London, April 14:

China will soon underline its role as a centre of global manufacturing by becoming the biggest shipbuilder in the world. The drive to build new yards has scared competitors such as the world’s current number one, South Korea, which fears overcapacity in the market, and has led to fears about the quality of these home-produced vessels.

Industrialisation in China has spawned the biggest maritime boom in history by sucking in raw materials such as iron ore and pumping out finished goods such as washing machines. Now it wants to carry more of these goods in its own vessels - from 10 per cent to 25 per cent - and plans to do so partly by constructing the largest new-building yard in the world, near Shanghai.

“The speed of capacity increases in China is somewhat threatening to Korean shipbuilders [such as Hyundai],’’ said Song In Ho, a Seoul-based asset manager at Kyobo Investment Trust Management, which holds Hyundai stock.

China has already captured a 20 per cent share of the global shipbuilding market, compared with 35 per cent for South Korea and 32 per cent for Japan but there are now plans to double existing production capacity by 2010.

The biggest-ever yard is being built on Changxing Island, not far from Shanghai, by China State Shipbuilding Corporation (CSSC), which will be ready to start up in 2007. New yards are also being developed at Bohai in northern China and Guangzhou in the south. China also wants to move into building more sophisticated vessels.

China’s shipping industry is number three globally by tonnage but still number six in the world by value. Economic planners in China want to counter this by moving from tankers and bulk carriers into specialist ships such as cruise liners and even liquefied natural gas carriers.

Last year CSSC secured 86 per cent more tonnage than in 2004 and has almost filled its existing capacity till 2009.

He Rongguang, president of the rival Bohai Shipbuilding Heavy Industrial Company, has made it clear that vessel construction is being developed for wider strategic reasons. “A booming shipbuilding industry will boost China’s overall manufacturing industry, particularly the production of iron ore and steel, electronic and mechanical products, and create jobs,’’ he said.

Nearly three-quarters of the vessels built by Chinese yards are going to foreign owners. Frontline, the biggest tanker company in the world, run by the London-based John Fredriksen, has been toying with a $400m new order from Changxing while others have already signed firm contracts.

Britain once built 90 per cent of the world’s shipping tonnage but was overtaken by cheaper prices - and latterly better quality - vessels made in Japan. And just as South Korea overtook Japan as the number-one shipbuilder in the world, now China is considered by experts to be the future leader in this sector: the only question is when. Only 10 per cent of vessels are now produced outside Asia.