Looking ahead

Whats around the corner

for Chinese shipping
September 2012 | www.lloydslist.com
Book 1.indb 1 19/09/2012 15:42
LL China 2012_002_IFC.indd 1 19/09/2012 12:02:48
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Chinese eet round-up
Sources: Lloyds List Intelligence/Clarksons
Chinese/Hong Kong owned eet
(vessels over 10,000 dwt) by type
Bulk 121.9m dwt
Tanker 41.1m dwt
Container 15.6m dwt
General cargo 5.9m dwt
Gas tanker 0.8m dwt
Ro-ro 0.8m dwt
Other 2.4m dwt
Top 10 China/Hong Kong owners by dwt
Grain imports
LNG imports
2009 45m tonnes
2009 13m cu m
2010 60m tonnes
2010 22m cu m
2011 57m tonnes
2011 28m cu m
2012 (to date) 68m tonnes
2012 (to date) 21m cu m
Coal imports
Iron ore imports
2009 126m tonnes
2009 628m tonnes
2010 167m tonnes
2010 628m tonnes
2011 202m tonnes
2011 687m tonnes
2012 (to date) 256m tonnes
2012 (to date) 723m tonnes
B
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5/ Ready for reform
Chinas commercial maritime world is poised
for a new level of leadership, but diffcult
decisions have to be made
11/ A new era for China exports
Chinese companies will start to design
and develop new products as well as
manufacture them
15/ Western stresses
frame Chinas outlook
China has an appetite for raw materials, and
is making wise policy decisions in the face of
slowing growth but its main problem is one it
cannot control: external demand
16/ Chinese eet round-up
22/ The intra-Asia shift
Demand in the worlds sturdiest trade lanes is
changing as Chinas export growth slows
24/ Strategy in bulk
China Shipping Development is taking
measures to fght the capacity glut on
intercoastal trades
26/ Getting the gas to China
Experts disagree over how many vessels
China will require, and whether Chinas yards
are ready build these ships fast enough
29/ Moving up the value chain
It may have entered the game late, but China
could catch up in the race to build more
complex and greener ships quickly
p5 p15 p22
p16
Contributors
Tom Leander
is Editor-in-Chief, Asia at Lloyds List
Edward Price
is Companies Reporter at Lloyds List,
follow him on Twitter @Ed_S_Price
Jing Yang
is Reporter at Lloyds List, follow
her on Twitter @YangJing731
Max Tingyao Lin
is Senior Reporter at Lloyds List,
follow him on Twitter @Max_lloydslist
Book 1.indb 3 19/09/2012 15:42
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LL China 2012_004.indd 1 18/09/2012 18:06:10
www.lloydslist.com September 2012
China 5
Chinas commercial maritime world is poised for a new level of leadership,
but diffcult decisions have to be made
Ready for reform
P
h
o
t
o
:

A
s
s
o
c
i
a
t
e
d

P
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e
s
s
Book 1.indb 5 19/09/2012 15:42
6 China
September 2012 www.lloydslist.com
overview Tom Leander
N
o doubt about it: 2012 has been
a tough year for Chinas ship-
owners and shipbuilders. Even
well-regarded companies have
been running losses. China
Shipping Development, a shipping unit of the
state-owned China Shipping Group that had
escaped reporting in red since it was listed in
Hong Kong over a decade ago, posted a frst-
half loss of Yuan461m ($73m). China Cosco,
the Hong Kong-listed unit of China Ocean
Shipping, continued a string of losses. The
company, Chinas largest shipping company,
haemorrhaged Yuan16.5bn in shipping-related
losses in the 18 months to June 30, 2012. These
companies representing diferent poles of
China shipping achievement as well as difer-
ent approaches on how to run a state shipping
giant are sufering from low rates in dry bulk
shipping markets. Likewise, the box line unit
of China Cosco and Hong Kong-listed China
Shipping Container Lines, also owned by China
Shipping, missed out on gains that other global
players enjoyed during the market-wide rates
rise weighed down by low rates in Chinese
coastal shipping.
Shipyards also face challenges. Chinas two
largest state-owned shipping conglomerates
China State Shipbuilding Corp and China
Shipbuilding Industry Co may not release
their fnancial results, but both companies
have announced their intent to build revenue
outside of their traditional commercial ship-
building businesses to diversify from falling
demand and historically low ship prices. The
two most prominent non-state shipyards, Hong
Kong-listed Rongsheng Heavy Industries and
Singapore-listed Yangzijiang Shipbuilding still
reported profts in the second quarter. Both are
seeking to move into ofshore shipbuilding as
all of Chinas shipbuilders face up to a fall in
orders and cancellations.
New orders at Chinese yards dropped 51%
to 11.6m dwt between January and July year
on year, according to China Association of
the National Shipbuilding Industry. Cancella-
tions in the frst half of 2012 totalled 41 ships
of nearly 2.6m dwt, equivalent to 130% of the
full-year cancellations last year. Major Chinese
yards, says Cansi, have the capacity to com-
plete vessels amounting to 70m dwt a year,
while total orders for the yards were 100m dwt,
implying that the yards will be employed at
least for several years more.
The losses in shipping and the struggles
facing Chinas yards have been the subject of
some government discussion. Until now, how-
ever, the government has hinted at courses of
action rather than laid down a concrete plan,
but it is taking shippings problems seriously.
In April, the Ministry of Transport, the National
Development and Reform Commission and the
Ministry of Finance announced they would look
into an aid package to the shipping industry.
They had planned to submit a proposal to the
State Council for approval by the end of June,
although there has been an apparent delay as
no delivered proposal has been announced. The
involvement of the NDRC and fnance ministry
indicates that the government is aware of the
gravity of the situation: the transport ministry
is usually the sole government department that
shapes and pushes shipping policy. At the time
of the announcement, discussions between
government departments were expected to be
comprehensive and wide-ranging, with talk-
ing points that included restructuring industry
players and tax reforms.
While the government has been silent on
those two, it has allowed an open debate on
alliances between cargo owners and ship-
ping companies that could bolster shipping.
In particular, the government has considered
reserving cargoes for strategic commodities
and energy products for national fag vessels.
The proposal follows complaints by Chi-
nese shipowners that they are less protected
from foreign competition than other Chinese
industries. It is questionable whether this is
the case, but it is true that Chinas shipown-
ers must compete with foreign companies for
import and export business. However, they are
protected in domestic shipping markets, a very
large proportion of their business.
