TURNING THE TIDE

The strategic significance of shipbuilding is reflected in Xi Jinping’s emphasis on building China into a strong maritime country. Pivotal to China’s military and economic ambitions, shipbuilding has retained its status as a strategic industry for nearly two decades. To make the leap from a “large to strong” shipbuilder, Beijing has leveraged industrial policy initiatives like Made in China 2025 to move up the value chain to target high-technology-led growth and self-sufficiency in core component/key technology manufacturing. The controversial industrial policy has significantly facilitated China’s pursuit of high-quality growth in the shipbuilding sector and the blue water navy ambitions of its military.

Industrial policies between the early 2000s until the mid-2010s enabled China’s shipbuilding industry to position itself as the world’s largest shipbuilder by 2010, a position its now held for 14 years. However, these policies insufficiently emphasised innovation, high value-added goods and self-sufficiency in core component production and design ability. Additionally, the traditional advantages of China’s shipbuilding industry were weakening due to increased cost of labour, appreciation of the RMB exchange rate and prominence of scientific and technological innovation in competitiveness. The Made in China (MIC) 2025 addressed these gaps and challenges, setting targets for the shipbuilding sector; cultivating five internationally renowned manufacturing companies, attaining market share of 40% in maritime equipment supply and 50% market share in high-tech ship design and manufacturing equipment. The plan also proposes to raise local content for high-tech ships to 80% by 2025 and build a complete industrial chain of design, assembly and equipment supply and service for ships and marine engineering equipment by 2025.

The technology-centric approach of the MIC 2025 initiative meant Chinese shipyards were supported to pursue the construction of ship types that China previously did not specialise in due to technological challenges related to durability and precision; high-tech, high-value added and smart ships. For instance, LNG carriers are increasingly prioritised, which require advanced technologies to build storage tanks that can withstand temperatures up to –162 degrees C for the efficient transportation of natural gas. Similarly, MIC 25 plans emphasise green fuel powered ships, a high-end segment of the shipbuilding industry, which China plans to lead by manufacturing over half of the world’s cleaner-fuel-powered ships by 2025. Beijing has targeted other ships types with high degree of technological specialisation as well, like cruise ships and roll-on/roll-off (ro-ro) ships. Besides high-end ships, MIC 25 has provided policy support for the indigenous development of key technologies like low- and medium-speed diesel engines and marine dual-fuel/pure gas engines and various electromechanical control equipment. After nearly a decade of being in place, how has MIC 2025 been implemented and more importantly, how has it fared?

Implementation of MIC 2025: National and Provincial Policies
The Chinese government has provided a variety of direct and indirect subsidies in the form of cash payments, rebates, stabilisation of material costs, financing and lending operations to Chinese shipbuilders. One estimate submits that the Chinese government pays 13 – 20 percent of construction costs on a typical cargo vessel. The central government, via the Ministry of Indus and Information Technology, also facilitates technology transfers and joint ventures with foreign companies, and mergers of enterprises under its control to transform shipbuilding into a more technology-intensive sector. For instance, in September 2024, China State Shipbuilding Corporation (CSSC) Holdings and China Shipbuilding Industry Company (CSIC) announced their merger, creating the world’s largest shipbuilder, to enhance the competitiveness of the group’s military and civilian shipbuilding capabilities. Similarly, the Ministry directed inland river shipbuilding enterprises to undertake mergers, reorganizations and even cross-regional cooperation to enhance integration and supply of core components.

Provincial governments have also followed up on the central governments MIC 25 directives. For example, in Ningbo, Zhejiang, a project subsidy of 10% was announced for industrial investments of RMB 50 million into shipbuilding in 2017 and more recently, in Shanghai, the government announced land guarantees for major projects in shipbuilding. Subsidies are also deployed to incentivise shipbuilders to target technologically intensive and high-value added products. For instance, Jiangsu in 2022 announced fiscal support for creation of intelligent production lines and innovation centres in Nantong, Taizhou and Lianyungang for platforms like the Provincial Shipbuilding Industry Intelligent Manufacturing Innovation Center. Local governments also emphasise global talent resources to break through intellectual property barriers. Given the impressive industrial policy support, what progress has the MIC 25 delivered to China’s shipbuilding industry?

