On Changxing Island, north of Shanghai, an eight-km stretch of coastline is being transformed into what will be the largest shipyard in the world. Owned by China State Shipbuilding Corporation (CSSC), one of two giant state-owned conglomerates that dominate Chinese shipbuilding, the new yard is at the forefront of the Chinese government's ambitious plans to become the world's top shipbuilder by 2015.
Spurring this growth is China's own booming international trade and thirst for raw materials, driving up demand for new ships and in turn providing a windfall for China's shipyards.
In 2003 China's shipyards produced 13% of the world's new ships, behind only South Korea and Japan. Twenty years ago, its share was just 0.8%. This year, with a backlog of some 800 ships on order, government forecasts are for China's share to grow to 16%."
Already most Chinese shipyards have an order book that stretches for the best part of three years," said Sam Chambers, East Asia Editor for Lloyd's List. "That's unprecedented."
Eager to build up their repertoire and learn new techniques, Chambers said, Chinese yards have offered discount deals on first-of-a-kind designs. "Once you have the prototype made and you begin to offer a series then the ball is rolling – but they need to snag that first one," he said.
With tempting offers and expanding capabilities, shipping blue chips such as Stena and AP Moller-Maersk have become regular buyers from Chinese yards. And last December, Shanghai Waigaoqiao Shipbuilding Co. scored an order for two bulk carriers from Japan's NYK line, the first major purchase by a Japanese owner, who traditionally have favored domestic producers.
Other key buyers are China's own big lines such as COSCO, China Shipping and Sinotrans, all of whom are under government orders to place the majority of their purchases with Chinese yards, said Chambers. COSCO, for example, China's biggest shipping firm with about 600 ships, has plans to become the world's largest container carrier, offering a potentially vast order.
Hong Kong-based maritime consultant Matthew Flynn said an important driver has been a shift in official focus towards what he called an "energy-security" policy. Shipping is seen as a strategic industry needed to guarantee access to vital resources such as oil to sustain China's growth, he said.
"China has been looking around the world to secure access to oil supplies," Flynn said, "now they need the tankers to transport it." Following the maritime trading nations of the 19th and 20th centuries, China sees its future security based on having a powerful seafaring capability. As such, Beijing is prepared to pour large amounts of state funds into the industry. For example, the Changxing yard alone is expected to absorb $3.6 billion of state investment while elsewhere another four major greenfield sites are also under development.
As with most manufacturing sectors, China's key advantage in shipbuilding has been its low labor costs. According to Lloyd's List, Chinese shipyard wages stand between $1.80-$2 an hour, compared to upwards of $38 an hour in South Korea and Japan. But with costs of steel plate, another key input, rising by around 40% in the past year, analysts like Flynn say China is coming under growing pressure to improve the productivity of its existing 800-plus shipyards, rather than simply focus on expansion.
Investment is needed in design, automation and quality control processes, Flynn said, the most likely source of which will be from established Japanese and Korean shipbuilders. "To date the Koreans have been the most proactive," he said, "but expect to see both countries signing deals with Chinese yards in the coming year or two."
Restricted in their options for growth at home the Korean and Japanese yards need both the space and lower costs that China offers if they are to survive. Conversely China, in order to grow and secure the high value orders, needs the management experience and production techniques that its more advanced neighbors can offer.
Flynn said he had little doubt that by 2020 China will indeed be the world's number one shipbuilder; working with rather than wiping out the Korean and Japanese shipyards in what he said would constitute a "triumvirate of Asian shipbuilding."
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