Talking point:
The government
is looking into the
challenges facing
shipping lines and
shipyards
Photo: Associated Press
The government has hinted at
courses of action rather than laid
down a concrete plan, but it is taking
shippings problems seriously
Book 1.indb 6 19/09/2012 15:42
LL China 2012_007.indd 1 18/09/2012 18:07:09
8 China
September 2012 www.lloydslist.com
Many theories are bruited about the slow
unfolding of shipping policy, among them that
2012 is the year of Chinas once-in-a-decade
change in leadership, which many believe is
slated for October. The atmosphere of transi-
tion would make it difcult to fnd a consensus
and enact a major change in shipping policy
until after the new political line-up is settled.
But, broadly, it is worth asking to what degree
the government really wants to lend direct aid
to the shipping industry.
One indicator of ambiguity in the govern-
ments response to the woes of state-owned
shipping entities is the Vale case. Chinese
shipowners have presented several argu-
ments against Vales feet of 400,000 dwt very
large ore carriers entering Chinas ports. The
primary one is that the vessels are too big to
enter Chinas ports safely, but the China Ship-
owners Association has added that Vales
deployment of the mega-vessels would hurt
the nations already-sufering dry bulk owners
by stealing their business and driving down
rates. The Ministry of Transport tilted in China
shipowners favour with a circular in January
that efectively barred entry of the Valemax
ships into Chinas ports. But the language it
used is ambiguous and the Transport Min-
istry and the NDRC have appeared to have
been willing to give other constituencies an
ear. Most recently, as part of the governments
stimulus package announced in the frst week
of September, the NDRC approved a project
for Ningbo-Zhoushan Port to build two berths
that could handle Valemax-size vessels. Vale
has been in talks with ports and steelmakers
to build support with other constituencies in
Chinas economy that might see the deploy-
ment of these VLOCs as favourable to their
businesses. For ports, it obviously would
mean more volume. For steelmakers, Vales
plan will reduce the miners cost of transport
from Brazil greatly, allowing it to ofer cheap-
er high quality ore. The shipowners attempt
to bar the Brazilian vessels may fzzle in the
aftermath of what looks more like a classic US-
style lobbying fght than a cosseted industry
demanding and getting favourable treatment
from its government.
The singular problem of Cosco appears to
be the touchstone issue facing Chinas ship-
ping. Although its chief executive Ma Zehua
has denied any interest except that of safety,
Cosco has been the main force behind the
push in the China Shipowners Associations
campaign against Vale. But the problems
facing Cosco will not be solved by protection-
ist measures against foreign shipowners, and
those problems threaten to spill over onto
other state-owned carriers.
Between the lines of the weak results from
three of Chinas major shipping companies
lies a running saga of weaker earnings in the
coastal trades. Chinas two top coastal opera-
tors, Cosco and China Shipping Development,
face falling demand for transporting coal and
other commodities within Chinas border.
According to CSD, sluggish coal demand,
greater use of hydropower, increases in import-
ed coal, the relative high level of coal inventory
and rapid growth in new shipping capacity hurt
its domestic bulk shipments.. For China Cosco,
the situation looked dire. Dry bulk coastal ship-
ping volumes fell 20% during the frst half of
2012 to 15m tonnes. In contrast, volumes on the
international shipping lanes fell 17%. The com-
pany did not break down its revenues by trade
lanes; however its total dry bulk revenues fell
32% year on year to Yuan8.2bn for the period.
Spot rates on the two most important
domestic coal shipment routes, from north
China to south China and from north China
to east China, also dropped 30% during the
period, according to CSD.
Nevertheless, Cosco said in its 2012 interim
report, The group will increase its market
share in the coastal shipping markets by
expanding its shipping feets. Cosco had 18
dry bulk ships on order as of June 30.
Coscos underlying troubles come because a
large portion of its dry bulk feet is chartered-in.
It is worth asking to what degree the
government really wants to lend direct
aid to the shipping industry
Dawn of a
new era:
With a transition
in leadership expected
later this year, it is
unlikely that any change
to shipping policy will
be enacted in the
short term
Book 1.indb 8 19/09/2012 15:42
www.lloydslist.com September 2012
China 9
Some 42%, or 13.5m dwt, of China Coscos dry
bulk tonnage was chartered in as of June 30.
Many of the 130 chartered vessels are on expen-
sive long-term contracts, that continue to rack
up costs even as volumes drop.
Coscos losses are expected to continue
through this year one analyst predicted that
it would repeat its Yuan10bn loss of 2011. China
Cosco is listed in Shanghai as well as Hong
Kong and therefore is subject to a stringent rule
of the Shanghai Exchange for companies that
record two consecutive years of losses. It will
be listed on special treatment in January if it
posts a loss this year. If it loses money in 2013,
it will face delisting. In Hong Kong, Coscos H
share was removed from the Hang Seng China
Enterprises Index on September 10, owing to
the companys deep half-year loss.
Coscos stock has been trading below
HK$3.00 since September. In July, some
investment banks thought the share price
had bottomed and bought shares, causing
a spike to HK$3.80. There is still a feeling in
the market that Cosco will eventually secure
a government rescue, but whether that rescue
will mean the sale of one of its units to the
parent or some other restructuring is anyones
guess. Very likely, a restructuring will seek to
ensure that the rapid and costly expansion
at the heart of Coscos troubles now will not
happen again.
There have also been demands for reform
in Chinas shipyard industry, including the
general manager of CSIC Sun Po calling for
consolidation in January. In March, the Min-
istry of Industry and Information Technology
called for 70% of Chinas shipbuilding capacity
to be concentrated under the 10 largest ship-
builders. Chinese authorities have restructured
industries mining, steelmaking before
and analysts suggest that the goal is not
unreachable, given time. Currently the top 20
shipbuilders in the nation account for 63% of
the shipbuilding capacity, according to World
Shipyard Monitor numbers. Along with plans
for structural improvements in the industry,
the MIIT also set out ambitious goals. Chi-
nas shipbuilders should garner Yuan1.2trn
($189.7bn) in revenues by 2015 and increase
their annual shipbuilding exports to more
than $80bn both fgures are about double
2010 levels.
These seem ambitious goals, indeed. Part
of the plan is to ratchet up skills and produc-
tion in higher-value shipbuilding liquefed
natural gas and ofshore vessels, to name two
types.
The government has shown no sign that it
will act on the yard consolidation plan soon.
The prospect of unemployment in a period of
dwindling economic growth is one obvious
impediment.
The government appears to be waiting
out the shipping crisis, perhaps with the
prospect that it could avoid the whole busi-
ness of reform. This could work in shipping.
