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.
(PHOTO: 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. A sluggish global economy has only made the blow harder.)
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 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 over-exuberance 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.
Under central government guidance, China poured money into developing its shipbuilding and maritime logistics sectors, deeming them crucial for the nation’s development.
China is home to six of the world’s 10 busiest ports, including Shanghai, which is No. 1. The state-owned China Ocean Shipping Co. operates the globe’s largest fleet of bulk carriers and fifth-largest fleet of container ships. China also dominates the manufacturing of cargo containers.
And it has edged out South Korea to become the world’s largest shipbuilder. China commands nearly half the globe’s market share for shipbuilding — more than five times the share it held 10 years ago, according to Worldyards.
China said this year that it aimed to nearly double its annual ship sales to $190 billion by 2015. The plan also calls for industrywide consolidation that will benefit big government-owned players such as China State Shipbuilding Corp. and China Shipbuilding Industry Corp., which combined to produce about one-third of the nation’s shipping output last year.
“With shipbuilding, it is fair to say that China has been obsessed with maintaining or increasing its market share, even if the result is that there are too many ships chasing too few cargoes,” said Simon Bennett, a spokesman for the London-based International Chamber of Shipping.
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 (a measure of the maximum weight a ship can carry).
Small and medium-size shipbuilders such as those that crowd the Yueqing coast have been hit the hardest. Some may have to destroy their ships to sell as scrap. Others have already chosen to get into the logistics business to recoup whatever losses they can. Among them, none has fallen further than Dongfang Shipbuilding Group.
The family-run shipper and manufacturer of mostly chemical tankers for European and Chinese customers was flying high last August. That’s when it became the first Chinese shipbuilder to list on the London Stock Exchange’s Alternative Investment Market, a venue for smaller companies.
But within months, Dongfang’s position deteriorated. Customers canceled $52.6 million in ship orders. An additional $14.5 million in contracts were voided when buyers failed to provide advance payments, according to stock exchange filings.
Dongfang’s chief operating officer and the chairman of its board resigned. Its shares in London were suspended in March. In early June, a consortium of banks, including Credit Suisse, seized seven of its vessels because of about $250 million in outstanding debt.
Today, Dongfang’s Yueqing shipyard remains largely abandoned. Its three burnt orange gantry cranes stand idle over a pair of unfinished tankers covered in scaffolding. Chen Tongkao, the company’s chief executive, hasn’t been heard from publicly in months and is suspected of fleeing the country. Dongfang did not respond to repeated requests for comment.
“Bosses are running away,” said Zhang Shuguang, a nearby manufacturer of ship rudders and propellers who has seen his orders reduced to a trickle in the last year. “Costs are so high, and profits are so little. I don’t think anyone wants to be in this business anymore.”
