Shipbuilding in China and its impacts on European shipbuilding industry

University of Bremen Institute Labour and Economy Thorsten Ludwig, Jochen Tholen Shipbuilding in China and its impacts on European shipbuilding industry1 November 2006 www.iaw.uni-bremen.de 1 This expertise is part of a wider report “European industries shaken up by industrial growth in China: What regulations are required for a sustainable economy?” European Metalworkers´ Federation, Brussels November 2006. The report comprises 3 sectors: Shipbuilding, Auto, Steel., see the EMF´s website:www.emf- fem.org/content/search?SearchText=China 1 Contents Preface 3 I Shipbuilding in China 3 1. The current stage of Chinese Shipbuilding industry 3 2. Structure of the Chinese shipbuilding industry 10 3. Forecast 16 4. Chinese policy for the shipbuilding industry 23 5. Four smaller case studies 26 6. Some common problems, drafted from the case studies 31 II Impact on European shipbuilding industry 36 III Policy recommendations 42 Abbreviations 47 References 49 Authors 51 2 Preface The present discussion on the development of the Chinese shipbuilding industry and its consequences for world shipbuilding generally and the European shipbuilding in particular is stamped by contradicting appraisals and defective information. One is confronted with different appraisals, however, not only when one questions different actors (e.g., shipyards, banks or suppliers). Also within these groups the appraisals contradict partly considerably. A combination of divergent experiences of the actors, inadequate information and not least existing resentments compared with the " economic power of China “ is decisively for it. This contribution wants to deliver on the basis of expert's interviews as well as the evaluation of appropriate statistics and available literature some concrete information to win a more exact picture of the Chinese shipbuilding industry. China is second as trade partner with the EU-25; and in 2005 the EU-25 has imported goods from China with a value of 158 billion EUROS . This has direct consequences for the sea-borne trade, and indirect impacts on global shipbuilding. In 2006 China is the third largest shipbuilder worldwide, and will become Number one in 2015 at the latest. I Shipbuilding in China 1. The current stage of Chinese shipbuilding industry The following graph indicates the quick rise of Far East and – in the last years – especially the Chinese shipbuilding industry. In the 1970s West European shipbuilding participated in the 1970´s boom in accordance with its global position at that time. In the period of recession in the 1980s, all shipbuilding regions worldwide suffered by a heavy decrease of orders. In the wake of the two global oil crisis about half of the shipyards worldwide disappeared from the map and thus employment had been halved (Stopford 2004). But in the succeeding recovery in the 1990´s and the boom of the global shipbuilding the European yards could not benefit. The real winner were the Far East yards: 3 Deliveries worldwide, regions, in 1,000 gt (Sources: Lloyd's Register's "World FleetStatistics") 45000 Far East 40000 Western Europe 35000 Eastern Europe Americas 30000 Others 25000 20000 15000 10000 5000 0 04 80 82 84 86 88 90 98 00 02 92 94 96 74 76 78 64 66 68 70 72 20 19 20 20 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 Looking to the direct employment of the global shipbuilding industry, the following figures for China and South Korea did not mirror the exact reality (as f.e. the Korean figures partly comprises the marine supply/equipment industry), but could give an idea of the proportions: Number of direct employment in the shipbuilding industry, by regions, 2004 (Sources: IAW 2006, Suzuki 2006) China 287,702 South Korea 71,781 Europe (without Russia and Ukraine) 154,872 Japan 40,264 These figures should be treated very carefully, as in the different regions there are different undstandings of employment. Furthermore there are different ratios between 4 direct employment and subcontractors; f.e. in South Korea is ratio is 1:4 , whereas in European shipbuilding industry (with the exception of cruisers) this ratio is 2:1. The last five years: China has appeared only in a relatively short time on the map of the world shipbuilding nations. Indeed, the industrial shipbuilding in China has his roots already in the 19-th century (cf. The European Community in 2004, 9pp). At that time the occupying powers began to build up shipbuilding capacities to be able to satisfy their transport needs. Up to this time the Chinese shipbuilding limited itself particularly to the construction of sail and fishing boats. Still today some of the today's most important shipyards in China are located on the locations of these historical shipyards. The present development of the Chinese shipbuilding occurs after the same pattern as earlier in Japan or Korea. Japan used its shipbuilding industry in the 1950s and 1960s to rebuild the industrial structures of the country. Also Korea looked at the shipbuilding industry as a strategic core for the economic development of the country in the 1970s. China is now in the process of repeating these paths of development, supported by large government investments in the shipbuilding industry (Malhotra 2005). After the 1950s all shipyards of China had been put under the control of the Ministry of Communication. Since 1982 China State Shipbuilding Corporation (CSSC) is responsible for the Chinese shipbuilding industry. In the 1990s the Chinese government felt constrained to initiate structural reforms in the shipbuilding sector on account of the size of the Chinese shipbuilding industry and the planned entry of China to the World Trade Organisation (WTO). Approximately more than 2,000 shipyards with more than 400,000 employees all together should be controlled no longer through one single conglomerate, because rising inefficiency appears as an increasing problem. In the 1990s the biggest state transportation companies COSCO and SINOTRANS were also reconstructed. In the context of this reconstruction process many regions 5 and cities also received the control of their own transport infrastructure and smaller shipyards. The most important structural change in the Chinese shipbuilding industry in the past, however, was carried out in 1999. At that time the Chinese government decided to split CSSC into two organizations (CSSC and CSIC) operating independently from each other. Since then CSSC controls primarily the shipyards to the south of Shanghai, while the newly founded China Shipbuilding Industry corporation (CSIC) is primarily responsible for the shipyards in the north. Partnerships and joint-ventures with foreign enterprises were expressly permitted subsequently to this re-organisation. This, above all, with the purpose to be able to attract the necessary investments and skills from abroad important for the progress of the Chinese shipbuilding industry. The competitions between the world regions: In 2005 China was already the third biggest shipbuilding nation worldwide – behind South Korea and Japan. Besides, the pace with which the Chinese shipbuilding industry has entered the group of the world’s most important shipbuilding countries is striking. While the Chinese shipyards delivered only 0.9 per cent of all worldwide built ships in 1985, the number has increased to 4.7 per cent only 15 years later. The development between 2000 and 2005 must be emphasized. In this period China has nearly succeeded in tripling its share of the world market. In the same period the share of the world market of the EU-25 halved itself and also the leading shipbuilding nations Korea and Japan had to accept – even if clearly lower – losses with their world market shares: 6 Shares of regions in the world shipbuilding production from 1975 to 2005 in per cent –on GT-base (Source: VSM 2006) 1975 1980 1985 1990 1995 2000 2004 2005 EU - 25 38.9 26.8 19.5 18.3 18.9 12.4 8.3 6.