The meaning behind China’s ‘white list’ shipyards

By Lee Hong Liang from Singapore
Following the unveiling by Beijing of the names of 60 shipyards literally called the ‘white list’, the communist government has recently announced another batch of names – just seven of them this time – for offshore shipyards.
The ‘white list’ of conventional shipyards was announced back in September 2014, and the status would allow the shipbuilders to benefit from prioritised policy support and access to domestic bank loans, giving a much-needed boost to running their operations. With an estimated 300 shipyards with day-to-day active operations, it would seem that the 60 ‘white list’ yards are placed in a more advantageous position over the rest.
Akin to the ‘white list’ status for conventional shipyards, the new ‘enterprise list’, as it is literally called, for offshore shipyards mean they can expect similar benefits. In looking at the timing of the announcements for the ‘white list’ and the ‘enterprise list’, they have come at a time when their respective industry segments are in a downcycle.
The conventional shipbuilding recession has been ongoing since the post-global financial crisis of 2008. But the offshore shipyard downturn started only towards the end of the third quarter of last year, when global oil prices crashed, prompting oil and gas firms to delay offshore projects and magnifying the already oversupplied OSV market.
More than one year on, China followed up by announcing the ‘enterprise list’ for offshore Chinese yards, amid the industry slump. It begs the question of the timing of Beijing’s announcement for the two ‘lists’, and what exactly does the government wants to achieve? It is already widely known that China wants to see a consolidated, tighter shipping and shipbuilding markets, which are currently haunted by their own successes when the sectors boomed and attracted the establishment of new many enterprises, particularly the speculators.
Today, the global economic slowdown has hit the shipbuilding segment hard, with China’s shipbuilding market going through a severe consolidation, and the 60 ‘white list’ shipyards are not spared. Even with the ‘white list’ status, there is no guarantee of survival, and certainly no guarantee of bank support. A quick glance at the list shows that six out of the 60 have met with, or are, facing problems, making them highly likely to soon exit the business.
Glaringly, China Huarong Energy, formerly known as China Rongsheng Heavy Industries, is now literally a ghost yard, and hanging by a thread above the abyss of bankruptcy. Nantong Mingde Heavy Industry has declared bankrupt; Zhenghe Shipbuilding is defunct; Jiangsu New East Marine Equipment’s parent firm has ceased operations; Sainty Marine is in a mess; Yangzhou Dayang Shipbuilding’s parent Sinopacific Shipbuilding is facing cash flow problems.
Two other ‘white list’ yards named as Guangzhou International Shipyard (GSI) and Huangpu Wenchong are now operating as one entity under the restructured CSSC Offshore & Marine Engineering Company (COMEC), former GSI, after a consolidation push by their parent firm CSSC.
In view of the above, it would be optimistic to say the least that others on the ‘white list’ are doing fine. With close to half of the 60 ‘white list’ yards being subsidiaries of state-owned shipbuilders, it is without doubt that a good portion of them might merge and further bring down the ‘white list’ numbers, if the merger of China State Shipbuilding Corp (CSSC) and China Shipbuilding Industry Corp (CSIC) materialises.
This brings us back to China’s goal of streamlining the shipbuilding segment. With hundreds of yards not on the ‘white list’ and the listed yards themselves continuing to consolidate, it is fair to conclude that the ‘white list’ is a clear move by Beijing to drastically deflate the number of shipbuilding enterprises in the country.
The observation made by shrewd businessman Ren Yuanlin, executive chairman of Yangzijiang Shipbuilding, is interesting and could well be true – only 30 shipbuilding enterprises will be left in China after another three years or so.
Now, the announcement of the ‘enterprise list’ for offshore shipyards could very well hold the same meaning of a push by Beijing to significantly amalgamate the offshore yards. In other words, the release of the ‘enterprise list’ is an ominous sign to start the shut down of offshore yards that are struggling, as those not on the list would find it even harder to secure the loans they need for the highly capital intensive operations.
The first batch of seven offshore yards in the ‘enterprise list’ are all state-run yards. It is unclear if more will be added to the list, like how it turned out for the conventional shipbuilding list, or if applications from any privately-owned offshore yard were rejected.
The days unfolding ahead are likely to be a game of survival for Chinese offshore yards, and the ‘enterprise list’ will certainly be kept lean.