Source: (Funaiole et al., 2025)

Between 2005 and 2015, the cumulated oversupply reached 297 million gross tonnes in total and accounted for 23% of the world fleet in 2015 (OECD, 2021).  This situation has remained particularly severe for most large vessel categories, such as tankers, bulkers, and containers. Future vessel requirements that were expected to be equal only in 2030, at the peak of completions, were actually reached in 2011 (OECD, 2021). However, Chinese industries paradoxically benefited from the artificially low-priced steel and other critical inputs due to the overcapacity in the upstream industries, which acted as a hidden subsidy. They also faced (and still face) the problem of ‘Zombie’ SOEs—state-owned firms kept alive despite chronic losses through state support, all of which led to the overestimation of the industry competition. The approach of the Chinese government to the overcapacity problem was the expansion of both its fiscal policy and monetary policy, aimed not at reducing capacity but at managing the problem for strategic advantages in the long run. China allocated CNY 100 billion in 2016 to support local governments in addressing the impact of capacity reductions on employment and provided CNY 2 billion in 2019 (approximately USD 300 million) to reduce overcapacity in key industries through rewards and subsidies. Subsequently, Party Committee members of central SOEs were encouraged to implement the Party’s ideology about dwindling excess capacity and zombie firms. 

However, the inadmissible advantage that the Chinese possessed and enjoyed in comparison to their counterparts was not the relatively small grants but essentially the favorable state-led financial mechanisms and the opaque long-term financing from state banks such as the China Export-Import Bank (China Exim) and the Bank of China. According to a CSIS analysis, combined state support to Chinese firms in the shipping and shipbuilding industry totaled roughly USD 132 billion between 2010 and 2018 (Blanchette et al., 2025). They included strategies such as the availability of cheaper credit facilities, subsidies of various scales (Production, Investment & Entry Subsidies), Insurance Premium Compensation, Financial Leasing, Debt-Equity Swaps, Guarantees, Tax Rebates & Incentives, Vessel Demolition Subsidy Scheme, Legal support, and R&D initiatives. Reports by NBER elucidate strong evidence that government subsidies directly reduced the cost of production in Chinese shipyards by 13% to 20%, corresponding to an estimated value of USD 1.5 billion to USD 4.5 billion between 2006 and 2012 (Kalouptsidi, 2014). Cumulatively, all of these facets of State support accounted for one of the most fundamental reasons why China has been able to position itself as a leader in this paradigm.