The Threat of China’s Shipbuilding Empire

Commentary by Matthew P. Funaiole

Published May 10, 2024

China's shipbuilding empire is the latest flashpoint in the intensifying frictions between Washington and Beijing. As the Biden administration zeroes in on the potentially unfair trade practices that propelled China's emergence as the largest shipbuilder in the world, broader national security issues are also at play. Foreign capital and technology are flowing into Chinese dual-use shipyards, which is accelerating Beijing's ongoing naval buildup.

Speaking from the United Steelworkers headquarters in Pittsburgh on April 17, President Joe Biden promised to take "a real hard look" at the Chinese industrial tactics that have buoyed its shipbuilding sector. On the same day, the U.S. Trade Representative launched a Section 301 investigation into China's alleged use of nonmarket practices to undermine competition in the global shipbuilding industry.

Attention to this issue is certainly warranted, and likely past due. Undoubtedly, China has made generous use of nonmarket practices to boost its own shipbuilders at the expense of their competitors. Despite Beijing's claims that its industry arose from "technological innovation" and "market competition" alone, in reality, Beijing plowed hundreds of billions of dollars into its shipping and shipbuilding ecosystem through the 2000s.

These state-driven efforts helped China undercut competition and glean market share from erstwhile global leaders. Chinese shipbuilders now collectively account for over 50 percent of all merchant tonnage produced globally each year, an eye-watering rise from just 5 percent in 1999.

Yet it was not U.S. companies being displaced by the rise of China's shipbuilding industry. Even when the U.S. shipbuilding industry was more vibrant in the 1970s, U.S. shipyards produced just 15 to 25 new merchant ships per year-typically accounting for less than 5 percent of global tonnage. After subsidies supporting the industry were eliminated in the 1980s, this number dropped to a fraction of 1 percent of global production.

Japanese and Korean shipbuilders have suffered the most from China's ascent. Over the past decade, the two powerhouses have seen their combined share of the global shipbuilding market tumble from 55 percent to about 40 percent today.

This trend will likely continue. Last year, China attracted 59 percent of new shipbuilding orders. Most large ocean-faring vessels put to sea in the coming decade will be built in China.

As concerning as this is for the industrial competitiveness of the United States and its allies, China's shipbuilding prowess is also a matter of national security. Chinese shipbuilders produce far more than just container ships, bulk carriers, and tankers. They also build warships for the People's Liberation Army Navy (PLAN).

Many of the most prominent shipyards in China embody Beijing's military-civil fusion strategy, which seeks to fuse together civilian and military technological, scientific, and industrial development to strengthen China's comprehensive national power.

One firm in particular, China State Shipbuilding Corporation (CSSC), plays a critical role in producing ships for both commercial clients and the PLAN. The sprawling state-owned giant presides over 100 subsidiaries and by itself accounts for nearly a quarter of the global commercial shipbuilding market.

Plainly visible at major CSSC shipyards are the hulking skeletons of commercial vessels being built in the shadow of Chinese warships. The blurred lines between commercial and military activities are perhaps best on display on Changxing Island near Shanghai, where two prominent dual-use shipyards-Jiangnan and Hudong-Zhonghua-are being merged into a massive "shipbuilding base."

It is here that China is nearing completion of its third and most capable aircraft carrier, the Type 003 or Fujian. The assembly facilities and fabrication halls that build components of the carrier are frequently used to produce commercial hulls. Even the dry dock where the Fujian was assembled had to first be cleared to make room for the flagship project-it was previously occupied by a massive container ship for a foreign client.

This sharing of resources, including capital, technology, personnel, equipment, and facilities, is not uncommon in China and has turbocharged its naval-industrial development. Today, Jiangnan Shipyard alone has more capacity than all U.S. shipyards combined, and China's broader naval shipbuilding capacity is over 230 times larger than that of the United States.

More concerning still is the degree to which foreign companies inadvertently support China's military industrial complex.

Between 2019 and 2021, foreign firms accounted for at least 64 percent of merchant ship orders at CSSC-owned shipyards. Many of these companies are based in some of the United States' closest allies and partners, including France, Japan, and Sweden.

Even Taiwan, which faces an ever-present and steadily growing threat from China, is home to one of CSSC's top foreign customers. Evergreen Marine Corporation, which is among the largest shipping companies in the world (and owner of the infamous Ever Given megaship that ran aground in the Suez Canal for six days in 2021), has purchased dozens of hulls from China since 2018. Nearly all of Evergreen's orders were fulfilled at shipyards that produce surface combatants for the PLAN.

Beyond pumping capital into China's dual-use shipyards, some foreign companies also share crucial technology and expertise that have leveled up China's shipbuilding capabilities. French naval engineering firm Gaztransport & Technigaz SA (GTT), for example, has made technology available to Chinese shipbuilders which has subsequently been used in dozens of Chinese-built vessels for foreign firms like CMA CGM, Hapag-Lloyd, and Mitsui O.S.K. Lines.

These dynamics raise significant questions about the unintended consequences of global economic engagements with China's ostensibly civilian sectors that have deep ties to its military.

There is no quick and simple solution to competing with China's booming shipbuilding industry. Reinvigorating the United States' battered industry will be a multi-decade endeavor that has only just begun. Deepening integration with key allies, including industry leaders like Japan and South Korea, will be crucial. Equally important will be garnering support from other partners that share concerns over China's military expansion and collaborating with them to assess the risks of procuring vessels from Chinese dual-use shipyards.

Matthew P. Funaiole is vice president of iDeas Lab, Andreas C. Dracopoulos Chair in Innovation and senior fellow of China Power Project at the Center for Strategic and International Studies in Washington, D.C.

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