On September 3, the Ministry of Transport held a press conference in the State Information Office and released the No.32 document of The State Council, Several Opinions on Promoting the Healthy Development of the maritime Industry.

The guideline, which includes seven key tasks, four safeguard measures and eight key job breakdown, requires six ministries, including the State-owned Assets Supervision and Administration Commission, the Ministry of Finance and the Ministry of Commerce, to work together to solve many problems in the development of the shipping industry. He Jianzhong, Vice Minister of the Ministry of Transport, pointed out that the "Opinions" elevates the development of the maritime industry to a national strategy, which is the first time since the founding of the People's Republic of China that The State Council has formulated systematic policy opinions on the long-term development of the maritime industry. It is designed from the top level and plays a significant role in promoting the construction of the modern maritime system.

A senior official of a major state-owned shipping company told reporters that the guideline was the "most effective" industry policy in recent years and was expected to bring a spring to the shipping industry. Liu Bin, director of the Institute of World Economics at Dalian Maritime University, said the proposal could potentially provide policy support to China's struggling shipping companies.

According to the reporter, the State Office No. 32 document was actually released on August 15, but the Ministry of Transport took it very seriously and specially held a press conference to answer the question. The full text of the opinion was only released today. The reporter also learned that it took more than two years for the opinion to be drafted, consulted and issued, with a lot of arguments and games behind it.

Subtext: National goods, national goods

The shipping market has been in the doldrums for several years, and the market has repeatedly expected state bailouts, but as a competitive industry, the concept of bailouts is widely criticized. Therefore, the positioning of the shipping industry is particularly critical.

Jia Dashan, deputy director of the Scientific Research Institute of Water Transport under the Ministry of Communications, pointed out that the core issue of the guideline is to solve the positioning problem of the shipping industry. The guideline begins by pointing out that "the shipping industry is an important basic industry for China's economic and social development". It rises to the national strategic level and aims at making China a maritime power, with three directions of competitiveness, support and guidance.

This means that, as the basic strategic industry of the country, while following the hand of the market, the intervention of the hand of the state administration is essential. As He Jianzhong pointed out, the Ministry of Transport took a series of measures when the maritime industry was in a slump and crisis, such as guiding shipping enterprises to adopt early scrapping and renewal of old transport ships and single-hull tankers; Another example is to reduce the administrative examination and approval items, improve the service level of industry management, reduce the burden of enterprises.

According to He Jianzhong, since last year, the Ministry of Transport has canceled or delegated 26 items of administrative approval, mainly for water transportation, and has also eliminated six administrative fees, including vessel visa fees. It has also eliminated escort and pilot fees for vessels sailing into the Yangtze River, which were set by maritime authorities in the past. In addition, through post-event and in-process supervision, innovative service management methods, the past batch of non-administrative license record management, adopt the form of online reporting system, to improve efficiency, do a good job in enterprise services.

The scrapping and replacement of old ships also helped reduce the country's overall shipping capacity by 4.2 million tons in the first half of this year, accounting for 6 percent of the total capacity compared with the same period last year. According to He Jianzhong, the policy has also contributed to a better change in the structure of new capacity, especially through the demolition of old ships to build new ones. The total number of old ships dismantled is 4.2 million tons, and the total number of new shipbuilding orders signed is 9 million tons. The tonnage of the new order is 2.2 times the average tonnage of the previous ships, "which is a big adjustment in the structure of the capacity".

However, although the above policies have solved the problems of fleet structure and some small problems in the operation of ship enterprises, the more important problem of supply structure has not been fundamentally solved. And the supply problem, is the major shipping enterprises in trouble for many years unable to turn over the main reason.

Liu Bin told reporters that although China's reform and opening up has brought huge trade volume in the past three decades, China's imports and exports of crude oil, iron ore and various goods have been growing rapidly year by year. China's shipping companies have benefited from the rapid growth of freight volume, but in recent years they are showing signs of being constrained. Chinese shippers carry only a fraction of the sea freight that flows in and out of China, and that share is shrinking.

He Jianzhong also revealed that the overall share of China's import and export freight carried by Chinese shipping enterprises is low, accounting for 1/4 of the total import and export cargo, and the overall capacity to ensure the safe operation of China's economy is not enough.

"Europe, the United States, Japan and other countries have been quietly reserving cargo, but we have 'foolishly' cancelled this right." Liu Bin said, looking at the shipping policies of all countries in the world, all countries implement cargo reservation shipping policies, but the form is extremely hidden and deceptive. When China joined the World Trade Organisation, this safeguard was ruthlessly removed, so much so that its own shipping companies are now in trouble.

The so-called "cargo reservation" means that domestic shipping companies should be allowed to carry more imports and exports, which means "domestic cargo national transportation". However, the extent to which cargo reservation is granted to domestic cargo national transportation remains to be debated.

It is worth noting that the first safeguard clause of the Opinions points out that close cooperation and complementary advantages between shipping enterprises and shippers should be strengthened, long-term contracts should be promoted, joint ventures linked by capital should be developed in an orderly manner, and stable relations of risk sharing and mutual benefit should be formed. We will strengthen departmental coordination and cooperation to increase the capacity to guarantee the transportation of key materials such as crude oil, iron ore, liquefied natural gas, coal and grain.

