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China ready to dominate the shipbuilding industry

China will soon underline its role as a center of global manufacturing by becoming the biggest shipbuilder in the world. The drive to build new yards has scared competitors, such as the world's current leader, South Korea, which fears overcapacity in the market, and has led to fears about the quality of these home-produced vessels.

Industrialization in China has spawned the biggest maritime boom in history by sucking in raw materials such as iron ore and pumping out finished goods such as washing machines.

Now it wants to carry more of these goods in its own vessels -- from 10 percent to 25 percent -- and plans to do so partly by constructing the largest new-building yard in the world, near Shanghai.

"The speed of capacity increases in China is somewhat threatening to Korean shipbuilders [such as Hyundai]," said Song In-ho, a Seoul-based asset manager at Kyobo Investment Trust Management, which holds Hyundai stock.

China has already captured a 20 percent share of the global shipbuilding market, compared with 35 percent for South Korea and 32 percent for Japan, but there are now plans to double existing production capacity by 2010.

The biggest-ever yard is being built on Changxing Island near Shanghai by China State Shipbuilding Corp (CSSC, 中國船舶工業集團), which will be ready to start up next year. New yards are also being developed at Bohai in northern China and Guangzhou in the south. China also wants to move into building more sophisticated vessels.

China's shipping industry is No. 3 globally by tonnage but still No. 6 in the world by value. Economic planners in China want to counter this by moving from tankers and bulk carriers into specialist ships such as cruise liners and even liquefied natural gas carriers.

Last year CSSC secured 86 percent more tonnage than in 2004 and has almost filled existing capacity until 2009. He Rongguang (賀榮光), president of the rival Bohai Shipbuilding Heavy Industrial Co (渤海船舶重工集團), has said that vessel construction is being developed for wider strategic reasons.

"A booming shipbuilding industry will boost China's overall manufacturing industry, particularly the production of iron ore and steel, electronic and mechanical products, and create jobs," he said.

Nearly three-quarters of the vessels built by Chinese yards are going to foreign owners. Frontline, the biggest tanker company in the world, run by the London-based John Fredriksen, has been toying with a US$400 million new order from Changxing, while others have already signed firm contracts.

Britain once built 90 percent of the world's shipping tonnage but was overtaken by cheaper prices -- and latterly better quality -- vessels made in Japan. And just as South Korea overtook Japan as the No. 1 shipbuilder in the world, now China is considered by experts to be the future leader in this sector; the only question is when. Only 10 percent of vessels are now produced outside Asia, virtually none in Britain.

One of the threats of China's rapid expansion in shipbuilding is that the increasing amount of capacity there will not only meet growing demand for new vessels but surpass it and lead boom to bust, a cycle much repeated in shipping history.

China beat its way forward by offering ships up to 20 percent cheaper than South Korea.
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