Yangzijiang Cancels Ship Order on Allegations of Plot to Avoid US Sanctions

China's largest privately owned shipbuilder, Yangzijiang Shipbuilding and three of its subsidiaries, report that they canceled an order after learning of an effort to circumvent U.S. sanctions laws and regulations. The buyer of the tankers and which sanctions involved were not identified, but it highlights the new level of scrutiny shipbuilding is being subjected to as the U.S. tightens sanctions on Chinese-built ships, and oil shipments by Iran, Russia, and Venezuela.

In a stock exchange filing on September 26, Yangzijiang said it had terminated an order for four 50,000 dwt MR product tankers valued at approximately $180 million. It said work had just commenced on the first of the four vessels, which were scheduled for delivery in 2026 and 2027.

It reported that the contracts were terminated “following certain critical information just disclosed by the buyer, which had not been previously known” by the shipbuilder. “This critical information contains allegations that the buyer’s sole shareholder was involved in a scheme to circumvent U.S. sanctions laws and regulations,” Yangzijang reports in the filing.

The shipbuilder said it had previously conducted an extensive due diligence on the buyer and its shareholder and that it had obtained legal advice to determine that the buyer “is in anticipatory repudiatory breach of the contracts. Alternatively, the contracts have been frustrated as a result of the supervening illegality associated with the buyer’s payment obligations.”

The buyer paid a 10 percent deposit of approximately $18 million when the contract was signed. In addition, the yard received a 10 percent installment payment of $4.48 million when work began on the first tanker. Yangzijiang emphasized that it does not anticipate any material financial impact on the company. The yards are also reserving their legal rights against the buyer.

This comes just weeks before the U.S. is expected to start collecting fees for Chinese-owned, operated, or built ships calling in U.S. ports. The initiative announced by the U.S. Trade Representative is in response to China’s unfair business practices to promote its shipbuilding industry. Despite the threat of new fees, China has still won 75 percent of the newbuilding contracts in recent months.

South Korea’s shipbuilders ran into problems after the sanctions were imposed on Russia following the invasion of Ukraine. The builders who were contracted for tankers were forced to cancel the orders, saying the Russian companies could not pay for the ships under the sanctions, and they were barred from delivering new vessels.