China poised to torpedo Japanese shipbuilders' tenuous recovery
Amid global upturn, Chinese players could ramp up output and flood market
EIKI HAYASHI, Nikkei staff writer
ZHOUSHAN, China -- Japan's shipbuilding industry has enjoyed a sustained recovery so far this year, but mainly because China has drastically cut production. If Chinese rivals decide to go on the offensive, the market revival that has taken root this year could fizzle as quickly as it came.
Zhoushan, the port city 300km south of Shanghai, houses more than 60 shipyards across an archipelago of 1,400 islands. It is one of China's foremost shipbuilding centers.
But the shipyards dotting the inlets are veritable ghost towns. All that is left are rusting cranes and vessels. At one, docks meant for assembling hulls were covered in dirt.
Zhejiang Zhenghe Shipbuilding and other major shipbuilders in the city have suspended operations. Of the 679 shipyards throughout China, three-fourths stand idle, reports British market research firm Clarkson.
But "Chinese shipyards have not gone out of business," said Sachio Okumura, president of Tsuneishi Group (Zhoushan) Shipbuilding, the mainland affiliate of Japan's Tsuneishi Shipbuilding.
Groundwork is underway for bringing idle shipyards quickly back to life once the market picks up. In Zhoushan, Chinese manufacturers of equipment used on ships engaged in resource development have restarted work since the spring, producing tanks for petrochemical complexes for now. But they are reportedly waiting for the shipbuilding market to recover so that they can get back to building equipment for vessels.
New players come and go
The global shipbuilding industry has crashed twice since 2000 -- both times because of Chinese supply gluts. Private-sector steel and construction enterprises in China branched out into shipbuilding, churning out low-cost vessels made possible by cheap steel and labor.
China eventually surpassed South Korea as the world's leading ship producer. Global ship prices tanked, battering Japanese and other international competitors.
The Chinese government, seeking to remedy an overcapacity, announced a plan this year that awards the top 10 shipbuilders 70% of the local market, up from nearly 50% presently. The big dogs will get preferential financing while the smaller shipyards, which have driven the price competition, will theoretically be left to wither or merge.
Although state enterprises China Shipbuilding Industry and China State Shipbuilding are integrating operations, the private-sector landscape remains largely unchanged.
Many private shipyards are owned by powerful local businesspeople involved in a wide array of industries, such as real estate. When the ship-making market hit a downturn, they simply halted production at shipyards and turned to other businesses. An upsurge in demand for ships could usher these regional conglomerates back into the game.
Surviving an upturn
Meanwhile, orders for Japanese-made vessels rose in volume terms for eight straight months through August, data released Wednesday by the Japan Ship Exporters' Association shows. August orders alone ballooned 2.8 times from a year earlier. This is in part because order volume in 2016 plummeted to one-sixth that of the previous year.
"We're finally able to engage in proper negotiations for orders," said an executive at a major Japanese shipbuilder. "Things are clearly different from last year."
The improvement owes to a 30% recovery in global demand during the first half of the year, a trend the Chinese contingent is not likely to ignore forever.
In the event of a Chinese resurgence, Japanese shipbuilders may need to differentiate themselves technologically or otherwise. "Unless you plan business development assuming a return of excess supply, there is no way to survive," said Takashi Ueda, president of Sanoyas Shipbuilding.