China announces subsidies to encourage new ship builds

China has launched a new three-year cash subsidy programme to push its shipbuilding industry by encouraging new builds.

The Chinese shipping sector is suffering from overcapacity and low freight rates.

Under the new subsidy programme, the government will provide ship owners with funds of CNY1,500 ($247) per gross tonne to replace old ships with new, environmentally-friendly vessels.

The subsidiary programme, announced together by the Transport Ministry, the National Development and Reform Commission and other agencies, will run to 2015 and be valid only for ships scrapped at least one to ten years before their mandatory retirement dates.

Ship owners will receive the funds in two instalments, one after scrapping an old ship and the other after building a new one.

The Wall Street Journal quoted analysts saying it was difficult to predict the total cash subsidies, but estimated it to be around CNY7bn ($1.15bn) for major ship operators of China, where dry bulk ships account for 16% of the total shipping fleet.

The current subsidy programme is a continuation of the one that was implemented between 2010 and 2012, when the government offered CNY1,000 ($164.5) per gross tonne for scrapping the ships.

China Shipowners’ Association executive vice president Zhang Shouguo was quoted by The Wall Street Journal as saying: "The previous round of subsidies was unsuccessful, as few operators ordered new ships after scrapping older ones because of the lingering oversupply and weak demand."

China Shipping general manager Zhang Guofa told the journal that the new subsidies will help ease overcapacity, as ship owners that do not order new ships will still receive subsidies.