China’s first home-grown large cruise liner undocked in Shanghai this week in a breakthrough for the nation’s shipbuilding and high-end manufacturing ambitions. (Illustration: SCMP/Victor Sanjinez)
Chinese boat builders moved closer to putting the last – and the most precious – pearl onto “the crown of shipbuilding” this week, while also accelerating a shift in high-quality development that will take the world’s second-largest economy to new waters.
Luxury cruise ships, together with liquefied natural gas (LNG) vessels and aircraft carriers, have long been considered “the three pearls of the crown” as they represent the highest levels in vessels carrying passengers, cargo and military equipment.
And with the undocking of China’s first home-grown large cruise liner on Tuesday (Jun 6) in Shanghai as the 135,500-tonne, 323-metre-long Adora Magic City moved to the final stage of debugging ahead of two trial trips in July and August after nearly four years of construction, the final piece in the country’s shipbuilding puzzle is almost in place.
Construction of a second luxury cruise ship, which is larger and heavier, is also underway in Shanghai.
Already a world leader in terms of ship orders received, China is now aiming for world-leading shipbuilding capabilities as its economy shifts from rapid growth to high-quality development, something that the authorities have said will be reliant on high-end manufacturing.
However, making cruise ships and developing an industry from scratch is no small undertaking for China.
Few domestic suppliers have the necessary experience to make specific cruise ship parts, nor are they familiar with international industry standards, so some supplies assembled on the ship need to be imported.
“We have beaten South Korea and Japan in terms of conventional ships, but still lag behind in high-value-added ones,” said Xu Mingqi, a professor of international economics at the Shanghai Academy of Social Sciences.
“But we’re making more technical breakthroughs as we boost investment in research and development.”
In the first four months of the year, China accounted for 44.9 per cent of global output, 65.5 per cent of new orders and 51.3 per cent of orders on hand in terms of deadweight tonnage – a measure of how much a ship can carry – according to the China Association of the National Shipbuilding Industry.
China delivered 48 per cent of the world’s merchant ships last year in terms of compensated gross tonnage – a measure of the amount of work involved in building a ship – with South Korea accounting for 25 per cent, according to British shipping market analyst Clarksons Research.
The order book backlog at Chinese yards is estimated to be US$132 billion, the firm’s managing director Stephen Gordon said, while South Korean yards are sitting on orders worth US$107 billion.
But South Korea still has “the largest market share and a very strong position in LNG, although the Chinese share has been growing in the past 12 months”, he said.
“Korea is also stronger in (liquefied petroleum gas carriers). Traditionally, Korea had a very strong tanker position, but the gap has narrowed and in order book terms is closer.
“China has developed a position in cruise (ships), although mainly for smaller luxury vessels, where there is stronger demand at present.”
Chinese shipyards have been promoting breakthroughs in building various types of vessels in recent months.
Four 93,000 cubic metre ammonia carriers – the world’s largest of the type and the first for China – are being made by the Shanghai-based Jiangnan Shipyard after it received orders from the Singapore-based Eastern Pacific Shipping, the two companies announced early last month.
At the end of March, a 155,000-tonne dynamic positioning shuttle tanker – China’s first Suezmax vessel of its type – was also delivered by Dalian Shipbuilding Industry.
“China has made breakthroughs in many types of ships, not just because it has caught up in building capability, but also because its outstanding performance over the past years has improved domestic and international shipowners’ confidence in Chinese shipyards,” said Penny Peng, senior business development executive at vessel valuation and information analysis firm VesselsValue.
“They are now willing to have a try in China.”
According to Peng, around 1,900 merchant ships have been delivered globally so far this year, with around 900 built by Chinese shipyards.
The number of Chinese-made high-valued-added types, such as LNG and liquefied petroleum gas carriers, has also increased significantly, Peng added.
China’s future, she said, lies not only in the improvement of its building capacity but also in the development of a complete industry chain.
