December 8, 2025 06:45 AM GMT China Economics | Asia Pacific | | Nov-25 | Oct-25 | Sep-25 | Aug-25 | 3Q25 | 2Q25 | 2024 | | --- | --- | --- | --- | --- | --- | --- | --- | | Trade Balance*, US$ bn Exports, US$ bn | 112 330 | 90 305 | 91 328 | 102 322 4.3 | 290 971 6.5 | 313 956 6.1 | 993 3576 5.8 | | YoY, % By destination, YoY, % | 5.9 | -1.1 | 8.3 | | | | | | US Japan EU ASEAN | -28.6 4.3 14.8 8.2 | -25.2 -5.7 0.9 11.0 | -27.0 1.8 14.2 15.6 | -33.1 6.7 10.4 22.5 | -27.3 3.6 11.2 18.2 | -23.9 6.8 9.3 17.5 | ...

Summary of China Shipping and Shipbuilding Conference Call Industry Overview - **Industry**: Shipping and Shipbuilding - **Key Companies**: Hengli Heavy Industry, Yangzijiang Shipbuilding, COSCO Shipping Holdings, COSCO Shipping Energy, SITC Holdings Key Takeaways 1. New Shipbuilding Entrant and Impact - Hengli Heavy Industry (HHI) is a new entrant in the shipbuilding industry with a target of 2.3 million tons steel processing volume, potentially translating to 1.5-2x capacity compared to Yangzijiang, which holds 4-5% of global market share. This could imply a 3-4% upside to supply growth forecasts [5][9] - HHI's effective capacity will depend on production efficiency and recruitment of additional employees. The impact on newbuild ship prices is expected to be limited due to the time required for ramping up capacity and disciplined capacity expansion among other Chinese shipyards [5][6] 2. Pricing and Costs Outlook for Chinese Shipyards - Yangzijiang has observed limited further impact from USTR's port fees on China-built vessels, with a pricing gap between Korean and Chinese shipyards widening to 10%. They have regained market share for new ship orders since July and August [10][34] - Both Hengli and Yangzijiang expect stable steel prices in the medium term, which constitutes a significant portion of their operating costs [10][34] 3. Shipping Sub-segments and New Ship Orders Outlook - Positive outlook for tankers, with COSCO Energy expecting elevated freight rates driven by trade rerouting and low supply growth. The management sees improving supply-demand dynamics for crude tankers over the next two years [10][43] - Conservative outlook for container shipping, product tankers, and LNG carriers due to massive new ship deliveries. However, COSCO Shipping Holdings has fully booked slots for upcoming months on major routes, which may support spot rate hikes [10][39] - Rising new ship orders are anticipated for tankers and large-size bulkers, while container and LNGC new ship orders are expected to face pressure in the medium term [10][39] 4. Financial Performance and Projections - HHI reported a gross margin of 21% in 1H25, up from 10% in 1H24, with a net profit guidance of Rmb1.1 billion, Rmb1.6 billion, and Rmb2.1 billion for 2025-2027 [18] - Yangzijiang's management confirmed that most ships under construction are based on contracts signed in 2023, with no new builds from 2024 yet, indicating a favorable product mix [10][34] 5. Strategic Developments - HHI plans to ramp up its workforce from 40-50k to 60k to achieve its capacity target of delivering 80 ships annually [12] - Yangzijiang is set to increase its capacity by 20% with the opening of the Hongyuan Shipyard in 2H2026 [34] 6. Market Dynamics and Competitive Landscape - The merger of China State Shipbuilding Corporation (CSSC) and China Shipbuilding Industry Corporation aims to enhance order bidding coordination among subsidiaries [38] - The management of CSSC noted that the longer orderbook backlog is affecting new ship order shares, with a focus on environmental requirements driving future orders [38] 7. Risks and Challenges - Key risks include higher-than-expected steel prices, stricter USTR regulations, and potential declines in average selling prices [51][52] - The management expressed concerns about the sustainability of elevated freight rates in the container shipping sector due to massive new ship deliveries [46] Conclusion The shipping and shipbuilding industry in China is experiencing significant changes with new entrants like Hengli Heavy Industry, stable pricing outlooks, and varying projections across different shipping sub-segments. The competitive landscape is evolving with strategic mergers and capacity expansions, while risks related to pricing and regulatory challenges remain pertinent.