Some separate solution could be forged for
Cosco without resorting to such measures
as reserving cargoes. But in the shipbuild-
ing sector, consolidation will be necessary to
allow dying shipyards to die and promising
shipyards to expand. The move would attract
new capital and give momentum to the push
to bring Chinas yards to the level of South
Korean shipbuilders. Looked at in this light,
Chinas reluctance to reform is an element
that South Koreas shipyards are counting on
to stay ahead.
Book 1.indb 9 19/09/2012 15:42

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LL China 2012_010.indd 1 18/09/2012 18:07:53
www.lloydslist.com September 2012
China 11
Chinese companies will start to design and develop
new products as well as manufacture them
A new era for
China exports
Pathway to
innovation:
The real threat
to China comes
from technology
improvements
that will make it
cheaper for Western
countries to
manufacture in their
home market
eXPorTS Tom Leander
T
he phrase made in China is about
to get a new meaning. At a recent
panel discussion in Hong Kong,
a fnance executive from a box
line had an encouraging view of
changes that will emerge in China. The subject
was the much-heralded rebalancing of Chinas
economy towards domestic consumption and
away from an export-driven economy.
He said that domestic consumption could
not fully replace the importance of exports to
Chinas economy and followed this with an
original take.
Things are manufactured in China, but
theyre not made there. Products are designed
and largely financed elsewhere, and then
China manufactures them and exports them,
he said.
The next phase will come when Chinese
companies design and develop new products,
as well as manufacture them, for the world.
These goods will be in demand in a growing
Asia. He said carriers with a China and intra-
Asia focus would beneft.
This is a sensible message. There has been
no shortage of hype about the end of a cheap
China and the fight of multinational manufac-
turers to markets with cheaper labour costs in
Asia and even back to the US.
To be sure, China is increasingly less cheap.
According to a study, The Future for MNCs
in China, by accounting frm KPMG, Chinas
minimum wages have risen steadily since 2005
and are now higher than minimum wages in
many Asian countries.
Chinas minimum wage has risen from $59 a
month in 2005 to $160 a month in 2011. Month-
ly minimum wages were $50, $76, and $155 for
Bangladesh, Vietnam and Indonesia in 2011.
Book 1.indb 11 19/09/2012 15:42
12 China
September 2012 www.lloydslist.com
The end to a cheap China
2005
$59
Chinas minimum monthly wages have risen steadily since 2005,
and are now higher than minimum wages in many Asian countries
2011
$160
Bangladesh
2011
$55
Vietnam
2011
$76
Indonesia
2011
$155
2008
$112
Some businesses have begun transplanting
their manufacturing back to the US, and the
trend is just beginning.
Google, to name one, plans to manufacture
its Nexus 7 tablet in the US.
Reshoring has less to do with the rising cost
of labour than with advances in automation.
What is going to accelerate the trend isnt,
as people believe, the rising cost of Chinese
labour or a rising yuan, says Vivek Wadhwa,
a director of research at the Centre for Entre-
preneurs and Research Commercialisation at
Duke University in North Carolina, writing in
the journal Foreign Policy in July.
The real threat to China comes from tech-
nology.
Technical advances will soon lead to the
same hollowing out of Chinas manufacturing
industry that they have to US industry over
the past two decades.
Robotics and artifcial intelligence and new
techniques such as three-dimensional print-
ing of products a technique that greatly
simplifes the manufacture of complex goods
will allow companies a cheaper means to
make goods in the US. That does not translate
into more jobs for US workers, of course, but
could lower company costs. The argument
hinges on the slow progress in innovation in
China.
They havent cracked the nut yet on how
to innovate, writes Mr Wadhwa.
It is surely a matter of time.
However, as the KPMG study points out,
That does not mean the end of China as the
worlds manufacturer. China exports almost
as much annually as the rest of emerging Asia
combined, at $1.9trn compared with $2trn in
2011. Further underscoring the point, the
accounting firm writes, some of Chinas
largest container ports also have vastly more
capacity than entire countries, such as India
or Vietnam.
The more likely outcome is that compa-
nies in the US, Europe and China will engage
in manufacturing as a more local enterprise,
shaving transport costs. As a consequence,
raw materials will be sourced nearby where
possible and supply chains will see structural
changes.
North Africa is a commonly cited locale with
a big future in so-called nearsourcing. The
robust intra-Asia maritime trades have already
been nourished by nearsourcing, with com-
ponents assembled in cheaper markets than
China and eventually transported to China for
assembly on onward export.
But if the futurists are as good as their word,
a European car manufacturer will build in its
home country for sale there and for export.
Raw materials might have to be sourced
from afar, but will be sourced nearer the man-
ufacturing centre. As the trend accelerates, it
will reduce the need for shipping.
If recent history is any guide, Chinas
companies will be just as competitive at this
transition to automation as US or European
ones.
They already have an example.
The chief executive of Taiwans Hon Hai,
also known as Foxconn, a maker of fnished
products for Apple among others and one of
Chinas largest employers, said last August
that Hon Hai would install up to 1m robots to
replace much of the companys China work-
force by the end of 2013.
Innovation will come, too. We have yet to
see a fully made-in-China era, in which goods
are dreamed up, designed and manufactured
with advance techniques and exported for sale
by Chinese-owned companies rather than for-
eign multinationals.
China will have its own Apple, Google, Sony,
Nissan and Samsung. While the day of ever-
rising exports based on cheap China may be
done, the rise of made in China exports is
only beginning.
They havent cracked the nut yet
on how to innovate
Vivek Wadhwa, Centre for Entrepreneurs and Research Commercialisation
Source: KPMG
Book 1.indb 12 19/09/2012 15:42
C
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CM
MY
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Typ 47 - Worldwide Aftersales - A4.pdf 1 03/09/2012 14:34:47
LL China 2012_013.indd 1 18/09/2012 18:08:55
LL China 2012_014.indd 1 18/09/2012 18:12:46
www.lloydslist.com September 2012
China 15
China has an appetite for raw materials, and is making wise policy decisions in the face
of slowing growth but its main problem is one it cannot control: external demand
Western stresses frame
Chinas outlook
CHiNA remAiNS STroNg iN fACe of eCoNomiC CHAlleNgeS
Last year, a Lloyds List new analysis made the claim that Chinas hunger for raw materials this
year and its rapid expansion of domestically built and fagged vessels suggest the country can
weather a downturn among its wealthiest customers and a slowing home economy.
Back then, Lloyds List identifed how Chinas strategy [is] designed to meet two outcomes
head-on; a rebound in export-led growth or an uptick in Chinas domestic economic activity and
trade with developing countries following a Western downturn.
Almost one year on, does our analysis stand?
