Chinese shipping aims for global leadership

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Date:2010/4/15/ 14:41


SHANGHAI - A tantalizing and expansive view of what China's shipping and shipbuilding industries could become in the next five years is emerging, glimpsed occasionally through events such as the recent launch of the first Chinese-built LNG (liquefied natural gas) carrier.

The nautical industry taking shape is one that has restructured and expanded on an almost epic scale, one more open to the rest

of the world in terms of technology, exchanges and capital, and one that poses a great challenge to China itself, its partners and its rivals.

Better ships, better ports, more openness
Xu Zuyuan, China's vice minister of communications, has outlined a marine-development strategy that has three key strands: development of a "reach for the stars" type of shipping fleet; a massive improvement in shipping-related infrastructure both on coastal and river ports; and opening the shipping sector to the outside world.

Regarding the first goal, Xu said China will "speed up development of [the] shipping fleet in terms of enlargement, specialization and modernization levels, thus enhancing its international competitiveness ... While [the] bulk-carriers fleet has to be expanded, great efforts will be made in developing [an] enlarged, specialized and modernized fleet of container ships, oil tankers, LNG carriers and ro-ro vessels." (The last refers to roll-on, roll-off vessels - a type of ship designed to carry wheeled cargo such as automobiles or railcars.)

Xu also promised a huge leap in infrastructure. "Top priorities in coastal ports construction will be wharves and berth places suitable for large-sized container ships of the fifth- and sixth-generation [type] or 300,000-deadweight-ton (dwt) crude-oil tankers, 200,000dwt ore carriers and 50,000-100,000dwt coal carriers." In short, many massive ports will be built all along China's coast to complement the just-built Yangshan Deep Water Port in Shanghai.

An important part of the infrastructure plans is accelerated construction of facilities for inland water transport. China's river ports have been neglected compared with developed-country counterparts such as those along the Mississippi River in the US or the Rhine in Europe. The key point, according to Xu, is the building of "two transversal [waterways] - one longitudinal [waterway] and two networks", including a number of inland harbors with advanced technology.

"Moreover, to lay a solid foundation [for] modernized inland water transport, enlargement levels of harbors as well as their specialization, mechanization and informatization levels are all to be enhanced," said Xu. Improved riverine transport is expected to accelerate development of China's vast interior, especially by facilitating the movement of bulk freight, given that rail freight remains in chronic short supply.

Xu was also clear that a greater welcome will be given to foreign investment in shipping operations. While not entirely new, this aspect of the modernization plans answers in part the obvious question about how the strategy will be paid for. "Foreign funds, technologies and management experiences will be further attracted to develop ocean shipping and harbor businesses by way of Chinese-foreign joint ventures or cooperations," he said.

Domestic shipping, from Wei to Fu
Notwithstanding the apparent red carpet for foreign players, China's own shipping industry is hardly a soft touch. A number of large and internationally competitive groups already exist, such as China Ocean Shipping (Group) Co (COSCO), China Shipping Corp (CSCO), the China Merchants Group, and a number of up-and-coming mid-sized international shipping enterprises, such as Nanjing Oil Shipping Co and Hebei Ocean Shipping Co.

As the Chinese shipping industry transitions from being part of the planned economy to a more open system, a new generation of tycoons who sing the market's tune has been created. Two of the most prominent of these are Fu Yuning, president of the Beijing-backed ports-focused conglomerate China Merchant Holdings International, and Captain Wei Jaifu, president and chief executive officer of COSCO Group. Of the pair, Wei Jaifu probably has more of an international profile.

Wei recited a poem as his company was listed on the Hong Kong bourse and was the expansive host of a recent major shipping conference in Shanghai. He also doubles up as chairman of the China Shipowners Association, which gives him ample scope to act as a cheerleader for China's shipping industry and its modernization - a task he undertakes with considerable elan, tempered with a strong pinch of realism.

A key part of Wei's outlook is encouraging all industry players to build on China's success, and to grow the Chinese market even further by creating win-win partnerships, while not forgetting the many challenges this involves. Wei is also an enthusiastic advocate of the shipping industry's becoming an e-business, although he concedes there are problems.

