In China, shipbuilders languish after bubble bursts
August 18, 2012 4:00 AM
David Pierson/Los Angeles Times/MCT
Unfinished tankers sit idle at Dongfang Shipbuilding in Yueqing County, China. Small and medium Chinese shipbuilders have been devastated by overcapacity and sinking freight rates.
By David Pierson Los Angeles Times
YUEQING, China -- A shipbuilding boom raised the fortunes of this hardscrabble industrial port. Five-star hotels sprouted along with machinery depots and metal shops. European luxury cars darted past heavy trucks on the bustling streets.
But in another sign of China's economic slowdown, shipyards are now closing and half-finished vessels lie rusting in the humid haze. Prosperity is receding like the tide.
Thousands of laborers have lost their jobs. Liu Danyin, a compact man with bulging forearms, found so much work in the region's shipyards over the last decade that he built a new home for his family hundreds of miles away in the countryside. Then he was laid off suddenly last year.
"Many companies collapsed," said Mr. Liu, 48, who recently took a lower-paying job building a sea bridge. "There used to be so much energy and life here. Now they don't build ships anymore."
The hard times that have befallen Yueqing, a county in the eastern province of Zhejiang, are playing out at shipbuilding bases across China, from the northern port of Qingdao to the silt-filled Yangtze River in the central heartlands.
The bellwether industry's troubles have their roots in a shipping boom that started a decade ago. Global investors rushed to finance new vessels needed to haul coal and copper to China's humming factories and to transport finished electronics, toys and other exports out. China went from producing just over 100 vessels in 2002 to more than 1,000 in 2010, according to Worldyards, a Singaporean-based shipping industry research firm.
That overexuberance resulted in a glut of ships. It's a problem that has worsened as China's economy has decelerated along with that of its major trading partners -- Europe and the United States. Fewer customers for Chinese exports and a shrinking appetite at home for raw materials mean fewer vessels needed to carry that cargo.
Ship values have plummeted, and many owners now owe more on their loans than their boats are worth. And all that capacity is putting downward pressure on shipping rates as Chinese transport companies seek new markets abroad to keep their vessels working.
"The building binge was overwhelming," said Ralph Leszczynski, the Beijing-based head of research at ship broker Banchero Costa & Co. "People earned so much money they didn't know what to do with it. The Chinese started opening shipyards every day. But it created a bubble. Now everyone is paying for the hangover."
Shipbuilding is typically a cyclical industry nagged by overcapacity every few years. But experts say this trough is being prolonged by the scope of China's seafaring expansion.
China said this year that it aimed to nearly double its annual ship sales to $190 billion by 2015. But China's growth has hit a wall. The China Association of the National Shipbuilding Industry reported Chinese ship orders declined 47 percent to 9.54 million deadweight tons the first five months of this year from the same period last year. Meanwhile, ship exports slumped 48 percent from a year ago to 6.84 million deadweight tons.