The following is Steve Dickinson’s second day report from the 2008 Maritime Conference he is attending in Wuhan, China.
Today I acted as the moderator (in Chinese) for a series of presentations on ship financing. As with yesterday’s discussion on shipbuilding, the presenters were mostly experienced lawyers from Hong Kong and Singapore. Much of the presentation dealt with technical issues related to the common law and international law of ship financing. However, the underlying key to the presentations was:
— Ship financing is the foundation of the ship building, ship conversion and ship sale business.
— Traditionally, banks have provided this financing. Alternative forms of financing exist, but have never worked well in the maritime business.
— The current financial crisis has virtually closed the door on traditional bank financing. This door will remain closed for the near future, possibly as long as one year.
In my role as moderator, I then posed the following questions/comments to the speakers and to the audience:
Steve: The shut down in bank financing will have a severe impact on the Chinese shipbuidling/shiprepair industry, right? Answer: Correct.
Steve: Historically, in the U.S. and Europe, when worldwide bank financing dried up, local banks usually stepped in to provide financing. Are Chinese banks stepping in to fill the financing gap? Answer: No, they are not. Chinese banks have no appetite for risky loans right now. Further, they do not understand international ship financing and they have no real desire to learn.
Steve: It appears China’s shipbuilding industry is taking a passive approach to both the contract default and financing issues. Answer: Yes.
Steve: It therefore appears China’s ship building/ship repair industry will be heavily impacted over the next 18 months, with few companies surviving. Answer: The audience did not answer. The presenters agreed that this seems to be a reasonable conclusion. These Singapore and Hong Kong lawyers are therefore turning their efforts towards cementing their relations with Korean and other national shipbuilders they think will survive the current situation. Even during private discussions after the formal presentation, the Chinese company representatives remained silent about their plans for dealing with the key issues facing their industry.
It is not clear to me whether the Chinese industry will wake up to the situation in time to resolve the critical issues facing the industry. In the interim, however, it appears there will be some very good deals on new vessels from Chinese yards as customers begin to abandon existing contracts. I also think there will be very good deals on Chinese shipyards, many of which are state of the art. It is also possible, of course, that China will institute a stimulus package that will save at least some of its shipyards.

  • Justin P

    Nice analysis guys. I know for a fact that some British companies are already circling.

  • Wayne Parker

    Excellent coverage of this discussion and I thank you for such a good update. Our section with this firm specializes in secured loans for vessel owning and operating entities and we primarily represent the lenders. The comments above accord with so much that we’ve heard from our banking clients. The information above also provides insights as to how Chinese shipyards’ management, many of whom have large order books, are facing up to the reality that they may facing a large number of contract cancellations. Very interesting and timely input!!

  • hallo

    Chinese shipyards are state coprerations are they not?
    They are in the same boats as with Chinese banks… being strategic assets they won’t easily go belly up. Unless these Hong Kong lawyers assume PLAN will approach an foreign shipyard to build their warships, the key question is in which ship yard are PLAN warships built. Don’t be surprised to learn that military orders are shared between most major shipyards.

  • Chinese shipyards should generally be considered strategic assets. The most any foreign entity could hope to do is invest in one with the promise of future profit, but to own one? Yeah.
    Here is an interesting CNBC interview about clouds over the BRICs.

  • Rough Waters for China’s Shipbuilding Industry

    China Law Blog has posted in parts one and two on the 2008 Maritime Conference in Wuhan, China, where Dan’s colleague Steve Dickinson was attending. Since shipbuilding is a key industry in making the world’s supply chains go ’round, there…