UPDATE 1-China says to help shipbuilding industry

(Adds details, background)

BEIJING, Feb 11 (Reuters) - China's cabinet on Wednesday approved a plan for supporting the domestic shipbuilding industry, telling banks to step up trade finance for exports of ships, state media said.

China's shipping industry, which is gradually taking market share from its Asian neighbours, is facing a difficult time this year as shrinking orders exacerbate overcapacity problems, state media have said.

The State Council will encourage financial institutions to expand their credit for purchasers of exported ships, and will extend fiscal and financial support for domestic buyers of long-range ships until 2012, the Xinhua news agency said.

"We need to take active measures to keep shipbuilders' order books steady, guard against operational risks and maintain stability in the industry," state television cited the cabinet as saying.

It will also limit construction of new capacity in the industry, force outdated ships to be replaced, encourage production of more advanced ships and promote mergers and acquisitions in the industry, the broadcaster said.

It did not provide further details on the moves.

China has implemented wide-ranging tax cuts and subsidies to help its auto, steel and textile industries since the beginning of this year, hurt by a slowing economy and fallout from the global financial crisis.

Domestic media reported on Wednesday that light industry would soon receive support, including tax cuts. The high-tech and petrochemical sectors are among those that are also expected to receive more government help. [ID:nPEK303850]

New ship orders will drop to between 20 million deadweight tonnes (DWT) to 30 million DWT in 2009, compared with 58.18 million DWT in 2008, Xinhua said earlier this week, citing the China Association of National Shipbuilding Industry.

As the world's third-largest ship building country, China built 28.81 million DWT of ships in 2008, according to the association.

China State Shipbuilding Co (600150.SS) and other Chinese shipyards are expected to see a significant drop in new ship orders in 2009 for the second straight year, the Shanghai Securities News reported on Monday. (Reporting by Wang Lan and Michael Wei; Writing by Jason Subler; Editing by Rupert Winchester)