In the 80-90’s it was Japan that was synonymous with shipbuilding. In the 90-00’s it was South Korea. This decade marks the coming of China as the world’s shipbuilder. True as single entities go Hyundai Heavy Industries and Samsung Heavy hold the number one and two positions in the world according to a FT article last week, but snapping at their heals a report on the Chinese Shipbuilding Industry says is China State Shipbuilding Corporation (CSSC). CSSC may be number one in China but that is number one among hundreds. The China Daily says in 2009, Chinese shipbuilders contracted new orders totaling 26 million dead-weight tons, a 61.6% share of global new vessel orders. While the People’s Daily reported that in just the first half of 2010 China’s shipyards completed and exported 24.3 million dead-weight tons, exports accounted for 82% of the total shipbuilding capacity, and the volume of new overseas orders reached about 16.4 million dead-weight tons, accounting for 69% of the total volume of new orders. The China Daily is still ranking China’s shipbuilding industry as second to South Korea but the FT says the Chinese shipbuilding industry became the world’s biggest in the first half of 2010 by all three key measures: new build contracting, delivery, and the size of the overall order book. In terms of global share, the first half of 2010 saw China’s shipbuilding capacity, the number of new orders and the volume of backlog orders account for about 41%, 46% and 38% of the world market, respectively. China has the same advantages Japan and Korea enjoyed in the past: low labor costs, steel supply and an abundance of coastal land. The difference is that Beijing is willing to bear almost unlimited losses in pursuit of dominance in what it sees as a strategic value add business.
This drive for dominance comes just as new orders among the world’s shipbuilders drops as the chart shows. Orders placed prior to the crisis will keep yards busy for a couple of years yet but for the industry as a whole, 2009 was the best for aggregate completions, some 390, but the worst for new orders, just 49. As business becomes more and more competitive, China will ensure it remains the most competitive supplier, as it has in so many other industries. Shipbuilding is the epitome of China’s drive to take a polluting energy intensive product like steel and add value before export, shipbuilding will get all the helps it needs to stay in front.
What this has already meant is that South Korea and Japan have moved up the value chain already dominant in more specialized vessels like LNG they may well start to impinge on Europe’s dominance of ocean liners, the last bastion of western commercial shipbuilding.
In spite of China’s success so far, Zhang Changtao, chief researcher of the Economic Research Center of China Shipbuilding admits the country still faces challenges, such as weak independent research and development capacity, high dependency on imports of shipboard equipment, low production efficiency and what he terms defective industrial structure, by which we understand a fragmented industry over ripe for consolidation and optimization. China will likely be dependent for some time on imported shipboard equipment as ship-owners specify tried and trusted systems such as navigation and engines but the Chinese have found ways around this in industries like high speed trains. To gain access to a growing domestic market, the country will require foreign manufacturers to establish manufacturing operations within China sharing technology and building a domestic supply chain. Gradually this will develop into domestic supply of more and more complex shipboard systems western branded as but made in China. Moveover Asia, China Shipbuilding is on the rise.