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Chinese Shipbuilding: An Incredible Story of the Chinese Economy

Written by Angus Keenan

https://commons.wikimedia.org/wiki/File:Dalian_Shipbuilding_Industry_Company.jpg

Boats… They’re a pretty big deal right? I mean, they’re good for getting people from one place to another without getting too wet. Arguably boats are one of the best indicators of a nation’s prosperity. In fact, a study looking at some of the most powerful nations in the world came to the conclusion that power stems from the ability to facilitate and partake in international trade. And you can’t have international trade without boats. And you can’t have boats without people that build those boats. And the first culture to build a boat, that used wind as a means of propulsion, was an Austronesian culture who lived in what is now Taiwan. Their use for it was as a means of traveling around the South-China sea between 3000-1500 BC. The innovation of wind powered propulsion would in time become the most effective means of long distance travel until the invention of the steam powered ship in 1783, some 4700 years later.

And when the winds of change blow, some people build walls and some people build windmills. Which is a saying often misattributed as a Chinese proverb. In reality, its first use, as stated, was believed to be by the UK Prime Minister, Harrold Macmillan, in 1960. However, it may as well be a Chinese proverb, as China has proven that it is more than capable of taking advantage of the winds of change, not just in ships but economically. In fact, China being an economic super power is not a recent phenomenon or a phenomenon at all, having spent 300 of the last 1000 years as the richest nation in the world. And for about 1800 of the last 2000 years it has been in the top 2 richest nations. From a wider historical lens, European and Western economic dominance is actually the exception to the rule of China being the largest economy and not the other way around.

So in today’s megaprojects, we are going to talk about boats and how China has become a world economic super power, once again… Using boats.

A fall from grace

617 years ago, the Chinese nation was under the rule of the Ming Dynasty. In line with their expansionist agenda, the Yongle Emperor set sail to one of the largest Naval Armadas the world had yet seen. Consisting of 317 ships, 27,400 men and at the helm was Admiral Zheng He, who would lead 7 expeditions that saw Chinese exploration making it as far as The horn of Africa, the Red sea and the Strait of Honduras. Thanks to the conquest of what is now Vietnam and the opening up of new trade routes with Europe, China had become both the largest economy and the most accomplished ship builder in the world.

In fact, the Chinese were responsible for the many naval innovations such as rudders, water-tight compartments and the compass. Not to mention being the first to make use of a dry dock. Their workforce was enormous and highly effective, a trend that we can still see today. So, while Europe was wasting time, warring over tiny bits of land, China was busy prospering. Even after Europe had calmed down for a bit and started optimizing their economies, China could rely on its huge population, vast swaths of productive farmland and a far less combative style of diplomacy to keep up with their European counterparts. Which was how they were able to remain the world’s largest economy for so long.

However, China’s fall began in the latter half of the 1800’s. When everything that had kept China on top, began to crumble. Beginning with the UK effectively forcing the Chinese government to legalize and buy their opium, otherwise known as the opium wars. Then came the maturation of the technologies born of the industrial revolution, which by 1890 had progressed to the point of influencing most forms of industry.

Thanks to this, America had begun exceeding the productive capacity of China, who’s enormous population could no longer keep up with this new found cost efficiency. Which in itself would have caused a decline in China’s economy but things got even worse at the passing of the 2 Sino-Japanese wars, 2 World Wars and the Communist revolution, which took that prosperous stability and threw it in the bin. As a result China failed to keep up in the rapidly modernizing world, and was compounded by Chairman Mao, actively disliking a lot of what modernisation would mean to a population.

But in spite of Mao’s best efforts the Chinese economy just refused to collapse. By the time the 1960’s came around, China was floundering. In the previous decade, the USSR had sent experts and scientists to the country in an effort to strengthen the relations between all the communist powers of the world but Mao felt that the USSR’s brand of communism wasn’t suited to the Chinese populus. The reason this didn’t work was that the USSR relied on the carrot and stick method of incentivising work, while China worked on more of a rock and a hard place basis.

What you have to understand about life under Chairman Mao is that it was a tightrope. If you worked too hard, you were seen as a class traitor for trying to accrue wealth and being a class traitor generally resulted in a drastic reduction in your life expectancy. On the other hand, if you didn’t work hard enough, you were branded as lazy and a liability to the people. Which wasn’t great but was less fatal than being a class traitor so people aired on the side of laziness. So yeah, in Mao’s pursuit to help the people, he had made it impossible for the economy to do anything but stay still or move backwards.

