Ageing of global merchant fleet tipped to push mainland up among the giants

THE advancing age of the world merchant shipping fleet has set the stage for a rise in shipbuilding activity, and China is shaping as a genuine competitor for the dominant forces of Japan and South Korea. Emerging in the early '80s from decades of isolation, China's surge to third place in percentage share of tonnage on order for 1993 has been dramatic. Although Japan and South Korea, with a combined total market share of almost 60 per cent, dominate the market by a large margin, China at 5.1 per cent, is expected to bite further into their share over the next few years. Over the eighth five-year plan (1991-95), the China State Shipbuilding Corp (CSSC) has committed itself to several shipyard expansion projects which will inject almost US$750 million into the industry. The CSSC is determined to upgrade its facilities and shipbuilding capabilities to match international standards. This determination is essential for the sector's future because the corporation controls China's largest and most important shipyards, most of which conduct business with foreign shipowners. The industry is being targeted by Beijing as a key element in the country's modernisation. Last year proved a highly successful year for mainland shipyards, with the total tonnage of confirmed deals close to 500,000 deadweight tonnes (dwt), dwarfing the 1992 figure of 200,000 dwt. The CSSC also saw total output of 1.33 million dwt, up more than 19 per cent from the previous year. Last year also saw one of the largest export orders China has yet received, with Hong Kong-based Pacific Basin Agencies signing a contract with Guangzhou Shipyard International (GSI) for six dual-purpose, log bulk carriers. Each of those vessels had a reported price tag of about $20 million, representing a 30 per cent discount over prices offered by Japanese and South Korean yards. In addition to the lower price, GSI's claims of having the flexibility to build to Pacific Basin's specification was also a key factor in winning the contract. Recently, foreign shipowners have been reasonably satisfied with the quality of vessels coming out of China's yards, and the international community has come to agreement that the sector has the ability to become one of the leading shipbuilders in the world if it can overcome several crucial problems. One handicap which plagues Chinese shipyards is the time it takes to complete a vessel in comparison to foreign yards, which in some cases can be as much as twice as long. Late delivery is another concern. The major yards in China are beginning to eradicate this problem, cutting building time and approaching the lower end of internationally acceptable standards. A second problem is low quality managerial support in Chinese yards. Foreign surveyors have expressed concern over lack of supervision in the shipyards, which correlates to poor quality in the final product. A third area of concern is that although research and design have improved significantly through training of Chinese experts at foreign yards and through foreign investment such as the recent Hudong and Mitsui ship designing joint-venture, further upgrades in facilities and technology are needed to meet market demand. China must continue to import hi-tech marine equipment needed to build modern ships. Once the equipment is acquired, obtaining the expertise and capability to use it efficiently must also become a top priority. The CSSC last year invested 1.7 billion yuan (about HK$1.53 billion) into its infrastructure in an effort to overcome those problems. The money went towards basic construction facilities, buying new technology and updating equipment. As difficult as these four problems are, China must also attack the primary problem of increasing the capability to handle orders for large vessels. For the CSSC, the focus is on raising its capacity to build ships of 35,000 dwt or more. Major renovations are under way at five of the key shipyards - Jiangnan, Dalian, Guangzhou, Shanghai and Hudong. The renovations range from upgrading equipment and facilities to the construction of new docks, with most scheduled for completion by early next year. One of the biggest projects has been the work on a 200,000 dwt dry dock at the Dalian New Shipyard which has been under construction since 1985 and is expected to be completed early next year. The original completion date was 1988, but problems were encountered with water permeating from the gravel-sand layer at the bottom of the dock. Working with technical engineers from around China, the problem was solved after long delay. When complete, the dock will boost the overall shipbuilding capacity of the CSSC from 1.5 million tonnes to 2.5 million tonnes. Another big project is at the Chengxi Shipyard in Jiangsu province where work is being completed on the Hengshan, a 100,000 dwt floating dock. The Hengshan dock will be used for the repair of large tankers in the 100,000 dwt class. This facility will be complemented by the Shekou Mawan Dock Corp's ship repair dock, with one Panamax floating dock and one 350-metre repair wharf. Parallel with China's upgrading of its shipbuilding facilities, the major yards are investing time and resources in co-operation with foreign companies. With shipbuilding being a highly capital intensive industry, the shipyards are seeking foreign investment to expand operations. Shenzhen, Guangzhou, Shanghai and Tianjin continue to attract investment, and new areas such as Wuhan and Chongqing are beginning to receive substantial support. Almost every port in China has, in some form, received foreign capital. Among the most important foreign investment projects are: Shanghai Edward Shipbuilding Co, the first shipbuilding joint-venture with German investors, which is finishing work on its first vessel. Dalian Shipbuilding Corp, which has established a shipbuilding consultancy with a Hong Kong partner. Guangzhou Shipyard International Corp, which last August was listed on the Hong Kong stock exchange in a successful effort to generate capital for expansion. More than 100 joint ventures have been set up by CSSC members, and another 10 are expected by the end of next year. China is not yet set on a path which will see it unseating the Japanese and South Koreans from the top of the world shipbuilding tree, but it is already larger than any European shipbuilding nation. Through co-operation with foreign companies and its expansion programme, China looks set to consolidate third place in the work rankings and to grow in importance as its competitors weaken. Randall Collis is a consultant at Asian Strategies which has published, with Seatrade, the second edition of its multi-client study on China's shipbuilding industries.