When the world talks about China's dominance in manufacturing, the discussion is around rare earths, pharmaceuticals, chemicals, EVs, and solar panels. But there is a deeper and more intricate layer beneath this: logistics.
China realised early that being the world's factory means nothing if it cannot control the movement of its goods. Over the past two decades, it has built an extraordinary ecosystem of shipbuilding, ports, containers and tankers. Today, it produces more than half of all the global vessels.
How China Built This Empire
At the turn of the century, China built under 10% of the world's ships. It used production, investment, and entry subsidies to expand capacity and overtake Japan and South Korea. Slowly, its share rose by 40%, largely at rivals' expense, thanks to CNY 624 billion spent between 2006 and 2013.
However, these policies helped global trade and consumers more than the Chinese state. Freight rates fell, and goods moved faster, while Chinese firms got 18 cents out of every dollar they spent.
The most important aspect of this journey was China's vertical integration and almost self-sufficiency, something other countries envy. China dominates steel production, the main shipbuilding material, giving it cost and delivery advantages.
Over time, the quality of the vessels improved, workers became more skilled, and the processes became more efficient, attracting orders from all over the world. In 2019, it also delivered the world's first smart very large crude carrier (VLCC).
The New Industrial Philosophy
Vertical integration in China is not new. BYD, the Chinese EV maker that overtook Tesla, illustrates it. A 2023 UBS analysis found that in one of BYD's popular models, 75% of the components are made in-house.
As Covid disrupted global supply chains, transporting those vehicles became more expensive and tedious. For instance, daily charter rates for a 6,500-unit car carrier jumped from around $10,000 in 2020 to nearly $110,000 by 2023. So in 2022, the company took a major strategic decision: build its own shipping fleet. Today, BYD processes lithium, makes batteries and chips, fits them into the car's body, and even exports them through its own fleet. That's complete control over the entire supply chain from raw materials to exports.
In May 2023, China's Ministry of Commerce urged carmakers and shippers to cooperate and deploy more car carriers to expand export capacity. In September last year, eight ministries unveiled a national plan to support the auto industry. They encouraged cross-shareholding and joint ventures between carmakers and shipping firms to secure long-term stability. However, not many deals have been made public as of today.
In short, China's EV giants are no longer just manufacturing cars. They are also trying to control the transportation. And even the government is trying to help them achieve it.
Hormuz Crisis Has Strengthened China's Position
As tensions escalated around the Gulf region, many Western shipping companies rerouted their vessels via the Cape of Good Hope. That added 10-20 extra days, more fuel, thousands of nautical miles and 30-50% higher freight costs. However, Chinese vessels navigated the sensitive Gulf region without much risk.
This situation exposes two important advantages for China.
First, longer journeys reduced global fleet capacity, driving demand for new vessels and pushing shipbuilding orders to a 17-year high. While China and South Korea dominate the industry, China secured over 90% of new VLCC
orders this year. Chinese yards can deliver large orders, sometimes ahead of schedule, while South Korean yards are booked until 2028.
China's integrated domestic supply chain gives it an edge over import-dependent Korea. As a result, shipowners that once relied on South Korean yards are shifting towards China.
Second, China's geopolitical position helped it operate through this region. As the largest buyer of Iranian crude, it faces less risk from Iran, and other regional actors do not view Chinese vessels as hostile. That gives China a commercial edge. While Western carriers reroute, Chinese fleets can keep moving through the same cheap route.
Final Take
China leads global shipbuilding in volume, while South Korea dominates high-value vessels such as LNG carriers and ultra-large container ships. But Korea faces labour shortages and long delivery backlogs. Japan remains confined to shrinking niche segments, while the US and India are trying to expand shipbuilding but continue to struggle with high costs, weak infrastructure, import dependence and skilled labour shortages.
Right now, there is no real alternative to China in maritime transport. Even if the world moves away from Chinese goods, it will still need Chinese ships, tankers and containers to move non-Chinese goods around the world.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.