China's shipbuilding progress threatens South Korea's long-held tech dominance in the industry

Even as August marked an end to its months-long stretch with the biggest share of the world's shipbuilding industry, South Korea still celebrated the fact that it managed to snatch up all eight of the month's orders for advanced and expensive ships that carry liquefied natural gas (LNG).

So, while China climbed to a 14 percentage point lead over South Korea in the overall shipbuilding market, the technological edge still goes to the latter.

But some analysts say China is starting to catch up on the tech side, on top of having already overtaken Korea by volume. And to become more competitive, they argue, Korea must adapt by resetting its industrial strategies to fit the fast-changing global market conditions.

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Relying too much on a single item - LNG carriers - to maintain its competitiveness puts South Korea in a more difficult position to respond to changes in the industry, the experts warn.

In the future, they contend, the competition between China and South Korea will ultimately be decided by which country can better apply automation and AI technologies to their shipbuilding process.

For the last several years, South Korea and China have been jostling for position in the shipbuilding market, and there have been short and lengthy periods in which both held leads.

In 2003, South Korea dethroned Japan as the biggest shipbuilding country. But Korean shipyards struggled in the years following the 2008 financial crisis, seeing a sharp drop in international orders and prompting them to undertake nearly a decade of restructuring.

Still, Korea shipyards managed to hang on to a massive chunk of the global market. And in 2018, they made a strong resurgence as the country grabbed 40.3 per cent of the market share - cementing it in the No 1 position until 2020, when China overtook it, according to Clarkson Research, a British shipping research firm.

That stretch of dominance was owing to Korean shipyards' technological superiority in building gas carriers.

In 2018 and 2019, Korean shipyards received 94 per cent of LNG carrier orders made globally. In 2020, the figure fell to 73 per cent, and in 2021 it rebounded to 89 per cent.

Kim Jin-ki, a director at SafeTechResearch, which makes ship-handling simulator systems, said that having the latest and most advanced LNG carrier technology is extremely valuable, not only because of how expensive those carriers are, but also because that tech has implications for upcoming tech that will push the shipbuilding industry forward.

"Technologies such as using ammonia as fuel - which are the most sought-after technologies in the industry right now because of issues like decarbonisation - are ultimately derived from LNG-carrier-building technologies," Kim said.

But Korean experts noted that, while Korea still has a comfortable market lead in the LNG carrier realm, China's shipbuilding industry is starting to bridge the gap, tech-wise.

This is because both countries utilise technology licences from GTT, a French firm, to build LNG tanks that can store gas in extremely low temperatures - the most distinguishing element of LNG carrier ships.

"Since the GTT licence is a technology licence, and not a product, what most matters is what kind of supply chains and partners you can secure to build the final product. In this regard, Korea's supply chain is ahead of China's," said Woo Jong-hun, a professor with the Department of Naval Architecture and Ocean Engineering at Seoul National University.

The number of Chinese shipyards that are capable of building large LNG carriers has increased from one to three recently, according to Woo.

"It seems like the era in which Korea monopolised building more than 90 per cent of LNG carriers has passed," Woo said. "Although it is difficult to accurately evaluate the Chinese shipbuilding industry from Korea, because access is blocked, various reports put China's technological prowess at a level of 80 to 90 per cent to that of Korea."

Park Mu-hyeon, the head of TreaBoat Research, a Korean shipping industry research firm, said that although recent local media reports have played up the country's continued dominance in LNG carrier orders, the bigger picture must be considered.

Aside from LNG carrier needs, Park says that there are fewer reasons for global shipowners to place orders with Korean shipyards. For example, when the global demand for container ships nearly tripled in 2021, China seized 55 per cent of the orders, while South Korea secured 34 per cent.

Some experts offered suggestions on how Korea can maintain its market and technological dominance.

"The industry should pioneer new technologies such as autonomous navigation functions and eco-friendly ships, which are expected to dominate the shipbuilding market," Woo said. "If the Korean shipbuilding industry is not able to make a quantum jump, a change in ranking is inevitable."

Kim at SafeTechResearch also pointed to China's industrial advantages.

"As Korea is a capitalist state, and China is a socialist state, the basic principle of a market economy - that industries that do not make profits will be replaced - does not strictly apply in China," he said.

However, he added that, "because ship designs are supplied entirely by one company in China, and fierce technological competition does not occur domestically, it might be a bit limiting".

"Shipping companies around the world will eventually go to the shipyard that not only has the best capabilities in designing ships, but also really listens to the shipowners' needs - and that might be one of Korea's competitive advantages," Kim said.

This article originally appeared on the South China Morning Post (SCMP).

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