Core Insights - HII hosted leaders from HD Hyundai Heavy Industries for a three-day engagement to advance their strategic partnership established in April [1][5] - The collaboration focuses on enhancing shipbuilding technology and manufacturing processes for both commercial and military applications [1][5] Group 1: Partnership Development - The visit showcased the expertise of Ingalls shipbuilders and the significant technological investments made in the shipyard over recent years [2] - HII aims to leverage insights from this engagement to improve efficiency and accelerate the delivery of critical ships for the U.S. Navy [2][5] - Both companies are committed to maximizing production efficiency and advancing technological innovation within the global defense industry [5] Group 2: Technological Advancements - The tour included demonstrations of state-of-the-art robotic technologies and modern production capabilities at Ingalls [2] - Innovation is seen as a key driver for greater efficiency and consistency in shipbuilding processes [2][5] - HII's executive vice president emphasized the importance of leveraging advanced technologies to enhance throughput and strengthen the U.S. shipbuilding industrial base [5] Group 3: Strategic Goals - The partnership aims to deepen collaboration and share innovative approaches that deliver significant value to customers [5] - HII and HHI are recognized as leading shipbuilders specializing in multiple classes of ships, contributing to the global defense sector [5]

Core Insights - During the "14th Five-Year Plan" period, China's foreign trade has shown resilience and growth amidst global changes, achieving significant structural improvements and enhancing its trade strength [1][3]. Trade Volume and Growth - The scale of China's goods trade has continuously expanded, surpassing $5 trillion and $6 trillion, with a projected total of $6.16 trillion in 2024, marking a 32.4% increase compared to the end of the "13th Five-Year Plan" [6]. - The service trade is expected to exceed $1 trillion for the first time in 2024, ranking second globally [8]. Trade Structure Optimization - The export share of high-tech products in goods trade reached 18.2%. Exports of "new three items" such as electric vehicles, lithium batteries, and photovoltaic products are projected to grow 2.6 times by 2024 compared to 2020 [12]. - Knowledge-intensive service trade is expected to increase by 38% from 2020 levels, with digital delivery services' import and export volume growing by nearly 40% [12]. Diversification and Resilience - China's foreign trade has become more resilient and diversified, with ASEAN being the largest trading partner for five consecutive years. China is among the top three trading partners for over 150 countries and regions [15]. - The trade volume with countries involved in the Belt and Road Initiative is projected to exceed 50% in 2024 [15]. Supply Chain and Economic Support - The industrial and supply chains in China's foreign trade have become more complete and flexible. Events like the China International Import Expo and the Consumer Goods Expo serve as bridges for international economic cooperation [17]. - China's foreign trade remains a significant contributor to global trade growth, and the Chinese economy is a key support for global economic recovery [17].

Core Viewpoint - HII is set to release its third quarter 2025 financial results on October 30, 2025, and will host an earnings conference call at 9 a.m. Eastern time on the same day [1]. Company Overview - HII is a global, all-domain defense provider focused on delivering powerful ships and solutions to enhance national security [3]. - As the largest military shipbuilder in the U.S., HII has a history of over 135 years in advancing national security, providing capabilities that range from ships to unmanned systems, cyber, ISR, AI/ML, and synthetic training [4]. - The company is headquartered in Virginia and employs a workforce of 44,000 [4].

Core Insights - Increasing defense spending by the United States and allied nations is driving demand for advanced military technology, benefiting major defense primes like RTX Corp. and General Dynamics [1][3] - Both companies are positioned to capitalize on the expanding U.S. defense budget, with significant allocations for missile defense and naval shipbuilding [8][9] - The commercial aerospace sector is also a growth driver for both companies, with improving air traffic trends supporting their revenue [10][12] Financial Stability & Growth Drivers - As of Q2 2025, RTX has cash and cash equivalents of $4.78 billion and a current debt of $3.72 billion, indicating a solid liquidity position [5] - RTX's cash flow from operating activities is $1.76 billion, allowing for shareholder-friendly actions such as share repurchases and dividends totaling $1.8 billion in H1 2025 [6] - General Dynamics has cash and cash equivalents of $1.52 billion, with long-term debt of $7.51 billion, reflecting a strong liquidity position [7] - GD's cash flow from operations improved by 170.5% year-over-year in H1 2025, enabling share repurchases and dividends of $785 million [7] - Both companies will benefit from a proposed 13% increase in the U.S. defense budget to $1.01 trillion for fiscal 2026, with specific allocations favoring their respective strengths [8][9] Stock Performance & Valuation - Over the past three months, RTX's stock has increased by 13.6%, while GD's has risen by 13% [18] - In the past year, RTX has outperformed GD with a 32.8% increase compared to GD's 7.1% [18] - General Dynamics has a more attractive forward earnings multiple of 19.51 compared to RTX's 24.94 [19] Efficiency & Profitability - General Dynamics exhibits a higher return on equity (ROE), indicating more efficient profit generation from equity compared to RTX [21][23] - The Zacks Consensus Estimate for General Dynamics shows a projected sales increase of 7.2% and earnings growth of 11.5% for 2025, while RTX's estimates imply a 6.1% sales increase and 3.5% earnings growth [15][16]

