Shipbuilding sector heads for big league

PUBLISHED : Thursday, 11 January, 1996, 12:00am
UPDATED : Thursday, 11 January, 1996, 12:00am

CHINA has long-held ambitions to become a leading shipbuilder by the turn of the century, though this has been hampered by a lack of investment.

But with a backlog of four million deadweight tonnes stretching well into 1998, the main fear now is whether all these contracts, including those with Hong Kong, can be met.

During the past year, Chinese builders have achieved an unprecedented rise in competitiveness and orders received.

Although Chinese yards have been successful in the past, nothing has approached the current scale, whether in new designs or volume intake.

This progress is seen in the nearly 100 orders for ships received last year.

Japanese builders struggling to remain competitive for export business, because of the strong yen, and China's resources are being increasingly tapped to help keep their costs down.

This began more than two years ago on a low-key basis.

There is still reticence on both sides to publicise the extent of this increasing co-operation.

Despite growing inflationary pressures in China, building costs at Chinese yards are generally 20 per cent lower than in Japan.

And they are 10 per cent cheaper than in South Korea.

Chinese delegations, mostly from the China State Shipbuilding Corp (CSSC), have stepped up efforts to gain licensing or joint-venture agreements abroad.

State-owned CSSC's major yards are in Shanghai, Dalian, Tianjin and Guangzhou.

Such is the hunger for export orders and hard currency that orders for domestic merchant marine companies are no longer given priority.

Domestic orders are negotiated with overseas yards, where attractive payment terms can often be secured as part of aid deals.

The European Commission recently approved German credits to allow Chinese owners to order six ships, worth 166 million deutschemarks (about HK$891.42 million), at German yards.

The ships are destined for service along the Chinese coast and on the Yangtze River.

Two will be of 7,400 dwt, costing 41 million marks each. The other four will be of 3,000 dwt at 21 million marks each.

To win EU approval, the German Government had to assure Brussels that the prices for the ships conformed to international market prices and that the newbuildings would not be put into service under flags of convenience.

The German Government will put up 90 per cent of the price, with the credit repayable over 12 years at 3.25 per cent.

Guangzhou Shipyard broke new ground by negotiating an agreement with Japan's Ishikawajima-Harima Heavy Industries, known as IHI, for building its newly designed Seafarer 26 multi-purpose bulk carrier.

This resulted in a sub-contract with IHI for the construction of two 26,000 dwt units for Czech Ocean Shipping of Prague.

This is the first time a Chinese builder has been responsible for the construction of a ship with designs and blueprints supplied by a Japanese company.

Construction will begin this year. The two ships are due to be delivered in 1997.

This prototype order is likely to be doubled from two options, which were recently upgraded to a letter of intent.

IHI has established a new company, IHI Maritime International, and expects to receive further orders for this class from European and Asian owners based on the low cost of building in China.

Guangzhou shipyard will purchase the engines for both vessels but will source other equipment outside China through the intermediary of IHI.

IHI has been closely linked with Guangzhou Shipyard under a comprehensive technical assistance agreement since 1984.

Other Japanese shipbuilders have explored allowing Chinese partners to participate in a wide range of shipbuilding activities but have faced opposition from Japanese and foreign shipowners.

The latest developments involving IHI and Guangzhou Shipyard are seen as a sign of confidence and trust in that the mainland builder has made substantial progress in terms of quali-ty.

Apart from Dalian's new VLCC building dock, scheduled for completion this spring, no building dock expansion is underway in China.

Chinese builders have learned from serious past mistakes, which have incurred heavy costs from late deliveries.

There is greater realisation of the requirements of the commercial markets as state control is relaxed in favour of market-led forces.

Under the country's ambitious Ninth Five-Year Plan (1996-2000), most yards are to be modernised, with the installation of a minimum of six panel lines, eight modern cutting machines and a series of CAD/CAM systems.

Under the auspices of the CSSC, the plan is to increase annual output to 4.5 million dwt.

Chinese yards built vessels totalling 1.75 million dwt last year, ranking third behind Japan and South Korea. Industry sources said expansion was urgently needed.

Dalian Shipyard will be the jewel in China's shipbuilding crown. It has the largest capacity, most modern facilities and natural deep water.

When the new VLCC dock is commissioned this year it will represent a particularly important achievement.

Much of China's proposed new capacity is slated for the Yangtze Delta area at the mouth of the Huangpu River.

Jiangnan Shipyard plans to build two or three medium-sized yards there for bulk carrier and tanker construction.