Shipbuilding and the Law in China

1. Shipbuilding and the Law in China Jiang, Qing-Yun Shanghai University of International Business and Economics & Co-Effort LLP, Shanghai Date: 3 July, 2014

2. Outline • A review of World Shipbuilding Market • Financing Model • Legal Dispute and Settlement: case study • Sailing into the future: environmental friendly ship – LNG fueled vessels • Q&A

3. Why Shipbuilding Industry moves from Western Europe to Asia • Asia: China, Korea, Japan, Vietnam, Philippine • Europe: Germany, Italy, Poland, Croatia, Finland, Holland (Norway, Sweden) • The last battle in Cruiser Vessel, Gas Carriers • Some elements: Labor, Technology (design), Classification, Marine Equipments

4. Yard’s view

5. World Newbuilding Order 2013.1 – 2014.5

6. Summary of Orders • China ranks No. 1 in number of units and deadweight • In May 2014 there are 98 vessels ordered, with a total deadweight of 4,391,812 (dwt) and the order shrank somewhat in contrast with the order of 125 units of vessels (deadweight 7441860) placed in April 2014, and 218 vessels ordered in May 2013, with a total deadweight of 14,085,492.

7. Price movement2013.1 – 2014.5

8. Major share in Shipbuilding • Among the orders, 51 units (996200 CGT) were placed in Chinese shipyards, 8 units (226100 CGT) were placed in Japan and 20 Units (755000 CGT) were placed in Korean shipyards, representing 37.59%, 8.53% and 24.89% respectively in the world newbuilding tonnage. • The above vessels consist of 15 units of bulkers, among which 13 units were placed in Chinese yards. China has dominated the newbuilding market of bulk carriers in the past few months. In oil tankers, Korean yards obtained 4 units, Chinese yards obtained 5 units and Japanese yards 5 units as well. In the newbuilding of container vessels, China acquired 12 units, whereas none was placed in Japan and Korea

9. Shipbuilding Financing • The financing model in shipbuilding industry, which mainly includes: (1)mortgage; (2) through capital market by listing in stock market or issuing bonds; (3) shipbuilding funds; (4) export credit, and (5) financial leasing etc • The model in China, Korea, Japan

10. Financing Model: German KG

11. Does the model still have a future • The advantages of the KG financing in shipbuilding, such as tax and depreciation preference, advantage to the B/S, and tonnage tax etc. • The most disputing issue is whether German KG model can still continure its popularity or not. Due to the financial stress of banks, private investors, many KG company went bankrupt or faced financial distress, and some of the banks announced step-out from the shippin g financing market (such as Commerzbank). Examples and major KG companies such as HCI, MPC, Lloyds Fonds are in difficulty The sigle-vessel KG model is converted into the new form of „asset pool“ – Auffangsgesellschaft . • The Implication for Chinese financing market

12. The Legal Market of Shipbuilding • Pre-Contract negotiation • Contract drafting: to select a version • Dispute settlement clause (London, SG, HK, CIETAC) • Legal Practicing: arbitration, enforcement • Clause dispute: 37 degree/ tax refund • Working record and evidence, tactics of owner… • Wartsila case/internet sale of asset • Enforcement in China, the US

13. Q&A • Shipbuilding Industry in China • Legal issues