19 May 2016

Steaming Ahead, Course Uncertain: China’s Military Shipbuilding Industry

Andrew S. Erickson, “Steaming Ahead, Course Uncertain: China’s Military Shipbuilding Industry,” The National Interest, 19 May 2016.

In recent years, China’s navy has been launching new ships like dumping dumplings [into soup broth].” This phrase has circulated widely via Chinese media sources and websites. Accompanying it are ever-more-impressive analyses and photographs, most recently of China’s first indigenous aircraft carrier, now under construction in Dalian. The driving force behind all this, China’s shipbuilding industry, has grown more rapidly than any other in modern history.

One of this century’s most significant events, China’s maritime transformation is already making waves. Still, however, China’s course and its implications—including at sea—remain highly uncertain, triggering intense speculation and concern from many quarters and in many directions. Beijing has largely met its goal of becoming the world’s largest shipbuilder. Yet progress remains uneven, with military shipbuilding leading overall but with significant weakness in propulsion and electronics for military and civilian applications alike. It has thus never been more important to assess what quality and quantity of ships is China able to supply its navy and other maritime forces with, today and in the future. Somewhat surprisingly, however, there has been insufficient attention to this topic, particularly from a U.S. Navy (USN) perspective.

To bridge that gap, a diverse group of some of the world’s leading sailors, scholars, analysts, industry experts, and other professionals convened at the Naval War College (NWC) on 19-20 May 2015 for a two-day conference on “China’s Naval Shipbuilding: Progress and Challenges.” Hosted by NWC’s China Maritime Studies Institute (CMSI), it was cosponsored with the U.S. Naval Institute (USNI), which will publish the resulting edited volume early next year.

CMSI was formally established on 1 October 2006. Its research and analysis of China’s maritime capabilities helps to inform USN leadership and supports NWC in its core mission area of helping to define the future Navy. The annual CMSI conference is a principal function of the Institute, supporting focused examination of the full range of Chinese maritime developments.

This conference, the tenth in a series, focused on a topic of great interest to USN leaders: China’s naval shipbuilding industry. “Shipbuilding” includes construction of new vessels, the repair and modification of existing ones, and the production and repair of shipboard and associated equipment. Paper presenters, discussants, and other attendees analyzed China’s shipbuilding capacity in order to deepen understanding of the relative trajectories of Chinese and American naval shipbuilding and possible corresponding challenges and responses for the USN. The overarching questions, of paramount importance to USN and other observers, included:

– What are China’s prospects for success in key areas of naval shipbuilding?

– What are the likely results for China’s navy?

– What are the implications for the USN?

As the self-designated target year for China to become the world’s largest shipbuilder, 2015 was a particularly appropriate time for the conference. In some respects, China has already accomplished its goal, yet major problems and uncertainties remain as we look forward over the next fifteen years through 2030—the rough timeframe for this conference’s analysis.

This is an exciting time to observe the fruits of Chinese naval shipbuilding, and perhaps a significant inflection point. As part of its unprecedented maritime emphasis overall, China’s 2015 Defense White Paper states: “the traditional mentality that land outweighs sea must be abandoned… great importance has to be attached to managing the seas and oceans and protecting maritime rights and interests.” The U.S. Office of Naval Intelligence (ONI)’s 2015 report concludes: “China is only in the middle of its military modernization, with continued improvements planned over the following decades. As we view the past 20 years of [People’s Liberation Army Navy/PLAN] modernization, the results have been impressive, but at its core the force has remained essentially the same—a force built around destroyers, frigates and conventional submarines. As we look ahead to the coming decade, the introduction of aircraft carriers, ballistic missile submarines, and potentially a large-deck amphibious ship will fundamentally alter how the PLA(N) operates and is viewed by the world.”

Over one hundred and fifty attendees participated in CMSI’s conference. They hailed from such institutions as Harvard, Yale, Princeton, MIT, Johns Hopkins, University of California, and Virginia Tech; together with such organizations as the Congressional Research Service, RAND Corporation, National Bureau of Asian Research, IHS Jane’sChina SignPost, and commercial enterprises and consultancies; as well as such USN entities as the Office of Naval Research, the staff of the Chief of Naval Operations, and the Pacific Command and Pacific Fleet. There were also distinguished attendees from the navies and governments of such important U.S. allies as Japan, South Korea, Canada, the United Kingdom, and France.

The conference thus focused some of the world’s leading experts and analysts on one of the most important global dynamics today. China continues to lack transparency in important respects, but much is knowable through CMSI’s well-established investigative approach. Particularly given the complex, interdisciplinary nature of the subject at hand, in arranging the development of conference papers and presentations, special effort was made to pair technical and industry specialists with Chinese-language-capable subject matter experts. Presenters have commanded ships at sea, led shipbuilding programs ashore, toured Chinese vessels and production facilities, invested in Chinese shipyards and advised others in their investment, and produced and presented important assessments to top-level decision-makers during critical events. Synthesizing their collective insights, together with those of the other conference participants, can help to fill a key gap in our understanding of China, its shipbuilding, its navy, and what it all means. As with all CMSI conferences, all views expressed by the contributors are theirs alone.