China, he said at a recent conference, remains a key driving force for the prosperity of world shipping, something where the opportunities can be grasped and the challenges dealt with "only with extensive cooperation". A fluent English speaker, Wei sees the future as one in which China and its shipping industry will shift from quantity to quality, and says this "will push shipping companies to create innovative models".

Fu's China Merchant Holdings International is said by many shipping observers to be the best bet for investors, as it is involved in terminals in both the Yangtze and Pearl River deltas as well as Bohai Bay in the northeast, including a recently purchased stake in Shanghai International Port Group (SIPG).

"Acquisition of shares in SIPG is a crucial move for China Merchants to further complement its layout of strategic hub ports in China, improve its asset quality, rationalize [its] asset structure, enhance the return from assets and ultimately bring higher returns to our shareholders," said Fu in a comment on the strategy of the group.

However, he also said in another statement that "our growth will be in the terminal sector", reflecting a certain shift away from the core shipping business to infrastructure operations. The company is the sole or partial owner of a large group of mostly infrastructure-related subsidiaries, including China Merchants Shekou Industrial Zone, China Merchants Logistics Group Ltd, Huabei Expressway Co Ltd, Hoi Tung Marine Machinery Suppliers Ltd, Haihong Coatings Co Ltd, and the China Merchants Bank.

Fu, 48, is a marine engineer who earned a doctorate from Brunel University in England before doing some post-doctoral research. He told one reporter that "2006 will be an interesting year. We'll see all the strategic investments come into the earnings stream."

The Shanghai government's role
The central government and, in particular, the Shanghai municipal government are major movers of the country's shipping industry. The immense Yangshan deepwater port, whose first phase opened recently and was intended to solve the problem of the Huangpu River being too shallow for deep-draft container ships, isn't so much the end goal for these officials as the start of a much more ambitious project: making Shanghai a world shipping center.

The new hardware "marks the formation of the framework", Xu Peixing, director of the Shanghai Municipal Port Administration, told local media. "Naturally a lack of deepwater berths has been hindering Shanghai's development on the world stage. The present construction project will help the city catch up."

Further up the hierarchy the view is similar but more forcefully expressed, with no less a personage than the city's mayor advocating major changes and the building of the east coast metropolis into an international shipping hub.

"The general goal of our city is to become an international economic, financial, trade and shipping center," Mayor Han Zheng told a recent CEO Roundtable organized by China Daily. "We first designed two stages for the achievement of our goals. The first is to build a framework for an international economic, financial, trade and shipping hub by 2010, and the second stage is fully accomplish that by 2020."

Although the mayor went on to say there were several major changes the city had to digest, including the transition from a planned economy to a market economy, his pronouncements were more important than mere civic boosterism. The mayors of Chinese cities are far more than simple administrators, wielding substantial economic and "can do" clout. The mayor's job in Shanghai is also a stepping stone to bigger things, with two of China's recent leaders, former premier Zhu Rongji and former president Jiang Zemin, both having been mayors here.

Han Zheng has not yet been tipped for such a role, but he is bullish on Shanghai's future as an international shipping city.

"The cargo handled through Shanghai ports will exceed 400 million tons this year, a volume no port in the world achieved last year. In particular, container handling will surpass 17 million twenty-foot equivalent units [TEUs] this year, up 3 million TEUs. Based on this growth the volume will likely exceed 20 million TEUs next year. By my reckoning the growth of Shanghai's handling capacity will continue to grow at 3 million TEUs each year."

Leading the fray in the shipbuilding context is Tan Zuojan, vice president of the China State Shipbuilding Corp (CSSC), who aims to make his company the largest shipbuilder in the world. The Japanese and South Koreans have been warned, and both are anxious as their bigger and lower-cost rival is now emerging in earnest.

Tan has outlined a five-pronged vision for CSSC in the coming half-decade: redoubling efforts to construct a new shipbuilding base, adjusting the product mix, using more science and technology in product development, enhancing overall competitiveness, and pursuing more foreign linkages.

