STX Shipbuilding Faces Challenges in China
By Cho Jin-seo
Staff Reporter
STX Shipbuilding's valiant plan to make Dalian its new manufacturing center is being challenged by the Chinese government's restraint on building big ships.
The Korea's fourth largest and most rapidly growing shipbuilder began to construct a $1-billion shipyard near Dalian, China, on the northern shore of the Yellow Sea, in March. But regulations on foreign firms are barring the firm from digging a dry dock, which is essential to building and floating big and more profitable ships.
The company first made the decision to have a shipyard there after talking with the city of Dalian, but the central government in Beijing refused to give permission to dig, a source in Dalian said.
``Shipbuilding is a strategic industry for China so the government is very fussy about foreign firms,'' the source said last Friday, refusing to be identified. ``Worries have been growing that there is an oversupply of shipyards in China, so it is unlikely that Beijing will allow STX to do so.''
STX said Monday that the situation had already been taken into account when it started building it. Large vessels need a dry dock but smaller ships can be made on the bare ground, it said.
``Under the current conditions, it is difficult to get a permission to build big ships,'' a spokesperson said. ``But as for bulk carriers of medium size, there is no problem. We are very experienced in building ships on the dry ground, we will be able to start production in the second half of 2008 as we planned.''
STX had a grand groundbreaking ceremony at the site in Changxing Island, north of Dalian, in March. Chairman Kang Duk-soo then said that the firm is expecting annual revenue of $3 billion from the Changxing shipyard in five years, which is almost double the sales the whole firm had last year.
The calculation made enough sense at the time considering the site is about 3.8 square kilometers wide, four times the size of STX's shipyard in Jinhae, South Korea, and the complex is to include a ship block factory and engine assembly plants. But without a dry dock, the goal does not look as attainable.
Dry docks are huge rectangular pits at the shipyard, which can be flooded to float a newly built vessel out to the water. It is an essential part of shipbuilding because it eliminates the logistics problem of pulling the huge ship out to the sea once it is built.
Only four Korean shipbuilders _ STX, Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries and Hyundai Samho Heavy Industries _ have succeeded in building huge ships outside dry docks and hauling it safely to the shore. According to Hyundai Heavy Industries, current technologies can only build ships smaller than 100,000 tons with the method. However, profitable ships such as container carriers and natural gas carriers tend to exceed the limit. They are sometimes as big as 500,000 tons.
There had been rumors and debates among Korean businesses in China about STX's bold expansion to China, as the Chinese government's strong drive to protect its own industries was well known to them.
``It is unclear how STX earned the right to build the full shipyard. The Chinese will never allow foreign firms to do so in a scrupulous way,'' said a high-ranking official of the Korean company operating in Yentai in March.