Behind the US 301 investigation against China: the disparity in the strength of the shipbuilding industry between China and the United States has limited impact on Chinese shipbuilders as a whole

Every reporter: Zhang Yun Every editor: Yang Xia

On April 17, U.S. time, the official website of the Office of the United States Trade Representative (USTR) announced the launch of a Section 301 investigation against China's maritime, logistics and shipbuilding industries.

According to Xinhua News Agency, the spokesperson of the Ministry of Commerce issued a statement on the US Section 301 investigation against China, pointing out that the US application is full of a large number of false accusations, misinterpreting normal trade and investment activities as harming US national security and corporate interests, and blaming China for its own industrial problems, which lacks factual basis and goes against economic common sense. A number of U.S. research reports show that the U.S. shipbuilding industry has lost its competitive advantage many years ago due to overprotection. The U.S. provides hundreds of billions of dollars in discriminatory subsidies to its own industries, but accuses China of adopting so-called "non-market practices." As a matter of fact, the development of China's industry is the result of technological innovation and active participation in market competition, and the accusations made by the US side are simply untenable.

So, what impact will the US announcement of the launch of the Section 301 investigation and the planned increase in tariffs on Chinese products have on China's steel and aluminum trade, logistics and shipbuilding industries?

Lei Yue, head of the shipping group of the investment consulting department of Haitong Futures, told the "Daily Economic News" reporter that the overall impact of the US 301 investigation on Chinese shipping companies is very limited, and if the follow-up measures involve the imposition of port fees and tariffs, it may increase the transportation cost of some goods.

The petition exposes the decline of the U.S. shipbuilding industry

A petition made the USTR once again wield the "301 stick" and pointed directly at China's shipbuilding industry.

On March 12, five U.S. labor unions filed a petition with the USTR calling for an investigation into China's alleged "unfair" policies and practices in the maritime, logistics, and shipbuilding industries. On April 17, the USTR announced the launch of an investigation and plans to solicit written comments by May 22 and hold a public hearing on May 29.

The reporter consulted a copy of the petition disclosed on the USTR's official website, and five American labor unions wrote that the Chinese government has adopted a number of supportive policies to achieve the goals set out in the shipbuilding program. These policies have led to a sharp increase in China's share of the global shipbuilding market and have driven down the global price of commercial vessels, making it impossible for American shipbuilders to invest and expand in the world market.

The five U.S. unions also mentioned that since the beginning of the 21st century, China's fleet has grown rapidly, from one-twentieth to one-seventh of the total, and that the number of U.S.-made ships has dropped sharply from 193 to 93 during this period. As of now, the United States has fewer than 80 merchant ships, while China has more than 5,500 merchant ships.

On April 19, Chinese Foreign Ministry spokesman Lin Jian said that a number of US research reports show that the US shipbuilding industry has lost its competitive advantage many years ago due to overprotection. The development of China's related industries is the result of technological innovation and active participation in market competition, thanks to its complete industrial manufacturing system and huge domestic market. The US blames China for its own problems, which lacks factual basis and goes against economic common sense.

So how does the domestic shipping industry view this incident?

On April 18, some industry insiders said in a telephone exchange with the reporter of the "Daily Economic News" that firstly, it will take a year to start the 301 investigation, and the relevant measures are still unclear; secondly, the investigation and remarks took place during the US election, in order to compete for the votes of swing states, and the result cannot be judged.

In response to an interview with reporters, Lei Yue said that in the 301 investigation, the relevant US trade unions mainly mentioned the following demands: demanding the imposition of port fees on Chinese-made ships, recommending that the US government take all other actions within the scope of the president's authority, requiring the US government to deal with the threat of the logistics platform LOGINK, and requiring the US government to establish alliances with major shipbuilding countries such as Japan and South Korea. Whether these measures will be implemented remains to be determined by the results of the investigation and the government.

