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Monday, April 16, 2001

One Chinese Shipyard Is So Unprofitable It’s Literally Becoming a Parking Lot

16 April 2016

One Chinese Shipyard Is So Unprofitable It’s Literally Becoming a Parking Lot

By Ma Jie

(Bloomberg) — Chinese shipbuilders are under so much financial strain that one of them is literally being turned into a parking lot.

China Ocean Industry Group Ltd., which dropped “shipbuilding” from its name in March, acquired a car-park operator last year to meet an estimated shortage of 50 million parking spaces in the world’s most populous nation. The company plans to build and operate 100,000 lots in China within three years, contributing about 70 percent of total operating profit by then, according to Chief Executive Officer Zhang Shi Hong.

The move underscores how shipyards like China Ocean are seeking other avenues of growth with the global shipbuilding business in a protracted slump due to falling commodity prices and a glut of new vessels. About 140 yards have gone out of business since 2010, and more may follow, according to JPMorgan Chase & Co. By contrast, parking is in short supply in China’s major cities and double-parking is a common sight.

“Diversifying the business is the general trend in the shipbuilding industry,” Zhang said in an interview. “The demand in the world’s biggest auto market will continue to rise as Chinese are forecast to buy more cars this year.”

Profit from the parking business will probably reach as much as 500 million yuan ($76 million) on annual revenues of 2 billion yuan, Zhang said.

China Ocean began building automated parking systems at its yard in Jiangxi province in February, retraining workers who formerly built ships, Zhang said. The company last year bought Shangdong Ruitong Parking Management Services Co. for its expertise in the sort of automated multi-level parking garages popular in closely packed cities like Tokyo.

Zhang said the company is working with governments and state-owned companies to upgrade parking facilities on their properties, and is preparing to establish a parking-lot management company that may go public on the Chinese stock exchanges, he said.

China Ocean is also working with electric-car maker BYD Co. to install chargers at its car parks, in line with the push by the government to build infrastructure to promote the adoption of EVs.

While building and operating parking spaces is a growing market and will provide opportunities, the path to success won’t be easy, according to Ka Leong Lo, a Hong Kong-based analyst at Kim Eng Securities Ltd.

Challenges Ahead

“They will have a lot of challenges including sourcing projects, securing new land and funding,” Lo said. “This is a capital-intensive sector that requires a lot of investment at the initial stage and the payback period is a few years.”

China Ocean’s shares fell 3.2 percent in Hong Kong trading Friday, while the benchmark Hang Seng Index was little changed.

The company aims to streamline and turn a profit for its shipbuilding business from 2018, focusing on chemical tankers and heavy-cargo vessels, Zhang said.

“We have been cruising in a fog over the past years,” Zhang said. “Now we’re starting to see the ocean.”

© 2016 Bloomberg L.P

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