Then, in all of his glorious, omnipotent knowledge, Mao came to the realization that, refusing to use heavy machinery and telling his starving population to just work harder, wasn’t helping, if only someone could have seen that coming. In a moment of what can only be described as divine inspiration Mao had the entirely brand new and revolutionary idea of using heavy machinery to improve labor output, crazy how nobody thought of that before. And wouldn’t you know it, this did wonders for stimulating the economy and before long China was making its clunky way back to modernity.

Of course, you should take all that with a grain of salt, as it’s an enormously simplified look at the early years of Chinese socialism. Over the next decade, the Chinese government began purchasing all of the private business in the country, using the tried and true method of give us your business in return for a high up government position or we will label you a class traitor and take your business anyway. This was very effective in giving the Chinese government control of pretty much every industry within China. Which brings us to 1968 and the formation of the Chinese Ocean Shipping Company, or COSCO for short, no not that Costco. This was a conglomeration of every active shipping company in China.

For a long time, Mao had been following a vision of building what he called, ‘Railways on the high seas.’ and with the formation of COSCO, China was on its way to realizing that vision. The issue was that China’s shipbuilding industry had been torn to shreds in the previous 30 years. The few companies that remained were quickly bought up by the government. Then in a bid to grow their merchant and naval fleets China began buying up as many ships as they could get their hands on. As most Western and NATO powers wouldn’t sell to China, they were limited to the ships that other, more sympathetic nations, like the USSR would sell them.

And, with all the confusion and mal-governance that had occurred during the reign of Chairman Mao, China had become a shadow of its previous self. Not that this was entirely his fault, there were those pesky world wars we mentioned. But the famines brought on by his bizarre policies had stunted China’s ability to compete in a modern world.

Fortunately Chairman Mao died and with him died his method of governing. A method that placed the following of a set of extreme socialist ideals, over the wellbeing of the people they were intended to help. The man to take his place was Deng Xiaoping, who took a much more liberal approach to socialism. His rise to prominence in 1976 can be pointed to as the moment when China began its rise to the power house it is known as today.

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Rise of a Modern Superpower

At the moment of Deng Xiaoping’s ascension to power, China was in a state of disarray. Every single industry was under the control of the state and thanks to years of mismanagement, China was producing a fraction of what they were theoretically capable of. The goal for Deng Xiaoping was to rediscover China’s lost productive capacity. It is worth mentioning that strictly speaking he wasn’t the leader of the country and was more as a high ranking adviser. But for all intents and purposes, he had control of what happened and for simplicity we will just use him as the all encompassing force that pushed these new legislations through. His first step was to decriminalize hard work, he had this crazy idea that not killing your most productive workers and managers might actually improve the economy. In fact he even went so far as to reward those that exceeded their targets by increasing their allocation of government welfare.

He then set about supplementing a bit of privatization into many Chinese industries. This would remove a lot of the power that state officials had in choosing the methods of production. Put another way, they would let the qualified people choose how to make things rather than the unqualified politicians.

Finally the country was getting into a position where it could take full advantage of it’s workforce and Deng Xiaoping recognised the value of a developed shipbuilding industry and began targeting it as a ‘pillar industry’. At this point shipbuilding in China was barely operating, between 1960 and 70 the entire nation produced only 12 ships. What was more, their merchant and naval fleets were primarily consisting of aging second-hand vessels. Their machinery was many decades out of date and their workers were inexperienced. In short, there was a very long way to go.

Also, just a heads up, this next bit is going to contain the names of many, many companies that all sound like they are the same company but are in fact different. For example the China State Shipbuilding Corporation and the China Shipbuilding Industry Corporation, because originality is for chumps I guess. For simplicity, the only 3 that you need to remember are: The China State Shipbuilding Corporation or the CSSC. The Chinese Ocean Shipping Company or COSCO. And the People’s Liberation Army Navy or PLAN, don’t ask me why they called it the Army Navy, they just did. But if you think that’s bad, there is also the People’s Liberation Army Navy Air force, which is the Air wing of the Navy of the People’s Liberation Army.

https://commons.wikimedia.org/wiki/File:Cosco_Shipping_Scorpio_IMO_9789635_C_Hamburg_01-08-2019.jpg

So Deng Xiaoping established the CSSC in July of 1982. This was a state owned conglomeration of every shipyard and shipbuilding company in China. It was their job to modernize China’s shipbuilding industry and were instructed to focus on producing commercial shipping vessels as opposed to military vessels. They would be given an unprecedented level of autonomy with which to do this and were expected to use market principles to become a model of the economic liberalization that China was undergoing.

