As in so many other industrial sectors, China is consolidating its position as a major force in the world shipbuilding industry. It has become the world's third largest shipbuilding nation, behind Japan and South Korea. Despite limitations in terms of capacity and technology, the country's major yards now provide stiff competition to yards in Japan and South Korea, even for large vessels. For example, Dalian New Shipyard has recently held talks with Germany's Hansa Treuhand for the possible delivery of three 5,600 teu container ships.
The Chinese shipbuilding and ship-repairing industry comprises an enormous number of yards, ranging from those capable of building ultra large crude carriers through to the numerous small yards that build boats and local craft. In excess of 1,200 yards have been identified, covering a full range of vessel sizes and types, and industrial sectors – build, repair, offshore, military and breaking yards. These yards cover a wide area, both coastal and inland, reflecting the development of marine industries along the country's major river systems. However, only about 70 of these yards have, or may have in the near future, a role in world terms.
Shipbuilding and repair activity tends to be concentrated in specific locations, the most significant being Shanghai, followed by Guangzhou and Dalian. Facilities are focused on the mouths of the Yangtze and Pearl rivers, with some inland development along these waterways. There is also limited development on the eastern coastline between these two main rivers. In northern China, the activity is concentrated in the coastal areas bordering the Bohai Gulf and the mouth of the Yellow River.
The two main state-owned shipyard groups are China State Shipbuilding Corporation (CSSC) and China Shipbuilding Industry Corporation (CSIC). Formerly known as the Ministry for Shipbuilding, CSSC was the main entity before 1999. However during that year the Chinese government decided to split the corporation into two, as part of a major restructuring aimed at increasing competitiveness and productivity. The split, essentially along geographic lines, saw the formation of CSIC with responsibility for the yards north of the Yangtze River, leaving CSSC to control the state-owned yards in southern China.
Compared with Japan and South Korea where almost all ships are built domestically, China has a fairly low proportion of domestically built vessels. This is not surprising given Japan and South Korea's dominance in the world shipbuilding market, and their capabilities in building various types of vessels, including some large and more advanced ships. Demand within China's domestic fleet cannot be met fully by local yards given current constraints on capacity, product offerings, productivity and technological know-how.
However, several factors indicate that there will be a fundamental change in China's future fleet composition, as a result of an expected higher domestic demand for Chinese shipyards. This is illustrated by its two biggest ship-owning entities, Cosco and China Shipping, which dominate the country's shipping market. They provide a good indicator of China's future domestic fleet demand and its impact on the country's shipbuilding industry.
China now accounts for about 7 per cent of the global shipbuilding market, as measured in compensated gross tons (CGT), which takes account of differing complexities between various ship types. Shipbuilding production in China has been transformed since 1990, in terms of: output growth; increased penetration of the international market; major restructuring; expansion of product mix; development of facilities; increases in vessel size; development in ship financing and bank refund guarantees; foreign investment.
The most dramatic impact has come from the growth in output, especially for the international shipbuilding market as opposed to domestic production. While statistics are improving, the reporting of vessel completions and orders is still incomplete and to some extent unreliable, particularly in relation to smaller vessels for domestic owners.
One of the main factors influencing the success of Chinese yards in the international market has been their ability to offer highly competitive prices. However, increasingly they are improving their reputation for technical competence, with larger and more complex vessels. For example, China is now working to build its own liquefied natural gas carriers using licensed technology.
While productivity and delivery cycle times are substantially poorer than the market leaders in Japan, South Korea and parts of Europe, some of the better Chinese yards are improving significantly. Wide performance discrepancies exist between the yards, so if the performance of the best yards is achieved by most of the other major builders, then a vast increase in capacity would be effected from the existing facilities.
In 2000, the OECD estimated capacity in China to be 1.4m CGT, but Drewry's research showed that the capacity for the top 20 yards for the period 1999-2001 was 2.21m CGT, and the capacity for all yards in the country was 3.19m CGT.
Ship-repair is another significant and growing sector, and one in which Chinese yards are increasingly becoming recognised not just for their ability to quote low prices for steelwork repairs, but also their competence in the full range of ship-repair activities. While some of the main ship-repair facilities have sprung up on the back of China's large state-owned shipping lines, they are also becoming more active in the international market.
As in other countries, meaningful and consistent statistics for ship-repair are hard to come by in China. However, the following statistics derived from various sources may help to show the trends. In 1997 the total output value of the top 10 ship-repair yards was estimated at US$306m, of which two-thirds was for the export market. In 2001, total output for (not necessarily the same) top 10 yards was recorded at US$461m, representing a significant rise, although no indication of export share was given.
Most of the well-known Chinese repair yards now have international clients on their reference lists, and although it is important to ensure that supervision levels are appropriate, the overall attraction of China as a repair location is increasing. Most major yards now advertise the availability of local specialists for the leading marine equipment suppliers, especially in Shanghai and Guangzhou.
The ship-repair industry in China is mainly concentrated in and around these cities, with a few yards further north around the Bohai Gulf area. The business is dominated by two key shipping company-owned shipyard groups – CIC (China Shipping) and Cosco – along with a number of individual shipyards from the CSSC and CSIC groups, and a few other players.
Perhaps most spectacular of all is the rate and scale of facility development that is happening in the shipyard sector, with whole new or redeveloped yards, as well as a significant capability to build very large and ultra large crude carriers. The Chinese shipbuilding and ship-repair industries have been subject to considerable reorganisation and development over the last few years. In particular, there have been an impressive number of facility development projects, ranging from new shipyard construction, yard relocations, facility modernisations and upgrades, and the building of individual new docks and berths.
If the growth in shipbuilding output continues at current levels, China could increase its output to achieve a 16 per cent share of the global market by 2005 and strengthen its position as a leading global force. Competition for fellow nations will increase as new capacity comes on-stream.
This article was written by John Harris, director of Drewry Shipping Consultants, an independent London-based organisation providing consulting services to the world's maritime industries. www.drewry.co.uk
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