Yards face tighter grip as consolidation looms

China grew into the world's leading shipbuilder over the past decade as hundreds of private yards opened to compete with state-run companies. Now the government is poised to regain control as the industry consolidates.

The number of shipyards on the mainland has swollen to 1,647, contributing to a global capacity glut. To stabilise the industry, a third to a half of the yards will probably have to disappear through acquisitions and closings, according to executives and analysts.

State-run firms have an advantage because they have easier access to credit. China State Shipbuilding, China Shipbuilding Industry and other government-backed companies won three-quarters of all orders in the first half of the year. Though state companies may buy some of the private yards, many will likely have to close since their capacity is not needed.

"It's a lost cause for most of the private shipyards," said Park Moo-hyun, an analyst at ETrade Securities Korea in Seoul. "The government and even the banks seem to have given up on trying to save some of the troubled private shipyards. What innovations can they come up with when they can't pay to keep their workers?"

The State Council announced on August 4 a three-year plan for the industry that included control of capacity. Shipowners ordering China-made vessels, engines and some main parts should get better access to funds from financial institutions and some key companies will be allowed to issue bonds, according to the statement.

Last month, China Rongsheng Heavy Industries, the country's biggest private shipyard, sought financial assistance after failing to win a single vessel order this year.