And this really is why the shipbuilding industry can be considered an allegory for the development that China has undergone in the past decades: this ingenious combination of communism and capitalism. At first the progress was slow, the workforce was inexperienced in building commercial vessels and their equipment belonged in the previous century. However, owing to the other reforms that were spreading throughout the country, after only two years the output of the industrial sector had increased by just over 30%. This meant that the government already had more money and capital goods available to put into reforming the shipbuilding sector.

Once they had the materials they needed, the heads of the CSSC decided that their best course of action was not to focus on research but rather development. The reason being that research, while excellent for building more advanced products, isn’t great for building an industry. Focusing on development meant improving their manufacturing practices and building the infrastructure that would allow them to manufacture ships competitively to an international market. This meant focusing on one kind of ship and as it was, the workers were most experienced in building smaller vessels of about 10,000 tonnes, so that’s what they did.

After only a few years they had perfected their designs and were starting to pick up larger and larger order volumes from international clients, mostly in the shipping industry. By making the decision to focus on development rather than research, they were setting themselves up as masters of low-tech, low-cost, reliable goods. If you wanted the most advanced ships in the world you would go to America or perhaps South Korea, if you wanted a ship that would perhaps not last as long but was cheap, could do one thing and do it well, you would go to China.

By the time the 1990’s came around the CSSC was already seeing vast improvements to it’s manufacturing methods and China was on the cusp of it’s boom period. The point in time where China’s economy was rising on the back of trillions of dollars of foreign investment. And by now the CSSC had started making enough money that it could expand its shipbuilding repertoire. Billions were poured into establishing new shipyards, up and down the Chinese Coast, new facilities for building ship parts and marine engines.

They also began their own strain of research, but where American research focuses on making the most advanced and cutting edge ships, the CSSC focused on researching ways that they could keep their ships competitively modern, without affecting their reliability or increasing their price. They also focused on manufacturing practices, finding the most efficient ways to build a ship, again without affecting their reliability or price.

All of this came to a head in the mid-1990’s when China made it to a place where they had a sufficient excess of resources and funding to begin investing in their own interests. In the years leading up to and following 1995, China saw a dramatic spike in the number of both Naval and Merchant vessels, being decommissioned and broken down. These were all of those second-hand ships that China had bought decades before, who were themselves already antiquated when they were purchased. Being a fairly innocuous thing, most of the world didn’t take much notice. If they had, they may have foreseen the next step in China’s long story as a naval superpower.

The New Armada

With all of this ship breaking, the Chinese fleet actually took a nosedive for a few years. Then around the turn of the Millennium, it started to rise again… And then it continued to rise… and it kept rising. What happened was China took a look at it’s old fleet and decided that it would be better if they weren’t so old and not built by China. Their interests were also beginning to change, prior to the 1990’s the government had focused on modernizing their Army. The Navy was somewhat of an afterthought, which is part of the reason why it was called the Army Navy. Their ships were cheap and were what is known as a brown-water fleet. In a broad sense, this means that the ships are configured to suit fighting in littoral zone waters.

What are littoral zone waters? Well you can pretty much think about it like areas of shallow water. More specifically, rivers, lakes and areas close to a nation’s coastline. Which means that Brown-water navy’s are good for assisting army operations inland and defending coastlines. They are, however, pretty useless at Blue-water operations. A Blue-water fleet would be your traditional naval fleet, think of the huge ships that are able to cross oceans. This was the kind of Navy that China wanted. They also wanted a secondary fleet called a Green-water fleet but we will get into that in a moment. For now, it’s important to talk about Taiwan.

Way back when Mao Zedong was doing the whole, overthrowing the old government thing, he made the highly strategic decision to not lose. As his forces closed on the capital, anyone that was against the communist movement, including most government officials, made the decision to flee to a nearby island off the coast of China to regroup and resupply before retaking the mainland. They named this island the Republic of China, also known as Taiwan. This previous conflict is still a bit of a sore spot for both of those countries, Taiwan insists that China is not a country and China insists that Taiwan isn’t a country. Unfortunately for Taiwan, people would rather side with the more powerful nation and that isn’t them anymore.

Put simply China wants to end this rivalry and for that it needs a navy. There was also the other reason, which was that China had huge ambitions for their merchant shipping industry and, as their economy expanded, demand for everything from oil to steel increased with it. China needed a way to protect these interests, it’s not as though they needed an entire navy to protect their shipping lanes but to be without a Navy would be an open invitation to pirates to just come and take what they wanted because who was going to stop them.

