Concentration On Gas Carriers and Cruise Ships to Stimulate China Shipbuilding Industry: Ken Research

How the China Shipbuilding Market is Positioned ?

China became the global leader in the global shipbuilding industry in 2009 with a share of ~% surpassing South Korea. This was made possible by the lower cost of factors of production in China as compared to Korea and Japan. It is only in the recent years that China’s shipbuilding is suffering and that is restricted not only to China.

The revenue of the Chinese shipbuilding industry has been declining during 2010-2015due to the plunge in the global orders. Fall in the global demand for bulk carriers to thetune of ~% is also the major reason which has resulted in decline in revenue as two-third of China’s yards are specialized in building bulk carriers. The devaluation of theChinese Yuan against the USD is also the reason for the decline as customers observethe devaluation and so are not placing new orders.

The main characteristic of the Chinese Shipbuilding Industry has been the extensivegovernment support to the industry. The point of concern is that Chinese laborinvolved in shipbuilding has 1/6th of the productivity of that of South Korea and 1/10th

of that of Japan which for a little extent restrains the market With more thanshipbuilding enterprises at the start of 2010, the number has drastically fallen to withonly active shipyards. The state owned shipyards have responded to the worseningsituation by consolidating its various yard subsidiaries so as to streamline operationsand maximize the facility utilization. With such measures being taken by theshipyards, the survival of the handful of the shipyards is not by chance.

The China Shipbuilding Industry is segmented by the new shipbuilding industry andthe ship-repair industry. The percentage contribution of the new ship servicestowards the shipbuilding industry revenue of China has come down in 2015 ascompared to the previous years. This decrease can be attributed to the huge declinein the number of orders in 2015 which were recorded at a level of just. However, therepair and maintenance industry’s revenue share in the revenue of the entireshipbuilding industry has been increasing since 2013. Excessive lower prices wereconsidered to be the major reason behind the increase in the contribution of therepair revenues to that of industry’s revenue which was attracting a lot of repairdemand.

Repair of high tech, more complex and sophisticated vessels have beenresponsible for the increasing share of ship-repair in China shipbuilding industry.

China’s shipbuilding industry is absolutely dominated by the state ownedenterprises and state owned enterprises have been the drivers for growth inoffshore industry of China as evident with the ~% share in the overall industryrevenues. High government investments in the shipbuilding industry have led tohigh revenue share of state-owned players. Joint ventures have been increasing inChina. The government has made it mandatory for the foreign players to establishtheir technology centers with the local players in order to support the technologyimitation and hence the government feels that the joint ventures are necessary.Most of the foreign capital is coming from Europe, South Korea, the USA andJapan, that is, from the nations which are well renowned for their high endshipbuilding. The private players in China’s Shipbuilding industry hold a minimalshare of ~% in the industry. Orders for new vessels, if made through the stateowned shipyards, are subsidized by the government and the owner doesn’t haveto bear the complete cost of the vessel. This has taken away the clients from theprivate shipyards towards the state owned and reduced their shares.

What are the regions where shipbuilding industries are concentrated in the China?

In terms of region, Dalian is considered as the major seaport in the south of LiaoningChina. It’s the financial, shipping and logistics sector for North-East Asia. Dalian porthas shipping and trading links with 160 countries and regions of the world and isranked the eighth busiest port in the world, according to American Association ofPort Authorities. Dalian has been given the title of “open city” by the Chinesegovernment which allows it to receive sufficient foreign investment. Owing to allthese reasons, shipbuilding is considered to be one of the pillar industries of Liaoningand presence of more number of manufacturing companies in region has resulted inhighest number of ships produced counted to in 2015.

By type of ship, bulk carrier dominated the shipbuilding industry in China accountingfor % of the total ships produced in China in 2015. Production of Bulk Carriers hascome down in China Shipbuilding Industry. Technological competition for eco shipshas been expanding with Europeans building solar ships and US developing windpowered ships and hence the orders for such ships had been shifted to theEuropeans and the Americans.

There has been a continuous decline in the container ship manufacturing owing tothe decline in imports to Russia. Declined imports from Russia resulted in Russianembargo and decreasing volumes of container shipping through the gateways toRussia, via Finland and Baltic countries, which resulted in decreased demand forcontainer ships. The production of tanker ships in China has been on a decline since2010 and the industry has experienced decline till 2015. In 2010, the tankerproduction was recorded at, which declined at a rapid pace and reached at just in2015. The Dry cargo ship manufacturing has been on a decline since 2011 and hasshown no signs of recovery since then. The number stood at a level of in 2011 andby 2015, the number declined to a minimal value of dry cargo ships.