To many observers, the real surprise lay in the last point. Tan advocated moving from the existing approach of a reclusive shipbuilding industry, one virgin to overseas involvement, and offered not one but two modes of international linkage. The first is foreign exchanges and cooperation; the second, less standard, was an invitation for overseas investment. "We sincerely welcome overseas capital actively to take part in the construction of CSSC's new shipbuilding bases and marine-related equipment production bases," the text of his speech said. Foreign investment has galvanized many other sectors of the Chinese economy, and it's now seemingly shipbuilding's turn.

As for the actual building of ships, the focal point is is the building of what is in effect the Shipbuilding Island of Changxing just outside Shanghai. Changxing may eventually become the largest shipyard in the world. By 2015 its shipyards are projected to have a capacity of 8 million dwt. Other shipyards in the vicinity will have a total capacity of 12 million dwt - and that is to be just half of China's production.

"We will step up the new shipbuilding base project in Changxing Island," said Tan. The real impact of Changxing may actually not be the expansion of capacity that it will allow, impressive though this is, but in the across-the-board product mix strategy it appears to be a catalyst for.

"We will implement [a] diversified development strategy by centering on the shipbuilding, ship repairing, shipboard-equipment production and offshore engineering as well as other non-ship businesses," Tan said.

Nor is Changxing or CSSC alone in this. A more thoughtful and detailed view but echoing much of what Tan said came from Chen Minjun of the smaller but no less proactive Shanghai Waigaoqiao Shipbuilding Co. Its goal, according to Chen, is "to develop an annual shipbuilding capacity of 3 million dwt by 2010 and to do this in part by developing other vessel types such as [the] Aframax products oil tanker, very large crude carriers [VLCCs], container [ships] and floating production storage and offloading [FPSO] vessels."

This lateral expansion is to be complemented by added technological depth. CSSC will, according to Tan, adhere to a more technological approach in "a big way". In nitty-gritty terms this means establishing shipbuilding research centers and using new, high and information technology to push their own innovative capabilities forward.

Bulk carrier developments
There have been some interesting developments within the bulk-carrier subsector where, for the past two years, research on an "optimized type bulk carrier" has been carried out jointly by several important shipping players. Among the participants have been the China Association of Shipbuilding Industry, the Chinese Society of Naval Architecture and Marine Engineering (CSNAME), both major Chinese shipbuilding corporations, the China Classification Society, and COSCO, with the International Maritime Carriers (IMC) invited as well.

The result, said Jin Caikuan, vice president of CSNAME, has seen the development of four new-generation bulk-carrier types; one "handy-sized" type of the 50,000dwt class, one Panamax type of the 70,000dwt class, one T-max Panamax type of 100,000dwt, and one Suez Canal type of 170,000dwt class.

"All ... four vessel types have good economic indicators and technical performance, [and meet] new requirements of being green, environmentally friendly, safe and healthy ... 48 vessels have been ordered to date. Its expected that container ships and oil tankers will also be optimized [in] the same manner as ... bulk carriers," said Jin in a recent speech. Jin also said recently that "superior ore carriers are jointly being investigated and designed by Brazil and China".

Container ships, LNG carriers, VLCCs
China is currently "studying [the] research and development" of 8,000TEU-class container ships and large-type LNG carriers of 140,000 cubic meters' capacity, said Jin. It has also started batch production of such large vessels as VLCCs, 5,668TEU super-large-type container ships and 175,000dwt "cape size" bulk carriers.

And it builds them fast, according to CSSC's Tan Zuojun, who boasted in a speech that the shortest building time for the 74,500dwt bulk carrier is only eight months, with the shortest time on the building berth only 62 days. On top of this, a method called semi-series building, which sees four ships built in parallel in one dock, has already been introduced to the construction of the 175,000dwt bulk carrier, he said.

Jin estimated that China would complete more than 10 million dwt of new vessels this year, giving it about 18% of the global market, and making it already the world's second-largest builder of container ships and bulk carriers. All this is of course not only a challenge to the Japanese, who recently lost their No 1 shipbuilding slot to the South Koreans, but to the Koreans as well, who may find that they can't hold the pole position against the sheer size and fundamental cost advantage of the emerging Chinese shipbuilding industry.

TAG: shipbuilding
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