OREANDA-NEWS. August 16, 2013. China widened its lead over South Korea as the world’s biggest shipbuilding nation as state-backed yards won contracts for complex gas-carriers while private facilities in the country struggle for funds.

China won orders to make ships with a capacity to carry 27.8 million deadweight tons, or 47 percent of global contracts, getting a 7.8 million-ton lead over South Korea in the seven months through July. A year earlier, the gap was 1 million ton.

Government-backed yards won almost three-quarters of all those deals, an indication that securing funds isn’t an issue for them. That contrasts with China Rongsheng Heavy Industries Group Holdings Ltd. (1101), the nation’s biggest private shipbuilder, which last month sought government assistance after failing to win any ship order this year. China announced a three-year package for the troubled industry this week.

“China is trying to grow its state-owned yards to help them become more competitive against their rivals in South Korea,” said Park Moo Hyun, an analyst at E*Trade Securities Korea in Seoul. “This is going to mean that most of the financially-troubled private shipyards won’t get much help.”

Hyundai Heavy Industries Co. (009540), Samsung Heavy Industries Co. and other yards in South Korea won orders for 20 million tons of ships, according to data provided by Clarkson Plc. (CKN) Globally, companies placed orders for 59.6 million tons of ships as of the end of July.

State-backed companies grabbed 74 percent of new orders in China in the first half of this year, according to UOB-Kay Hian Holdings Ltd. (UOBK) That compares with 52 percent in all of 2012.

Gas Carriers
Of the orders for 33 large vessels that went to state-backed Chinese yards, Hudong Zhonghua Shipbuilding Group Co. won a contract earlier this year to build six liquefied natural gas carriers from China Shipping Development Co. Cosco Dalian Shipyard received an order to build one LNG vessel.

China issued a three-year plan earlier this week to urge financial institutions to support the industry. The government also wants the industry to control new capacity and promote high-end products.

Rongsheng reported last month it had a net loss in the first half and said it was seeking financial support from the government and shareholders after a plunge in orders strained cash flow. The company has also agreed to issue convertible bonds to raise a net HKD1.38 billion (USD178 million) for working capital and to support the development of its offshore engineering business.

Ship owners placing orders for China-made vessels, engines and some main parts should get better funding and some key companies will be allowed to issue corporate bonds, the State Council said in a statement released Aug. 4. Chinese shipbuilders don’t have strong innovation, according to the statement dated July 31.

China may have a third of its more than 1,600 yards shut down in about five years, according to Wang Jinlian, head of the industry association. The sector is among those including iron and steel, cement, electrolytic aluminum and flat glass that must accelerate the phasing out of overcapacity, according to the Ministry of Industry and Information Technology.