Forget About Chips—China Is Coming for Ships
Beijing’s grab for hegemony in a critical sector follows a familiar playbook.
How many of the thousands of ships docking every day at U.S. ports were built in the United States?
How many of the thousands of ships docking every day at U.S. ports were built in the United States?
The answer may be surprising: U.S. shipyards manufacture fewer than 1 percent of the cargo vessels that ply the global seas. In March, U.S. labor unions decided that Washington had to take bold measures to support domestic shipbuilding and filed a petition to the U.S. trade representative, arguing that the industry’s poor state mostly reflects unfair Chinese practices, including massive subsidies. The unions have a simple proposal: Global shipping firms should pay a fee to dock at U.S. ports if they use Chinese-made vessels. On Wednesday, the Biden administration responded by launching an investigation into Chinese practices in the shipbuilding and maritime logistics sectors.
With around 80 percent of global trade carried by sea and U.S. politicians sensing an opportunity to court blue-collar workers ahead of this year’s elections, an investigation into Chinese shipbuilding practices could well reignite global trade tensions. Yet a closer look at China’s shipyards may also prove to be a useful exercise for Western policymakers: Beijing’s shipbuilding strategy has long been a perfect illustration of China’s playbook for the sectors that it has identified as critical in its Made In China 2025 industrial blueprint, including semiconductors, clean technology, and electric vehicles.
Here are five ways in which Beijing’s shipbuilding sector shows how China intends to gain global economic dominance in key industrial fields.
1. China is playing the long game. Shipbuilding may not often make the headlines, but the industry is far from a small one: Globally, shipyards sell around $150 billion worth of vessels every year, roughly double the market for wind turbines.
China’s shipbuilding strategy follows a familiar playbook, whereby Beijing aims to flood the world with cheap products, drive foreign competition out of business, and gain global dominance. Money is no object—while Western firms work with just-in-time, revenue-seeking frameworks, their Chinese competitors worry more about building capacity at all costs than being profitable.
China’s shipbuilders also have a financial ace up their sleeve. They benefit from state largesse to an extent that would be unthinkable in capitalist economies. The Chinese government pays 13 to 20 percent of the construction costs of a typical cargo vessel. Low-cost credit also helps: From 2010 to 2018, Chinese state-owned financial institutions granted domestic shipbuilders cheap loans amounting to at least $127 billion.
The results are clear, with Chinese shipyards producing more than half of the world’s ships each year, up from only 12 percent only two decades ago. This sky-high growth looks far from over—China’s shipbuilding output rose by nearly 12 percent in 2023, and the country appears set to produce 70 to 80 percent of all new oil tankers and dry bulk carriers in the coming three years.
2. Beijing’s goal is to build Western-proof supply chains. The Western debate on decoupling and de-risking usually eclipses an inconvenient truth: China is already the world leader in isolating its supply chains. In industries that Beijing sees as critical, the country has long aimed at building Western-proof supply chains that shield China from potential Western sanctions. Considering that shipbuilding is crucial for global commerce, it is not surprising that the sector represents a priority area for Beijing’s de-risking efforts. For the latest evidence, look no further than the Chinese Academy of Engineering, which published a paper in February assessing the vulnerabilities of Chinese shipbuilders to Western sanctions.
In shipbuilding, China’s sanctions-proofing strategy rests on two pillars. The first has to do with self-sufficiency. Chinese firms produce around 55 percent of global steel output, ensuring that domestic shipyards never run out of the commodity. And China’s reach spans across the entire supply chain for shipping gadgetry. Chinese businesses manufacture 96 percent of the world’s dry cargo shipping containers, and a single Chinese firm, ZPMC, claims that it supplies 70 percent of the world’s cargo cranes.
If this was not enough, Beijing has also built an edge in shipbuilding finance; China Exim and the Bank of China count among the most important actors on the global shipping finance scene.
