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Further Reading

Chinese Shipbuilding

China is the leading shipbuilding country in the world. As of the end October 2010, China's production completion of shipbuilding was 50.90 million deadweight tons (dwt), an increase of 58.4%, and new orders of the industry were 54.62 million dwt or 2.9 times that of the same period last year, respectively.

In the previous two years, China's shipbuilding industry was severely affected by the 2008 financial crisis. It experienced significant slowdown in production completion, cancellation of existing orders, and huge drop in new orders in late 2008 and 2009. In helping the industry overcome its difficulties the State Council passed the "The Plan on the Adjustment and Revitalization of the Shipbuilding Industry" in February 2009 with three critical targets: 1) Stalling the declining demand; 2) Promoting mergers and acquisitions (M&A), and restructuring; and 3) Encouraging indigenous innovation and R&D.

China has seen rapid development of its marine industry over the past few years. China has more than 3 million square kilometers of water territory, with more than 1,400 harbors and 210,000 cargo ships. According to the Ministry of Land and Resources of the PRC, the marine industry will gradually become one of the pillars of China's economy. The success of the shipbuilding industry is based on decisions made in the early 1980s to corporatize the shipbuilding sector, to open the industry to foreign technology imports, and to compete on the global market.

The dual-use industrial base is a critical component of China's strategic high-tech economic plans. Currently, its leading dual use sectors include shipbuilding, aviation, space, nuclear, electronics and IT infrastructures. The shipbuilding industry has made particular progress in modernizing its design and manufacturing capabilities and in transfering commercial shipbuilding practices to naval construction. Chinese shipbuilding is domestically and globally competitive, and seems to be profitable - indeed, it is the only sector in the defense industry that is adding productive capacity, i.e., new shipyards and more workers.

As Richard A. Bitzinger, Associate Professor, Asia-Pacific Center for Security Studies, has noted "Following an initial period of basically low-end commercial shipbuilding - such as bulk carriers and container ships - China's shipyards have since the mid-1990s progressed toward more sophisticated ship design and construction work. In particular, moving into commercial shipbuilding began to bear considerable fruit beginning in the late 1990s, as Chinese shipyards modernized and expanded operations, building huge new dry-docks, acquiring heavy-lift cranes and computerized cutting and welding tools, and more than doubling their shipbuilding capacity. At the same time, Chinese shipbuilders entered into a number of technical cooperation agreements and joint ventures with shipbuilding firms in Japan, South Korea, Germany, and other countries, which gave them access to advanced ship designs and manufacturing technologies - in particular, computer-assisted design and manufacturing, modular construction techniques, advanced ship propulsion systems, and numerically controlled processing and testing equipment. As a result, military shipbuilding programs collocated at Chinese shipyards have been able to leverage these considerable infrastructure and software improvements when it comes to design, development, and construction."

Three types of firms make up China's shipbuilding industry: 1) large state owned enterprises [SOEs] with mega-size production and technology capacity; 2) small private shipbuilding enterprises in the coastal provinces; and 3) joint ventures of foreign and domestic companies. Two mega parenting conglomerates dominate China's shipbuilding industry. CSSC (China State Shipbuilding Corporation) handles shipbuilding activities in the east and the south, while CSIC (China Shipbuilding Industry Corporation) handles those in the north and the west. They are directly under the supervision of the central government. To restructure through M&A, the Plan aims to strengthen the global competitiveness of CSSC and CSIC, promote integration of large enterprises in the value chain and encourage SMEs to go into niche areas. Although the government intends to provide capital fund, financing and credit loans for the restructuring, there has been little progress.

To sustain demand, the government encourages banks to provide more financial support and credit loans to both domestic and foreign enterprises, and to stimulate the domestic shipbuilding market through more investment on infrastructural ships and high-tech ships such as maritime engineering products. Toe promote indigenous innovation and R&D capability of domestic enterprises, apart from improving existing ship models, China will invest more on high-tech and high value-added technologies such as environment-saving and energy-efficient shipbuilding, maritime equipment projects, and critical internal equipment within ships. China is also developing its offshore drilling rig industry as a future alternative to traditional shipbuilding. Many large enterprises in China are starting their production of rigs for both domestic and foreign orders.

Since 2003, China has been constructing the world's largest shipbuilding base in the Changxing island, a deep water coast in Shanghai; the base is expected to be completed by 2015. China is said to have plans to build medium-size aircraft carrier in the Changxing base.

According to the statistics of China Customs, China's total ship import and export values reached US$30.8 billion in 2009, of which ship imports accounted for US$2.4 billion. Trade volume could reach a historic high of approximately US$ 40 billion in 2010. However, oceanic pollution and the industry's structural imbalances, currency appreciation and cost increases continue to present challenges for the development of the marine industry.

Chinese shipbuilding output and ship orders in hand have shown growth for six consecutive years and have been ranked the second in the world. The central government's 11th five-year plan (2005 to 2010) pointed out that the key to strengthening the shipping industry lies in design capability, marine equipment supply, large-scale shipbuilding construction, and optimizing the three main ship types: bulk-carriers, oil tankers, and container vessels. Emphasis will be put on hi-tech ships, new ship designs and ocean engineering equipment, which have additional added value.

