According to a report from the Wall Street Journal,"the Chinese government pushed out a new "cash for clunkers" program Monday for the shipping sector. Companies will get 1,500 yuan ($247) per gross ton for scrapping old vessels and then replacing them with new ones. This increases the old subsidy Beijing offered to this sector by 50% and also makes the terms more flexible".
''These subsidies should help ship owners, many of them state-owned such as China Cosco Holdings. On average, they will have to pay 44% less for new ships, says Credit Suisse
The more important help goes to China's beleaguered, debt-laden shipbuilders. Thanks to huge shipyard expansions the past few years, China is the world's largest shipbuilder after South Korea.
That has come at a cost: Profits at 80 major ship makers fell by half in the first 10 months of this year compared with a year earlier, according to data from the country's shipbuilding association.
Just last week, China Rongsheng Heavy Industries,the biggest nongovernment shipbuilder, predicted it may "incur a substantial net loss" for 2013.
The "decisive" way markets would have dealt with this problem is to shut a shipyard or two, at a time when global container-shipping capacity, Nomura says, will grow nearly five percentage points faster than demand in 2013. But shipbuilding is a big jobs producer, and it seems Beijing isn't ready for tough choices just yet.
The new policies help the companies in the short term. Rongsheng's shares in Hong Kong rallied 8.9% on Tuesday. But they do little for long-term sustainability. The subsidies essentially steal demand from the future, shifting purchases to the present that would have taken place anyway down the road. A slump will eventually come''.