What are the Key Takeaways from Chinese Ship-Repair Industry?

Shipbuilding carries no relevance if repair and maintenance facilities are notavailable in a country. Labor and raw materials are the major determinants of theship-repair industry. China along with India, South Korea and Brazil comes under thelow cost group of countries for ship-repair. This is because of the loweradministrative costs and wages. In comparing, the highest price registered in Chinawas % cheaper than the lowest price registered in South Korea in 2015 which isChina’s main competitor in shipbuilding.

In terms of the cost split for the in the Chinese ship repair industry, steel accounts for~% and labor accounts for % of the total cost of repair. The increase in the revenuefrom ship repair services in China was made possible due to the improvement intechnology, evident from the fact that the number of ships repaired came down in2014, but the revenue still increased.

Number of ships repaired in China was at its peak in 2010, at a level of, but themarket has experienced declining number since 2010. The Euro debt crisis was themajor reason for the decline, which resulted in the lesser number of ships beingrepaired in China and European nations being major clients for Chinese ship repairingcompanies, the demand for ship repairing from European countries declines. Therecent merger between the Italian giant of ship repair and the Chinese ship repairgiant will be a big push for the ship repair industry in China and might result in therebound in the number of ships repaired as Fincantieri (the Italian giant) will helpHuarun Dadong Dockyard in the development of technical skills, project managementand logistics procedures by sharing its technical expertise mainly in the cruise sector.

Which Developments have Driven China Shipbuilding Industry?

Mergers and acquisitions have been the growing trend in most of the shipbuildingindustries in the world. The goal is to enhance the competitiveness of the sector. Thecountry has experienced large number of mergers in between 2010 and 2015. Themerger of CSIC and CSSC which will be a big step, as one is a major military shipmanufacturers and the other is a major commercial one, one in north and the other insouth, is on the cards and is about to happen in a few days from now. China is preparingto award more and more contracts for large containerships of upto TEU and bulk carriersof DWT VLOCs. It’s in sync with the construction facilities as most of the ports can’taccommodate more than TEU boxships. All this has helped the shipbuilding companies inmanaging the overcapacities at the shipyards and increasing the market control.

Application of information technology is the new trend in the shipbuilding industry.Manufacturers are increasingly focusing on robotics, laser, and shipbuilding precisioncontrol technologies to upgrade or modernize the production processes. China’s mainfocus currently in modernization of the processes can be seen from the fact that thegovernment is focusing on skill development through promoting marine engineering.Shipbuilding industry is continuously evolving as technologically advanced and capitalintensive business rather than being driven mainly by labor intensity.

In addition, China has formulated off shore engineering industry as one of the sevenstrategic emerging industries and has planned to invest ~ to ~ billion RMB (USD ~ billion -~ billion) into it as declared in the 12th five year plan in 2011.

Global commodity prices are crashing as the boom fuelled by the money printingrampage of the central banks has started to cool down. This has also resulted in thereduction in the freight rates.

How is the Competition Structured in China Shipbuilding Industry?

China shipbuilding industry, where the dominant force is the state-owned enterprises, iscontrolled by five major state owned companies:•CSIC handles the shipbuilding activities in the north and the west of China.•CSSC has one of the largest shipyards in China in terms of shipbuilding output andannual capacity that is Shanghai Waigaoqiao Shipbuilding.•CIMC Raffles majorly focuses on engineering and construction of deepwater offshoreprojects and the company has the best track record in the semi submersibles segment,major aspect responsible for third leading position of company.•COSCO is involved in the construction of offshore equipments mainly in Nantong,Qidong and Dalian.•CMIH was recorded as the fastest growing offshore equipment builder in 2015 in China

What are the Future the Future Prospectes for China shipbuilding industry?

Projections for the future suggest that China’s Shipbuilding industry is anticipated towitness a CAGR of % in terms of revenues during the period 2016-2020. The futureoutlook for the Chinese shipbuilding industry is also contingent upon theinvestments in the infrastructure segment by the countries which are considered asuntapped markets by the Chinese maritime analysts for instance, countries incentral Africa and Latin America. If these countries do not have the necessaryinfrastructure required at the ports, the Chinese shipping industry will not have neworders from the owners of ships in such untapped markets.

It can be seen that most of the developing world and even the global economy isslowing down; so the commodity prices will remain weak and the shipping rates willstay depressed, in particular for dry bulk shipping.

Container shipping could be a benefiting sector as the volume to the western worldhas started to increase recently.

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