Chinese accomplished shipbuilding output and ship orders in hand have enjoyed fast growth for seven consecutive years and are ranked second in the world. According to statistics from the China Shipbuilding Industry Association, China's shipbuilding output was 42.43 million deadweight tons (DWT) in 2009, rising 47% from 2008. According to statistics issued by Clarkson, a UK consultant, Chinese accomplished shipbuilding output was 56.76 million deadweight tonnages from January to November of 2010, with an increase of some 55.4% compared with the same period of 2009. New ship orders were 26 million deadweight tons in 2009, which was down 55% compared with the same period of 2008. The market share of Chinese accomplished shipbuilding output, new ship orders and ship orders in hand accounted for 34.8%, 61.6% and 38.5% respectively of the world's totals in 2009.

Although the China shipbuilding industry has enjoyed remarkable growth, the impact of the international financial crisis has been transferred to the shipbuilding industry in which new building orders continue to decline in number and the currency appreciation and cost increase will impact the profits of the China's shipbuilding companies in long term.

China was one of leading shipbuilding countries in the world. in 2009, Chinese shipbuilders built vessels with a total displacement capacity of 42.4 million dead weight tons (dwt), which was an increase of 47% from that of 2008. Owing to the global financial crisis, China's shipbuilders received orders for a total of 26 million dwt in 2009 compared with 58.2 million dwt in 2008. China would deliver its first super-large crude tanker, which could carry up to 308,000 t of crude oil, to Saudi Arabia in 2010.

In 2008, the shipbuilding sector consumed about 12 Mt of steel products, of which 9.6 Mt was medium-thick plate.in 2008, China produced 20.4 Mt of medium-thick plate forshipbuilding and exported 8.97 Mt. The Republic of Korea, which received 6.31 Mt, was the leading destination for Chinese medium-thick plate; the remainder was shipped to Japan, Malaysia, Singapore, and Vietnam. At year end 2009, the country had medium-thick plate output capacity of 71.3 Mt, of which 27 Mt was for shipbuilding. Domestic analysts estimated that the shipbuilding sector would consume about 15.2 Mt in 2011. During the past several years, the quality of Chinese shipbuilding plate had improved; however, the quality of steel products remained as good as such countries as Japan and the Republic of Korea.

After more than 3 decades of development, the existing structure of most industries no longer met the requirementsof the modern business world. The Chinese enterprises wereconsidered to be weak in independent innovation; they had low measures of competitiveness and productivity, depended heavilyon external demand, and had undiversified product lines. TheGovernment announced that 10 major industries in China - automobile manufacturing, electronic information, equipment manufacturing, iron and steel production, light industry, logistics, nonferrous metals production, petrochemicals, textile manufacturing and shipbuilding - were to be reformed and upgraded. These industries accounted for more than80% of the country's total industrial output value and aboutone-third of the GDP.

In February 2009, China's State Council approved the adjustment and revitalization plans of Chinese shipbuilding industry. According to the plan, the government will encourage financial institutions to expand financing to purchasers of ships and extend fiscal support for domestic buyers of long-range ships until 2012. The plan will also support the industry in stabilizing the production, enlarging the market demand, developing marine engineering equipment, supporting the merger and acquisition and technical innovations.

The country planned to build three major shipbuilding bases in the Bohai Gulf area, East China Sea and South China Sea. When completed in 2015, the Changxing base will be the largest shipyard in the world with annual shipbuilding capacity reaching eight million tons.

China is allocating significant capital for port and waterway construction to meet significant growth in freight volume. Since 2004, China has stepped up its construction of ports. China's port throughput is increasing at exponential rates, reflecting foreign trade growth. Eight ports in mainland China, namely Shanghai, Shenzhen, Qingdao, Tianjin, Guangzhou, Xiamen, Ningbo and Dalian, are included among the 30 top container harbors in the world. The port of Shanghai is by far the busiest one in the world. The cargo turnover of Shanghai port exceeded 650 million tons and container throughput reached 29 million TEU in 2010. Both of these two indexes have exceeded Singapore as the world's largest port.

To facilitate the global trade, most ports in China are putting emphasis on expanding capacity and upgrading the port facilities as well as the modernization of operations. The products and technologies in high demand are Vessel Traffic Management Information Systems, laser-docking systems, terminal tractors, dredging equipments and security equipment for the ports and vessels to abide to International Ship and Port Security Code (ISPS).

China is building more deep-water berths to handle the larger fifth and sixth generation container vessels. The largest project is the construction of Yangshan deep-water port, approximately 20 miles offshore from Shanghai and linked to the mainland by a 32.5-kilometre causeway bridge. The master plan is to complete 50 berths by 2020, which will cost over US$10billion. The master plan also includes a logistics park and new harbor city on the main land. Lianyungang, a northern port city in Jiangsu province, is racing to build an international port after winning State approval to construct a 300,000DWT(Dead Weight Ton) deepwater channel and a 300,000 DWT berth for handling crude and ores, which will associate its development with the neighboring Yangshan Deep Water Port in Shanghai and existing Ningbo Port.