“The point is whether it can stop relying on imports for key equipment, so that shipowners’ confidence in China-made equipment will improve,” Peng said.
China’s high-end manufacturing drive also saw it recently debut its first domestically developed narrow-body passenger jet – the C919 – which took its maiden commercial flight at the end of May.
China has high hopes that the C919 will reduce dependence on foreign technology as ties with Western countries deteriorate.
It is designed to compete with Boeing’s 737 and Airbus’ A320, however, most parts used for the C919 are imported from foreign manufacturers, including the engine, avionics, control systems, communications and landing gear.
A series of systems used in shipbuilding are among “chokepoints” that left China dependent on other countries for key technologies, said a Beijing-based industry observer from a state-owned company, who asked not to be named as they are not authorised to speak to the media.
Cargo containment systems for LNG carriers, which ensure a super-low temperature, are a typical example, they said.
“We’re paying a lot of money in patent fees to France in this respect, and we’re quite a way from creating our own, which will also cost a lot,” the industry observer said.
Shipbuilding industry association secretary-general Li Yanqing said China had stepped up its manufacturing of other technologies and their use in Chinese-made vessels in recent years.
“On the one hand, the application rate of home-made equipment, such as the main engine, marine boiler, crane, gas supply system, has been growing,” he said, according to the Communist Party mouthpiece, the People’s Daily, in March.
“On the other, we have improved in the research and development of high-end steel for ships – all crack arresters [that are a form of hull reinforcement] on large vessels have been replaced by home-made ones, and over 90 per cent of duplex stainless steel used in chemical tankers is made by domestic manufacturers, compared with less than 50 per cent previously.”
Despite adequate orders, a majority of shipyards in China are running at a loss. Most of the publicly listed companies under the China State Shipbuilding Corporation are struggling to make a profit due to increased component and labour costs, according to a performance briefing by the companies at the end of May.
Four yards, including Waigaoqiao and Jiangnan, were running at full capacity, with orders scheduled until 2026, they said.
At Hudong–Zhonghua Shipbuilding, another subsidiary of the state-owned corporation, production plans have been extended to 2028, a senior manager told the People’s Daily in March.
As shipping emission rules have gradually tightened to fight climate change, subsidiaries are also increasing their investment in eco-friendly vessels, Shipbuilding Corporation deputy general manager Tao Jian told the briefing last month, according to Caixin.
Stringent emission regulations mean conventional ships, which may be heavy polluters, will be retired and replaced by vessels with low or zero emissions powered by LNG, methanol or other fuels, he said.
“Demand for such vessels means higher requirements for shipyards’ technology and building capacity,” he added.
“Those which are able to produce low-emission products will be more competitive.”
China stands a good chance of winning global competition in the building of ships powered by new energy, Han Qianting, an analyst with the China Merchants Bank Research Institute, said in a report in December.
“Foreign countries have accumulated a century of experience in traditional heat engines and controlled patents in core technologies, but they are at the same starting line with us when it comes to new energy,” she wrote.
But for smaller yards, the transition to being smart and eco-friendly is more of a challenge, said Mu Huaili, general manager of Yangliuqing Ship Factory in the northern port city of Tianjin.
“It may take a decade to knock out all the diesel-powered vessels” he said. “After all, new energy ones are still poor in terms of endurance.”
Due to overcapacity and stricter safety and environmental protection rules since the 2007 to 2008 global financial crisis, up to 80 per cent of medium-and small-sized industry players in China have been eliminated, he added.
Having survived bankruptcy, Yangliuqing Ship Factory is now focused on vessels for domestic lakes and rivers, which has strong growth potential, according to Mu.
“Now that the coronavirus pandemic has passed, the authorities have been urging the opening up of more stretches of the ancient Beijing-Hangzhou Grand Canal to navigation, and there’s pent-up demand for travelling, so things don’t seem too bad for us,” he added.
This article was first published on SCMP.