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Many people's perception of the strength of the shipbuilding industry in China, Japan and South Korea still seems to be stuck five years ago. Even today, there are still people touting South Korea's shipbuilding prowess, believing in their superior technology and taking on high value-added orders. The most common mention of these people is that South Korea has grabbed LNG carrier orders, because South Korea has long accounted for more than 70% of the LNG carrier market share, and Koreans are proud of it. Looking back at September 2021, South Korea received orders with an average cost of US$170 million per ship, while China only had US$60 million, so many people, including Korean media, generally believe that South Korea undertakes high value-added orders, which are more valuable than China.
However, we need to ask the question: can China's shipbuilding industry only take low value-added orders? Is China's shipbuilding strength really inferior to South Korea's? In this article, I will explore the strength of China's shipbuilding industry in detail and let you re-understand the real situation of China's and Korean shipbuilding industry.
A long time ago, shipbuilding was the domain of the United States, but as labor costs rose, the United States shifted shipbuilding to Japan and South Korea. Before 2000, the global civil shipbuilding industry was largely dominated by Japan and South Korea. However, by 2012, China's orders overtook South Korea's for the first time, while Japan began to decline. By 2020, China accounted for 45.8% of the global shipbuilding market share, compared to 41.4% in South Korea and 7% in Japan. Since then, the global civil shipbuilding industry has largely ceased to involve Japan, leaving only China and South Korea to compete.
Although China also far surpasses South Korea in key indicators such as new ship orders, completion rates and handheld orders, there are still many people who believe that China's shipbuilding industry is far inferior to South Korea. That's because South Korea has long held the high ground, a view that is so entrenched that it's hard to break. Another reason is that many people have heard the phrase "LNG ships are the crown jewel of the shipbuilding industry", and they try to tell the world through this sentence that whoever masters the most advanced LNG carrier technology is the first in the shipbuilding industry. But if LNG is a pearl, then there are too many pearls in this crown, so many that the crown may not fit.
South Korea was able to build LNG carriers for a long time, while China did not deliver its first LNG ship until 2008. Due to the early start of South Korea, many equipment and accessories can be produced by itself, while China previously needed to import many key equipment, especially in welding technology, South Korea has a significant advantage. The daily evaporation of the LNG ships they build is much lower than in China. In 2001, China could not even weld the steel of such ships, and had to send personnel to Japan to study specifically. These are all facts, but just by the backwardness of LNG ships, can it be said that China's shipbuilding industry is also lagging behind South Korea? Just because South Korea receives a high total number of LNG carrier orders, can it be said that they are receiving high value-added orders? Of course not.
The shipbuilding industry can be broadly divided into two major areas: shipbuilding and offshore manufacturing. Many people think that South Korean shipbuilding is stronger than China, but they may well have heard the term offshore manufacturing for the first time. The share of the shipbuilding field is mainly seized by China, South Korea and Japan, but it should be noted that it mainly involves low-tech shipbuilding, such as the well-known LNG ship, which is actually only one of the low-end shipbuilding. In the high-end shipbuilding sector, the situation may be different. These fields include various L-shaped cryogenic vessels, luxury cruise ships, research vessels, concept ships, etc. Although the number of orders for these ships is small, the technical content is very high and the profit is also very considerable. These high-value-added shipbuilding fields are usually monopolized by the old shipbuilding powers in Europe and the United States, and it is difficult for other countries to get a piece of the pie. Countries such as France and the United States have unique technologies and patents in these fields, making it difficult for other countries to enter the market. This is also the reason why the number of orders from China and South Korea in these areas is relatively small.
The offshore manufacturing field mainly involves oil and gas exploration and production platforms, equipment and auxiliary vessels. Most of these projects overlap with high-tech shipbuilding, including hydrographic research vessels, oil and gas exploration vessels, combustible ice and other seabeds
Mineral exploration and mining platforms belong to the field of high-end shipbuilding. These projects have long been dominated by traditional Western powers, and South Korea has tried to transition into the field, but has struggled to secure orders. This raises the question, if South Korea does receive high value-added orders, why is it difficult for them to obtain orders in this high-tech field? Why is the core equipment and parts not sold to South Korea, but China is gradually rising with huge domestic demand? The answer is simple, high value-added areas are indeed more profitable, but it requires more technology, capital and market share. Western countries tend to retain control of these high-tech fields, so they restrict the export of technology from emerging competitors such as South Korea, making it difficult for South Korea to make breakthroughs in these areas.
China's offshore manufacturing prowess has also performed quite well. For example, China has successfully developed and produced high-tech equipment such as offshore drilling platforms, combustible ice mining vessels, and the Striver's deep submersible. Although these projects are not in high demand, the profits are very substantial, and they can create higher business value. Although China cannot compete with the West as a whole, it is almost impossible for any single country to compete with China in terms of variety and technological sophistication. Although we cannot receive such large orders internationally, the demand in our domestic market is large enough.
So back to the original question: is China receiving low-value-added shipbuilding orders? Does South Korea generally receive high value-added orders? Judging by the data, this is not the case.
If South Korea does receive high value-added orders, then their net profit should be very high, while China's net profit should be low. However, this is not the case. Taking South Korea's Samsung Heavy Industries as an example, from 2016 to 2020, the company was in a state of loss every year, with a cumulative loss of 18.8 billion yuan. Looking at Korea Shipbuilding & Marine Corporation, although it has made a profit in two of the last four years, it has suffered huge losses in the remaining two years, with a cumulative net profit of 8.7 billion yuan. Finally, South Korea's Daewoo Shipbuilding & Marine Company has accumulated a net loss of 9.6 billion yuan in the past five years. These three shipbuilders are not only in the top three in South Korea, but also in the top three in the global shipbuilding industry, but two of them are generally in the red, with a cumulative net loss of 28.4 billion yuan. If South Korea does receive high value-added orders, why are two of the three companies losing so much?
At the same time, China's Yangtze River Shipbuilding Group has accumulated a net profit of 12.121 billion yuan in the past four years, far exceeding the three major shipbuilding companies in South Korea, and the average net profit margin far exceeds these three enterprises. Although China Shipbuilding Group ranks relatively low in the international shipbuilding list, its profit and net profit margin in this field are significantly higher than those of South Korea's three major shipbuilding companies. China's Yangtze River Shipbuilding Group and China Shipbuilding Group are losing money because they take on a large number of defense tasks, which require a lot of upfront investment, and the profits of weapons and equipment are usually not too high.
To sum up, although South Korea is ahead of China in niche fields such as LNG ships, if you look at the overall shipbuilding field, China is even more ahead. China not only gains higher profits, but also masters more highs
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