China has a significant position in global commercial shipbuilding and its control is growing, granting it a formidable strategic industrial advantage in modernizing and expanding the capabilities of the People’s Liberation Army Navy (PLAN). This is important as the PLAN’s modernization, in numerical and tonnage, combined with its intention to move beyond a littoral naval power could unbalance parity and even give it a military edge. This would result in the U.S. being unable to fulfil its obligations to protect Taiwan, and the Philippines and its ability to operate unimpeded within the Indo-Pacific over the long term. The PLAN’s potential dominance in commercial shipbuilding has resulted from its Military-Civil Fusion (MCF) strategy, which fosters a significant long-term edge in constructing commercial, naval and support vessels relatively cheaply and efficiently compared to the US and its allies. In a potential prolonged conflict between China and the U.S., China’s robust shipbuilding capacity could tip the balance in the Indo-Pacific in the PLAN’s favour.
The U.S.’s shrinking shipbuilding market share is not a new phenomenon. Since the 1980s and the end of major subsidization programs, the industry has largely disintegrated. A critical difference is that during the 1980s, it was the U.S.’s allies, South Korea and Japan which collectively controlled 80% of the market. Whereas in 2022, South Korea controlled 29% and Japan 17% respectively. China, conversely, now controls 46%, with the state-owned enterprise, the China State Shipbuilding Corporation (CSSC) alone controlling 21.5% of the global market in 2021. This is concerning defence planners as China is utilizing its MCF and the Integrated National Strategic Systems and Capabilities policy in support of China’s ‘national rejuvenation goals’, which are for China to be a world leader by 2049.
China has strategically prioritized shipbuilding, labelling it a ‘pillar’ of its Made in China 2025 policy. This policy was initially accelerated with the implementation of various protectionist policies outlined in the 11th National 5-year plan in 2006. Unfair industrial practices include extensive subsidization of inputs (i.e., steel and electronic components), production, simplified entry licensing, favourable vendor ‘white-lists’, export credits and state-owned banks providing discounted loans and $132bn in state support between 2010 and 2018, all helping China to increase its commercial shipbuilding. However, China’s public finances are veiled in secrecy, concealing the extent to which China is manipulating its shipbuilding industry and creating an uneven playing field in the international market.
In 2023 China had 1,749 oceangoing vessels under construction across 19 mega and modern shipyards and 51 ‘whitelist’ shipyards that comply with industry norm conditions for government financing. Moreover, there are over 5,000 Chinese-flagged merchant vessels that give further illustration to the scale of China’s position in the merchant shipping sector. This can be compared to the U.S.’s meagre 5 oceangoing vessels under domestic construction and 177 flagged merchant oceangoing vessels. While U.S. companies do own ships flagged in other nations to evade U.S. legal regulations, the lack of U.S.-flagged ships crewed by foreign nationals puts the U.S. in a precarious position during a conflict between the U.S. and China. This disparity accentuates the limited presence of the U.S.’s merchant mariners in a global commercial fleet exceeding 60,000 ships. And while China’s shipyards predominately build oceangoing commercial ships for foreign businesses, such a potential dominance in the industrial shipbuilding infrastructure would not only threaten U.S. trade and the U.S. Navy’s sealift capacity during a conflict, it could also become a strategic edge in the long-term as the PLAN continues to modernize and construct new vessels.
The integration of security and development of China’s MCF forms an important component of achieving ‘national rejuvenation’ by 2049. MCF seeks to harness technological advancements and industrial capabilities to bolster instruments of national power, including elevating the PLAN into a ‘world-class’ military force capable of power projection beyond Southeast Asia. The PLAN fleet contains 370 ships and submarines, including 140 major surface combatants and three aircraft carriers, making the PLAN numerically, the largest fleet in the world. The strategic buildup aligns with the People’s Liberation Army’s (PLA) pivot towards integrating different branches of the military through a new defence concept called ‘multi-domain precision warfare’. This concept seeks to target vulnerabilities in the adversarial operational systems across a variety of military domains through PLA-integrated precision. The PLAN’s expansion is intricate to this doctrine with the development and construction of new FUJIAN-class aircraft carriers, hypersonic missile systems and over-the-horizon targeting. The expansion also includes new major surface combatants, submarines, expeditionary and combat support ships, and intelligence and surveillance ships. Most alarming is the scale of expansion with a growth trajectory to reach 435 ships by 2030, with a significant focus on acquiring new major surface combatants, aircraft carriers and submarines, moving the PLAN from beyond a littoral power. The PLA is confident in the capacity of its shipbuilding industry, anticipating rapid and relatively cost-effective procurement and industrial self-sufficiency to reach 435 ships. Ultimately, these new and growing naval capabilities could prevent the US and its allies from defending Taiwan and operating within Southeast Asia over the long term in a conflict.
In highlighting the critical infrastructure vulnerability, the U.S. Navy Secretary, Carlos Del Toro emphasized that one Chinese shipyard has more construction capacity than the entire U.S. sector. Despite the U.S. Navy’s relatively streamlined procurement and shipbuilding processes, naval construction competition remains fierce. Without a robust commercial shipbuilding strategy fortified through economies of scale and scope, U.S. naval construction procurement costs and times will continue to increase and be delayed, which can be witnessed in the naval industry’s outpacing of general economic inflation by 1.2% annually (1986-2016), which is also witnessed in the numerous delays in repairing and retooling. This trend highlights waning competitiveness and has been exacerbated by outdated policies, such as the Jones Act, which mandates U.S.-built ships for intra-domestic commerce.
Policy recommendations to help the U.S. position could include collaborating with allies and partners, including India and Mexico, opening an investigation into China’s predatory dominance in commercial shipbuilding, designating shipbuilding as critical infrastructure and/or de-risking through investment agreements in neutral markets to foster economic development more evenly. Reinvigorating the U.S. commercial shipbuilding industry will be very expensive, as unlike other industries that the U.S. has designated as strategically important, such as micro-chip manufacturing, the U.S. shipbuilding industry is largely non-existent and the global industry already suffers gross market distortion due to China. This means, capital investment could be potentially colossal and has the potential to adversely impact U.S. trade through increased costs from tariffs and logistics. Nonetheless, given that over 92% of global shipbuilding occurs in East Asia, a potential conflict could cripple global trade and the shipbuilding sector.
The PLAN’s race to naval parity with the U.S. is alarming and is accelerating with its potential dominance in shipbuilding. As the PLAN seeks to build new carrier battle groups, surface combatants and submarines, coupled with China’s dominance in shipbuilding, its capacity over the long term could confer a significant advantage in a prolonged conflict. This could lead to a Chinese naval advantage in the Indo-Pacific as the PLAN moves from a littoral power to an oceangoing naval power, with the ability to project power beyond Southeast Asia and the Indo-Pacific. Therefore, the U.S. and its allies must recognize the importance of industrial capacity and its role in geopolitics in critical sectors such as shipbuilding.
Photo: “建造中的中国海军首艘国产航空母舰” (2019), via Wikipedia Commons. Licensed under C.C 2.0.