An unnamed expert pointed out to reporters that this clause is colloquially known as the "national goods and national transport" policy. It hopes that domestic enterprises and shipping companies can reach a close strategic alliance, and encourages the formation of Japan-style alliance cooperation between Chinese enterprises. The goods purchased or exported by Chinese enterprises should be transported by Chinese shipping enterprises as far as possible.

"If the government requires petrochina or Sinopec to allocate more than half of their annual crude oil imports and exports to domestic shipping companies as part of the evaluation criteria, then everyone will live well and achieve strategic security." Liu Bin boldly suggested.

The reporter asked whether this clause would violate the WTO agreement, which caused international controversy. Liu Bin said that the market is now distorted. Europe, Japan and the United States use FOB terms for crude oil imports and CIF terms for exports, while Chinese importers and exporters are completely contrary to the traditional practices of the above countries and regions.

Since shipping companies cannot get involved in the signing of trade contracts, they can only passively wait for the charterers who have the right to speak in the market to rent ships to transport goods. As a result, China's shipping industry is pushed to a helpless situation, making it difficult for domestic goods to be shipped. Over time, China's shipping industry will fall into a disadvantageous situation. The Chinese government has the right to impose "cargo reservations" when its competitive position is challenged.

Liu also suggested that the Chinese government could use incremental measures, as the country's demand for crude oil imports, iron ore and other raw materials is still increasing year by year, and it could stipulate that domestic shipping companies carry out the new incremental portion of freight.

Spring in the mire

The reason why the industry hopes that "Opinions" will bring shipping spring is actually because the domestic shipping industry has been Mired in the winter mire.

Last week, major shipping companies have released financial results for the first half of this year, the company's performance is not optimistic. According to media statistics, 10 listed shipping companies suffered a total loss of 1.464 billion yuan, among which China Cosco (601919) suffered the biggest loss.

According to the disclosure of China Cosco management at the performance conference, the first half of this year, the company received operating revenue 29.9 billion yuan, a decrease of 0.9% year-on-year, net profit loss of 2.28 billion yuan, a decrease of 129.98% compared to the same period last year. China Shipping Haisheng (600896), another listed unit of the group, posted a loss of 90.61 million yuan in the first half, a slight improvement from a loss of more than 130 million yuan last year.

Most of the six shipping companies that have turned a profit have done so by selling assets or growing unconventional businesses, rather than by a genuine turnaround in earnings from their main businesses.

For example, China Shipping Lines (601866) began continuous financial operations at the end of last year, selling Shanghai Zheng Jin Industry Co., LTD., Shanghai China Ocean Mountain International Container Storage and Transportation Co., LTD., and China Shipping Terminal Development Co., Ltd. to companies of China Shipping Group. These three transactions were implemented successively in January and June this year, realizing investment income of 1.771 billion yuan. So while China Shipping Lines made a profit of 460 million yuan in the first half of this year, it actually lost 485 million yuan excluding one-off gains from asset sales.

Similarly, Cosco Shipping (600428), although also reported profit, is actually the sale of assets. After deducting the gain from the sale of four vessels on the Ankang River, Fengan Mountain, Fuwon Mountain and Antaek River, the loss attributable to the listed company amounted to 2.2784 million yuan.

These companies are doing this out of necessity. For example, last year, China Shipping Container Lines had a net loss of 2.646 billion yuan. If it loses money again this year, it will be punished by ST. Cosco's turnround last year was also helped by repeated asset sales rather than a genuine turnaround in operations.

The management of COsco admitted at the performance meeting that since the beginning of this year, the global shipping industry has maintained the trend of weak recovery and low growth, and the situation of excess shipping capacity has basically not changed. Dry bulk cargo is generally better than last year, but the performance of the second quarter is very poor, with BDI index declining by 40%. As a result, Ma Zehua, Cosco chairman, said it would be "very difficult to achieve non-loss results for the full year".

But while the overall performance of Chinese shipping companies has been poor, their international rivals have repeatedly delivered stellar results.

At the end of August, Maersk announced that it had made $3.5 billion in the first half of the year. Excluding project terminations, impairment losses and asset sales, Maersk actually made $2.4 billion, up 42% from a year earlier. It is worth noting that Maersk Line achieved operating revenue of $6.902 billion in the second quarter, up 3.8% year on year, and achieved profit of $547 million, up 24.6% year on year.

Cma Cma reported consolidated net income of $94 million on revenue of $4.2 billion in the second quarter of 2014, up 3.7% from the same period last year.

Liu Bin believes that compared with shipping giants such as Maersk and CMA Cma, the competitiveness of many Chinese shipping companies, which have been losing money for years, is falling sharply. In contrast, the future of China's shipping companies is in doubt. "In the long run, the weakened competitiveness of shipping companies will represent the decline of China's shipping capacity."

He Jianzhong also admitted that the overall condition of Chinese shipping industry is large scale but not strong. According to his introduction, there are more than 240 shipping companies in China with a total shipping capacity of 142 million deadweight tons. At about 8% of the world's total shipping capacity, it ranks fourth.

By the end of 2013, China's ports handled 11.8 billion tons of cargo and 176 million TEus of containers. At present, there are 30 ports with a throughput of over 100 million tons and 22 with a container throughput of over 1 million TEUs. Among the world's top 10 ports in terms of throughput and container throughput, China has eight and seven, respectively.

In view of the large but not strong situation of the maritime industry, The State Council has formulated systematic policy opinions on the long-term development of the maritime industry for the first time since the founding of the People's Republic of China, positioning the development of the maritime industry as a national strategy, which is self-evident.