China unveiled a new subsidy programme to encourage the scrapping of old cargo ships and tankers, part of measures to support a shipping sector that is still reeling from overcapacity and low freight rates.
Chinese shipping companies will receive US$247 a gross tonne to replace old ships registered in the country with new, more environmentally-friendly vessels, according to a statement by the Transport Ministry, the National Development and Reform Commission and other agencies, reported The Wall Street Journal.
The formula means that a shipping company that scraps and replaces a Panamax dry-bulk ship-a common class of vessel, with gross tonnage of around 35,000 tonnes-would receive roughly $8.64 million in subsidies.
Ships must be within 10 years before their mandatory retirement age to be eligible. For dry-bulk ships, which carry commodities such as grain and coal, retirement is after 33 years of service, according to Zhang Shouguo, executive vice-president at the China Shipowners' Association.
Ship owners will get half the subsidy when they finish scrapping an old ship and receive the remainder if a new ship is built. The subsidy will be valid through the end of 2015.
Analysts expect more measures to help the shipping industry to be announced in coming weeks, including tax breaks to ship operators and shipbuilders.
Analysts said it was difficult to predict what the total subsidies will be. One estimate valued the programme at $1.15 billion for China's major shipping operators, with dry-bulk ships more than 23 years old accounting for 16 percent of China's total shipping fleet.
The nation's fleet of large container ships likely won't benefit from the plan substantially as the bulk of such vessels are much younger, shipping companies said.
The subsidy programme is a much-needed lifeline to China's shipbuilding industry, one of the largest in the world, which employs tens of thousands of people. Shipbuilders are suffering from shrinking orders as global trade has weakened and as earlier orders contribute to a global capacity glut.
China Rongsheng Heavy Industries Group, the country's biggest privately owned shipbuilder, last week projected a substantial loss for this year on declining orders. The company also posted a loss last year.
The new incentives are an extension of subsidies that were available between 2010 and last year, when shipowners received $164.57 a gross tonne if the scrapped ship was replaced.
Zhang Guofa, general manager at state-owned China Shipping (Group), the nation's second-largest shipping company, welcomed the new incentives. The subsidies will help ease overcapacity, he said, as shipowners that don't order new ships still will receive subsidies.
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