Shipbuilders Rush to China Despite Tech Leak Concern
By Cho Jin-seo
Staff Reporter
South Korean shipbuilders are expanding their manufacturing facilities abroad on the back of the vibrant market, despite nationalistic criticism that such overseas investments may cause inadvertent technology transfer to strong competitors such as China.
Samsung Heavy Industries, Daewoo Shipbuilding & Marine Engineering and STX are either operating or building dockyards or ship block factories in China as they can’t meet soaring demands with their domestic facilities. Hanjin Heavy Industries & Construction is also building a 700-billion-won shipyard in the Philippines by 2016.
On Saturday, Daewoo opened its ship block factory in China’s western port city of Yentai, where it plans to produce 220,000 tons of ship blocks every year.
``Many people worry that China will surpass Korea in shipbuilding. But if we make inroads into China and take advantage of its competency, that will help Korea maintain its leadership for a longer period of time,’’ said Nam Sahng-tae, Daewoo president and CEO.
Only Hyundai Heavy Industries, the world’s largest builder, opted to remain inside Korea, saying an overseas expansion is not necessary now and would only benefit China.
The controversy was ignited when Hyundai’s chief Choi Kil-sun gently warned other firms in a meeting of major shipbuilders’ CEOs in April. ``When a Korean shipbuilding company operates a factory in China, Korea’s technologies can be inadvertently leaked to locals. I believe that the firms are well aware of such risks,’’ he said.
China was the world’s third largest shipbuilder in 2006 after South Korea and Japan, but its government has come up with plans to overtake their East Asian neighbors by 2015. While most of China’s workload is inexpensive bulk carriers and container ships, experts say the world’s most populous country will soon overtake Korea and Japan in the high-end shipbuilding sector as well, such as oil and natural gas carriers.
Choi’s remark evoked the usual patriotic response from the Korean media. The main target of their criticism has been STX. The company was almost a nonentity until early this decade, but its Chairman and CEO Kang Duk-soo made it Korea’s sixth largest shipbuilding group via a series of mergers and acquisitions. Such an aggressive growth plan has irritated conventional powerhouses of the field.
In March, STX further rattled the industry by announcing that it will be the first Korean company to build a shipyard in China. The company is investing $1 billion in Dalian’s Changxing Island in Liaoning Province to build the shipyard by 2008, which will include production facilities, engine assembly plants, a block factory and facilities for molding and forging. Samsung and Daewoo have built or are currently building facilities for ship blocks, but this will be the first Korean-owned overseas shipyard capable of building a whole vessel, according to the plan.
After the announcement, rumors circulated that STX promised to transfer its designing and manufacturing know-how to its Chinese partner in return for acquiring Chinese government approval for the construction. The company has flatly denied such claims.
``Automobile and semiconductor industries all operate overseas factories but there was no case of technology leak from them,’’ Kang said in the April meeting. ``There is no company that wants to hand over its know-how to others in this fashion.’’
The Korea Shipbuilders Association refused to comment on the issue, citing the conflicting interests of its member companies. But an industry pundit said that there was no evidence of technology leaks taking place and in fact, there will be little damage even if there is such an outflow of Korean expertise.
``Shipbuilding is not a high-tech industry like semiconductors. What we can make can be made by China, too. What is important is how fast a firm can build a ship, and how reliable the ship is,’’ he said on condition of anonymity. ``We don’t have to worry too much about technology leaks, since the technology itself is not a major issue.’’