The overall impact on China's shipbuilding industry is very limited

On April 18, a reporter from the "Daily Economic News" called China Shipbuilding (600150. SH, share price 39.1 yuan, market value 174.872 billion yuan), the other party said: "We are making further understanding. When asked what are the advantages of receiving orders, the other party said that there are various ship types such as bulk carriers, container ships, and automobile ro-ro ships, and the delivery of hand-held orders has been scheduled until the end of 2027, and some to 2028.

As of April 2024, Chinese shipyards had 163.4 million dwt, accounting for 58% of the global total, according to Clarkson data. Of the hand-held orders, 37% were bulk carriers, 25% were tankers, 24% were container ships, and 6% were gas carriers. At present, the number of orders received by Chinese shipyards is basically full, and most of the production capacity is occupied by container ships and LNG ships. According to data from the Ministry of Industry and Information Technology, the green transformation of China's shipbuilding industry will accelerate in 2023, with orders for LNG and methanol-powered green ships growing rapidly, and the international share of new orders for green-powered ships will reach 57%.

"The overall impact of the US Section 301 investigation on Chinese shipbuilders is very limited. Lei Yue analysis said that in the context of the US "Jones Act", the United States built ships mainly operate local business, and the cost and labor costs are high, the construction cycle is long, and the current share of American shipyards in the global newbuilding market is only 0.1%.

Lei Yue further said that Chinese shipyards benefit from the advantages of construction cost, technology and scale, and South Korea is the world's two largest shipbuilding countries. From the perspective of business structure, American shipowners are more likely to choose South Korean shipyards for ship construction, and American shipowners account for 30% of the total tonnage. Chinese shipyards are taking more orders from European shipowners, and US shipowners account for only 1% of the total tonnage, so the impact is very limited.

What if port charges are levied on Chinese-made ships at the request of trade unions? Lei Yue said that the short-term impact could lead to additional transportation costs and shipowners could pass it on to the cargo. Taking the container ship sector as an example, the main transmission logic is that among the container ships engaged in China-US route transportation, ships built by Chinese shipyards will be charged additional port fees when calling at ports in the West/East of the United States, but the shipping company may pass on the cost.

The efficiency of the maritime supply chain may decline further

"In the short term, it will raise the export cost of Chinese goods and weaken the competitiveness of exports, and in the long run, it will theoretically affect the shipowner's newbuilding investment decision, and the surcharge cost will be included in the consideration of the newbuilding cost for trade-off. Lei Yue believes that from the current situation, thanks to various factors such as labor costs, construction technology, and completion efficiency, Chinese shipyards still have an absolute advantage, and the additional surcharges brought by only calling at U.S. ports are difficult to affect the shipyard choice when shipowners actually order new ships.

So how did the shipowners think about it? On April 18, China Merchants Shipping (601872. SH, share price of 8.87 yuan, market value of 72.236 billion yuan) The staff of the securities department replied to the "Daily Economic News" reporter that after the news came out last month, the company has paid attention to and studied the matter, and assessed the possible development and impact of the incident. From the perspective of the shipping market, the problem is that the supply of effective capacity in the next three years is insufficient, resulting in a shortage of shipyard capacity, and now the launch of the 301 investigation may lead to a further decline in the efficiency of the shipping supply chain, as well as an increase in costs.

The reporter called Jinjiang Shipping (SH601083, share price of 11.37 yuan, market value of 14.71 billion yuan) as an individual investor and got a similar view, the other party said: "Because shipbuilding is a necessary expense of the shipping industry, the cost of shipbuilding rises, the supply side of the transportation industry may slow down, but the demand side, the freight volume of the market is increasing year by year, so it may be that the market interpretation of the 301 survey is good news for the shipping industry, of course, the market also has a different judgment from this." ”

Phoenix Shipping (SZ000520, share price of 3.09 yuan, market value of 3.127 billion yuan), which harvested 4 days and 3 boards this week, believes that the recent stock price changes have nothing to do with the 301 investigation, because the company is mainly engaged in the Yangtze River inland dry bulk transportation, and has no trade business, and the sharp rise in shipping stocks is mainly affected by extreme geopolitics.

