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One of Korea’s top three shipyards, located in Geoje, South Gyeongsang Province. (Yonhap)

Reports have shown that China’s competitiveness in the shipbuilding sector has, for the first time, surpassed that of South Korea. While Korea’s shipbuilding industry is booming thanks to a string of orders for liquefied natural gas (LNG) carriers, alarm bells are ringing over China’s rising competitiveness. The alarms also serve as a warning: Measuring competitiveness by total orders or specific orders of vessels alone may be misleading.
 
In a report released Monday, the Korea Institute for Industrial Economics and Trade (KIET) said that South Korea had “ceded its top spot in the shipbuilding industry’s value chain competitiveness to China in 2023.”

The report concerned the lagging competitiveness of South Korea’s shipbuilding value chain and explored possible directions for South Korea’s maritime strategy going forward.
 
The institute determined the competitiveness of a shipbuilding industry’s value chain by evaluating five criteria: R&D and design, procurement, production, after-market services, and demand. Based on these criteria, the report’s authors calculated a composite score for the shipbuilding sectors of each economy examined. 
 
South Korea’s composite score last year came to 88.9, putting it in second place to China, which earned a 90.6. Japan followed at 83.1 points, along with the European Union at 71.4. Until now, South Korea had always topped the rankings, ever since the KIET began assessing the overall competitiveness of different shipbuilding value chains in 2020.
 
Out of the five criteria, the report found, South Korea only has competitive advantages in the R&D and design sector and procurement. China was much more competitive in terms of production, after-market services and demand. By ship type, South Korea was ahead of China only in gas carriers and container ships. China surpassed South Korea’s competitiveness for oil tankers in 2022.
 
“China’s efforts to modernize its navy began in the early to mid-1990s and has continued for the intervening three decades. As a result, China possesses the largest navy in East Asia. In the period between 2015 and 2020, China surpassed even the US in its number of warships,” the KIET noted. This shows that China’s shipbuilding industry has gained price competitiveness and achieved qualitative growth due to China’s strategy of supporting and nurturing state-owned shipyards.
 
As of March 2024, four South Korean companies — Samsung Heavy Industries, HD Hyundai Heavy Industries, Hanwha Ocean and Hyundai Samho Heavy Industries — ranked first through fourth in terms of single shipyards, but China’s state-owned shipbuilding group, China State Shipbuilding Corp., ranked No. 1 in terms of shipyard groups.

The report’s author suggested that Korea needs to establish its own tailored maritime strategy that comprises marine transport, ship finance and national defense, based on its shipbuilding industry. A strategy that approaches each industry on its own, the author argued, could lead to shipyards downsizing merchant ship divisions or having ship finance become concentrated in major conglomerates. 

“There are limits in how much the shipbuilding industry can shore up competition by optimizing individual links on the value chain. Korea needs to leave behind passive strategies concerned only with the shipbuilding industry and create a maritime strategy that incorporates a broader view of things,” the report read. 

It also suggested a strategy of promoting cooperation between Korea and friendly nations on merchant ships and specialty ships.  

This latest report comes after another by the Overseas Economic Research Institute at the Korea Eximbank on trends in the shipping and shipbuilding industry for the first quarter, which assessed that the strong order intake in the first three months of the year posed made for an interesting situation, coinciding with a second period of concentrated orders of LNG ships by Qatar. 

“Factors including the concentration of orders being concentrated among certain types of ships and difficulties in stabilizing production systems due to labor power shortages highlight the need for efforts to ameliorate issues that need to be overcome,” the report read. 

By Jun Seul-gi, staff reporter

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