Ocean-going ships flying foreign flags of convenience will be given tax exemptions as an incentive to register in the country, a top official with the Ministry of Communications said yesterday.

Effective July 1, Chinese-owned ships registered overseas by the end of 2005 will be allowed to register domestically - in Shanghai, Tianjin and Dalian - and exempted from customs duty and import value-added tax for the vessels.

Registration in the country will mean improved maritime security and better protection of national interests, said Vice-Minister Weng Mengyong.

Sea cargoes account for more than 90 percent of the country's foreign trade, 95 percent of crude oil imports and 99 percent of iron ore imports, Weng said.

As shipping fleets continue to grow, the number of Chinese vessels registering overseas is also increasing; and accounts for half of the country's total international tonnage.

As imported vessels are levied a 27.53 percent tariff and import value-added taxes, many ship operators chose to register their vessels overseas to cut costs and have an edge in the fiercely competitive market.

Vessels plying international routes can register in countries that offer an "open registry" for business convenience or commercial expediency.

Countries that offer flags of convenience usually charge a small amount in registration fees, but do not have sound safety supervision systems, according to Weng.

He said that Chinese-owned vessels flying foreign flags could hurt the healthy development of the shipping industry and national economic security.

"Lack of adequate safety supervision leads to poor shipping services," he said.

Xu Zuyuan, another vice-minister of communications, said the new policy is aimed at expanding Chinese-flag fleets by 4 million dwt (deadweight tons) in the next two years.

There are currently 1,920 ocean-going vessels flying the national flag with a capacity of more than 24 million dwt.

Maritime security problems posed by flags of convenience registry have been in the spotlight recently; and many countries have adopted preferential policies such as tax sops to attract ships home.