The reporter observed that in the secondary market, the shipping port sector was not affected by Sino-US trade issues, but paid more attention to the latest developments in the Middle East situation. On April 19, shipping stocks rose against the trend throughout the day, on the news side, the conflict between Israel and Iran became the focus of the market again, the European line container shipping index rose by more than 11% on the same day, and the recent major shipping companies have gradually increased the freight rate of a new round of landing, which further boosted the performance of shipping stocks.

Lei Yue believes that for the shipping industry, from the perspective of trade structure, China is the largest source of commodity imports for the United States, and the United States is one of China's major energy importers. The escalation of the trade friction between China and the United States will put pressure on bilateral trade between the two countries, with China's finished products and automobiles exported through containers, as well as goods such as LNG and LPG imported from the United States, greatly affected.

In addition, in response to U.S. President Joe Biden's public speech in Pittsburgh, claiming that the Chinese government has long subsidized Chinese steel companies to expand production capacity and dumped them on the global market at unfairly low prices, causing damage to the United States, and said that the U.S. Trade Representative is investigating China's steel and aluminum industry and threatening to adjust the tariff rate of steel and aluminum imported from China to three times the current one, on April 19, Chinese Foreign Ministry spokesman Lin Jian said that China's steel industry is mainly based on meeting the needs of the domestic market, without any subsidy policy to stimulate exports, and the export ratio has remained at 5 for a long time%, much lower than Japan, South Korea and other steel producing countries, the impact on the international market is very limited.

Lei Yue told reporters that taking steel as an example, the United States is a net importer of steel, and China is a net exporter of steel. Therefore, the additional tariffs imposed by the United States will have an impact on domestic steel exports.

According to the research report of China Securities Construction Investment, China's exports of steel and aluminum products to the United States account for about 10%, and its dependence on the United States is not low. Referring to historical experience, short-term exports of steel and aluminum products to the United States may improve greatly, and if the tariffs are finally implemented, there will be a negative impact, and the overall export drag is close to 0.1%

It is recommended to expand into emerging markets such as South America, Africa, and Southeast Asia

Customs data shows that in 2023, the total export of electric manned vehicles, lithium-ion batteries and solar cells will be 1.06 trillion yuan, an increase of 29.9%. The United States is also highly concerned about China's "new three" exports, especially as the world's largest auto importer, and the establishment of trade barriers to automobiles and parts will affect bilateral trade.

Lin Jian pointed out that the United States provides hundreds of billions of dollars in discriminatory subsidies to its own industries, and also abuses export control measures under the pretext of "national security" to hinder the normal international trade of chips and other products. The US side accused China of adopting so-called "non-market behavior", which is a typical example of "thieves shouting to catch thieves".

Lei Yue analyzes that in general, if the United States imposes tariffs on some mainland export commodities in this "301" investigation, it will gradually be transmitted to the upstream and downstream of the industrial chain and value chain, which will then exacerbate the inflation level in the United States, and will eventually be borne by upstream and downstream traders and even American consumers.

The resumption of the US Section 301 investigation into China for the sixth time has exposed that the issue of Sino-US trade friction cannot be ignored. The trade tensions between China and the United States have not only affected the stability of the global economy, but also increased the production costs of global enterprises.

Lei Yue suggested that enterprises can adjust the import and export structure in a timely manner, optimize the industrial layout, reduce their dependence on the European and American markets, actively expand the markets of emerging economies such as South America, Africa, and Southeast Asia, and expand the opening up and cooperation of the countries that have been jointly built along the "Belt and Road". Under the large fluctuation of market risk, you can choose to make a raw material procurement and sales plan in advance and reach a cooperation agreement with traders.

National Business Daily