Peoples' Republic Of China Concentrates On Building Up Bulk Carrier Fleet

Over the past year or so, well over 100 secondhand dry cargo ships have been purchased by the Chinese, either for their domestic fleet, or for operation under "convenience" flags. A surprisingly large number of these—possibly over 30—have been bulk carriers, and it appears that the Chinese are now making a concerted effort to build up their bulk cargocarrying capability. Especially significant has been the recent interest of these buyers in large bulk vessels as purchases had previously been confined to tonnage of up to ± 35,000 dwt. Latterly, several "Panamax"-sized ships have been transferred to Chinese ownership, and the purchase of a 95,000-ton ore carrier has even been reported. Inevitably, these sales have aroused considerable interest at a time when secondhand values of good-class bulk carriers and OBOs are strengthening.

Prior to 1975, with other, more pressing problems, the Peoples' Republic of China (PRC) had maintained a low profile in the secondhand ship market, confining its interest to liner types, largely as replacements for older, obsolete vessels. Generally, the policy, insofar as bulk cargo shipments were concerned, was to charter-in the required tonnage through the China International Chartering Corp. (or "Zhingzu").

On occasion, Chinese charterers were exceptionally active in the tramp market, taking large numbers of multipurpose cargo ships in the ± 15,000-dwt class, as well as handy-sized bulk carriers for single trips or for periods of up to two years, to service bulk trade.

Subsequently, the Chinese— probably encouraged by the prevailing low prices and anxious to participate more fully in foreign trade — decided to give priority to enlarging their domestic and overseas fleets. With a limited shipbuilding capability, they could either c o n t r a c t f o r newbuilding (and some orders were placed), or secure suitable tonnage through judicious secondhand purchases.

A shortage of hard currency was the decisive factor and, cautiously entering the sale and purchase market in 1975-76, the Chinese began buying good 'tween-deck tonnage between five and 10 years old. The success of this policy (and it was at this time that the first tankers were acquired) encouraged the Chinese to step up the purchase of modern vessels.

Paradoxically, this decision appears to have been unrelated to the state of the sale and purchase market, but when their presence began to be noted, in about May 1977, prices—reflecting the deterioration of freight rates—were exceptionally attractive.

Initially, Chinese interest centered on 'tween-deck ships with good all-round cargo-handling capability, and purchase included several en-bloc deals involving fast liner types. This tonnage was mainly late-1960's vintage and previously under French or German ownership—as, for example, were the six ships sold by C.G.M., each of which was equipped with a heavy lift. Subsequently, however, it became clear that the Chinese, channeling purchases through a Hong Kong agency, China Ocean Tramping, were also looking for geared bulk carriers, and between May and December 1977 they acquired at least 13 vessels of up to 38,000 dwt at a total estimated investment of U.S. $65 million. None of these bulk carriers were over 10 years old, and some were built as recently as 1974.

A number of reported sales have fallen through, as all negotiations are "subject to inspection," but over recent months the Chinese have continually been in the market. During the first six months of 1978 — when the volume of bulk carrier tonnage sold amounted to over 6.5 million dwt — at least another 15 ships were acquired secondhand by the Chinese at a cost of U.S. $57 million.

The majority of these are in the ± 35,000-dwt size range (including two Swedish car-bulk ships) but, for the first time, purchases have included "Panamax"- sized tonnage of up to 80,000 dwt.

For example, during May, the Chinese concluded the acquisition of the 76,500-ton Thara for U.S.

$3,225,000 and two other ships of this size. Then, in June these buyers took the 92,800-ton Sardinia Weipa, built in 1972, for some U.S. $6 million.

The addition of large bulk vessels to the Chinese Fleet suggests that large-scale imports of iron ore are imminent, and there have certainly been reports that Australia will be the source, whatever the eventual utilization of these vessels, the PRC is clearly anticipating a large increase in bulk trade, and is developing its fleet to cater for this. The growth of the Chinese bulk fleet has certainly been impressive.

By mid-1978, there were probably 2.1 million dwt of bulk carriers registered in China, with perhaps another 0.4 million dwt outside the country. Estimates of the amount of tonnage under Panamanian or Hong Kong flags vary, and the amount is continually changing as ships are bought, sold and transferred to the Chinese flag by China Ocean Tramping or other affiliates. Since October 1976, for example, a number of Somali-flag, Chinese-owned ships have been transferred to Chinese registry or other flags (notably Panama).

The PRC has been described as a "closed economy" and, until now, its role in world trade has been modest. In 1976, for example, China's exports accounted for less than 1 percent of the world's total. Nevertheless, the ground is being prepared for a more advanced, trade-oriented economy.

Exports are dispersed over a wide range of products, and the pattern of employment of the Chinese-owned conventional drycargo fleet has broadened as the PRC has consolidated its political and trading ties with various Third World countries.

Imports, however, are concentrated on a narrow range of essential materials or commodities, which are mainly transported in bulk — p r i n c i p a l l y agricultural products, fertilizers, and iron and steel. A sizable bulk fleet is, for example, needed to haul grain, imports of which were unusually low in 1976. However, a poor harvest forced the PRC to purchase over 10 million tons of wheat in 1977. These purchases were the largest ever made, and it is believed that grain imports rose to almost 8 million tons. This high level of imports is expected to be maintained in 1978.

Other a g r i c u l t u r a l products which feature prominently in the PRC's trade are rice (exports of which are between 1-2 million tons annually), and sugar. Chinese imports of sugar doubled in 1976 and then trebled in 1977, when over 1.5 million tons were shipped. Fertilizer imports, mainly NPK compounds, also increased in 1977 and will probably rise again this year.

Phosphate rock is excluded from these figures, but imports by sea are comparatively small, and mainly consist of Moroccan (165,000 tons in 1977) and Egyptian products. Another major import item is iron and steel, imports of which rose to record levels in 1977 to compensate for the poor performance of China's own industry. Japan is the principal supplier, shipping 2.8 million tons in 1975, 3.5 million tons in 1976, and over 4 million tons in 1977.

Iron ore imports are also increasing, with an estimated 3 million tons arriving from North Korea and Australia and, against the background of the recent trade growth, China's sorties into the secondhand bulk carrier market can be expected to continue, as the overall shipping requirement is far in excess of the present capacity of the fleet.

for further information, contact Peter Rowbotham, H.P. Drewry (Shipping Consultants) Limited, 34 Brook Street, Mayfair, London W1Y 2LL, England.

Maritime Reporter Magazine, page 28,  Sep 1978 Florida

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