State Owner Ordering Leading The Way

Chinese owners, who in tonnage terms account for the third largest fleet globally and the largest orderbook, account for the most significant proportion of contracts placed at Chinese yards of any owner nation. Although the share of domestic contracting at Chinese yards has remained fairly stable at around 30-40% since 2010, there has still been variation in the type of companies placing orders.

Subsidy Benefits
The four key state owned shipping companies: COSCO, China Shipping, Sinotrans and China Merchant, were the largest investors at Chinese yards amongst all domestic owners before 

2008. However,financial difficulties contributed to a drop in ordering by these companies following the downturn, with just 10% of domestic tonnage ordered in 2009 accounted for by state companies. But in recent years, the share of contracts at Chinese yards placed by these companies has climbed. As the Graph of the Month shows, in the first nine months of 2014, more than 50% of tonnage ordered was placed by these state companies. Contracting has been supported by Beijing’s demolition subsidy, introduced in late 2013, which aimed to support the domestic shipping industry. The four key state companies have been well placed to benefit from the subsidy since they own a sizeable elderly domestic fleet.
Financial Impetus

Meanwhile, Chinese financial leasing companies have also recently increased in prominence. Contracts placed by these companies (where they have been reported as the vessel owner) accounted for 1% of tonnage ordered by Chinese owners at domestic yards in 2008, and 21% in 2013. Some financial leasing companies are also seeking opportunities globally, and in the year to date 40% of the tonnage ordered by these companies was contracted at foreign yards.

Other Chinese owner groups are experiencing a declining share in contracting volumes. Contracting by shipyards totalled 0.7m dwt in 2013, as builders attempted to keep capacity running, but as the market picked up, shipyards managed to re-sell units. The Chinese government has also been discouraging cargo interest companies to place orders; instead recommending co-operation with state shipping companies.
Domestic Potential

Looking ahead, it seems likely that the key state shipping companies will continue to constitute a significant share of contracting at Chinese yards, as they take further advantage of the domestic demolition subsidy. COSCO scrapped 60 vessels in 2013 and another 60 vessels in the year to date. The company has ordered 42 vessels so far this year, accounting for 27% of domestic orders placed at Chinese yards. However, other state shipping companies have yet to place such a volume of orders, despite having many potential scrapping candidates. Furthermore, China Merchant and Sinotrans set up a joint venture in September, reportedly aiming to form the largest VLCC fleet in China. Such moves, alongside the fact that the demolition subsidy is currently set to run only until the end of 2015, look likely to mean that the key state companies remain a major driver of domestic ordering at Chinese yards in the near future.
Source: Clarksons