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China's ship industry strives for No 1 spot

By Lu Haoting (China Daily)
Updated: 2007-02-14 13:39

The world's flourishing cargo demand is driving the construction of all sizes and shapes of ships from small coastal tankers to giant VLCCs. Although South Korea and Japan still control about 70 percent of global shipbuilding, China has been attracting new orders due to advantages such as an expansive coastline and abundant labor and engineering skills, said Matthew Flynn, managing director of Worldyards.com, a Hong Kong-based research and consulting group focused on shipbuilding.

Chinese shipping companies are also expanding and upgrading their fleets to cash in on the lucrative shipping market.

An example is the expansion of China's supertanker fleet.

Nearly 40 percent of China's oil is imported, but 85 percent of the imported oil is transported by foreign shipping companies. In developed countries such as Japan and the United States, their own fleets ship nearly 70 percent of the imported oil.

China's shipping companies are expanding their supertanker capacity to meet the country's oil demand. The Chinese government also encourages the expansion of China's own supertanker fleet due to oil security concerns.

China Merchants Group, which owns the country's largest fleet of VLCCs, will add six VLCCs before 2008, with COSCO Group adding five, and China Shipping Group introducing eight. The country's total fleet is expected to grow to a total of 50 to 60 supertankers in 2008, analysts said.

But analysts said the Chinese shipbuilding industry should be aware of potential risks in the market.

"The demand for ships will eventually ease from the dramatic demand of today. Combined with the expanding capacity of shipbuilders, this will lay the groundwork for a future buyer's market," Flynn said. "Chinese shipyards must remember that they are not the only ones expanding."

South Korean shipbuilders, such as Samsung Heavy Industries and Daewoo Shipbuilding & Heavy Machinery, are constructing enormous block factories in China, which will allow them to accelerate construction back in their own shipyards where the mega- blocks are welded together.