March 5, 2013: Last year South Korea lost its decade long battle with China to retain its lead in ship building. Because of a five year depression in the world market for shipping, South Korean ship exports fell 30 percent last year, to $37.8 billion. China, helped by government subsidies, saw ship exports fall only 10.3 percent, leaving China with $39.2 billion in export sales. The Chinese government has also been giving its ship builders lots of new orders for warships, which made its yards more profitable and better able to beat South Korea on price. The Chinese government also provides its ship builders with more loans, allowing the builders to offer better credit terms to customers. South Korea is still ahead of China in total orders for ships. As of last year South Korea had 35 percent of these orders versus 33.3 percent for China.

China has been helping its shipyards for over a decade, and that has enabled Chinese ship builders to gradually catch up to South Korea and Japan. It was only four years ago, sooner than anyone expected, that China surpassed South Korea as the world's largest shipbuilder in terms of tonnage. In late 2009, Chinese yards had orders for 54.96 million CGT of ships, compared to 53.63 million CGT for South Korea. Thus China had 34.7 percent of the world market. In 2000, South Korea took the lead from Japan by having the largest share of the world shipbuilding market.

CGT stands for Compensated Gross Tons. This is a new standard for measuring shipyard effort. Gross tons has long been used as a measure of the volume within a ship. CGT expands on this by adding adjustments for the complexity of the ship design. Thus a chemical tanker would end up with a value four times that of a container ship. China is producing far more ships, in terms of tonnage of steel and internal volume, than South Korea, mainly because a much larger portion of Chinese ships are simple designs. South Korea has, over the years, pioneered the design and construction of more complex ships (chemical and Liquid Natural gas carriers).

Note that deadweight tons measure the actual weight of everything carried in the ship, including supplies, miscellaneous equipment, fuel, and even crew, expressed in long tons. As a rule for every 1,500 deadweight tons a cargo ship could carry about 1,775 measurement tons. Warship tonnage is measured differently, in terms of "displacement tons." Each cubic meter (35 cubic feet) of sea water displaced by the vessel is a "displacement ton." As that volume of sea water actually weighs approximately one long ton, displacement gives a rough indication of the actual weight of the vessel.

China has invested a lot of money and effort into expanding its merchant shipbuilding industry, as a way to improve its warship building capability. Seven years ago China produced about a quarter of the world's merchant shipping, while South Korea was in first place, producing about a third. It was then believed that China would take first place in the next 5-10 years.

The big thing holding China back in the warship building area has been the shortage of skilled personnel. By encouraging merchant shipbuilding, the government creates experienced ship builders for the more complex task of building warships. In most cases merchant ships are larger than warships and much less complex. For example, a common type of merchant ship is the VLCC (Very Large Crude Carrier) of 300,000 deadweight tons (DWT). This is the largest size tanker that can use the Straits of Malacca to carry oil from the Persian Gulf to East Asia. These ships haul over two million barrels (about 290,000 tons) of oil per trip. These ships are larger than the biggest American aircraft carriers (like the Nimitz class that are 110,000 tons displacement and nearly 354 meters/1,100 feet long).

The major difference between merchant vessels and warships is what equipment they have. Merchant ships are quite basic and plain. A 300,000 DWT VLCC is about the same size as a Nimitz class carrier but costs much less to build ($130 million for the VLCC versus over $4 billion for the carrier). Actually, it costs more to run a carrier for one year than the VLCC costs to build. Part of that has to do with crew size, with the carrier having a hundred sailors for everyone needed to run the VLCC.

By building all those merchant vessels China has acquired the ability to build the basic warship hull. Where it has big problems is in creating the complex electronics, mechanical systems, and weapons needed to make a warship work. China is making progress there as well, but not nearly as much as it has in the ship building area.

China grabbed the lead in market share for commercial shipping partly because it became more difficult for South Korean builders to expand. There were more restrictions on land use in South Korea, in addition to higher labor costs. South Korean builders, seeing that they could not match the expansion of Chinese ship yards, expended more effort on building more complex, and expensive, ships. Japan was following a similar path when it lost the lead to South Korea a decade ago. China also gained more market share by offering generous loan terms to foreign buyers of Chinese ships and cheap loans for their own shipbuilders.