Maritime Trade and Transport - HWWI

China’s path to the top
The transfer of shipbuilding technology has become simpler and faster. At the same time, the
degree of automation in the prevailing series production of the most popular ship types has
increased and favors large shipyards. These facts indicate that labor costs will remain the most
important determinants of competitive capability in the long term. Efforts to limit shipbuilding
subsidies internationally are likely to continue to fail. Mercantilistic philosophy will remain
highly significant in determining the success of the shipbuilding industry of individual nations.
These are good preconditions for China, which has the lowest labor costs among the shipbuilding
nations and is setting about to become the world leader in shipbuilding by 2015.
Chinas metamorphosis into a shipbuilding giant is breathtaking. Its production has more
than quadrupled since 1990. In recent years, it has grown by approximately 17% annually.
The current 5-year plan includes massive construction projects that will result in a doubling
of capacity by 2010. Two large state conglomerates share the shipyards north (CSIC) and south
(CSSC) of the Yangtse. By 2015, CSSC intends to expand its capacity to 14 mn dwt. To make
this possible, the world’s largest shipyard, with an area of 1.8 mn m2 , has been under construction
since 2003 at a price of over $3 bn on the Yangtse island of Changxing (Shanghai). The
sister group CSIC plans to expand its capacity to 8-9 mn dwt. This would mean a tripling
of the current 6.5 mn dwt capacity of Chinese shipyards. 46 To ensure capacity utilization, an
aggressive price policy has been instituted: New ships are being offered for approximately 20%
under the prices set by South Korean competitors. For bulk carriers, the shipyards take their
cue from the least expensive Japanese supplier.
Up to now, China’s shipyards have primarily concentrated on building large bulk freighters,
medium-sized tankers, and small container ships, to generate volume. However, they are very
quickly developing the capability of constructing more sophisticated ship types. The first supertankers
have already been launched. The goal of the economic planners is to expand the
spectrum to include large container ships, RoRo ferries, and LNG tankers, because by value
China’s shipbuilding industry only ranks sixth.
The construction of the types of vessels that require much labor and little technology and
can be produced in series will increasingly shift to low-wage countries in the next 25 years. This
trend will be accelerated by rising costs for upstream products (steel, raw materials) and capital.
Affected are large oil tankers and bulk freighters, as well as small and medium-sized container
ships. China is profiting from this trend. Japan, however, will successively lose market
shares. In the second half of the forecast period, nations like Vietnam, Brazil or India could
make their way onto the world market, as they can offer lower labor costs and are already
building up capacities. 47
46 See Nonstop (2005b), VSM (2006), Farnsworth (2006).
47 See Nonstop (2006).
108 Berenberg Bank · HWWI: Strategy 2030 · No. 4