The time is right for restructuring the shipping industry

       On January 22, twelve ministries and commissions, including the Ministry of Industry and Information Technology, the Ministry of Finance, and the National Development and Reform Commission, jointly issued the "Guiding Opinions on Accelerating the Mergers and Restructuring of Key Enterprises in Key Industries" (hereinafter referred to as the "Opinions"), clarifying that by 2015, the top 10 shipbuilding enterprises in the industry would account for more than 70% of the national total shipbuilding completion volume, and more than 5 enterprises would enter the top 10 shipbuilding enterprises in the world. On the same day that the "Opinions" were issued, China Shipbuilding Industry Corporation took the lead in carrying out group internal restructuring and integration.
　　On January 22, the Ministry of Industry and Information Technology, the Ministry of Finance, the National Development and Reform Commission, and other departments jointly issued the "Guiding Opinions on Accelerating the Mergers and Restructuring of Key Enterprises in Key Industries" (hereinafter referred to as the "Opinions").
　　On the same day that the "Opinions" were issued, China Shipbuilding Industry Corporation (hereinafter referred to as CSIC), a listed company under CSIC, announced that its wholly-owned subsidiary, Shanghai Waigaoqiao Shipbuilding Co., Ltd. (hereinafter referred to as Waigaoqiao Shipbuilding), plans to transfer 51% of its equity in Shanghai Jiangnan Changxing Shipbuilding Co., Ltd. (hereinafter referred to as Changxing Shipbuilding) to Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. (hereinafter referred to as Hudong-Zhonghua), and simultaneously plans to acquire 36% of the equity in Shanghai Jiangnan Changxing Heavy Industry Co., Ltd. (hereinafter referred to as Changxing Heavy Industry) held by Jiangnan Shipyard (Group) Co., Ltd.
　　Severe overcapacity
In the dock of Shanghai Waigaoqiao Shipbuilding located at the mouth of the Yangtze River, workers in blue work clothes are busy on several 180,000-ton behemoths in the cold wind. These ships are the world's sixth-generation Capesize bulk carriers newly developed and designed by Waigaoqiao Shipbuilding. "The bleak situation in the shipbuilding industry is not yet obvious here. These new fuel-efficient Capesize bulk carriers have been favored by many shipowners. At the end of last year, we received orders for 10 ships at once, and in January this year, we signed contracts for 5+3 ships with two European shipowners." A site engineer at the shipyard confidently told the reporter.
　　However, across the river in Nantong, the scene is grim: many shipyards are operating at less than full capacity, or have simply stopped production, and subcontracted workers who have not received their wages frequently have conflicts with the factory.
　　A person in charge of Rongsheng Heavy Industries, which only received orders for two traditional ship types last year, said: "The lagging impact of the financial crisis on the shipbuilding industry has become increasingly apparent in recent years. With the continuous decline in shipping demand, the ship market is facing a severe test."
　　According to data from the China Shipbuilding Industry Association, last year's national shipbuilding completion volume was 60.21 million tons, a year-on-year decrease of 21.4%; the volume of new ship orders was 20.41 million tons, a year-on-year decrease of 43.6%; as of the end of December last year, the national backlog of ship orders was 107 million tons, a year-on-year decrease of 28.7%, marking the first time that the three major indicators have declined simultaneously. Among them, the number of loss-making enterprises in the industry increased to 323, with losses increasing by 158.3% year-on-year, and the phenomena of changing production, bankruptcy, and layoffs are becoming increasingly serious.
　　At last year's Central Economic Work Conference, General Secretary Xi Jinping emphasized that the shipbuilding industry has significant overcapacity, which poses crises and risks. It is clear that under the unfavorable circumstances of overcapacity and shrinking demand in the shipbuilding industry, the integration of China's shipbuilding industry is imminent.
　　Government promotes integration
How to promote mergers and restructuring of shipbuilding enterprises? The "Opinions" provide a clear answer: actively promote cross-regional, cross-industry, and cross-ownership mergers and restructuring led by large backbone shipbuilding enterprises, optimize resource allocation, develop enterprise groups with international competitiveness, and improve industry concentration; promote advantageous enterprises to expand high-end product manufacturing capabilities through mergers and acquisitions and other means; encourage upstream and downstream enterprises to form strategic alliances and conduct industrial chain integration; and promote key enterprises to conduct overseas mergers and acquisitions.
