

From the national level, Ministry of Industry and Information Technology and other five ministries introduced the Action Plan of Transformation, Upgrading and Restructuring for Shipping Industry, which pointed out the direction of eliminating backward production capacity, restructuring, transformation and upgrading for China shipbuilding industry: on the one hand encourage and guide the enterprises with strength to become bigger and stronger, speed up the merging and reorganization and make efforts to improve technology and management capacity; on the other hand accelerate the small and medium-sized shipping companies with low level of technology, poor management and no power to withdraw. Recently, there is a new standard in the steel industry that promoting capacity elimination through differentiated price, that is by differential power price and administrative means to increase the operating costs of backward production capacity, so that they cannot run on. The shipping industry can learn from other industries of the similar measures to address backward production capacity and retain advanced production capacity. In such a gloomy market environment, how will enterprises survive? Ms. Xia Xiaowen said that the government attaches great importance to the shipbuilding industry, whether the previously proposed “Made in China 2025”, or recently introduced Action Plan of Transformation, Upgrading and Restructuring for Shipping Industry (2016-2020), are closely focusing and supporting the development of China shipping industry. In this context, some large-scale enterprises can take advantages of orders, financing and diversified operation to take the preemptive opportunity and strive for development.

For some small private shipping enterprises, most of them have no other ways but shipbuilding. When the ship market is depressed, they will become more passive. Therefore, for these enterprises, improving their own competitiveness becomes even more important. Ms. Xia Xiaowen said, first is to identify market segments for their own development, ensure the product positioning clear, focus on creating two to three types of ships, target to provide good product to ensure order volume; second is to control cost, small-scale private shipping enterprises may not run projects that require much investment at the early stage such as smart manufacturing, especially in the current when the ship price is very low and survival comes first, but the operational cost of shipping enterprises must be controlled, to ensure so that orders can be successfully completed; third is try to develop some shipbuildingrelated business. For example, there will be strong steel processing capacity since they can build ships, so they can try to develop steel-processing area. Or, some small and medium-sized private enterprises can cooperate with some large state-owned enterprises, which will help these small and medium-sized private enterprises survive.

2017, shipbuilding industry’s battle in cutting overcapacity

Reporter Xu Miaomiao