Bullets:
Over half of the world's ships are now built in Chinese shipyards, which have grown by nearly 3 times in just ten years.
At no time in recent history, and perhaps ever, has the world's shipbuilding industry been so dominated by a single country.
In order to meet the skyrocketing demand for new ships, which has more than doubled in just the past four years, China first had to invest heavily in shipyard capacity that could meet that demand.
The recent story of Chinese shipbuilding is like so many others. China develops a strategy to dominate in a certain industry, then builds out domestic factories and logistics. At the same time, China's overseas companies source the raw materials that will be required, and stockpile them.
That process might be referred to as "overcapacity", but it is temporary. Orders come in, the factories turn on, and prices fall, stimulating demand further.
Report:
China builds more ships than the rest of the world combined. That’s what this headline means, that’s what these graphs and charts mean.
China’s production of merchant ships has grown by 2.7 times this decade, and the Chinese shipbuilding sector dominates like no other country has in memory.
In 2000, China had less than 10% of the global share of shipbuilding, among major countries, with Japan and Korea at just under 80%. China is more than twice as much as Japan, plus Korea.
These two charts, above, are important also. The chart on the left shows the year-end order book for Chinese shipyards, in million CGT, or compensated gross tonnage. China will finish the year with orders—completed and underway—of 84 million gross tons. The chart on the right is forward cover, which measures shipyard capacity. To calculate forward cover, we take the previous 12 months of production, and calculate how long it takes to fill orders given current capacity of shipyards to build the ships. The chart on the left shows a dramatic rise in shipbuilding orders—more than doubling since 2020 and 2021. But on the right, the forward cover is holding steady at under 4 months. It means that Chinese shipyards have expanded to keep up with forward demand. What this tells ship buyers is that when they place orders to have ships built, Chinese yards can handle the business.
At home, our leading economists and our cabinet secretaries debase themselves and get on TV, or on an airplane, fly over here, to complain about China’s overcapacity.
But here isn’t any. It’s forward investment. In order to be ready for new orders for building ships, they need to, first, build the shipyards so that when the orders come in, they can complete them on time. China has ambitions to be the factory for the whole world, and that means building industrial capacity and supply chains, first, then competing on price. That’s their strategy, and we call it “overcapacity”, and it is, until the orders come in. Then it’s factory production, and higher market share and exports and trade surpluses.
Back to shipbuilding. The “growth of China’s shipbuilding industry is without precedent”, at least in modern times. Consider the growth in their industry from 1990 to 2006:
This was followed by an equally dramatic rise, since just 2020.
US Navy can’t keep up
It follows that if China can build ships for the civilian sector, they can also lay lots of hulls for the Chinese navy. The United States Navy is the largest in the world, for now, but cannot build ships nearly as fast as China can. Navy Intelligence admits that China can build ships over 200 times faster than American shipyards can. The Untied States’ shipyards total capacity is less than 100,000 tons per year, while China’s is 23 million tons.
Pentagon officials note that China’s dominance in shipbuilding is because of the growth of the civilian sector—China has been building ships for commercial purposes for 30 years, while US shipyards only build warships. In the US, the federal government is the only customer, and shipyards figured out a long time ago that for the US Navy, money is no object. There’s no point in carving out space or personnel to build container ships or tugboats when the Navy wants new ships where the profit margins are a lot higher. So nobody in America wants to even bother with that anymore. “It’s the only show in town for us”, this official claims:
Late last year, the Office of Naval Intelligence conducted a briefing, and this slide was leaked into the public domain.
It’s a comparison of the People’s Liberation Army Navy—which is China, and the US Navy. Each ship vector represents 100,000 gross tons of shipbuilding capability, and that chart shows the problem: were the Pentagon to increase US shipyard capacity by 10 times, it wouldn’t matter. We could increase it 100 times, and our industry would still be less than half of China’s. Again, for emphasis: if the United States built 100 times the shipyards we have, China’s would still be more than twice as large.
Three months ago one of my business partners flew over. He’s one of my oldest and best friends, and I was waiting to meet him at the airport here. His connection flight was in Seoul, then to Qingdao for a 10:00 AM arrival time. Hi plane is inbound Qingdao from Seoul, he looks out the window, and he’s looking down at China for the first time. And he was shocked at how many ships he saw. His first impression of China was the ships. It was a beautiful morning, late summer, and Qingdao is a beautiful city, here on the coast, with mountains all around. But that wasn’t what he noticed when he looks out the window at China, for the first time. He saw the ships, lined up coming and going. Dozens and dozens of them, giant ships of all kinds, far as he could see. And it’s all I see, when I look out my window. Ships, forever. All day long, all night long, all year long. And now those are all Made in China too.
Resources and links:
China now controls unprecedented 65% of global shipbuilding orderbook https://splash247.com/china-now-controls-unprecedented-65-of-global-shipbuilding-orderbook
Chinese shipbuilding capacity over 200 times greater than US, Navy intelligence says https://www.foxnews.com/world/chinese-shipbuilding-capacity-over-200-times-greater-than-us-navy-intelligence-says
China’s Shipbuilding Capacity: 232 Times Greater Than United States https://nationalinterest.org/blog/buzz/china%E2%80%99s-shipbuilding-capacity-232-times-greater-united-states-212736
China’s Shipbuilding Capacity is 232 Times Greater Than That of the United States https://www.americanmanufacturing.org/blog/chinas-shipbuilding-capacity-is-232-times-greater-than-that-of-the-united-states/
Alarming Navy Intel Slide Warns Of China’s 200 Times Greater Shipbuilding Capacity https://www.twz.com/alarming-navy-intel-slide-warns-of-chinas-200-times-greater-shipbuilding-capacity
Global Security, China’s Shipbuilding https://www.globalsecurity.org/military/world/china/shipbuilding.htm
YouTube, CBS, Yellen urges China to address industrial overcapacity
Nikkei Asia, Blinken spars with China on Russia support, industrial overcapacity https://asia.nikkei.com/Politics/International-relations/US-China-tensions/Blinken-spars-with-China-on-Russia-support-industrial-overcapacity
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