Certainly, one of those outcomes has occurred: a serious Western downturn. Rather than
pure bad news from North America, the root cause has been the development of a multi-layered
recession in Europe. This, as our report explains, has inescapably infuenced China, just as it has
the rest of the world economy.
As for our other concern, we report that China is still ready to adopt a greater leap forward
for the Chinese consumer. Other issues are however more immediately pressing for Beijing.
Here, we are thinking about the other hot topic alongside the Eurozone crisis: Chinas apparent
slowdown.
What will these two factors an increasingly asthmatic West and a Chinese behemoth shedding
momentum mean for assessing the next year of Chinas maritime strategy? Read on and fnd out.
For now, suffce to say, we feel our original assessment was correct China remains strong and
poised to cope with any immediately imaginable storm.
oUTlooK Edward Price
C
hina is slowing down, but three
questions remain: why, to what
extent and how will it afect the
international maritime sector?
Earlier this year, the Chinese
government cut back its own projection of
8% growth to 7.5%, following weaker export
demand from Europe and the US, and the slow-
down in Chinese domestic consumption.
Earlier this month, The Economist summed
up the situation in China as follows: Indus-
trial output has slowed sharply; stocks of
unsold goods are piling up; and Shanghais
stock market is at a three-year low. It added:
For the frst time this century, in 2012 Chinas
growth rate may dip below 8%.
Chinas slowdown is not necessarily a
problem. ICAP Shipping sees the situation as
a carefully engineered economic slowdown,
meaning Chinas slowdown is actually both
understood and under control. The Chinese
government has chosen not to aggressively
promote growth as it did in late 2008, prefer-
ring instead its pursuit of rebalancing.
According to Hou Zhenbo, a Chinese
national and an economist working for the
Nigerian presidency, There are clear signs to
suggest that China has started to re-orientate
towards a bigger consumer economy espe-
cially since the steady and then accelerated
appreciation of the remnimbi before and after
the fnancial crisis
Further, the government has also realised
how important it is to emphasise the role of
consumption-led growth as exports to EU/US
continues to deteriorate in recent times
P
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Book 1.indb 15 19/09/2012 15:42
Chinese eet round-up
Sources: Lloyds List Intelligence/Clarksons
Chinese/Hong Kong owned eet
(vessels over 10,000 dwt) by type
Bulk 121.9m dwt
Tanker 41.1m dwt
Container 15.6m dwt
General cargo 5.9m dwt
Gas tanker 0.8m dwt
Ro-ro 0.8m dwt
Other 2.4m dwt
Top 10 China/Hong Kong owners by dwt
Grain imports
LNG imports
2009 45m tonnes
2009 13m cu m
2010 60m tonnes
2010 22m cu m
2011 57m tonnes
2011 28m cu m
2012 (to date) 68m tonnes
2012 (to date) 21m cu m
Coal imports
Iron ore imports
2009 126m tonnes
2009 628m tonnes
2010 167m tonnes
2010 628m tonnes
2011 202m tonnes
2011 687m tonnes
2012 (to date) 256m tonnes
2012 (to date) 723m tonnes
B
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16 China
September 2012 www.lloydslist.com
Book 1.indb 16 19/09/2012 15:42
Chinese eet round-up
Sources: Lloyds List Intelligence/Clarksons
Chinese/Hong Kong owned eet
(vessels over 10,000 dwt) by type
Bulk 121.9m dwt
Tanker 41.1m dwt
Container 15.6m dwt
General cargo 5.9m dwt
Gas tanker 0.8m dwt
Ro-ro 0.8m dwt
Other 2.4m dwt
Top 10 China/Hong Kong owners by dwt
Grain imports
LNG imports
2009 45m tonnes
2009 13m cu m
2010 60m tonnes
2010 22m cu m
2011 57m tonnes
2011 28m cu m
2012 (to date) 68m tonnes
2012 (to date) 21m cu m
Coal imports
Iron ore imports
2009 126m tonnes
2009 628m tonnes
2010 167m tonnes
2010 628m tonnes
2011 202m tonnes
2011 687m tonnes
2012 (to date) 256m tonnes
2012 (to date) 723m tonnes
B
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www.lloydslist.com September 2012
China 17
Book 1.indb 17 19/09/2012 15:42
18 China
September 2012 www.lloydslist.com
Aware of its problems, China has acted.
The country has cut its key interest rates twice
since the start of June, bringing the benchmark
lending rate down to 6%, and reduced reserve
requirements. The Asian giant has other tools at
its disposal enviable fscal leeway, for exam-
ple, or policy options such as lifting restrictions
on speculation in the property market to reverse
sluggishness in the sector.
Taking this into account, it appears that
China will escape a hard landing.
The term hard landing tends to be thrown
around loosely, says Capital Economics chief
Asia economist Mark Williams. The key
elements of a hard landing are that growth
slows signifcantly, and that it remains slow,
and that policymakers are unable to create a
rapid rebound.
A hard landing for China would imply
that the policy transmission mechanism that
allowed China to recover so quickly in 2009 has
broken, says Mr Williams. I see no reason to
believe that is the case.
We must also not forget that a Chinese
slowdown still involves growth that the West
would kill to obtain. According to ICAP Ship-
pings August 2012 monthly report, imports
of iron ore into China in [the frst half of] 2012
are 9.3% above the same period last year and
domestic crude steel production is up 1.5%
year on year.
Additionally coal imports, both thermal and
metallurgical, for the January to July period are
up 51.4% year on year, says the ICAP report.
In our piece last year, China well placed to
weather slump, Lloyds List argued Chinas
hunger for raw materials such as iron ore
and other key elements of industrial activity
would continue. We were right: If there is any
slowdown in China, it is certainly not nega-
tively afecting the major bulk trade fows into
the country and therefore the related shipping
market, says ICAP Shipping.
The picture on Chinese energy demand
is somewhat mixed, but still robust. On the
key indicator of Chinas liquefed natural gas
imports, 2012 is set to outpace 2011s 28mcum.
At the same time, in July, China imported
21.83m tonnes of crude oil, a nine-month low,
and 20.2m tonnes of coal in July, a fall from the
record 27.19m tonnes in June.
But the global economy is teetering and Europe
is to blame. We are in for a serious bump and I
would not rule out a new global recession, says
Benjamin Hackett of Hackett Associates.The
problem is not China, it is Europe.
Europe is Chinas largest trading partner
and China [has been] hit by a lack of export
market, [and] its economy is slowing down
rapidly as a result, he adds.