So build is what they did, overhauling nearly every ship built before the year 1990 as they went. The pace at which they began turning out ships was reminiscent of the United States during WW2. The more they built the faster they got, in 1980, China’s merchant shipping conglomerate, COSCO, had a fleet totaling 8.6 million Gross Tonnes, by 2004 that was 17.3 million Gross Tonnes, by 2011 it was 65 million and in 2020 it was at 140 million Gross Tonnes, totalling 1408 vessels and making them the largest shipping company in the world. And those are only the ships registered to China, with around 50% of ships built by Chinese shipyards being exported to international clients.

The CSSC and by extension China as a whole is now the largest shipbuilding entity in the world, accounting for 40.3% of the global shipbuilding market in 2020. Their closest competitor is South Korea who accounts for 31.5% of the market. An absolutely staggering achievement when you consider that the total tonnage of every ship built in China during 1981 was 135,000 Gross tonnes. 

Then there is the other side of that equation, the navy side. It’s the general consensus that the United States has the most powerful Navy in the world which for many years was true, and it still is true but recently there has been a little asterisk in that truth. Because America certainly is the most powerful Navy in the world… But they aren’t the biggest. That title goes to the PLAN. Their fleet currently comprises 730 ships, both combative and auxiliary, America has about 490 ships. If you’re wondering how this happened, consider the USS Gerald R Ford aircraft carrier, which began construction in 2009. At that time the PLA Naval fleet had just over 300 ships in their ranks. By the time the Gerald R Ford was completed, 13 years later, the PLA Navy had surpassed the US in terms of active naval vessels.

But Simon, I hear you calling, how can the US have the most powerful Navy in the world if China’s navy has more ships? Well, as a great many American publications emphatically pointed out, more doesn’t necessarily mean bigger. And those publications would be correct, ships are measured in the number of tonnes of water that they displace, which gives you a more representative estimation of the size of a fleet of ships. The PLA navy has a total displaced Tonnage of around 1,820,000 in 2019, a number that is dwarfed by the US Navy’s 4,645,000 displaced Tonnes. So yes the US navy is fewer but most certainly bigger. But I would like to make the counterpoint to all the newspapers that immediately began finding new metrics to measure size.

The PLA Navy was never meant to be bigger than the US Navy, the PLA Navy doesn’t fulfill the same purpose as the US Navy. The US navy has such large ships for many reasons, one is power projection and another is fuel capacity. An American carrier can execute an entire mission, anywhere in the world without having to refuel. It’s known that American ships can go anywhere in the world and not require an entire logistics network to complete their missions. Chinese ships can’t do this because they aren’t supposed to do this, they can travel through shipping lanes and around their coast, in essence, it’s a defensively built fleet. China could never beat America in open warfare in the Pacific ocean and they don’t intend to. But if they were forced to fight, it would be at home, near their coastline, where American ships would be at a large distance from their supply lines and Chinese ships would be in the waters they were designed to defend. So we can begin to see why it’s unnecessary to compare the two because it’s not a fight that either side wants.

America has 11 Aircraft carriers and is soon to have more, the PLA Navy has 2. This isn’t because they don’t have the money or the resources to build an aircraft carrier, they quite clearly have both, they just don’t have need for a portable airforce base. The way in which they have built up their military looks to me, more like a nation that isn’t interested in outwardly attacking but inwardly deterring attack. It seems that China, in spite of their less than stellar public face, intends to extend their power through the open market and diplomatic means rather than militarily.

https://commons.wikimedia.org/wiki/File:Sakaide_-Kawasaki_Shipbuilding.jpg

Manufacturing might

And if you’re thinking about starting your own shipbuilding business, don’t worry, this isn’t a squarespace ad, you might want to look at China and figure out how they did it. Well lucky for you dear viewer the Chinese government is entirely open with their manufacturing practices and doesn’t keep any secrets… I mean apart from all the ones we don’t know about. So between the government secrecy and the language barrier, it’s actually rather difficult to answer the question of how they build so many ships, so quickly. But we here at megaprojects don’t take government secrecy for an answer and we plumbed the depths of the internet to find how they do it.

It can be broken down in 3 main parts: Efficient construction practices, socio-economic policy and modernisation and technical cooperation.

1. Efficient construction practices. Which sounds incredibly boring, and it is, so we will keep it brief. As you have probably already guessed, this refers to building ships efficiently. According to the central chinese TV station, appropriately abbreviated to CCTV, one of China’s newest implemented practices is the use of Computer Assisted Design and Manufacturing software, or CAD/M. This software allows shipyards to optimize the construction of parts, using machines to automatically cut and shape each sheet of the hull and then apply a barcode with which they can pretty much be stored in the order that they will be needed.

