Shipbuilding: The Market China Hasn't Cracked

For a decade China has aggressively expanded its presence in shipbuilding in hopes of using its low wages to capture yet another bastion of manufacturing. All isn’t going according to plan. South Korean shipbuilders’ focus on the most complicated and expensive vessels has allowed them to double their share of global orders this year as China’s low-end strategy fails to pay off.

Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering, and Samsung Heavy Industries, the world’s three largest shipyards, have won 40 percent of orders so far in 2011 as higher oil prices spur demand for liquefied-natural gas tankers and oil drilling ships. Chinese yards’ 2011 contract tally is valued at only about a quarter of Korea’s, based on data from Clarkson Research Services, because of a glut of lower-margin commodity transport ships that comprise the bulk of China’s production. “It’s been a good year for Korean shipyards, and it’s going to get even better next year,” says E*Trade Securities analyst Park Moo Hyun.