WHEN it comes to strategic targets, China tends to overdeliver.

The government’s original plan for electric vehicles required 20% of domestic sales to be New Energy Vehicle by 2025. In reality that figure flew past the 50%-mark mid last year and China is now the heartland of the global auto industry.

What was once a subsidy-driven sector is now self-sustaining, and the same pattern can be seen across any of the sectors that Beijing includes in its strategic planning.

The latest Danish Ship Finance outlook (a reliably thought-provoking if not occasionally terrifying lens to view the global economic future through) makes the point that China’s latest Five-Year Plan is similarly rewiring the demand premise for all seaborne fossil fuel trade.

Thanks to those electric vehicles China’s crude trade is becoming structurally less VLCC-intensive — declining volumes and shorter hauls compounding on the same trade simultaneously.

But it’s not just crude — the plan supports pipeline capacity that displaces LNG cargoes, renewable installations that displace coal, and a domestic energy production floor designed to reduce dependence on seaborne imports.

According to Christopher Rex, the brains behind these regular visions of the future, the plan systematically reduces China’s dependence on seaborne fossil fuel imports across every key commodity class — not as an aspiration, but as a binding national security objective backed by the state apparatus that has delivered on more than 90% of its targets for the past two decades.

It’s not just a question of China of course — demographics and a new phase of globalised trade politics are reshaping future expectations. But the historical link between global economic growth and seaborne demand is undeniably loosening.

The punchline to all this, according to Rex, is that the financial risk frameworks that have governed shipping investment for three decades — earnings anchoring, residual value, amortisation profiling, liquidity assessment — have all been shaped by structural demand growth. If that growth is no longer the baseline, each framework becomes systematically too optimistic.

Rex’s outlooks have been alarming and inspiring audiences for several years now, but there are fewer people dismissing his warnings today than when he started.

You may not buy his thesis, but as Rex points out, these structural risks are not yet reflected in asset prices. Examining them now, while markets are strong and capital remains available on favourable terms, carries an opportunity cost. Examining them later may carry a balance-sheet cost.

Richard Meade
Editor-in-chief, Lloyd’s List

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