FEER(9/18) China Seen Becoming World's Biggest Shipbuilder
TOWERING OVER the Waigaoqiao shipyard dock, a new 175,000-tonne bulk carrier, freshly painted in red and white, stands out against the turbid waters and surface haze of the Yangtze River near Shanghai. Workers swarm over the superstructure of the gigantic vessel, the third that the China State Shipbuilding Corp. [CSSC] has launched from the state-of-the-art shipyard since it opened in late 2001. Painted in Chinese characters on the vessel's bow is its name, Xin Wang Hai, or New Ocean Prosperity -- a fitting reminder that China's flourishing trade is boosting its shipbuilding industry, which is gearing up to challenge market leaders South Korea and Japan.
On current trends, industry experts believe China will be the world's biggest shipbuilder within two decades. "China is now in a position to gradually take a larger market share of the world's tonnage," says Peter Cheng, a Hong Kong naval architect who has been designing ships for Chinese shipbuilders for almost 30 years. "It's obvious that the government is very interested in developing shipbuilding. They realize China will be a very large trading nation. I think it is the right move for China."
On the dockside at the Waigaoqiao yard, veteran CSSC engineer Wang Yanzhong proudly watches work on the Xin Wang Hai. He sees the launch and delivery of such vessels as a high-water mark for Chinese industry. "A ship is really a city on the sea," he says. "If your country can build complex vessels, it shows it has advanced industrial capacity."
But shipbuilding is more than just a catalyst for China's industrial modernization and job creation; it's also a key plank in China's bid to become a major maritime power. Maritime-strategy experts believe that the Chinese leadership, with an eye on history, has identified advanced shipbuilding along with vibrant foreign trade, a big merchant fleet and a powerful blue-water navy as the formula to expand China's global reach. It's a route that was successfully taken by seafaring nations in history, such as Britain in the 19th century and the United States in the 20th century.
"It's almost a classic approach," says leading maritime-strategy analyst Sam Bateman, a retired Australian navy commodore now at Australia's University of Wollongong. "China sees maritime power as a means of spreading Chinese influence regionally."
As with so many other manufacturing industries in China, a seemingly inexhaustible pool of cheap labour gives its shipbuilding industry the competitive edge. State-run CSSC has about 100,000 workers on its payroll. At lunchtime in another of its shipyards, the Hudong shipyard in Shanghai, thousands of khaki-clad labourers and technicians stream from the massive dry dock where two container ships are taking shape and converge on the vast company canteen. Shipping experts estimate that workers like these cost only 20%-30% of their counterparts in Japan. With labour accounting for up to 30% of the cost of a new ship, Chinese shipyards clearly hold an advantage.
But Chinese shipyard labour is not just cheap. Cheng, the naval architect, argues that China's training of workers in a strong, state-run network of technical and trade schools and institutes will be decisive in its bid to compete with Japan and South Korea. "Here you have a trained human resource," he says. "It's cheaper labour and it's skilled labour."
According to European Commission [EC] trade statistics, in 2002 China built 13% of the world's new ships, based on compensated gross tonnes, a measure that takes into account the size and type of ship. By this measure, Japan is the biggest shipbuilder with 37% of the market, followed by South Korea with 28%. Measured in deadweight tonnes [dwt], the weight of cargo a ship can carry, other market analysts calculate that South Korea with 40% of the market slightly surpasses Japan, and that China holds about 8%. Whatever measure is used, most analysts expect that China will gradually close the gap.
Hong Kong-based shipping-industry analyst Matthew Flynn predicts that China will become the world's leading shipbuilder between 2015 and 2020 as Beijing invests heavily in new shipyards and support facilities. "It's going to take a while for these new facilities to be built and for productivity to increase," Flynn says. "I think it is probably going to be closer to 2020." Other analysts suspect it might not take that long as international demand for new ships recovers strongly from a sharp downturn in 2002. In a June research report, Japanese brokerage Nomura estimated that China was only a decade away from catching up with the quality and output of South Korea's shipyards.
The massive investment that Beijing is pouring into new shipyards is a clear signal that becoming a shipbuilding powerhouse is a national priority. On August 12, CSSC, one of China's two sprawling state-owned shipbuilders, announced that it will spend $3.6 billion to build what it claims will be the world's biggest shipyard along an eight-kilometre frontage on Changxing Island near the mouth of the Yangtze outside Shanghai. [South Korean giant Hyundai's shipyard at Ulsan, which builds about 15% of the world's container ships, is now regarded as the world's biggest.]
