| OPINION
Shipbuilding industries around the world are facing some chilly headwinds, and China is no exception.
Although China replaced South Korea to become the world's largest shipbuilder in terms of new orders and vessel deliveries in 2011, in the latter half of last year, the once-thriving sector received a blow as demands turned lackluster amid the global economic downturn. Some companies even went bankrupt.
In January 2012, China received 112,200 CGTs (compensated gross tonnage) of new orders, nose-diving 78 percent from a year ago. Tan Zuojun, General Manager of China State Shipbuilding Corp., predicted that half of China's shipyards could vanish.
More disturbing, though, is the fact that costs inflation is worsening due to rising steel prices and labor costs. That problem is putting a dent in the profit margin of the industry and is forcing many firms to reduce prices of vessels.
South Korea's shipbuilding industry is also losing steam, but it can still make ends meet. Between January and September 2011, South Korea defied the global industry gloom to receive new orders of 12.07 million CGTs, up 17.2 percent from a year ago and making up 51.2 percent of the world's total.
Since last year, a wide divide is opening up within the industry. Innovative companies have well endured the downturn while those weak in technologies are struggling to survive. In 2011, the number of global new orders fell by half, but their total value only slightly dropped 10 percent. That is because orders for vessels with higher added value were increasing.
What set South Korean companies apart from competitors was their strength in technologies and financial support from the government. Those advantages made them more able to manufacture higher-end vessels like large container ships, liquefied natural gas carriers and marine engineering equipment.
In order to find a way out of the quagmire, Chinese shipbuilders need to overcome technological barriers and strengthen efforts to develop energy-efficient and environmental-friendly vessels. They have a lot to learn from their South Korean counterparts.
First, South Korean shipbuilders are successful in part because of their international strategy. They have established solid market foothold all over the world.
Second, cash-swash South Korean shipbuilders boosted clout over markets through mergers and acquisitions. Hyundai Heavy Industries, for instance, in 2002 acquired smaller rivals including Samho Heavy Industries and Hyundai Mipo Dockyard at relatively low prices. In 2009, it bought a stake in Hyundai Corp. The acquired resources made it easier for South Korean giants to strengthen their industrial chains and diversify against risks.
Third, South Korean shipbuilders have spared no effort to enhance research and development in new technologies such as greener engines that can reduce carbon emission by 20 percent. Technology and entrepreneurship are the two most important factors for modern industries. They are obviously trying to combine the two factors and make full use of global resources.
It is imperative now for Chinese shipbuilders to upgrade their technologies and phase out highly polluting and energy-guzzling products. The key is to aggressively restructure their business model and sharpen industrial competitiveness through intense competitions.
This is an edited excerpt of an article by Ye Tan, a financial commentator, published in the Shanghai-based National Business Daily
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