China's Largest Shipyard Now A Ghost Town

Caixin: China's Biggest Shipyard Is Now a Ghost Ship

Piles of rusty steel bars and old ship parts are virtually all that's left of a sprawling shipyard in the eastern city of Rugao, where Jiangsu Rongsheng Heavy Industries Group Co. used to employ more than 30,000 people.

Once China's largest shipbuilder, Rongsheng is on the verge of bankruptcy. Orders have dried up and banks are refusing credit. Questions have been raised about the shipyard's business practices, including allegations of padded order books. And Rongsheng is apparently behind on repaying some of the 20.4 billion yuan in combined debt owed to 14 banks, three trusts and three leasing firms, sources told Caixin.

The few hundred shipyard workers left – survivors of what's now a three-year downsizing – are wondering whether they'll ever see their overdue paychecks. Those with an uncertain future include a worker who cuts steel from abandoned ships into pieces that can be sold for scrap. "We haven't been paid since November," the worker said.

Here's a chart of the Baltic Dry Index:

Amazing timing: Vale ordered the ships at the peak of the BDI, Rongsheng delivers the last ship and goes belly-up at the bottom.

Rongsheng is on the ropes now that it has completed a multi-year order for so-called Valemax ships for the Brazilian iron ore mining giant Companhia Vale do Rio Doce. The last of these 16 bulk carriers, the Ore Ningbo, was delivered in January.

With a carrying capacity of up to 400,000 tons, Valemaxes are the world's largest ore carriers. Vale hired Rongsheng to build the ships starting in 2008, and has tolerated the shipyard's slow pace: The Ore Ningbo was delivered three years late.

Read the whole thing. Heavy debt and fake orders play a role in the firm's demise, as does non-core real estate investment:

In retrospect, said a Rongsheng executive, the company went too far. Financial reports for the years 2008 to 2011 show Rongsheng planned to spend between 1.5 billion yuan and 5.4 billion yuan annually on fixed-asset investments.

The executive said company founder and former chairman Zhang Zhirong supported the expansion plan in hopes that greater production capacity would help accelerate shipbuilding and deliveries. In addition, a source close to Zhang said some expansion decisions were designed to improve the company's bottom line through real estate development that had nothing to do with building ships.