[THE INVESTOR] China’s shipbuilding industry is expanding into cruise ships, while South Korean shipyards are held back by lack of experience.

Only July 7, China Daily reported that China State Shipbuilding (CSSR) and Italian shipbuilder Fincantieri Cantieri Navali Italiana will establish a joint venture in Hong Kong. The JV will spend 25 billion yuan (US$3.74 billion) building five luxury cruise liners.

The work will be carried out by Shanghai Waigaoqiao Shipbuilding, which has established a specialized department to start design work and they are scheduled to be built in 2017.

While China is entering the cruise ship market Korean shipbuilders have yet to make a significant move in the field. 

If Korean shipbuilding industry stands idly by, China’s lead will only become wider, while Korean shipbuilders slip in the global market.

For some time, China’s shipbuilding industry has outpaced that of South Korea. In the first half of this year, South Korean shipbuilders won contracts for 27 merchant ships with a combined compensated gross tonnage of 830,000. The figure is the lowest first half performance for Korea in 20 years. In comparison, Chinese shipyards received orders for 2.42 million CGT of ships, placing China at the top of the global industry.

“For the future of Korean shipbuilding industry, the market for cruise ships is one that must be breached at some point,” an official with a local shipyard said.

However, he said that the Korean industry is in no shape to do so immediately. The industry’s three biggest companies are reeling from heavy losses sustained from their botched attempt at rapid expansion in marine plant business, and in case of Daewoo Shipbuilding and Marine Engineering corruption and accounting fraud.

Even if the industry shakes off the losses, and enters the cruise ship market, winning contracts will not be a magic solution.

Without experience, local shipbuilders could follow in the footsteps of Japan’s Mitsubishi Heavy Industries should they take on a contract without careful planning.

The Japanese firm won a contract for two 125,000 ton cruise ships in 2011 for about 100 billion yen (US$ 994.9 million). However, due to delays arising from inexperience and high production costs, the company has sustained 237.5 billion yen losses, after completing just half of the contract.

By Choi He-suk (cheesuk@heraldcorp.com)