Then there is the modular construction practice, which is in effect, building huge sections of a ship, away from the shipyard itself, in a different factory, where it can be done faster and more efficiently and then transported back to the shipyard where they will simply be attached to the hull of the ship. You can think about this like a car company, buying engines from a specialized factory and installing them into the car. In the shipyards, they mostly specialize in the building of the hull of the ship. Things like the superstructure, engines, electronics and most other things that reside within the hull will be produced externally. This process outsources much of the manufacturing that would otherwise all be done by the shipyard and means they can just be delivered and immediately installed to the ship without taking up storage space.

2. Socio-economic policies: These are the policies set out by the government that gave the Shipbuilding industry an edge over their competition. First was the establishment of the so-called “special economic zones”, in major cities, like Shenzhen, Shantou, Xiamen, and Shanghai to name a few. In essence these zones are the Chinese government’s way of putting a pause on communism in the name of growing your economy. In other words, they are the government’s way of laundering your filthy capitalist moneys into beautiful comunist moneys. And they came about, thanks to the work of Deng Xiaoping, who believed that being comunist, didn’t mean you couldn’t be rich. In effect the special economic rules that apply in these cities were how the shipbuilding conglomerates managed to sidestep the whole communism thing and compete in a global market.

On a slightly less comical note, other policies that assisted China’s rise were their worker protection laws, insofar as they didn’t have any. Though it is worth pointing out that while these workers were getting paid a fraction of what a comparatively skilled worker would be getting paid in another country, they were also having their food, housing, healthcare and many other things covered by the government, so there is at least that.

When Deng Xiaping came to prominency, China was only beginning to pull itself out of the mess that Mao Zedong had made. As a result of his mismanagement of the economy and state backed murder of teachers and academics, as well as many other factors, the Chinese workforce was almost universally, uneducated, untrained, financially destitute and unsure as to whether working hard would get them killed or not. This meant that shipyards could employ huge armies of workers to make up for the lack of automation and then pay them pennies. As the workforce became better trained and better educated, the wages of these workers began to rise. In order to keep their prices low, automation took the place of 10 workers and trained engineers that looked after the robots took the job of supervisors. Which brings us nicely onto:

3. Modernisation and technical cooperation: To list all the ways in which China and CSSC has modernized in the past 40 years is like listing all the ways America has modernized in the past 100 years. It would just take too long to describe them all. So I will just leave you with that… the fact that China did in 40 years what it took the west 100 years to do. In the 1980’s China was operating at a level comparable to America in the 1920’s, obviously they didn’t invent the technology but they still built it and are leading the field in many ways and Shipbuilding is one of them.

Though it’s nearly impossible to get a timeline of the development of this industry, it is evident through the example of a singular shipyard, the Jiangnan Shipyard in Shanghai. Jiangnan is China’s oldest shipyard and one of the oldest shipyards in the world. It’s difficult to know the actual set up and size of this specific facility 40 years ago, but what we do know is that the total number of ships built in China from 1978 to 1980 was between 3 and 10. Today this single facility covers an area of 10 square kilometers with 3 docks, and 17 fitting out piers. Meaning that at any one moment about 22 ships could be under construction from this one facility. Or put another way, the capacity of this facility is double the total Chinese output 40 years ago.

Which explains why they are able to produce in such high volumes, as this is one of 1200 shipyards currently operating up and down the coast of China. But in order to even get that far, China had to grasp something that the Soviet Union never did. International industry cooperation is not to be avoided. For the past 30 years the CSSC has organized and funded study-abroad visits to some of the world’s top shipping designers, as part of their design engineer’s training programs. Many of the most modern Chinese vessels are based on design collaborations between domestic and foreign design firms.

https://flic.kr/p/q1s4ct

Looking forward

There is obviously no way to predict the future, we can’t know what China will be like in the coming years and decades. But if the past and present are anything to go by, the future looks bright for China. It’s not only possible but reasonably likely that China will retake the top spot as the global economic superpower. Today some might consider it a dangerous possibility, but I’d argue that many Chinese citizens felt the same about America taking over as the world economic superpower in 1891. Today China is poised to take that place back, already they have a larger economy in terms of Purchasing Power Parity GDP, and in terms of nominal GDP China is rising quickly.

There is certainly evidence that China is not going to rely on being the manufacturing economy that it has become. Already China is providing billions of dollars of investment towards hundreds of infrastructure projects in many developing nations across Africa. They are providing the means for Africa to become China’s manufacturing center. This may mean that at some point in the future, China’s shipbuilding industry will shrink to make up only a few huge and highly advanced shipyards that focus on developing the technological capability of their ships rather than the volume. In other words, China may be on track to become a communist version of America. Whether this is actually going to happen or if it is just wild speculation, is difficult to say and only time will tell.

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