China's sanctions against US-linked Hanwha units seen as warning gesture, analysts say

By Joyce Lee

SEOUL, Oct 15 (Reuters) - China's sanctions against five U.S.-linked affiliates of South Korean shipbuilder Hanwha Ocean 042660.KS are seen as a warning gesture without immediate impact, and Beijing is unlikely to gain much by expanding them, analysts said on Wednesday.

The move, announced on Tuesday when the U.S. and China began charging additional port fees targeting each other's vessels, comes ahead of an expected meeting between U.S. President Donald Trump and Chinese leader Xi Jinping in late October to resolve the protracted trade war between the world's two largest economies.

China's commerce ministry banned transactions and cooperation with Hanwha Ocean's U.S.-linked affiliates, citing security risks stemming from their involvement in the U.S. government's "relevant investigative activities." It did not elaborate on the suspected activities.

Hanwha, one of the world's largest shipbuilders, owns Philly Shipyard in the U.S. and has won contracts to repair and overhaul U.S. Navy ships. Its entities also will build a U.S.-flagged LNG carrier.

The Chinese foreign ministry said it urged the U.S. and Hanwha to "respect facts and multilateral economic and trade rules", citing market principles and fair competition.

Ministry spokesperson Lin Jian also called on them to stop harming China's interests, during a regular press briefing, without elaborating.

The sanctions do not have any direct impact as the Hanwha affiliates Beijing sanctioned have no business connection with China, said Korea Investment & Securities analyst Kang Kyung-tae.

"Stock prices had fallen due to various concerns that the sanctions will spread to ... Korean parent companies and the entire Korean shipbuilding industry, but this is only a possibility," Kang said.

Shares of Hanwha Ocean rebounded 1.8% on Wednesday, while peer HD Hyundai Heavy 329180.KS shares rose 2.2%, recouping some of Tuesday's losses.

Hanwha's Philly Shipyard builds ships meant for the U.S. market such as the 10 medium-range tankers Hanwha Shipping ordered in August, which are "geared for the Jones Act and are not using steel plates from China, but from the U.S., Canada and Mexico," said Daeshin Securities analyst Lee Jini.

Hanwha said on Tuesday it is closely monitoring the potential impact of the sanctions, and that it will continue to provide services to its customers, "including through our investments in the U.S. maritime industry and via Hanwha Philly Shipyard."

CONCERNS OVER MORE SANCTIONS

Investor sentiment remains jittery, as they fear China may target more South Korean shipbuilders cooperating with the U.S.

South Korea pledged to inject as much as $150 billion to help the U.S. revive its troubled shipbuilding industry as part of its trade talks with Washington, which has said it needs help from allies Japan and South Korea to revitalise the sector, especially in turning out warships.

China, however, is unlikely to expand sanctions due to its reliance on the South Korean shipbuilding industry, the world's second-largest, for steel exports and engine imports, analysts said.

"South Korean shipbuilding industry purchases some Chinese steel plates, about 20-30% of the total ... If sanctions are expanded, the impact to Chinese steelmakers will be no less than that on Korean shipbuilders," said Daeshin's Lee.

While the heightened trade war between the U.S. and China may make shipowners delay commercial vessel orders, it could spark more global orders for naval ships, analysts said.

"The U.S.-China conflict will become a catalyst for more naval shipbuilding opportunities in countries around the world," said Shinhan Securities analyst Lee Dong-heon.