During the 2007 shipping boom, Chinese shipyards required down payments of as much as 60% of a vessel’s value. Now, they have had to cut the amount to 5% to 10% and exceptionally to as little as 2%, resulting in an advantage to state-owned companies that have access to government credit. “The payment terms mean shipyards have to burn their own money to build ships, which brings them extraordinary cash-flow pressure,” said Lawrence Li, 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% of orders for new vessels in China in the first half of this year, according to UOB Kay Hian, compared with 52% in all of last year. In some cases the banks were also cutting credit lines and moving to recover outstanding loans, the China Association of the National Shipbuilding Industry said. Dalian Shipbuilding Industry, a unit of state-owned China Shipbuilding Industry, won an order in July to build seven ships that can carry 8,800 containers each. The buyer, a unit of state-run China International Marine Containers (CIMC), agreed to pay 2% of the total amount of USD595 million as a first installment and the rest on delivery. New orders for commercial vessels at Dalian Shipbuilding’s parent surged more than five-fold in contract value in the first half. The ability to get financing had become one of the most critical issues for yards trying to win orders, said Bao Zhangjing, Deputy Director of the China Shipbuilding Industry Economy Research Center. “The market is going to be more dominated by fewer players given the current situation,” Bao added. Of the 1,591 shipyards in the country in 2011, 70 were state-owned and a third of the all shipyards might be shut in about five years as they failed to win orders.