The Changxing Island yard is expected to take up to 10 years to complete and to provide 700,000 jobs in shipbuilding and associated industries, according to the company. CSSC General Manager Chen Xiaojin told the official China Daily on August 14 that the new yard would boost the company's capacity from today's 3 million dwt to 12 million dwt by 2015. That would be 60% of the nation's projected shipbuilding output and should propel China past South Korea and Japan. "This will make China the world's largest [shipbuilder]," Chen confidently told the paper. Analysts note that investment like this will also speed Shanghai's rise as the headquarters of China's maritime industry. The city already boasts the world's fourth-largest container port with throughput last year soaring 35.8% over 2001.
While investment is spurring today's growth, the central government is also trying to boost the efficiency of China's 800 shipyards. To streamline the industry, state shipbuilding assets were split into two major groups in 1999: CSSC took control of major shipyards from Shanghai southwards, and the China Shipbuilding Industry Corp. [CSIC] became responsible for shipyards in the north. Although both remained state-owned enterprises, the aim was to encourage competition as the two groups battled for export and domestic orders. The two groups estimate that they accounted for about 60% of the 4.5 million dwt of the new ships built in China's shipyards last year.
Industry analysts say this overhaul seems to be working as the quality and complexity of ships built at Chinese yards is improving. In the late 1980s and early 1990s China's shipyards concentrated on building simple ships like container vessels and rudimentary bulk carriers. Now, China is winning orders for advanced roll-on, roll-off ships as well as sophisticated liquefied-natural-gas carriers.
According to reports in state media, CSIC built 69 ships in 2002, including a 300,000-tonne crude-oil carrier constructed at the Dalian New Shipyard for the National Iranian Tanker Co. These deliveries yielded a 24% increase in shipbuilding revenue to $1.42 billion. CSSC, meanwhile, delivered about 1 million dwt of new ships last year worth about $600 million, and about 80% of the company's customers were foreign, according to Zhou Zhong, the Shanghai-based senior manager at CSSC's marketing arm, the China Shipbuilding Trading Co.
Zhou predicts that income from this year's deliveries could double, with even better results likely in the years ahead. With the sharp upturn in the world shipping market, CSSC's new orders so far this year have reached 5 million dwt, more than double last year's order book, with strong demand from European ship owners leading the way. "Of course this year the shipping market is very good," Zhou says. "By the end of the year we could reach 6 million tonnes deadweight in new orders."
State media have reported that China's entire shipbuilding industry recorded $36 million in profits last year, and also quoted CSIC President Li Changyin as saying that the company earned profits of $5.7 million in the same period. But most analysts say it's unlikely that the industry is profitable given the huge investments being pumped into it.
In benefiting from government support, China's shipyards are not alone. Industry analysts point out that subsidies or other kinds of assistance are commonplace in most economies where shipbuilding is regarded as a strategic industry. The EC, for instance, has called on the World Trade Organization to probe subsidies handed out to South Korea's shipbuilders. In its complaint, the EC claimed that the Korean government handed Korean yards an unfair advantage through favourable export-financing terms or restructuring subsidies. Japan's shipyards, widely regarded as the world's most efficient, enjoy what the EC described in a report last year as a "captive market" for domestic shipbuilding orders.
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Despite the advantages of government support and cheap labour, Flynn says Chinese shipbuilders will need to continue upgrading shipyards, particularly replacing traditional slipways with more efficient dry docks. They will also need to make major improvements in management and productivity if they are to become market leaders, he says.
Zhou acknowledges the gap in efficiency between Chinese shipyards and competitors in Japan and South Korea. But he believes the Chinese shipbuilding industry's "dramatic" improvements in quality over the past decade will enable it to catch up. "We hope we can share the market with them in five to 10 years," he says.
Some analysts warn that China's growing power at sea may begin to challenge U.S. military supremacy and threaten peace and stability in Asia. They argue that as China develops a blue-water navy capable of projecting power over a longer distance, Beijing will want to exercise more control over vital sea lanes and disputed territory in regional oceans. But Bateman, a retired senior Australian navy officer, believes the threat will arise only if the U.S. and its allies attempt to contain China's maritime ambition. "There is plenty of evidence that China is behaving responsibly," he says, citing China's cooperation in international efforts to protect fishing and the maritime environment. "The challenge is to accommodate the inevitability of it all."
中国有望成为世界最大造船国
一艘新的17.5万吨级散装货轮高耸在外高桥(Waigaoqiao)造船厂的船坞上
