A rapidly appreciating yuan, rising labour costs and inflation will make it 'extremely difficult' for China's shipbuilding industry to maintain its competitive advantage, the head of the country's industry leader said yesterday. Tan Zuojun, president of China State Shipbuilding Corp, said the shipbuilding industry must refocus on 'technological innovation so as to meet intense and cruel competition and challenges in the future'. He said this included the development of new, more fuel efficient and environmentally friendly vessels and ship machinery as well building higher value ships including passenger cruise liners. China has tussled with South Korea for the title of the world's largest shipbuilding nation for the past two years. But while South Korean shipyards have concentrated on building high value and sophisticated vessels such as drill ships and ultra-large containerships of more than 10,000 teu (20-foot equivalent units), China's have targeted dry cargo bulk carriers, smaller sized containerships of 4,000 to 8,000 teu and medium range tankers. Pointing to the innovations his group has introduced, Tan said subsidiaries such as Guangzhou Shipyard International and Jiangnan Shipyard developed dry cargo bulk carriers and tankers that consume 10 to 15 per cent less fuel. Another unit, Shanghai Waigaoqiao Shipbuilding, had designed 206,000 deadweight tonne coal and iron ore carriers to operate in shallow draft conditions with a longer range, Tan told the China Shipbuilding Forum. These design innovations offer greater operating flexibility while optimising engine efficiencies. The forum, a day-long seminar organised by IMC, Hong Kong Polytechnic University and the Hong Kong Shipowners' Association, attracted 150 maritime executives including Tung Chee-chen, head of Orient Overseas (International) and the heads of mainland shipbuilders. China State Shipbuilding, which controls all state owned shipyards, ship repair facilities and equipment manufacturers south of the country from the Yangtze River, generated a 2.6 billion yuan net profit last year on revenues of 29.9 billion yuan. Tan said the group was focusing on the development of ultra-large container ships capable of carrying 16,000 to 18,000 teu, offshore vessels including tankers capable of producing and storing liquefied natural gas and technically demanding mid-sized luxury cruise ships. But the shortcomings of mainland shipyards were highlighted by a raft of ship owners at the forum. Alan Tung Lieh-sing, executive director of Orient Overseas (International), said more 'forward looking' shipyards were based outside China. He said Japanese shipbuilders led in research and development, creating more energy efficient ships that used alternative fuel technologies such as solar and wind power. Tung said mainland 'shipyards and design houses could benefit over the long-term' by forging closer relations with ship owners to get a better understanding of the way vessels were operated to improve services. Li Kwok-hung, managing director of IMC Shipping Services, said a survey of Hong Kong-based ship owners showed that they were more satisfied with Japanese or European designs than with mainland ones. Paul Oliver, director of China LNG Shipping (International), said the most challenging issue was maintaining consistent quality. He asked shipbuilders' representatives: 'What needs to be done to close the gap between quality and consistency?' Wang Qi, president of Shanghai Waigaoqiao Shipbuilding, said improvements could be made in the after-sales service. Turning to quality control, Wang said: 'We have already had a big improvement compared with 10 to 20 years ago. The quality is very good.'