Chinese shipping aims for global
leadership By Michael Mackey
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."
Shipbuilding 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.
Michael Mackey is a
Shanghai-based freelance writer.
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