By Dezan Shira & Associates
More and more international ship buyers are starting to seek financing in China, thanks in large part to the Chinese government's encouragement of domestic banks to issue new ship loans.
According to recent reports, Chinese banks have provided several billion dollars of loans to western ship buyers since September 2008 and loans for ship financing purposes have increased by roughly 10 percent over the past few years. Specialists speculate that ship financing will soon turn into an emerging field where Chinese bank loans flow; especially if the government continues to put limits on housing loans in an effort to prevent the suspected real estate bubble from expanding.
After China's ship manufacturing industry experienced a downturn following the World Financial Crisis in 2008, Beijing issued the "Plan of Adjusting and Revitalizing the Ship Industry" in 2009 aimed at "increasing the issuance of loans to ship buyers from financial institutes."
Foreign-invested banks are also eyeing the huge profit of China's ship financing market. According to a recent report on China's loan8.cn, an increasing number of foreign invested banks are straying away from general finance and are seeking business in specific fields, with ship financing being one of them. In 2009, Swedbank and Norges Bank both established branch offices in Shanghai with specific focus placed on the ship financing business. Norges Bank is even the first fully licensed ship financing bank in China.
Far Eastern Leasing, China's largest ship financing company, hosted the second annual "Far East Shipping Conference" in Shanghai on December 15. The conference invited owners of 130 ship operation companies, and officials from three non-governmental shipping organizations and six governmental departments to discuss the prospect of the emerging ship financing field in China.
In addition to regular banks that issue loans, ship financing and leasing institutes are booming in China as well. A specialist at Far Eastern Leasing says that compared to domestic commercial banks, the ship financing and leasing institutes that usually possess a professional team with shipping specialists will have a better evaluation on those who want to rent and operate the ship. The cooperation between such institutes and banks will reduce the risk of bad loan accumulation. Those institutes are also doing better at providing ship operators with professional market prospect evaluations to aid them with better decision-making.
A report on The First Finance Daily (Diyi Caijing Ribao) says that in 2009, the ship financing commitment of the four biggest ship financing banks reached US$25 billion, while the commitment of ship leasing industries reached US$4 billion in total.
Although China's booming ship financing is attracting more and more foreign ship buyers and shipping operators, Zhu Hongjie, vice president of the Export-Import Bank of China, says in order to turn into the world's new ship financing center, China's financial institutes still need to develop their overseas network and understanding of international market rules.
China's Ministry of Transport still limits foreign investment into the nation's ship leasing industry, announcing in 2008 that the foreign share in domestic ship financing and leasing companies cannot exceed 50 percent. This may have to change if China wants to reach its goal of transforming Shanghai into an international "financial center" and "shipping center" by 2020.