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Chinese economy**, particularly the impact of US tariffs on exports and the government's fiscal policies. Core Insights and Arguments 1. **Economic Growth Momentum**: Growth momentum in China weakened in August, with export growth in USD terms declining from 7.2% year-on-year in July to 4.4% in August, indicating the negative impact of US tariffs is being felt [3][4][5] 2. **Revised GDP Forecasts**: The Q3 real GDP growth forecast has been raised to 3.5% quarter-on-quarter annualized and 4.8% year-on-year, up from previous estimates of 2.5% and 4.6% respectively, due to more resilient exports than anticipated [5][37] 3. **High-Tech Manufacturing Resilience**: Despite a modest slowdown, high-tech exports have shown steady growth, with expectations for real export growth to increase to 2% for 2026, up from 0% previously [3][10] 4. **Policy Easing Delayed**: Policymakers are withholding fiscal spending, as evidenced by strong government bond issuance and rising fiscal deposits, indicating a preference to delay easing measures until 2026 [4][19] 5. **Structural Trends in Exports**: Exports of high-tech products are expected to continue rising, with monthly exports of ships, semiconductors, and motor vehicles reaching US$35 billion by mid-2025 [9][10] 6. **Fiscal Policy Dynamics**: Approximately RMB 1 trillion in extra fiscal deposits suggests that the government has room to maneuver if economic conditions worsen [17][24] 7. **Contractionary Policies**: Recent contractionary policies, such as "anti-involution" efforts, have led to rising PPI inflation in upstream sectors, but without demand stimulus, this could lead to production cuts [20][25] 8. **Local Government Financial Stress**: Financial stress on local governments has increased, with significant drops in fixed asset investment in provinces with high debt pressure [24][27] 9. **Consumer Demand and Policy Tools**: The government is exploring ways to boost consumption, but effective tools may take time to develop, indicating a gradual approach to stimulating domestic demand [33][29] Additional Important Insights - **Tariff Impact on Exports**: Exports to the US have dropped by around 30% year-on-year, but non-US markets have offset this decline, highlighting the resilience of certain sectors [8][6] - **Long-Term Economic Strategy**: The Chinese government remains focused on innovation and high-tech manufacturing as part of its long-term economic strategy, which is expected to continue in the upcoming Five-Year Plan [31][36] - **House Price Trends**: The report anticipates further declines in house prices, which may negatively impact household balance sheets and consumer sentiment over the next few years [30][29] This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the current state and outlook of the Chinese economy amidst ongoing trade tensions and policy adjustments.

Core Points - HII recognizes five employees with the 2025 Compass Award for Compliance, highlighting the company's commitment to ethics and integrity [1][2] - The award recipients are acknowledged for their leadership in accountability and purpose, which enhances compliance and builds trust with stakeholders [2][5] - HII's compliance program includes various initiatives, such as performance-related measures and incentives, to promote ethical behavior among employees [5] Company Overview - HII is a global defense provider, focusing on delivering advanced ships and all-domain solutions to support national security [6] - As the largest military shipbuilder in the U.S., HII has a history of over 135 years in enhancing national security capabilities, including ships, unmanned systems, and cyber solutions [7] - The company employs approximately 44,000 individuals and is headquartered in Virginia [7]

Core Insights - HII has appointed Eric Chewning as executive vice president of maritime systems and corporate strategy, enhancing the company's focus on maritime and advanced technology development [1][2] - The company aims to strengthen U.S. maritime supremacy by improving shipbuilding capabilities and developing multi-domain warfighting capabilities [1][3] Company Strategy - Chewning's role includes leading the strategy for future maritime capabilities, fleet architecture, and hybrid manned-unmanned teaming strategies [6] - HII is committed to increasing shipbuilding throughput for the U.S. Navy by enhancing performance in shipyards and expanding the industrial base [3][9] Operational Developments - HII plans to more than double the number of outsourced hours this year and quadruple them over the next two years to build industrial base capacity and improve adherence to U.S. Navy schedules [9] - The company has established Newport News Shipbuilding's Charleston Operations to accelerate production of submarine modules and structural aircraft carrier units [9] Partnerships and Collaborations - HII has expanded its international partnerships, including collaborations with South Korean shipbuilder HD Hyundai Heavy Industries and British defense company Babcock International Group [9] - The joint venture H&B Defense is focused on developing Australia's nuclear-powered submarine program, integrating Australian and U.K. companies into the supply chain [9] Technology Integration - HII is enhancing domestic technology partnerships, such as with C3 AI, to implement Industry 4.0 technologies and apply artificial intelligence to improve shipbuilding production [9]