Besides serving epidemic-hit nation, local M&A facilitate
building of high-end vessels fit for multi-sector shipping industry
across the world
Global cruise lines may be in choppy waters right now due to the
COVID-19 pandemic, but mergers and acquisitions (M&A) are keeping
the Chinese shipping industry's hopes for a bright future, and a leading
role in the world market, buoyant－now that they have created the
world's largest shipbuilder by production capacity, with total assets of
790 billion yuan ($112 billion).
Buoyed by these glad tidings, major shipping companies are able to
strengthen the nation's epidemic fight even as they seek to enhance
their global competitiveness.
For instance, in October last year, China State Shipbuilding Corp and
China Shipbuilding Industry Corp merged to form China State
Shipbuilding Corporation Ltd or CSSC, which will now set sail to
dominate several industry segments relating to military vessels,
liquefied natural gas or LNG carriers, luxury cruise liners, icebreakers
and offshore engineering equipment among others.
The merged entity is expected to lead China on a path of
self-reliance and independent innovation in the development of high-end
CSSC now has 310,000 employees, 147 subsidiaries, including
shipyards, R&D facilities, training institutes and manufacturing
complexes. It will be the main force in research, design, manufacture,
testing and supply of both civil vessels and naval armament like
nuclear-powered submarines and aircraft carriers.
But that will all be over the long term. Right now, CSSC, like a
massive ocean liner, is performing delicate maneuvers, to adapt itself
to the needs of the epidemic-stricken nation.
Like other centrally-administrated State-owned enterprises such as
Aviation Industry Corporation of China, CSSC has started making the
equipment needed for COVID-19 prevention efforts, apart from helping
increase the production of face masks, protective clothing and related
CSSC delivered the first batch of face masks and protective clothing
machines to other SOE partners such as Sinopec Group and China National
Petroleum Corp, the manufacturers of meltblown nonwoven fabric, an
essential raw material for medical masks, earlier this month.
CSSC was among the companies that led work resumption at central
SOEs, which helped bring sectors like petroleum, petrochemicals,
shipbuilding, transportation, telecommunication and power generation to
operational capacity of between 95 percent and 100 percent by March 5.
The figures are from the State-owned Assets Supervision and
Administration Commission, which is part of the State Council, China's
Under a unified management, the new group, also known as CSSC, will
be better able to plan, promote and develop its business for products
and services in the global market, said Hu Chi, a researcher at a
research institute of the commission.
As separate entities before their merger, the erstwhile CSSC and CSIC
had experienced both the boom as well as the struggles of China's civil
shipbuilding industry. In 2008-09, the Global Financial Crisis dealt a
big blow to the industry, said Hu, adding the strategic restructuring,
coming a decade later, is in accordance with the government's measure of
optimizing quality industrial resources and cutting backward production
Apart from constructing conventional ships such as bulk vessels,
container ships and oil tankers, both CSSC and CSIC had begun to deploy
financial resources and manpower to the development of products like
mega-container vessels, LNG carriers, floating hospitals, semi-submerged
ships, and ocean farms. They were capable of building dual-fuel ships
and gas-fueled ships with the latest wind-power technologies.
Dong Liwan, a professor of shipbuilding at Shanghai Maritime
University, noted that after their merger, members of the new
conglomerate will be able to join forces to handle pressure and compete
for new orders, as well as inject momentum into the sector and reduce
unnecessary competition among domestic shipbuilders.
"The industry has become more intelligent, digitalized and
environmentally friendly," Hu said, stressing it will take time for the
two giant shipbuilders to operate as one firm after merger. They must
accelerate the pace of internal integration and cooperation to achieve
CSSC and CSIC were set up in 1999 as a result of the breakup of the
former China State Shipbuilding Corp. They were headquartered in
Beijing. CSSC's major assets are in southern China while those run by
CSIC are mainly in northern parts.
"The world's fast development of 'marine economy' has facilitated
their merger. The meaning of the term marine economy has widened in
recent years to include industries including shipping, equipment
manufacturing, fishing, aquaculture, oil and gas," said Feng Liguo, a
research fellow at China Minsheng Bank's research center.