The second pillar of China’s sanctions-proofing efforts is to keep foreigners out of shipbuilding. Beijing’s plans in the field date back to 2001, when the Communist Party leadership restricted foreign investments in the sector. Today, foreign-owned firms manufacture only about 5 percent of Chinese-made ships, shielding the sector from unfriendly interference. In 2006, Beijing also made shipbuilding one of the seven sectors where state-owned firms are required to retain a dominant position over private competitors—even Chinese ones. As a result, state-owned firms manufacture around two-thirds of Chinese-built ships, giving party leadership tight control over shipyard activity.
3. The line between civilian and military applications is blurry. The sectors that China has identified in its Made In China 2025 document share a common feature: They have national security implications. The shipbuilding sector is no exception to this rule. As U.S. Navy Secretary Carlos Del Toro puts it, “History proves that, in the long run, there has never been a great naval power that wasn’t also a maritime power—a commercial shipbuilding and global shipping power.”
China’s shipbuilding jewel, China State Shipbuilding Corporation (CSSC), provides an illustration of such civil-military fusion. In addition to building one-fifth of the world’s cargo vessels, the company is also a major supplier of warships for the Chinese navy.
This situation has two implications. First, those Western firms that work with CSSC may be financing the People’s Liberation Army’s naval buildup; more than 70 percent of the orders at CSSC’s flagship Hudong-Zhonghua shipyard are from foreign shipowners, many of them Western. Second, in case of war—say, over Taiwan—the Chinese leadership would be able to quickly repurpose shipyards to build and repair warships, giving Beijing a naval edge.
4. Shipping involves intelligence and standards. China’s industrial long game is not only about building overcapacity, but also about collecting intelligence and setting technical standards. This may sound familiar: Fears about the ability of Huawei-made telecommunications gear to spy on Western military installations were the reason why the United States and some of its allies banned the company from their 5G markets.
Concerns around China’s plans to collect intelligence in the shipping sector mainly center around Logink, a software that tracks cargo shipments around the world. Beijing’s generous policy of distributing the software for free means that the tool is already in use in many of the world’s biggest ports, including Hamburg, Germany; Rotterdam, the Netherlands; Jebel Ali, United Arab Emirates; Busan, South Korea; and Tokyo-Yokohama. U.S. officials worry that the seemingly innocuous software could help Beijing gain insights into military shipments and gather sensitive commercial information.
As if this was not enough, shipping insiders note that Logink’s success might give China a first-mover advantage to set technical standards for shipping logistics: If the software becomes the gold standard in the field, it will become much harder to replace with a privacy-friendly competitor.
5. Western economies will be hard-pressed to respond to China’s shipbuilding dominance. China’s domination of the shipbuilding sector offers an illustration of two key challenges for Western de-risking plans.
The first has to do with collaboration among like-minded allies. On paper, cooperation among the United States, Europe, Japan, and other democracies is all well and great. In practice, however, such collaboration is tricky: For all the talk of the need for unity, Western countries remain economic competitors. Other than China, the only two major shipbuilding powers left in the world are South Korea and Japan. In theory, building a Western alliance promoting South Korean and Japanese shipyards would make sense, but this will be easier said than done as Western economies all seek to defend what’s left of their domestic industries.
The second challenge entails convincing global shipping firms to stop buying cheap Chinese vessels. In practice, this means persuading executives that they need to do their patriotic duty by buying more expensive ships. Good luck with that.
As the West laments China’s global edge in manufacturing wind turbines, electric vehicles, and cargo ships, rereading Beijing’s Made in China 2025 strategy is a sobering exercise. Back in 2015, when the strategy was released, the Chinese leadership was already clear about its plans to become the world hegemon in these sectors. Looking ahead, the document highlights other areas where China still lags today but likewise aims for global dominance, including aircraft and trains.
In other words, China’s domination in shipbuilding and electric cars may well be the first steps to a Chinese edge in all the major categories of transport equipment. As Beijing told India before the 1962 Himalayan border war and Vietnam before the 1979 Sino-Vietnamese War: “Don’t say you were not warned.”
Agathe Demarais is a columnist at Foreign Policy, a senior policy fellow on geoeconomics at the European Council on Foreign Relations, and the author of Backfire: How Sanctions Reshape the World Against U.S. Interests. Twitter: @AgatheDemarais
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