The Chinese shipbuilding industry took a big hit this year and will continue to shrink amid a decline in global orders and overcapacity, said an official from the Ministry of Industry and Information Technology, which oversees the sector.

Shanghai shipyards
Shanghai shipyards

The industry is plagued by excess capacity, said Huai Jinpeng, a vice minister from the regulator, even after many large private ship makers have gone bankrupt or stopped production, reported Chinese news agency Caixin.

For the first 10 months of 2015, Chinese ship builders saw orders for new vessels plunge 62% from to same period last year, for a total of 20.3 million tons, according to data from the China Association of the National Shipbuilding Industry (CANS). Next year, China will build ships with a total carrying capacity of 80 million tons about equal to the projected increase in total global demand, according to ministry estimates.

The tumbling commodity market is blamed as a big reason for the orders slump.

The Baltic Dry Index, which tracks the shipping cost of bulk commodities, has plunged 95% since its 2008 peak, hitting its lowest point since launching three decades ago.

According to Clarksons, a data provider for the shipping industry, global demand for bulk carriers has fallen 80% year over year.

The crisis has affected the Chinese shipping industry the worst because almost two-thirds of the country’s shipyards are geared to build bulk carriers.

“China lags behind countries like South Korea in terms of orders to make more sophisticated vessels, such as container ships and liquefied natural gas carriers,” Jin Peng, the secretary of CANS, told Caixin.

Already several big shipyards have already closed, such as East Heavy Industry and Mingde Heavy Industry, in the eastern province of Jiangsu, and Zhuangji Ship Industry, in the southern province of Zhejiang. Rongsheng Heavy Industries Group, once China’s largest shipbuilder, has also stopped production and is struggling to repay its 20.4 billion yuan debt.

Chinese shipyards need to retool to build container ships to weather the slump, Li Yanqing, a researcher from China Shipbuilding Industry Corp. told Caixin.

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