China’s Shipyards on the Ropes

English: Dalian Shipbuilding Industry Company ...
Dalian Shipbuilding Industry Company (Photo credit: Wikipedia)

China shipyards slash prices to survive-industry | Reuters.

In the Hutong
Entrained
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A global glut in cargo capacity and the sluggish economies in the U.S. and Europe are slamming China’s shipbuilding industry to the point where the nations shipyards are unable even to sell new bottoms to domestic shipping companies. Now they’re cutting prices to keep busy, and if the industry follows the accepted Chinese patterns, the result will be a beggar-thy-brother price war. Who will pick up the slack when the yards lose money building ships? Most likely the government will support the industry in the short term, working through one or more of the major “policy banks:” Bank of China, Industrial and Commercial Bank of China, China Construction Bank, and the Agricultural Bank of China.

In the long term, writing the shipyards blank checks is unsustainable. There are two interesting issues that will frame the long-term policy response to the growing shipbuilding crisis.

First is the matter of how long the downturn will last. If this is a blip and orders start pouring in within 2-3 years, the near-term solution will suffice. If experience is any indication, however, it is probable that we face a longer adjustment that will take years to work excess capacity out of the shipping industry. Even more concerning is the uncertainty around the price of oil. At what point does bunker oil become so expensive that manufacturers begin to shift production to a point closer to the customer rather than relying on supply chains that bring finished goods across oceans? For the people building or buying ships, this is more than idle speculation: it is the issue that will decide the future.

Second is at what point the Chinese Navy (PLAN) will decide that the shipyard slump offers a precious opportunity to expand the fleet at prices it may never see again. Retooling civilian shipyards to produce warships is no easy task, but the PLAN will need auxiliaries and support ships to support operations far from shore, and civilian yards can produce those with relative ease.

The two of these issues come together with a relatively straightforward solution: rather than simply pour money into shipyards and pay them not to produce ships, the government could have those same yards start turning out oilers, transports, and tenders to form the logistical tail of a truly “blue-water” navy.

The only question is how long it will take for the Central Military Commission to come to the same conclusion.

Marc Niola

Interesting article…. I think I know how the Pentagon feels about feeding China’s deep blue Navy capabilities, but if China were to develop should an asset what makes you think they could wield it responsibility? Having the ability to extend power could fill the PLAN with illusions of grandur and if the US had to bleedy their nose just to bring everyone back to reality it could light off a major incident. How about China melt down the excess ships if shipping does pick and build green tech solutions.

David Wolf

No argument. Please don’t misunderstand – I’m observing, not advocating. I would rather see China do a dozen other things with the money, but I don’t think that is going to happen.

Aside from the environmental issue and your question as to whether China could wield that power “responsibly,” there is the other issue of whether the PLAN has the skill sets to even operate such assets competently. As one naval officer pointed out to me, the difference between having a blue water navy and being able to use it is vast.

David Wolf

Given the subject matter, and considering the source, that’s high praise indeed. Thanks!