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Shipbuilding industry faces credit crunch

By Yu Hongyan (chinadaily.com.cn)
Updated: 2009-07-02 11:50

Alongside the plummeting orders , China's shipbuilding industry is suffering another headache: shortage of funds.

The country's ship builders received 1.18 million deadweight tons (DWT) of new orders in the first five months this year, a decrease of 96 percent year-on-year, according to statistics from the Ministry of Industries and Information Technology (MIIT).

Meanwhile, orders of 55 vessels, or 2.32 DWT, were canceled during the same period, about 1.2 percent of the industry's total holding orders as of the end of May, said the ministry.

"The (world's) shipbuilding industry may face a financial gap of $300 billion in the next four years, with Chinese ship builders awaiting $60 billion to tide over the plight," Gao Zefeng, a senior credit manager with The Export-Import Bank of China (China Eximbank), was quoted by the 21st Century Business Herald as saying.

As a policy bank led by the State Council, China Eximbank is the country's first lender for ship builders, with loans for the shipbuilding sector accumulated to 102.46 billion yuan ($14.99 billion) and $7.45 billion, according to the paper.

Related readings:  Shipbuilding fund confident of target   Shipbuilding stimulus plan made public  Glut of steel could worsen as shipbuilding orders plunge  China approves stimulus plan for shipbuilding industry

"We come up and lend to the top 20 ship owners overseas, in an effort to make them order ships in China", said Gao. And his bank will also lend to ship builders at any phase of the building process, provided they are qualified under the bank's evaluation.

Unlike the Eximbank's vigor in lending, most domestic banks are cautious, even as the country's top economic planner vowed to fund the industry in early June.

An insider from ICBC, the world's largest by deposit, said that loans are made on consideration of risks, instead of governmental policies.

"One barometer for risk control is that ship builders have orders on hand", said another insider.

Judging by released information, only Jiangsu Rongsheng Heavy Industries Co, the country's biggest private shipbuilder, got 11.25 billion yuan in credit line last month, after secure an order to build four vessels for an Oman client.

"The holding orders for domestic ship builders may sustain their production until 2012, but credit support would be crucial for them survive the downturn", said Zhang Guangqin, president of China Association of the National Shipbuilding Industry (CANSI).

To aid the weakening industry, a 20-billion-yuan industry investment fund is forging in Tianjin, which would aid in equity investment, ship leasing, supporting mergers and acquisitions among shipyards and purchasing vessels that are cancelled by buyers.

And others are seeking different ways out.

Zhoushan Jinhaiwan Shipyard Co Ltd, a Zhejiang-based private ship builder, sold 50 percent of its stake to Grand China Logistics Group for 3.2 billion yuan last month, and as part of their cooperation premises, the latter will order 30 vessels in turn.

Meanwhile, in the face of the credit crunch, some ship builders are said to resort to the ship-breaking business.

"The breaking of used vessels may also spur ship owners demand for new ones", said Gao Yanming, president of Hebei Ocean Shipping Co, Ltd.