Mr Hackett is on the money. SeaIntel Mari-
time Analysis Lars Jensen agrees: I think
the slowdown we see in [China export] num-
bers is more a refection of the tremendous
economic problems faced by Europe in gen-
eral, and Southern Europe in particular.
So, while China still has an appetite for raw
materials, and is making wise policy decisions
in the face of slowing growth, its main prob-
lem remains one it cannot control: external
demand. Chinas main customers in Europe
are simply not buying as much of what China
has to sell. As Lloyds List recently reported,
European imports of containerised goods from
Asia plummeted in July, with an unprecedent-
ed 13.2% year-on-year reduction in westbound
volumes at a time of the year when trade condi-
tions should be strong.
Data from Container Trades Statistics,
compiled from container lines own liftings,
show total Asia to Europe containerised trade
in fact slumped to 1.2m teu in July, down from
1.3m teu in the same month last year.
According to CTS director Peter Webber, we
must also take into account how July 2011
The term hard landing tends to be
thrown around loosely
Mark Williams, Capital Economics
market outlook:
China has been hit
by changes in export
demand and its
economy is slowing
down as a result
Photo: Associated Press
Book 1.indb 18 19/09/2012 15:42
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20 China
September 2012 www.lloydslist.com
was the highest overall month [for westbound
volumes] in the whole of 2011. That makes
the drop of in July 2012 less dramatic, but it
is still pretty disastrous reading for anyone
interested in the health of the world economy.
So, a disruptive Europe, but China is still
hungry and looking for global opportunities.
A recent Clarkson Research Services report
makes clear the ongoing success of Chinas
relationship with the developing world: the
main sources of worldwide trade growth [are]
non-mainlane routes.
It adds: Despite concerns over the slowing
pace of Chinese economic growth [however],
intra-Asian trade is expected to remain rela-
tively strong this year.
That leads us to what could spoil the party:
domestic politics in China. In sum, the threat
to the Asian nations master plan has always
been potential domestic unrest, something
which has so far failed to materialise in the
slowdown.
Some of the recent data releases have
been extremely disappointing, but there is
little evidence so far of labour market stress,
says Capital Economics Mr Williams.
It used to be said that the Chinese govern-
ment would not risk growth dropping below
8% because that would lead to an upsurge in
social tensions. I suspect that one reason poli-
cymakers have not intervened more forcefully
is that the feared job losses havent material-
ised. That means immediate concerns about
the downturn have lessened.
Mr Hou agrees: I dont believe [Chinese]
society would run into turmoil if the econ-
omy slows from an 8% growth rate to a 5%
growth rate.
However, that could cause a sudden
lay-off among the export-dependent manu-
facturing sector. How to channel such a
potentially destabilising number of people
into anything productive could definitely
be a challenge. But bear in mind that past
regime change in China have always come
from the peasantry.
Having said that, I believe in the
extremely likely event of a China slow down,
the party might attempt to grant a few more
political freedoms.
Still, if all those Chinese jobs that came
along with exporting to the West are no longer
critical, does China need the West anymore?
Yes it does, says SeaIntels Mr Jensen,
even if it has a large and growing home
market in both China and Asia, a substantial
part of the income needed in China and Asia
stems from the exports to the West. A drastic
slowdown will have negative impact on China
although not as severe as it would have had
say fve to 10 years ago.
Mr Hou shares this view: Although the
goal is to build a consumer economy, this
journey will take quite some time simply
because there are still plenty poor people in
China.
In November, the director of the China
Growth Centre Linda Yueh told Lloyds List:
China runs the risk of a slowdown...with the
world economy slowing.
At the time, Lloyds List described that
view on China as gloomy. We were right.
There is a much more complicated picture
emerging, one of an Asian giant able to surf,
rather than risk, a stagnant world economy.
China does have problems but nonethe-
less, the country remains well placed not only
to survive a global slump, but also continue
doing well actually pretty well.
A substantial part of the income
needed in China and Asia stems from
the exports to the West
Lars Jensen, SeaIntel Maritime Analysis
manufacturing
focus: A substantial
part of the income
needed in China and
the rest of Asia stems
from exports to the
West
Book 1.indb 20 19/09/2012 15:42
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LL China 2012_021.indd 1 19/09/2012 17:20:01
22 China
September 2012 www.lloydslist.com
Demand in the worlds sturdiest trade lanes is changing as Chinas export growth slows
The intra-Asia shift
New
perspective:
The marked
slowdown of
Chinese exports to
the rest of Asia in
August may point to
changing intra-Asia
trade patterns
CoNTAiNerS Tom Leander
C
hinas carriers are confronted with
a decline in trade from Europe
and a slow revival of trade with
the United States. But the intra-
Asia arena maritime has always
been a world apart much more varied in
the types of trades it covers and responding
to diferent trade demands depending on the
particular trade lane.
Flexibility on these trades is an important
prerequisite to success. SITC, a Hong Kong-
listed, Chinese-owned container operator,
reminded rivals of this in mid-September. Chief
executive Yang Xianxiang told the press that
he believes that SITC will see its revenues rise
nine-fold over the next decade, mirroring the
expected growth in Asian economies. Mr Yang
noted that the bigger ships that major opera-
tors are now deploying on intra-Asia trade
lanes do not threaten SITC, because bigger
vessels do not translate into better service.
SITCs service model has been to invest in
a smaller class of boxships, keep costs low,
and tie up maritime transport with a growing
logistics operation in China. SITC ships are
small and fexible enough to operate in most
second-tier ports in Asia, an advantage that the
bigger ships lack.
SITCs intra-Asia model supported a proft
for the 2012 frst half of $41.7m, down 51% from
the same period in 2011. Does the drop in prof-
its indicate that SITC is a little overconfdent in
its own intra-Asia future?
SITC faces more competition as lines divert
larger ships from the ailing Asia-Europe trade
into the intra-Asia arena. Thats one prob-
lem: the other is slowing China growth and
the impact that this contraction will have on
Chinas Asian trading partners that could cool
the intra-Asia trades for the near term.
Chinas dwindling trade to the Associa-
tion of Southeast Asian Nations countries in
August 2012 is an example. Chinese export
growth to Asean countries stands out as the
strongest contributor to overall growth, says
John Windham of Barclays Capital. However,
we think the pace of deceleration has been
signifcant. In August, exports to Asean were
only $1.5bn more than in August 2011. This is a
signifcant drop from the average of each of the
previous three months this year, when export
growth stood at $3.3bn. All trade destinations
Book 1.indb 22 19/09/2012 15:42
www.lloydslist.com September 2012
China 23
in Asean showed a lag during August, with the
exception of Malaysia. Has China stufed the
Asean channel? asks Mr Windham.
