China to Consolidate Shipbuilders to Enhance Operations and End Competition

 

 

China’s two large, state-owned shipbuilders both public companies under China State Shipbuilding Corporation (CSSC) announced plans to consolidate their corporate structures to enhance operations and management as well as reduce internal competition. It is part of a wave of corporate restructuring being led by the Chinese government with Chinese media reporting nearly 40 major restructuring projects all designed to enhance global competitiveness.

Currently, CSSC has a convoluted structure which is a legacy from the history of the corporation's communist government structures. The central government in the 1950s took control of shipbuilding as a core industry and ultimately consolidated multiple companies into two large entities which became China State Shipbuilding Corporation and China Shipbuilding Industry Corporation. They divided the country geographically from north to south and consolidated multiple companies under each entity.

Five years ago, in 2019, they engineered the consolidation of the operational structure placing the industry entirely under CSSC. However, the two public companies continued independently and at times were competing. The latest merger announced in a stock exchange filing yesterday calls for a stock swap to create a single public company.

The plan to clean up the corporate structure comes as China has developed a commanding overall lead in the industry. At times, China and South Korea are competing for orders, but overall, according to data from the Ministry of Industry and Information Technology China has ranked first for 14 consecutive years. They report orders increased more than 40 percent so far in 2024 versus last year with a total of 54 million dwt. CSSC reported revenues of $5 billion so far in 2024 while CSIC had revenues of just over $3 billion.

The announcement says that CSSC will swap its shares with CSIL and both become wholly owned by CSSC Holdings the surviving listed company. CSSC currently has a market value of over $22 billion compared to $16 billion for CSIL.

Explaining the rationale for the restructuring, the filing highlights a “further focus on major state strategy.” They list the main business responsibilities of strengthening the military while saying the business combination will accelerate the high-quality development of ship assembly. The combination will permit the company to streamline and align management, reduce peer competition, and improve the operating quality, according to the filing. The new combined entity they said will also improve the structure of the orderbook.

The move comes as there are already growing complaints about state subsidies and unfair competition from the Chinese shipbuilders. Last week, the Canadian association for shipbuilders highlighted the concern that commercial shipbuilding is being used to support the development of China’s navy and shipbuilding skills used for building advanced warships. In the United States, the major trade unions filed a complaint with the US Trade Representative seeking tariffs on Chinese-built vessels. 

China has dismissed the criticism of its shipbuilding industry saying the problems in the U.S. industry and elsewhere pre-date China’s growth in shipbuilding. They contend that the efforts are further “China paranoia” and attempts to unfairly blame China for shortcomings and the inability of other countries to compete.