A Briefing on Chinese Shipbuilding

Industry – Now and Future

Chen Wenjun

Rongsheng Heavy Industries

June 6, 2013

Agenda

• The Chinese Shipbuilding Industry Nowadays

• Challenges and Opportunities

• Strategy for the Future

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DW

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Vessel Delivery History

China

Japan

South Korea

World

The Chinese Shipbuilding Industry Nowadays • Encouraged by the booming market in 2006-2007, the wave to construct shipyards was surged in China. Now

with over 5000 shipyards, the country has become the largest shipbuilding base in the world.

• From 1999 to 2001, vessels fabricated by China reached only 1.2 million DWT per annum. However, during the

period of the Eleventh Five Year Plan (2006-2010), the number went up by 43% per year, which largely

exceeded its counterparts including South Korea and Japan.

Source: Fairplay

CSIC

CSSC

Large private owned yards

The Chinese Shipbuilding Industry Nowadays

• The shipyards in China can be divided into 3 categories.

• Most shipyards are rather small and lack of competitiveness in the

world.

Chinese

Shipbuilding

Industry

Large state owned yards e.g. CSSC &

CSIC

Large private owned yards (mainly in Jiangsu & Zhejiang) e.g. Rongsheng, New Times, etc.

Other small-to-medium yards (Dominate in

number of the 3 categories)

3 045 376 3 103 440 3 319 840

3 597 300 3 675 818 3 890 942

4 192 227 4 361 144

4 850 463 5 176 148 5 279 478 5 303 496

6 457 200 6 932 008

9 771 863 9 936 878

10 601 612 10 758 540

11 416 111 11 793 449

Tsuneishi ZosenAtlantico Sul

Hudong ZhonghuaKoyo Dock K.K.Sungdong S.B.

Jiangsu New YZJJinhai Heavy Ind.

Hyundai MipoSTX Dalian

Hyundai SamhoNamura ShipbuildingJapan Marine United

Dalian ShipbuildingOshima S.B. Co.

Shanghai WaigaoqiaoHyundai H.I.

Jiangsu RongshengSTX S.B.

Samsung H.I.Daewoo

Orderbook Ranking as of May 2013 (DWT)

The Chinese Shipbuilding Industry Nowadays

• Although China has

the most shipyards

worldwide, the top 3 in

orderbook ranking are

all from South Korea.

• Among top 20: 7 from

China, 7 from South

Korea, 5 from Japan

and 1 from Brazil.

• The country’s

shipbuilding sector is

rather fragmented.

China

South Korea

Japan

Brazil

Source: Clarkson Research

The Chinese Shipbuilding Industry Nowadays

0

20 000 000

40 000 000

60 000 000

80 000 000

100 000 000

120 000 000

2005 2006 2007 2008 2009 2010 2011 2012 2013(As ofMay)

New Contracts (DWT)

China South Korea Japan

0,00

20 000,00

40 000,00

60 000,00

80 000,00

100 000,00

2005 2006 2007 2008 2009 2010 2011 2012 2013(As ofMay)

New Contracts (USD Million)

China South Korea Japan

• Although China obtained the most new contracts per annum in the world since 2007, the gap between it and

South Korea has become smaller and smaller in recent years.

• However, in terms of contract value, South Korea was far beyond that of China.

Source: Clarkson Research

The Chinese Shipbuilding Industry Nowadays

Tanker 11 %

Bulker 4 %

Container < 3000TEU

0%

Container > 3000TEU

18%

LNG Carrier 14 % LPG Carrier

2 %

Offshore 48 %

Other 3 %

South Korea’s Orderbook in Value (As of May 2013)

Tanker 12 %

Bulker 36 %

Container <

3000TEU 2%

Container > 3000TEU

13%

LNG Carrier 3 %

LPG Carrier 2 %

Offshore 24 %

Other 8 %

China’s Orderbook in Value (As of May 2013)

• The orderbook of Chinese shipbuilding industry now is still mainly supported by numerous traditional bulk

carriers. This is in line with the extensive economic growth mode of the country.

• Although Chinese shipyards have started transformation towards the high end, they still lag behind the Korean

counterparts.

Source: Clarkson Research

Agenda

• The Chinese Shipbuilding Industry Nowadays

• Challenges and Opportunities

• Strategy for the Future

Challenges and Opportunities Challenges

Minimum Wage Standard in China (Source: Wind)

Standard (RMB) Increase Rate

1-year RMB rate again USD (Source: Yahoo Finance)

Ever-rising cost

• Suicides issues in Foxconn's iPhone factories brought waves of pay increase.

• In 2012, the minimum wage standard in china went up by 11.93%.