Imports from China to Malaysia have been
particularly strong this year. Barclays Capital
estimates that they could almost reach 12% of
Malaysias gross domestic product in 2012. That
is up from just below 10% last year. Malaysias
imports were strong in capital goods, such as
automobiles, auto parts, power equipment, and
heavy machinery.
However, total China export growth for
Asean was 10.3% in August year on year and for
other major Asean trading destinations August
year-on-year growth in percentages was in the
single-digit range.
When compared with July 2012, August
shows a marked slowdown in Chinas exports
to all Asean countries, with the exception of
Singapore, where exports were up almost 3%
month on month. Exports to Indonesia fell 28%
month on month, while exports to the Philip-
pines were down about 4%. Even Malaysia
showed a tapering of, with month-on-month
exports from China dropping 5%.
Whether this is a one-month anomaly is
hard to say. Inventory versus shipment data
from China generally suggest that the pipeline
is backing up as demand drops. Emil Wolter,
an analyst with Macquarie Securities in Sin-
gapore, notes that inventories in China have
been rising sharply relative to shipments.
The back-up refects a slowdown in trade
from Europe, but also the August slowdown
in Asean.
Barclays Mr Windham notes that while
China is strong in exports of capital goods,
this portion of growth in its export portfolio
is waning. Mobile handsets have been the key
driver for Chinas export growth for the past 18
months. Growth in mobile handsets jumped
62% in August year on year and accounted for
about two thirds of the $4.7bn year-on-year
increase in total China exports for the month.
Of lower value goods, home furnishings were
up in August, as well.
The problem with healthy growth in mobile
phone handsets is that it does not have the
multiplier efect on the economy as growth in
capital goods such as, say, ships. For every US
dollar of iPhone exports from China, Barclays
estimates, only about 11% stays in China. With
ships, a far great portion of value stays in China
via labour, suppliers and shipyard proft.
Much of the value-add in technology prod-
ucts is captured outside of China, says Mr
Windham.
Here is a stark reminder that the cost of
advancing up the value chain in manufactur-
ing products for export is a tendency towards
goods that return less beneft to the local
economy.
A declining multiplier effect eventually
translates into slower local growth, which has
an impact on import demand.
August was just one month. Asias hunger
for capital goods from China will undoubt-
edly re-emerge as countries like Indonesia
continue to show strong internal growth,
decoupling from economic trends in Europe,
the US and even China. SITCs plan to service
the regions growth looks sound, but may
eventually call for a change in emphasis.
As Chinas export growth slows, the future
mantra may morph from China trades with
the rest of Asia and more All of Asia is trad-
ing more with itself.
Asias hunger for capital goods from
China will undoubtedly re-emerge as
countries like Indonesia continue to
show strong internal growth
Connected
fortunes:
Mobile handsets
have been the key
driver for Chinas
export growth in the
last 18 months
Photo: Associated Press
Export growth in
mobile handsets
62%
in August
(year on year)
Book 1.indb 23 19/09/2012 15:42
24 China
September 2012 www.lloydslist.com
China Shipping Development is taking measures to
fght the capacity glut on intercoastal trades
Strategy in bulk
Tian Song
feng: CSD is
also making
headway in
extracting more
effciency from
its feet
Photo: Dietmar Hasenpusch
Dry bulk
tonnage due for
delivery to Chinese
owners in 2012
8.9m
dwt
DrY BUlK Tom Leander
C
hinas top shipping companies
are struggling mightily with two
scourges at once: global overca-
pacity and a slowdown in Chinas
economy.
China Shipping Development, the Hong
Kong-listed operator that is also Chinas second-
largest dry bulk carrier, is sometimes credited
with having made wise bets in dry bulk even as
the shipping crisis hammered its state-owned
colleague China Cosco.
Nevertheless, CSD recorded a loss of
Yuan461.2m ($72.6m) in the January-June
period, its frst half-year loss since it went public,
and reversing a year-ago proft of Yuan701.2m.
With falling freight rates due to overcapacity,
CSDs revenue fell 8.6% from a year earlier to
Yuan5.6bn in the six-month period.
Pundits have applauded CSDs model, which
contrasts so markedly with that of China Cosco.
CSD has favoured long-term relationships with
Chinese power stations, steel mills and mines for
much of its dry bulk revenue, so that much of its
business is tied up in Chinas intercoastal trades.
However, the business is exposed to spot-
market pricing, and this year has seen the
countrys intercoastal trades face mounting
overcapacity. Does CSDs model still hold?
Foreign-fagged ships are prohibited from
engaging in Chinas coastal shipping, but the
protection this ofers is limited because Chinas
owners have a tremendous amount of dry bulk
tonnage on order: some 8.9m dwt is due for
delivery in 2012 and 6.5m dwt in 2013. Cosco
alone had 18 dry bulk ships on order as of
June 30, according to a July report by Macquarie.
Much of this tonnage is destined for the
countrys intercoastal trades because of the
depressed rates outlook on the international
trades. CSD alone expects delivery of about 1.5m
dwt of panamax and handymax tonnage total
in 2012 and in 2013.
If Chinas economy was growing at the rates
that the world has come to see as familiar
between 9%-10%, say then much of the
capacity would be absorbed without a signif-
cant drop in rates. But the toll of the capacity
additions is refected in the decline of Shang-
hai Shipping Exchanges China Coastal Bulk
Freight Index, which produces an average
based on freight rates for all signifcant domes-
tic dry bulk trades.
The index averaged 1,333 points for the frst
half, down 22% year on year. Spot rates for the
Book 1.indb 24 19/09/2012 15:42
www.lloydslist.com September 2012
China 25
Coal drop:
Spot rates for the
two most important
domestic coal
routes fell 30% in
the frst six months
of this year
two most important domestic coal shipment
routes, from north China to south China and
from north China to east China, dropped 30%
during the period, according to CSD.
But the capacity problem has hit China
shipping at a time when demand for inter-
coastal shipping has been hit by a slowdown
in growth.
The slowdown in domestic consumption is
pronounced, and is due to multiple causes,
but one is obvious: with the economy growing
at a slower rate, demand for thermal coal has
dropped at power plants.
Annual growth in coal-fred power gen-
eration in the second quarter fell below 2%,
according to a report from Macquarie analyst
Matty Zhao. The report anticipates year-
on-year demand will rise to 4% in the third
quarter, which nevertheless remains a slow
rate of growth.
In contrast, Chinas hydropower utilisation is
projected to increase 42% in the second quarter
year on year and 57% in the third quarter.