　　"The transformation period of the shipbuilding industry has arrived, and the intervention of national policies will accelerate the industry's adjustment." Cai Jianming, a transportation industry researcher at Zhongtou Consulting, said that under the government-led industrial integration, enterprises on the verge of bankruptcy will completely exit the market, and some small and medium-sized enterprises will face mergers and restructuring. In the short term, driven by policies, listed companies urgently need funds to participate in mergers and restructuring, which may put some pressure on the companies' capital chains. In the long term, mergers and restructuring are a convenient way for listed companies to expand their scale, which is conducive to the long-term development of enterprises.
　　However, there are different opinions among business people regarding industrial integration. Zhou Feng, assistant general manager of Nanjing Wujiazui Shipbuilding Manufacturing Co., Ltd., said: "Improving industry concentration must be a market behavior, not an administrative behavior. The government hopes to merge all shipyards with operational difficulties, but we don't have the money to merge, and now there are not many orders, so what's the use of merging? Including the costs of mergers and acquisitions and management integration, it's better to build a new factory according to our own needs."
　　Some industry insiders also said that government-led industrial integration may not work in China. "Japan used government-led mergers and shutdowns to digest excess capacity during previous shipping crises, but this requires a lot of manpower and material resources for detailed investigation and research. Who to close and who not to close is very important. With China's current administrative capacity, it is difficult to achieve this."
　　CSIC takes the lead
As early as the middle of last year, the asset restructuring between Guangzhou Shipyard International and CSIC Longxue Shipyard, both under CSIC, has been in full swing.
　　An industry insider said that CSIC took the lead in carrying out group internal restructuring and integration because in this way, it can first increase the scale of individual shipyards and gradually form several shipbuilding clusters with significant weight in China's shipbuilding industry. In addition, the release of the "Opinions" means that the government will support the integration of key shipbuilding enterprises, and listed companies are basically key enterprises, so they will benefit relatively more.
　　According to the information, CSIC's equity transaction this time is quite significant: CSIC is the controlling shareholder of China Shipbuilding, Hudong-Zhonghua, and Jiangnan Shipyard; Waigaoqiao Shipbuilding is a wholly-owned subsidiary of China Shipbuilding, and the former is also the controlling shareholder of Changxing Shipbuilding, and Jiangnan Shipyard is the controlling shareholder of Changxing Heavy Industry; CSIC, Hudong-Zhonghua, and Jiangnan Shipyard are related parties of China Shipbuilding. Therefore, if this transaction is completed, Changxing Shipbuilding will be controlled by Hudong-Zhonghua, while Changxing Heavy Industry will be temporarily managed by Jiangnan Shipyard.
　　It is worth noting that Changxing Shipbuilding, which Waigaoqiao Shipbuilding transferred this time, still achieved profitability last year against the backdrop of industry downturn, while Changxing Heavy Industry, which is about to take over, suffered a loss of 320 million yuan. Relevant personnel from China Shipbuilding said that this equity transaction is definitely not as simple as making profits through buying and selling; this transaction will accelerate the pace of the company's industrial structure adjustment.
　　Guotai Junan's research shows that Changxing Shipbuilding's main products are Capesize bulk carriers and VLCCs, and China currently has relatively overcapacity in these two types of vessels. After Waigaoqiao Shipbuilding transferred 51% of Changxing Shipbuilding's equity to Hudong-Zhonghua, it can reduce the production capacity of these two types of vessels and increase the production capacity of Hudong-Zhonghua's high value-added vessels such as LNG. Changxing Heavy Industry's main products are large container ships, VLGCs and other high-tech, high value-added ships. After Waigaoqiao Shipbuilding acquires Changxing Heavy Industry, it will indirectly enter the field of high value-added ships such as large container ships and VLGCs, optimizing its existing product structure.