Can China's shipbuilding tech catch up with South Korea, and what role is the environment playing?

China and South Korea are upping the ante in their bid to seize and maintain a greater share of the shipbuilding industry - a sector that Beijing sees as critically important in climbing the industrial chain as it bids to narrow a technological gap with Seoul.

But while China has been making inroads in its production of technologically and environmentally advanced liquefied natural gas (LNG) tankers, analysts expect that it will still take years for the country to substantially challenge South Korea's long-held dominance.

Meanwhile, however, some are talking up the prospects of cooperation between the world's two shipbuilding leaders that could benefit the entire global industry.

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"In terms of bulk carriers or container ships, there is almost no technological gap [between South Korea and China]," said Woo Jong-hun, a professor of naval architecture and ocean engineering at Seoul National University (SNU). "But there are a lot of differences in vessels like LNG carriers."

According to data released by Clarkson Research, a British shipbuilding- and shipping-market analysis company, there were 79 global orders for shipping vessels placed in March. These ships totalled 2.44 million compensated gross tonnage (CGT), which marked a 3 per cent increase from February and a 49 per cent decrease from March 2022.

South Korean shipping companies received orders totalling 800,000 CGT in March this year, ranking second in the world with a market share of 33 per cent. China led the way with 39 per cent of the market share, equating to 950,000 CGT.

However, South Korea ranked No 1 in the first quarter of the year with orders totalling 3.12 million CGT, accounting for 44 per cent of the global market, even though that comprised only 65 vessels. In comparison, China received orders for 110 vessels, but the total CGT was just 2.59 million, or 37 per cent of the global market.

The difference in the volume of orders between the countries comes from South Korea's relative advantage in shipbuilding technology.

While China has dominated the global supply of ships in the past two years, reaching a market share of 49 per cent last year, compared with South Korea's 37 per cent, Chinese shipyards have done this by focusing on smaller and conventional vessels such as tankers and bulk carriers.

Meanwhile, South Korea holds more than half of the world's market share in higher-valued and eco-friendly vessels like large LNG carriers. About 70 per cent of such orders went to South Korean shipyards last year, according to official figures.

And Woo said that, because of environmental rules set by the International Maritime Organisation (IMO), most of the currently operating ships will not be able to enter ports in the future. And this shift, he said, will raise the demand to replace vessels with more eco-friendly types using energy sources such as LNG.

"China is weak in this aspect," he said. "They will still secure orders for conventional ships, but they still lack [the technology for] eco-friendly or smart ships with autonomous navigation systems."

To that end, Rhee Shin-hyung, president of the Society of Naval Architects of Korea, pointed to the possibility of mutually beneficial collaboration between the two countries.

"The shipbuilding and shipping market is a single, global industry," he said. "The South Korean government should lead a consultative community that can gather all of the players in this market to jointly discuss new technology.

"We shouldn't just perceive China as a competitor, but as a customer," he added. "If South Korea can sell its advanced technology, and China can produce the vessels, both of them can win."

Nonetheless, that competition remains rife, and Chinese shipbuilders have responded by increasing their investments in eco-friendly vessels.

South Korea - with its more advanced technology - will receive more benefits, even if China can build more [ships]

Kim Yong-hwan, a professor of naval architecture and ocean engineering at SNU, said ranking first or second in the global market share of ship orders is "meaningless". Instead, he said, more emphasis should be placed on the price of the vessels and how much money the shipyards can make. And in this respect, technology plays a significant role.

"In the current market, where the IMO's drive for decarbonisation is the most important factor, South Korea - with its more advanced technology - will receive more benefits, even if China can build more [ships]," Kim said.

In the near future, Kim added, South Korea will continue both its technological and decarbonation dominance in shipbuilding, while China must overcome innovation hurdles in its own industry.

"They need high-quality human resources, but because of China's rapid economic growth, [talent is] instead going to banking or IT, skipping [industries such as] shipbuilding," Kim said.

Looking to the coming months, South Korea's minister of trade industry and energy, Lee Chang-yang, recently said that "shipbuilding orders are expecting to continue to rise as the global ship market is booming".

Lee added that "this year is an especially important time when orders received can lead to improved performance".

"We will, therefore, provide an opportunity for a virtuous cycle of growth in the shipbuilding industry through active financial support," Lee said.

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

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