Hydropower has been growing for many
reasons it had a strong 38% growth rate in
the second quarter of 2011, for example as
hydropower stations came online. This year
in particular has seen record rainfall add to
their use.
The rainfall has been extraordinary; in
southern China twice the amount of rain fell
in June than last year. In June, China produced
75bn-80bn kW/hr of hydropower, according to
US-based Commodore Research, up from 66
kW/hr in June 2011.
Weak demand and increased hydropow-
er have contributed to a telling fgure that
Macquarie cites: by June, growth rates for
domestic coal throughput at Chinas ports
had fallen to 2.7% for the year to date, down
from 20% growth a year ago.
Contributing to the lower domestic through-
put has been a growing price advantage for
imported coal. Coal sold on the Newcastle
index was at a 14% premium to Chinese coal in
mid-June. Local coal is more expensive due to
the high costs of transport on Chinas clogged
rail system and of extraction.
So CSD, which previously did so much to
protect itself from the world downturn in dry
bulk shipping, looks to be facing a tough year.
The percentage of domestic cargoes under
contracts of afreightment at CSD has dropped
this year to 60% from 80% in 2011, according to
a Macquarie Research report earlier this year.
But CSD has been taking steps to improve
its position. Regarding coal shipments, it
brought in COAs for domestic transport in
2012 for 43.7m tonnes of thermal coal. The
COA rates were higher than spot market rates,
the company said in its interim report.
CSD has also made headway in extract-
ing more efciency from its ore carriers. For
domestic iron-ore transport, the company
said in its interim report, CSD had achieved
[a] remarkable improvement in both the ship-
ping scale and operating results, having
added eight very large ore carriers of 230,000
dwt and four VLOCs of 300,000 dwt.
CSD reported that the 12 VLOCs brought in
Yuan638m in revenues at an operating gross
margin of 20.1%. It was the growth highlight
of the groups dry bulk operating activities,
CSD said.
Because CSD has been careful to tie up a
substantial portion of its owned vessels
still some 60% in Macquaries reckoning,
perhaps more given recent new coal transport
COAs on long-term contracts, its exposure
to the intercoastal spot market has a ceiling.
It may also be gaining a lead in extracting ef-
ciencies from economies of scale from those
larger vessels. Dont count CSD out just yet.
The capacity problem has hit China
shipping at a time when demand for
intercoastal shipping has been hit by
a slowdown in growth
Book 1.indb 25 19/09/2012 15:42
26 China
September 2012 www.lloydslist.com
Experts disagree over how many vessels China will require,
and whether Chinas yards are ready build these ships fast enough
Getting the gas to China
lNg Tom Leander
C
hina is ramping up its lique-
fied natural gas imports as it
increases gas consumption in
its energy mix, but experts disa-
gree over how many vessels will
be required to meet Chinese demand, and
whether Chinas yards are capable of meet-
ing the governments targets for LNG ship
supply.
Chinas 12th five-year plan through 2015
aims to increase natural gas consumption in
China to 260bn cu m by 2015 from the 129bn
cu m that the country consumed in 2011.
Some 35%, or 90bn cu m, of natural gas will
have to be imported. If taken at face value to
mean that the totals imports will come via LNG
shipping, that import fgure would require 60
carriers. Its important to remember that some
natural gas will be imported via pipelines a
less expensive option than LNG shipping.
Estimates of actual future Chinese LNG
demand depend on price, domestic produc-
tion and the balance between pipeline gas
and LNG shipping in meeting supplementary
demand.
Chinese vessel demand will depend on
what percentage of LNG imports China wishes
to carry on home-built vessels right now, the
governments stated goal is for LNG imported
on China-owned ships to rise to 50%.
Suggestions that China could need up to
60 new LNG ships in the next five years seem
high. Lloyds List Intelligence analysis sug-
2011 (actual)
Imports (cu m)
28m
Imports (cu m)
2020 (estimate)
140m
2016 (estimate)
Imports (cu m)
71m
Fleet forecast
Estimated future Chinese demand for ships to service Chinese LNG imports
Vessels
needed
23
Chinese
max
5
Chinese
min
n/a
Vessels
needed
38
Chinese
max
19
Chinese
min
8
Vessels
needed
75
Chinese
max
33
Chinese
min
16
Source:
Lloyds List
Intelligence
Book 1.indb 26 19/09/2012 15:42
www.lloydslist.com September 2012
China 27
And in early September, Hudong-Zhonghua
won a contract yet again, this time to build up
to six 174,000 cu m liquefed natural gas car-
riers for a joint venture between Sinopec and
China Shipping Development.
Nantong Mingde is the wild card. News in
July of Cambridge Energy and shipyard Nan-
tong Mingdes preliminary agreement to build
a feet of LNG carriers came out of nowhere,
according to the insider.
The agreement has revived discussion about
Chinas LNG capability.
That deal, while not exactly far-fetched,
faces a long road to reality. It requires Cam-
bridge and the yard to co-design and build
up to 21 LNG ships, but gives scant details.
Cambridge must frst fnd fnancing, which at
the very least will require export credit bank
money.
Nantong Mingde told Lloyds List that Cam-
bridge is in talks with China Development
Bank, which has agreed to provide 70% of the
capital of frst batch of up to fve vessels and
that the remaining 30% will be committed by
Cambridge.
Bermuda-listed Cambridge did not return
emails.
Cambridge itself is an enigma. It says on
its website that it plans to export natural gas
from the US and to build and own 125,000 cu
m-138,000 cu m carriers to do so. But the US
exports only 2m tonnes a year, and Cambridge
apparently has no deal yet to export from the
US.
lNg approach:
Chinese LNG vessel
demand will also
depend on what
percentage of
LNG imports China
wishes to carry
on Chinese-built
carriers
China consumed
129bn
cu m of natual
gas in 2011
gests that to carry 50% of its LNG imports,
Chinas need for new home-built LNG ships
could be as many as 14 new ships by 2016. By
2020 this could rise to more than 30.
Chinese LNG import demand could rise
to an estimated 30m tonnes (85bn cu m) a
year in 2015, the maximum it can based on
import terminal capacity. If all planned LNG
terminals are built, Chinas maximum capac-
ity will be around 45m tonnes (127bn cu m)
a year by 2018.
If China imports 30m tonnes (85bn cu m)
a year by 2016, half sourced from Australia
and half from the US via the Panama Canal,
then it will need at least 38 vessels of 160,000
cu m to service this demand. If vessels from
the US sailed via the Cape of Good Hope, an
additional 12 ships would be required.
