Mainland shipbuilders are struggling as a global vessel glut makes it harder to win orders, raising fears a third of the nation's yards may have to close.
During the 2007 shipping boom, mainland shipyards required down payments of as much as 60 per cent of a vessel's value.
Now, they have had to cut the amount to as little as 2 per cent, resulting in an advantage to state-owned companies that can tap the government's cash.
With flagging demand and Beijing taking measures to rein in lending, privately owned yards are getting squeezed by state-owned rivals that enjoy greater access to financing.
China Rongsheng Heavy Industries, the largest shipbuilder by order book outside state control, said this month it was seeking government support after failing to win any orders for new vessels this year.
"The payment terms mean shipyards have to burn their own money to build ships, which brings them extraordinary cash-flow pressure," said Lawrence Li, a Shanghai-based analyst at UOB Kay Hian. "Only state-owned yards that are able to secure funding can offer such aggressive down-payment terms."
State-backed companies grabbed 74 per cent of orders for new vessels on the mainland, the world's biggest shipbuilding country, in the first half of this year, according to UOB Kay Hian data. That compares with 52 per cent in all of last year.
Dalian Shipbuilding Industry, a unit of state-owned China Shipbuilding Industry, won an order this month to build seven ships that can carry 8,800 containers each. The buyer, a unit of state-run China International Marine Containers, agreed to pay 2 per cent of the total amount of US$595 million as a first instalment and the rest on delivery.
New orders for commercial vessels at Dalian Shipbuilding's parent, which also built the country's first aircraft carrier, surged more than fivefold in contract value in the first half, the company said in a statement last week on the website of the China Association of the National Shipbuilding Industry.
The ability to get financing had become one of the most critical issues for yards trying to win orders, said Bao Zhangjing, a deputy director of the China Shipbuilding Industry Economy Research Centre.
"The market is going to be more dominated by fewer players given the current situation," Bao said. "Those with competitiveness will have opportunities. State-owned companies and some local firms are doing relatively better."
Of the 1,591 shipyards in the country in 2011, 70 were state-owned, according to the latest available data from the shipbuilders group.
Rongsheng and other shipbuilders are struggling as a global vessel glut makes orders more difficult to win and pushes down prices.
A third of the shipyards in the country might be shut in about five years as they failed to win orders "for a very long period of time", the shipbuilders group said on July 4.
A clampdown on excessive short-term borrowing sent the mainland's overnight repurchase rate to a record 13.91 per cent last month, forcing at least 22 companies, including China Development Bank, a backer of the shipping industry, to cancel or delay bond sales.
Wang Jinlian, the secretary general of the shipbuilding group, said yards generally had tight liquidity, and low down payments worsened the situation.
Yards received down payments averaging 40 per cent in 2007, Wang said.
Buyers now pay about 5 to 10 per cent on average, he said, characterising 2 per cent as "abnormally" low.
Chinese yards had an order book of 218 million dwt in 2008, overtaking South Korea as the world's largest shipbuilding nation, according to Clarkson, the world's biggest shipbroker.