MARKET WATCH

MARKET WATCH

OPINION

Shipbuilders’ Woes

Shipbuilding industries around the world are facing some chilly headwinds, and China is no exception.

Although China replaced South Korea to become the world’s largest shipbuilder in terms of new orders and vessel deliveries in 2011, in the latter half of last year, the oncethriving sector received a blow as demands turned lackluster amid the global economic downturn. Some companies even went bankrupt.

More disturbing, though, is the fact that costs in fl ation is worsening due to rising steel prices and labor costs. That problem is putting a dent in the pro fi t margin of the industry and is forcing many fi rms to reduce prices of vessels.

South Korea’s shipbuilding industry is also losing steam, but it can still make ends meet. Between January and September 2011, South Korea de fi ed the global industry gloom to receive new orders of 12.07 million CGTs, up 17.2 percent from a year ago and making up 51.2 percent of the world’s total.

Since last year, a wide divide is opening up within the industry. Innovative companies have well endured the downturn while those weak in technologies are struggling to survive. In 2011, the number of global new orders fell by half, but their total value only slightly dropped 10 percent. That is because orders for vessels with higher added value were increasing.

What set South Korean companies apart from competitors was their strength in technologies and financial support from the government. Those advantages made them more able to manufacture higher-end vessels like large container ships, lique fi ed natural gas carriers and marine engineering equipment.

In order to fi nd a way out of the quagmire,Chinese shipbuilders need to overcome technological barriers and strengthen efforts to develop energy-efficient and environmentalfriendly vessels. They have a lot to learn from their South Korean counterparts.

First, South Korean shipbuilders are successful in part because of their international strategy. They have established solid market foothold all over the world.

Second, cash-swash South Korean shipbuilders boosted clout over markets through mergers and acquisitions. Hyundai Heavy Industries, for instance, in 2002 acquired smaller rivals including Samho Heavy Industries and Hyundai Mipo Dockyard at relatively low prices. In 2009, it bought a stake in Hyundai Corp. The acquired resources made it easier for South Korean giants to strengthen their industrial chains and diversify against risks.

Third, South Korean shipbuilders have spared no effort to enhance research and development in new technologies such as greener engines that can reduce carbon emission by 20 percent. Technology and entrepreneurship are the two most important factors for modern industries. They are obviously trying to combine the two factors and make full use of global resources.

It is imperative now for Chinese shipbuilders to upgrade their technologies and phase out highly polluting and energyguzzling products. The key is to aggressively restructure their business model and sharpen industrial competitiveness through intense competitions.

THE MARKETS

Online Shopping Spree

Chinese consumers spent more than 784.93 billion yuan ($124.6 billion) on online purchases in 2011, skyrocketing 66 percent from a year ago, said a report jointly released by the International Data Corp., a global market research fi rm and Alibaba, China’s leading ecommerce giant.

The consumption boom was supported by a vibrant economy and solid wage growth in the country. The buoyancy delivered a strong boost to China’s e-commerce fi rms. Alibaba’s Taobao, China’s largest C2C platform, recorded an average daily transaction volume of at least 4 billion yuan ($634.9 million) last year.

The online consumption volume currency accounts for around 3 percent of China’s retail sales of consumer goods, well below the level of developed countries. That indicates great potential for the market to grow, said the report, predicting that the proportion will increase to 7 percent by 2015.

Tudou Recovers

China’s second largest online video site Tudou reported a net loss of 148.9 million yuan ($23.6 million) in the fourth quarter of 2011, compared with a painful loss of 263.7 million yuan ($41.9 million) a year ago.

The loss was in large part attributed to growing costs on video programs and broadband Internet services. Tudou said its operation costs in the fourth quarter more than doubled from the previous year to 160 million yuan ($25.4 million).

“Despite growing user traffic, a major cause for concern is Tudou’s weakness in advertising revenues,” said Zhang Fan, an analyst with the Beijing-based consulting fi rm Analysys International. “Tudou lacks a stable source of high-end ad clients.”

“Thanks to a close tie-up with Weibo, a popular micro-blogging site, Tudou is enjoying torrid growth in users,” added Zhang. “But the expanding customer base has yet to translate into pro fi ts.”

112,200 CGTs (compensated gross tonnage) of new orders, nose-diving 78 percent from a year ago. Tan Zuojun, General Manager of China State Shipbuilding Corp., predicted that half of China’s shipyards could vanish.