YANGZIJIANG: Navigates Nimbly Through Choppy Waters

Executive Chairman Ren Yuan Lin (pictured in the foreground) with workers at Yangzijiang shipyard. Photo: Company

Ren Yuanlin knows all too well what it means to survive the odds, having grown up amidst the chaos and violence of China’s Great Cultural Revolution in the 1960s and 70s.

The Executive Chairman of Yangzijiang Shipbuilding (Holdings) Ltd, China’s largest privately owned shipyard, was sent to the countryside at the age of 14 to do hard labour under Mao Zedong’s rustification campaign – the infamous “Down to the Countryside” movement.

Ren was among more than 17 million Chinese high school graduates forced out of cities and exiled to remote areas to live and work among peasants, so they could renounce their bourgeois ideas.

“Because we were on the lowest rung of society, we felt the oppression very keenly. We were looked down upon – it was just like being the lowest class in the Indian caste system,” he said in Mandarin.

Ren’s family was further fractured when his father committed suicide after his property and business were confiscated during the Cultural Revolution by the Red Guards, paramilitary youths unleashed by Mao to enforce communist dogma and purge the nation of capitalist elements.

“I learnt to be very independent at an early age, and to work very hard. At that time, we had few options – we could not make our own decisions, and all we could do was to maximise every opportunity that came our way,” said the youngest in a family of five brothers and a sister.

Meanwhile, the number of shipyards in China have shrunk to about 300 currently, from 3,000 over the past five years. This number may fall below 50 in another three years, Ren said.

The global commodities slump and weaker shipping demand has decimated orders for new vessels, resulting in several Chinese shipyards filing for restructuring or declaring bankruptcy this year.

Others, like the two largest state-owned shipbuilders – China State Shipbuilding Corp (CSSC) and China Shipbuilding Industry Corp (CSIC) – are considering a merger.

One-time peer China Huarong Energy – previously called Rongsheng Heavy Industries Group Holdings – has also struggled with losses and debts. Yangzijiang was approached by the government in March to explore the possibility of acquiring a stake in Rongsheng, but no decision has been made yet.

The company plans to boost sales and marketing efforts to ensure an expanding order book, while enhancing R&D initiatives by partnering research institutes. It will focus on the niche markets of ultra-large containerships and clean energy vessels, as well as building better vessels that offer higher loading, lower fuel consumption and reduced emissions, Ren said.

And one advantage that will ensure Yangzijiang’s survival is its cost structure.

“Our cost is about five percent lower than our Chinese peers, because we are a private shipyard, not a state-owned enterprise. We have a stringent planning and construction process, flat management structure and lower procurement costs.”

The bottom line is that the industry’s competitive dynamics need to be adjusted, he added.

“China needs to withdraw protection and support for state-owned enterprises in the sector. The same goes for Korea. If both governments continue to protect their state-owned companies, which are the most irrational players in the market, the excess capacity will never be removed.”

On hindsight, Yangzijiang’s switch to 10,000 twenty-foot-equivalent (TEU) containerships from smaller vessels was a smart move, Ren said.

“This is now our flagship product, and because it’s considered a high-end, sophisticated vessel, it has enhanced our profile in the market and helped define our fortunes over the last few years,” he added.

The Group, which employs 6,000 employees, has three large dry-docks, as well as six large- and medium-sized slipways, with an annual shipbuilding capacity of 6 million deadweight tonnes (DWT).

Ren also expects demand for LNG carriers (LNGCs) to rise in future. Key competitors in this segment are the Korean yards, due to their more advanced technology, while Japanese yards manufacture mostly for the domestic market.

“Acquisition opportunities for the LNGC market are few, as China is not advanced in clean energy vessel production, while the Japanese and Koreans are very secretive about their technology. We need to set up our own R&D teams and will partner European shipbuilders to supply vessel parts and know-how.”

The ongoing restructuring in China’s shipbuilding industry, however, may throw up some interesting options in the near term, Ren said.

“We believe next year will open up a very good window for some disposals and acquisitions. We are following very closely the consolidation in the industry.”

A suitable deal – whether in stock or assets – would likely carry a price tag of “several hundred million to a billion US dollars”, he added.

Yangzijiang has already been disposing of non-performing and non-relevant businesses in its stable, including a property asset in the last quarter, Ren said. It had previously also considered selling one of its smallest yards to a listed Chinese yacht company.

The outspoken entrepreneur was named in Lloyd's List of 100 most influential people in 2012. He also won the 2013-2014 Outstanding Entrepreneur Award, conferred by the Chinese Enterprises Association, the China Entrepreneurs Association and the China Enterprise Management Science Foundation.

When Ren is not grappling with day-to-day yard operations, he is voraciously reading up on global financial markets and exploring investment analysis tools.

"Understanding how currency and capital markets work is my passion. It's not about how much money you make, but whether your judgement and analysis were correct," he said.

"Since Yangzijiang is listed, I also need to keep up-to-date with developments in the financial markets." While Ren enjoys delving into the volatile investment world, he has kept his only son, Letian, firmly anchored in running the yards.

The 33-year-old, who holds a Master’s degree in Internet and Multimedia Engineering from London South Bank University, joined Yangzijiang in 2006. He was rotated through various positions, including post of General Manager for Jiangsu New Yangzi Shipyard, before being appointed Group Chief Executive Officer on 1 May 2015.

"I want him to be an entrepreneur and a good businessman. Financial investments and the stock market would only distract him,” Ren said.

“These are two very different ways of earning money. For business, every dollar is generated through blood, sweat and tears. The other method involves speculation, wining and dining – a good life. If my son had gone into the world of financial investments, he would not be in business now."

And the astute leader has implemented the same principle to secure Yangzijiang’s future.

• The oversupply situation for containerships and dry bulkers is expected to continue, while competition in the market has intensified.
• Given the tough environment, we have become more flexible in profit margin requirement and payment terms. This strategy has proved effective in stimulating order flows.
• Our persistent efforts in building up our R&D capabilities have facilitated the establishment of a diversified product portfolio. While demand for traditional vessels has slowed, demand for high-technology, more sophisticated and green vessels, such as LNG Carriers and VLGCs, has become more promising.
• These high value-added vessel types are expected to provide crucial support for our sustained growth. Intense competition in the market will accelerate consolidation in the industry. In terms of M&A opportunities, we will only evaluate those that are accretive to our core shipbuilding business, offer favourable returns, enhance shareholder value and the competitiveness of the Group in the long run.