Agreed Tan Naifen, deputy secretary-general of the Beijing-based
China Association of the National Shipbuilding Industry. "Marine economy
now includes sectors such as marine chemistry, biomedicine, ocean
power, seawater use, marine tourism, ocean engineering and
The new-age marine economy has created new opportunities for
shipyards. More so for Chinese shipyards because of the tangible
development brought about by the Belt and Road Initiative, Feng said.
Tan said a large variety of vessels now serve these sectors.
Conventional vessels like bulk ships and ore carriers are no longer the
kings of the marine economy transport system. Only complex, high
value-added vessels are able to reach buyers in new segments via
international collaboration and R&D.
To exploit opportunities presented by this trend, the merged entity
of CSSC started to build the nation's largest and most advanced research
vessel in late October at its Jiangnan Shipyard Group in Shanghai. The
vessel is expected to be ready in two years.
Hu Keyi, head of the shipyard's science and technology committee,
said the ship will have a displacement of 6,800 metric tons, making it
the largest research vessel in China and surpassing the 5,000-ton
Dongfanghong 3, which was also built by the shipyard and is operated by
the Ocean University of China in Qingdao of East China's Shandong
Upon its completion, the ship will be delivered to Sun Yat-sen
University in Guangzhou, the capital of South China's Guangdong
province, and will be used to carry out scientific expeditions and
student training. It will carry modern scientific devices and
high-performance servers, and will be tasked with conducting surveys on
water, atmosphere, ecological systems and resources.
With podded propulsion units as its driving force, the vessel will
boast better mobility than existing research ships in China, he said.
The merged entity of CSSC also delivered the Hailong, or the Sea
Dragon, the most advanced diving support vessel China has ever built, to
Jumeirah Offshore, a Singapore-based marine engineering firm, in
The vessel is capable of supporting a total of 24 divers conducting
operations 300 meters under the water. It can carry two remotely
operated underwater vehicles capable of diving to a depth of 3,000
meters, according to a statement released by the company.
"About 85 percent of ship parts and equipment such as diesel engines
and marine propellers today can be purchased from domestic
manufacturers," said Yang Zhizhong, president of Dalian Shipbuilding
Industry Co Ltd, a subsidiary of CSSC.
He said CSSC will gather more resources to compete with South Korea
and Japan in the field of building LNG carriers, pushed by China's
cross-border reform in the natural gas sector, including market-oriented
reform, transparency and improved infrastructure.
According to global independent maritime research consultancy Drewry,
China will import between 60 million tons and 100 million tons of LNG
annually by 2022 from countries such as Qatar, Malaysia and Russia,
which means that the market will need around 60 to 100 LNG carriers by
"Many economies participating in the BRI are seeking to develop
trade, regional connectivity, offshore energy, tourism and other service
businesses via the 21st Century Maritime Silk Road," said Yang.
"Additional demand for ships is also coming from China's surging
resource deployment into high-end and green shipbuilding."
In addition to building more high-end ships to ensure the country's
energy security and meet the diversified demand of foreign shipowners,
CSSC's shipyard in Guangdong province is building the nation's first
maritime patrol ship with a tonnage exceeding 10,000 tons. The vessel
will be operated by the Guangdong Maritime Safety Administration when
Designed by the erstwhile CSSC (not the merged entity), the ship,
with a length of 165 meters and a tonnage of 10,700 tons, will be
China's largest and best-equipped maritime patrol vessel. It can carry
multiple types of helicopters and is able to carry out cross-zone
patrols as well as search-and-rescue missions under rough sea
As China's flagship for patrol, and search-and-rescue missions on the
high seas, the vessel will greatly promote maritime safety in the
Guangdong-Hong Kong-Macao Greater Bay Area, according to the company.
The international trade arms of CSSC also announced they had signed
contracts for building two 13,800-ton stainless steel chemical tankers
and two 158,000-ton crude oil tankers, as well as for constructing two
79,900 cubic meters LNG carriers earlier this year.
Since SOE mergers in many industries, including shipbuilding and
equipment manufacturing, have proven to be effective, China will
accelerate the pace of integration in the areas of equipment
manufacturing, chemicals, maritime engineering, and overseas oil and gas
assets this year, said Peng Huagang, secretary-general of the SASAC.
To improve the efficiency of State capital, China has reorganized 41
central SOEs since 2012, including the merger of China North Railway and
China South Railway, and the structural reorganization of China Poly
Group Corp and China Silk Corp.