Mayday: China Not Ready to Let Struggling Shipbuilders Sink

Reuters reports that the government of China has decided to assist domestic shipbuilders by subsidizing the purchase of new ships to the tune of 1,500 yuan per gross ton (approximately $241*) until the end of 2015.  The “special funds” are targeted at ship buyers who replace older models one-to-ten years prior to their mandatory retirement.  The cost of the shipbuilding subsidy to the government will depend on how many ship owners in China scrap their vessels and purchase new ones.  According to the Wall Street Journal, the subsidy would be $52.5 million yuan ($8.4 million*) for a Panamax dry-bulk ship with gross tonnage of around 35,000 tons.

The announcement comes on the heels of China’s very public commitment to market-oriented reforms during the Third Plenum in November as well as announcements this summer that Beijing plans to tighten credit to industries plagued by overcapacity, such as steel, cement, cars and solar panels.  An noted in a prior blog post, China’s official Xinhua news agency previously reported that the Chinese government had decided to subsidize China’s ailing solar panel producers by refunding 50 percent of their value added tax through 2015.

*Based on an exchange rate of 6.2338 Yuan per dollar, the exchange rate for November 2013 reported by the Federal Reserve.