In Depth: Overcapacity Poses Only Distant Threat to China’s Shipbuilding Boom

Chinese shipyards are currently leading a global shipbuilding resurgence due to a surge in demand that has spiked orders and triggered an expansion in production capacity for the first time in several years. [para. 1] Between January and October, Chinese shipbuilders secured 37.5 million compensated gross tonnage (CGT) in orders, capturing about 70% of global new ship orders, reflecting a global pattern of increased orders by 32% from the previous year. [para. 2][para. 3] The demand surge stems from factors such as geopolitical tensions, ongoing conflicts in Gaza and Ukraine, and a post-pandemic resurgence in industrial activities. [para. 4] Additionally, China's state-owned shipping companies have been encouraged to transport more goods produced domestically as part of Beijing's economic push. [para. 5]

Due to overwhelming demand, prices for new ships have escalated dramatically, with a price gauge indicating a 50% increase from late 2020 levels, nearing the all-time high set in 2008. While other countries are ramping up production, China is cautiously expanding by allowing the construction of new shipyards after 15 years, but only on pre-approved land. [para. 6][para. 7] This caution follows a decade-long downturn post-2008 global financial crisis, which caused an oversupply in shipbuilding capacity. [para. 8] Experts believe that stringent environmental regulations require the replacement of aging vessels, suggesting a more durable increase in demand. Furthermore, with many countries transitioning to greener energy, projections indicate continued growth in the shipbuilding market for the next two to three years. [para. 9][para. 10]

There has been a significant increase in orders for oil tankers and container ships, as older vessels are replaced in an effort to make China's fleet more competitive. In 2024, 421 oil tankers were sold worldwide compared to 145 in 2022, and container ship sales also increased significantly. Much of the fleet was built during a previous boom and now requires modernization. [para. 11][para. 12][para. 13] Two major Chinese state-owned enterprises, China Cosco Shipping and China Merchants Group, plan substantial expansions, with orders including bulk carriers and oil and LNG tankers. For instance, a Shanghai-listed arm of China Merchants Group placed a significant order for environmentally friendly tankers, and Cosco Shipping ordered more bulk carriers and LNG carriers. [para. 14][para. 15][para. 16] These acquisitions align with China's Ministry of Transport strategy to expand and internationalize the country's commercial fleet. [para. 17][para. 18]

Private Chinese shipbuilders have responded to the high demand by establishing new shipyards, suggesting a strategic relaxing of construction restrictions by regulatory bodies. However, the government remains cautious about inducing another overcapacity scenario like in the past, causing a shift towards nurturing a qualitative expansion instead. [para. 19][para. 20][para. 21] The active shipyards in China have significantly decreased from their peak due to past oversupply issues but are currently undergoing a controlled revival. [para. 22][para. 25] This strategy focuses on green and innovative productivity expansion rather than sheer capacity increase, aligning with the broader goal of high-quality growth. [para. 23][para. 26][para. 27]

Despite the current growth, risks persist. The global shipbuilding boom could last until 2026, contingent upon continuing demand as pending deliveries resolve. Deliveries of container ship capacity have reached a historic high in 2024, as shipbuilders hasten to fulfill pre-existing orders amidst the upsurge. However, geopolitical crises, such as the Red Sea incident, could unpredictably impact demand, potentially leading to overcapacity issues similar to those of the past financial crisis. [para. 28][para. 31][para. 32] The industry must remain vigilant to avoid repeating the mistakes of previous cycles. [para. 33][para. 34]