China’s Eco-Friendly Ship Subsidies Aim to Revitalize Shipyards and Stimulate Demand
Posted on Aug 31, 2024 at 02:08 PM
China's government has unveiled fresh subsidies to encourage local shipowners to modernise their fleets with more eco-friendly, fuel-efficient cargo, as part of a flurry of initiatives to boost demand.
The strategy is similar to the 2008 financial crisis' “scrap-and-build” subsidy program, which supported Chinese shipyards through a harsh downturn.
On top of that, China's economy experienced a slow 5% growth rate in the first half of this year, meeting government targets but not exceeding historical averages, largely due to a decline in the housing market, low consumer demand, and lower government spending.
Using Subsidies to Stimulate the Economy
Beijing has introduced subsidies for individuals and companies to replace outdated buses, cars, appliances, farm machinery, and other items to boost demand. The incentive for trading in an old car for a new battery-electric model has increased to almost $2,800, or roughly 15% of the cost of an average Chinese EV.
Meanwhile, it's not okay for shipyards and shipowners to feel excluded. A fresh schedule of subsidies for demolishing and replacing older domestic vessels has been made public by China's Ministry of Transport and the National Development and Reform Commission.
The huge fleet that China possesses both inland and coastward would result in an industrial demand for skilled labour and steel if these smaller ships were to be replaced with new construction.
Technical-Ecological Standards for Replacing Vessels
Depending on the type of vessel (passenger, coastal, or inland), different subsidies are available for domestic vessels as young as ten years. The subsidy's starting point value is $140 per gross tonne, with qualifying passenger ships and tankers being able to receive a maximum of $210.
Remarkably, the subsidy is only applicable if the replacement vessel is built using at least 50% LNG, methanol, hydrogen, ammonia, or battery power. The scrapping subsidy suggests that China's inland waterways may resemble the country's heavy-truck industry, which is already making the switch to LNG single-fuel power.
In China, LNG is now more affordable per unit of energy than diesel, and its market share in the trucking industry has grown quickly. Subsidies of up to $19,000 may be available to owners of older trucks who want to convert, which could offset up to 20% of the cost of a brand-new LNG-fueled tractor-trailer.
By the end of 2023, LNG-powered trucks made up one-third of all new truck sales in China, even before the subsidy. According to Wood Mac, road diesel demand in China is declining.
China's strategic push to modernise its fleet through targeted subsidies highlights its commitment to both economic revitalization and environmental sustainability. By incentivizing the adoption of greener technologies in the shipping industry, Beijing supports domestic shipyards and aligns with global efforts to reduce carbon emissions. This dual focus on economic and ecological advancements underscores China's broader strategy to stimulate demand while steering its industries toward a more sustainable future.
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