Wednesday, February 11, 2009

Help for Shipbuilders / Emergence of Two Stimulus Models

The State Council has "approved in principle" a plan to stimulate China's shipping industry. This comes on the heels of similar plans to stimulate the steel, auto, textile, equipment and electrical appliance industries that have been approved since the first of the year.

Among the provisions are "encouragement" for financial institutions to provide credit to buyers; extension of existing financial support policy for purchasers of ocean-going ships to 2012; encourage efforts to scrap and replace old technology single-hull tankers; extension of a moratorium on new ship construction facilities (to keep production capacity stable); and various measures to support innovation, etc. As is typical, publicly released documents lack specific details on how such provisions will be implemented.

It is interesting to watch the unfolding of the differing stimulus approaches being undertaken by the United States and China. While China and the US have both approved plans specifically aimed at the auto industry, their approaches to other industries have differed. Whereas the U.S. seems to have put most of its eggs in a single, monstrous stimulus basket, China's leaders, with cooperation from industry leaders, are crafting separate plans for individual industries. (Though China has also announced some overall stimulus spending as well.)

The reasons for the differences are obvious. In cases where the U.S. government has lent significant funds to, or bought equity interests in, specific firms, we see industry-specific plans (primarily autos and banks). Since China has already staked out the industries in which the state intends to maintain substantial ownership, it is already easy to predict where the State Council's energies will be directed.

It will be interesting to see which model will be more effective at stemming the crisis.