• Steel price also increased by 32% in comparison with August 2012.

The appreciation of RMB

• RMB has seen great appreciation against US Dollars in recent years, while Korean Won and Japanese Yen all depreciated.

• The low-price advantage of Chinese shipyards will be weakened.

Challenges and Opportunities Challenges

New regulations by international conventions

• World economic development is towards the direction of low carbon, energy efficiency and environment

friendly.

• New regulations including EEDI has been released.

• The design and construction capability of Chinese shipyards will face even greater challenges.

More fierce market competition

• South Korea will keep its advantage in high-tech vessels and offshore products.

• The greatly depreciated Yen strengthened competitiveness for Japanese yards in price.

• Through policies of State Vessels Built by State Yards, Brazil and Russia also entered competition.

Challenges and Opportunities Opportunities

0

10 000 000

20 000 000

30 000 000

40 000 000

50 000 000

60 000 000

70 000 000

2006-Q1 2007-Q1 2008-Q1 2009-Q1 2010-Q1 2011-Q1 2012-Q1 2013-Q1

New Contracts (DWT)

Market

• The shipbuilding market was recovered in 2013 with new contracts received increasing by 46.7%.

• Not only traditional ship owners, but also fund companies are involved in investment: Oaktree Capital with

Oceanbulk, JP Morgan with Ceres, JP Morgan with Bernhard Schulte, etc.

Source: Clarkson Research

Challenges and Opportunities

Opportunities

Labor

• China has reserved many local

talents in manufacturing, and

the labor cost is still largely

lower than South Korea and

Japan even with the rising

payment.

• World equipment

manufacturing industry has

further shifted to China.

Finance

• In comparison with western

counterparts, Chinese banks

are relatively stable in

operation.

• Ship owners may have more

access to buyer’s credit from

Chinese banks.

Policy

• According to the "Twelfth Five-

Year Plan" for Shipbuilding

Industry, China will strive to

become a leader in global

shipbuilding by 2015.

• The Chinese government will

further consolidate and support

the sector, which may benefit

local yards.

Challenges and Opportunities Goals set at the "Twelfth Five-Year Plan" for shipbuilding industry for 2015 Scientific and technological comprehensive strength ranks the world

• To form more than 50 brand products that meet the latest international regulatory requirements and lead the

international market.

Upgrade the industrial structure

• To significantly improve concentration, with top 10 shipbuilding enterprises accounting for more than 70% of

vessels built by the nation.

• To take 20% of worldwide offshore market shares.

Efficiency and effectiveness significantly improved

• Increase industrial value added rate.

• An average increase of 15% of the overall labor productivity.

• Digital shipbuilding capacity to be significantly improved.

Challenges and Opportunities

5000 shipyards

60% vessels built by top 10

China

70 shipyards

80% vessels built by top 4

South Korea • Now the average orderbook by a single yard in China is less that 1/5 of that in a South Korea yard.

• The government will further consolidate the sector by encouraging mergers and acquisitions and reorganization among Chinese shipbuilders, said by the Ministry of Industry and Information Technology.

• The new policy will see more government support to large-scale shipyards like Rongsheng, while most small and weak ones will be merged.

Agenda

• The Chinese Shipbuilding Industry Nowadays

• Challenges and Opportunities

• Strategy for the Future

Strategy for the Future

Promoted by investment and export Promoted by technology and quality

Focus on construction capability expansion Focus on technology improvement

Manufacturing oriented Service oriented

Low end of value chain High end of value chain

Environment jeopardized Environment friendly

• In general, the strategy for Chinese shipbuilding industry in the future is to match the trend of Chinese

economic development: high technology and green growth.

Rongsheng has started transformation – from shipbuilder to a marine equipment provider Highlights • A Hong Kong listed company • Three marine related business segments • Largest newbuilding yard • Good track record • Largest orderbook in China • Strong financial support

Strategy for the Future

Strategy for the Future Target vessel products – Rongsheng Shipbuilding

Panamax Bulker

Capesize Bulker

Suezmax Tanker

Ice-class Panamax Bulker

7000 TEU Container Vessel

Kamsarmax Bulker

Very Large Ore Carrier

Panamax Tanker

VLCC

9400 TEU Container Vessel Aframax Tanker

New Castlemax Bulker

Target offshore products – Rongsheng Offshore & Marine

Strategy for the Future

Drilling Rigs

• Jack up • Semisubmersible • Drillship

Production Unit

• FPSO • FSU • FSO • Shuttle Tanker

Service Vessel

• Pipe Laying Heavy-Lift Vessel

LNG, FSRU and FLNG in Offshore Engineering

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Stand T02-04