This means a maximum of around 50 ves-
sels would be needed to service Chinese LNG
demand in 2016.
While there has been no ofcial announce-
ment that the government will not accept
foreign owners controlling some of this trade,
it is generally assumed that, for now at least,
the development of Chinas LNG feet will
happen in Chinese yards via orders by China
National Ofshore Oil Co, Sinopec and Petro-
china, the three state-controlled giants that
dominate the nations LNG industry.
The government has designated seven ship-
yards as eligible to build LNG vessels; but only
one shipyard has so far succeeded. Shanghai-
based Hudong Zhongua has built fve LNG
carriers. The six other designated yards are
Rongsheng Heavy Industries, Dalian Ship-
building Industries, Jiangnan Shipyard, Wison
Ofshore and Marine, Shanghai Waigaoqiao
Shipbuilding and Nantong Mingde.
Hudong Zonghua was selected again as the
venue to build four LNG carriers for a joint
venture between Japans Mitsui OSK Lines
and China Shipping Development launched
last year to build four LNG carriers to serve
ExxonMobils Papua New Guinea and Gorgon
Jansz LNG projects.
The carriers will be used for a 20-year con-
tract with ExxonMobil starting in 2015. They
will transport an estimated 4m tonnes of LNG
a year from Papua New Guinea and Australia
to China. The deal to build the four ships is
estimated to be worth $800m.
The government has designated
seven shipyards as eligible to build
LNG vessels; but only one shipyard
has so far succeeded
Book 1.indb 27 19/09/2012 15:43
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www.lloydslist.com September 2012
China 29
SHiPBUilDiNg Tom Leander
J
apan has bet its shipbuilding
future on accelerating its ability
to build ships for a world in which
fuel efciency will give companies
economic advantage. South Korea,
too, has focused on better ship designs. South
Korea in particular has nabbed the higher-
value shipbuilding niche, leading the world
in liquefed natural gas carrier construction
and ofshore vessel building. In this latter feld,
Singapore has developed a remarkable special-
ity, with an emphasis on deepwater and harsh
environment rigs.
China has entered the high-value game late.
How soon will it compete with the other Asian
success stories?
Although the Chinese shipping industry
at large has been distracted by the quality
of its survival, some yards have turned their
attention to innovation and the future. Some
shipyards have incorporated research and
development into their programmes and have
the capability to build ships with lower fuel
consumption.
These include Rongsheng Heavy Industries
and the frst tier of state-owned shipbuilders.
Rongsheng has ofshore ambitions. Chief
executive Chen Qiang said earlier this year that
he anticipated 40% of total new orders would
come from ofshore contracts by 2015.
Local media reported that 40% of new rev-
enue as opposed to new orders would be
ofshore-related by that date. The error roiled
Rongshengs stock price, driving it up 14% in
a single day until it collapsed when it turned
out not to be true.
Shareholders want to see ofshore involve-
ment, too.
Rongsheng won an order from PrimePoint
Oil & Gas to build two drilling rigs, including a
semi-submersible barge rig and a tender barge
rig, with an option to build another of each.
Analysts said the deal would bring between
$300m-$400m in revenue.
The other major non-state shipbuilder that
has announced a diversifcation into ofshore
building is Yangzijiang Shipbuilding, listed in
Singapore.
It may have entered the game late, but China could catch up
in the race to build more complex and greener ships quickly
Moving up the
value chain
expanded
horizons:
Chinese yards
are increasingly
diversifying into
offshore and LNG
shipbuilding
Book 1.indb 29 19/09/2012 15:43
30 China
September 2012 www.lloydslist.com
The shipbuilder said earlier this year that it
would invest Yuan4bn ($633m) over the next
two years to develop a base in China to accel-
erate its ofshore business.
Yangzijiang has launched a subsidiary
in China, called YZJ Ofshore Engineering
(China) Co, on land that it owns in Taicang,
near Shanghai. Part of the funding for the
company comes from a joint venture between
Yangzijiang and Qatar Investment, a sover-
eign fund based in Singapore.
The joint venture will invest $100m for a
40% stake in the Chinese entity. Yangzijiang
currently holds the remaining 60%.
Several state-owned companies are devel-
oping ofshore and LNG building capability.
Cosco (Corp) Singapore, the Singapore-
listed unit of state-owned China Ocean
Shipping that owns shipyards throughout
China, is also looking more to ofshore-relat-
ed earnings to diversify against its traditional
shipbuilding activity.
Year-to-date offshore-related orders at
the end of June reached $1.1bn. Yards within
the Cosco (Corp) Singapore fold have been
building expertise fast in ofshore. Cosco
Dalian is scheduled to deliver a dynamically-
positioning 3 drillship being built for Dalian
Deepwater in October 2012.
The pure government arm of Chinas off-
shore push is China State Shipbuilding Corp,
which controls two subsidiaries that are
active in offshore and LNG building.
Hudong Zhonghua is building all the LNG
vessels currently on order in China, while
Shanghai Waigaoqiao Shipbuilding has
built three floating production, storage and
offloading vessels, according to Clarksons.
Waigaoqiao also delivered its first deepwa-
ter semi-submersible drilling rig in 2011 to
China National Offshore Oil corp .
CSSC says it has offshore building capa-
bility at four of its other yards; Jiangnan
Changxing, Guangzhou Longxue, Shanghai
Chongming and Lingang.
CSSCs push into offshore has been rela-
tively slow. Nonetheless, the state-owned
giant has devoted time and investment to
improving design capability for a range
of offshore vessels. It has also launched a
standardisation programme for jack-up rig
construction at Waigaoqiao shipyard.
The project will run through 2015, is over-
seen by the Shanghai Municipal Bureau of
Quality and Technical Supervision and aims
to encourage design and deployment of new
technologies that can be incorporated into
Chinas offshore building effort.
Sceptics have plenty to go on when assess-
ing Chinas high-value bid. But the sceptics
are usually wrong when they evaluate Chi-
nas ability to master new technology and
innovate.
Chinas high-value effort has several fac-
tors supporting it. For one, it is based on
energy demand, and where a nation needs
energy, it will always find money to support
its extraction and transport.
Moreover, the sector provides fertile
ground for future value investors: witness
the Qatar and Yangzijiang tie-up. Finally,
the market now has several non-state and
state-owned competitors vying in the same
arena. The former may well keep the latter
on its toes.
It is worth asking to what degree the
government really wants to lend direct
aid to the shipping industry
offshore
ambitions:
Yangzijiang will
invest $633m in
the next two years
to develop a base
to accelerate its
offshore business
Book 1.indb 30 19/09/2012 15:43
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