China Bails Out Its Shipping Industry, Blows Latest Capital Misallocation Bubble

That China's housing bubble, the direct result of decades of less than efficient hybrid "capi-munist" capital misallocation, is the largest in the world is known to most. What may come as news is that in its attempt to prevent the wholesale collapse of yet another sector, the Beijing politburo, which these days has a perfect analogue in the "Monetary Mandarins of the Marriner Eccles building", is preparing to blow up the latest and greatest Chinese bubble. We are talking about China's sprawling shipping industry, of course.

Recall that it was a month ago that we present "China's first Too Big To Fail Lack of Liquidity casualty" - China Rongsheng Heavy Industries Group, which "appealed for government aid last Friday and said it was cutting staff as it was delaying payments to suppliers to deal with tightened cash flows." It appears that the government took a long hard look at the bailout application, and decided to fold, realizing that should China's shipping industry fail, the collapsing dominoes would have far-ranging implications, both vertical and horizontal, across the already deteriorating Chinese economy. 

So according to a statement dated July 31 and posted on the central government website over the weekend, China’s State Council issued a "plan to boost development of the shipbuilding industry in the three years through 2015." Here are the specifics:

  • China will encourage development of offshore engineering equipment such as drilling platforms for offshore oil, gas exploration: statement
  • Companies will be encouraged to develop large LNG ships, cruise ships and own-brand luxury yachts
  • China will encourage financial institutions to provide credit support for exports of vessels and equipment to foreign buyers
  • China to study securitization of shipbuilders’ loans
  • China will encourage financial institutions to provide financing for overseas mergers and acquisitions by domestic shipbuilding companies
  • China to support mergers, acquisitions and restructuring of shipbuilding companies
  • China to restrict new shipbuilding capacity to curb “blind” expansion
  • China to encourage replacement of old ships earlier than scheduled

Or, force more capital to be allocated precisely where it is needed the least. In short: welcome to the latest Chinese asset bubble, because remember: the best way to "fix" an economy already reeling from asset bubbles and unprecedented capital misallocation, is to distract everyone with yet another asset bubble, and misallocate capital some more.

Finally as a reminder:


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