Outcomes of MIC 2025
China’s effort to climb the value chain and build high-profit and high-tech ships have yielded results in the form of greater market share in various high value-added ship types. The LNG segment has opened up to China after nearly a decade of being out of reach due to the technological and shipbuilding expertise required for building LNG carriers. China’s share of LNG carriers was only 7% in 2017, growing to 14% in 2020 and over 30% in 2024, positioning China as a competitive alternative to South Korea. Most recently, QatarEnergy signed a deal to build 18 ultra-modern LNG vessels from China State Shipbuilding Corporation, the industry’s single largest shipbuilding contract. In the green fuel-powered ship segment, which has grown from 30% of all newly received orders in 2021 to 57 % in 2024, Chinese shipyards have secured 74.7% of global orders in 2024 by rapidly scaling capacity to build ships powered by LNG, methanol, ammonia and hydrogen fuels. Propelled by MIC 2025’s emphasis on R&D for new age technologies, China has taken the lead in electric shipping technologies as well, evidenced by the construction of Greenwater 01, the world’s largest battery-powered container ship which completed its maiden voyage in April 2024.

New ship types like roll-on/roll-off (roro) vessels, which are used for transporting equipment like automobiles, are increasingly the focus of shipyards across China. China, which accounted for only 19% of roro ship completions worldwide between 2010-19, has ramped up production of these vessels. Just one shipyard, CSC Jinling Shipyard, which built only 27 roros between 2015 and 2022 is now poised to deliver at least 56 between 2023 and 2026 and CSSC Guangzhou, which only built 4 roros in recent decades, will build 42 of them by 2026. Another high-profit and high-tech segment of the industry like cruise vessels, in which China accounted for only 0.2% of global market share, has seen Chinese shipyards make inroads in the last few years. For instance, China’s first domestically built luxury cruise ship, the “Adora Magic City” was completed in 2023 and the construction of more luxury ships is underway. The accomplishments of MIC 2025 measured in terms of market share indicate that industrial policy has largely been successful in positioning China as market leader in 14 out of 18 ship types.

Besides market share, the MIC 2025 plan focused on localising the production of ship components. Chinese sources claim the localisation rate of LNG vessels has increased from less than 20% in 2008 to nearly 70%, just short of international standards. However, this number varies depending on shipyard and ship type, as some shipyards like Nantong COSCO Kawasaki claim that the localisation rate is only 50% for container ships. For other ship types like cruise vessels, sources state that the localisation rate is at relatively lower at 31% and China continues to rely on foreign companies or imports for key components. In the case of China’s first domestically-made luxury cruise vessel, 30% of the contracted suppliers were Chinese companies. The propulsion system used for the luxury vessel was provided by a Swiss engineering company, autonomation and control systems by a Finnish one and interiors by an Italian one.

Although Chinese shipyards have achieved mixed results in terms of localisation, they face stiff challenges in the form of scientific breakthroughs. According to Fu Guotao, chief engineer of the China Shipbuilding Industry Corporation, China faces limited core research and development capabilities for key engine components. China continues to rely on imports for high-end products in the ship manufacturing equipment like high-end diesel engines, propulsion systems, and communication and navigation equipment. In the case of hybrid propulsion systems, China lacks the technical expertise to design, install and maintain the technology. On the other hand, China is making steady progress in resolving bottlenecks like with 900mm marine crankshaft forge pieces for large-scale diesel engines, for which it was entirely import reliant until Shanghai Electric began production of the key component in 2023.

MIC 25 implementation has resulted in Chinese shipbuilders commanding a large market share in several ship types and making promising inroads into segments previously outside their expertise. Although they face know-how bottlenecks in the production of certain technology-centric core components, technological advancement and localisation of core component manufacturing is evident. The steady progression of China’s shipbuilding industry towards high-quality growth has pressing implications for international markets and the military balance of power in Asia and around the world.

Ships, not Chips: Strategic Implications
Although ships are not as flashy as chips, shipbuilding is emerging as a flashpoint in China’s relations with the US and the world. Driven by the concern that China is increasingly dominating the global market for ships and scaling the technology value chain, the US Trade Representative to announced a Section 301 probe into China’s shipbuilding, maritime equipment and logistics sector. At the same time, the military dimensions of China’s shipbuilding capabilities are unmissable. The recent unveiling of the PLAN’s unmanned stealth craft, the JARI-USV-A, at the Zhuhai airshow is illustrative of this capability. China’s shipbuilding capacity is also reflected in the size of the People’s Liberation Army-Navy’s (PLAN) fleet, which surpassed the size of the US fleet in 2022. Moreover, the US Office of Naval Intelligence estimates that China has 232 times the shipbuilding capability of the US. As China continues to make strides in civilian shipbuilding, aided by the successful implementation of MIC 25, the dual use of technology amplifies the PLAN’s military might, with pressing implications for the balance of power in regions like the Taiwan Straits, Indian Ocean Region and South China Sea. 

This article is the second of a series that examines the progress of the Made in China 2025 initiative. Read the first one, on China's industrial robots, here.