Summary of Conference Discussion:

In my personal view, the conference yielded the following key findings overall—none of which may be attributed in any way to a specific participant or organization:

-The growth of China’s shipbuilding industry is more rapid than any other in modern history, with a 13-fold increase in Chinese commercial shipbuilding output from 2002-12. Although advancements in recent years are substantial in aggregate, they vary significantly by subfield.

-Through a process of “imitative innovation,” China has been able to “leap frog” some naval development, engineering, and production steps and achieve tremendous cost and time savings by leveraging work done by the United States and other countries.

-Fleet design and quality improvement efforts are driven by two factors. PLAN shipbuilding choices are informed by a combination of technological and strategic analysis produced by the PLAN’s two main research organizations. Ship construction is increasingly subject to a detailed set of national and navy military standards.

-China’s shipbuilding industry is poised to make the PLAN the second largest navy in the world by 2020, and—if current trends continue—a combat fleet that in overall order of battle (i.e., hardware-specific terms) is quantitatively and even perhaps qualitatively on a par with that of the USN by 2030.

-By 2030, the PLAN would still be in the early stages of increasing operational proficiency and its ability to engage in high-intensity operations in distant waters, but could nevertheless—together with other PLA forces—develop tremendous ability to actively oppose USN operations in a zone of contestation for sea control in the “Near Seas” (Yellow, East China, and South China Seas), while extending layers of influence and reach far beyond.

-By 2020, China is on course to build ships able to deploy greater quantities of anti-ship cruise missiles (ASCMs) with greater ranges than those systems used by the USN.

Additional Findings:

In my personal judgment, the conference also yielded the following specific insights:

Chinese Shipyards: The Chinese Communist Party (CCP) has assigned the shipbuilding industry a key role in China’s development as a great power, including support for China’s geostrategic endeavors. The state-owned shipyards also offer a major job and skills development program serving larger CCP economic objectives. A likely area of future growth will be development of the supporting and maintenance infrastructure for in-service vessels following the spate of recent construction—a difficult task even for the USN.

State-owned versus Private Shipyards: In aggregate, and increasingly together, China’s two largest shipbuilding conglomerates—China Shipbuilding Industry Corporation (CSIC) and China State Shipbuilding Corporation (CSSC)—possess great resources and capacity, but retain tremendous inefficiencies. Their institutional culture is still influenced by legacy values, norms, and incentives. Their monopoly structure remains one of the central impediments to improving efficiency and innovation. On the other hand, private yards are oriented toward short-term, profit-minded thinking and are not funded to engage in long-term R&D-intensive projects. While CSIC and CSSC have increasingly undertaken naval and para-naval business to absorb excess yard capacity after commercial “Peak Ship” construction occurred around 2012, private yards have largely been left to fend for themselves. Throughout the industry, bureaucratic barriers to efficiency and effectiveness remain a problem, especially for propulsion and shipboard electronic systems and their integration into ships.

Chinese Shipbuilding Standards: Specific Chinese shipbuilding plans and military standards are derived from the Weapons and Armament Development Strategy (WADS), a highly classified document drafted by the General Armament Department (GAD) and approved by the Central Military Commission (CMC). It includes sections assessing the international security environment, military equipment requirements, analysis of the strengths and weakness of Chinese armaments in relation to naval objectives, and assessments of S&T development. One of China’s most important national military shipbuilding standards is the 国家军用标准 Guojia Junyong Biaozhun (GJB) 4000-2000 publication series, General Specifications for Naval Ships, a massive compendium focused on new and planned construction. It represents a major advance from China’s copycat assimilation of thousands of U.S. standards during the 1980s and ’90s.

Programmatic Decision-making: To drive requirements, PLAN leadership integrates the analysis of its two main research entities—the technically focused Naval Armament Research Institute (NARI), and the strategically focused Naval Research Institute (NRI)—to rationalize ship and weapon system design with naval strategy. The increasing diversity of PLAN mission areas (e.g., massive expansion of area air-defense) is having a significant effect on Chinese naval ship design. Increasing capabilities demand increased processing power and sensor load. Greater payloads and supporting systems drive increases in ship size.

Naval Ship Design: New design and production technologies—as previously with CAD/CAM software from Japan and Europe—are being imported into China, adapted, and deployed for military use. Advances in ship design are achieved through “imitative innovation,” an official technology transfer policy based on a process of Introduce/Digest/Absorb/Re-innovate (IDAR). IDAR takes existing technology and adds value to it by making it cheaper, better suited to Chinese needs, or otherwise improving it. Modular construction is expanding for both commercial and military ships. Modularity improves production efficiency—by enabling standard modules to be constructed and stored to better accommodate shipbuilding schedules—and also offsets uncertainties by employing common systems and sub-components.

Military-Civil Disconnect: The greatest variation across China’s uneven but improving SBI stems from its military-civil bifurcation. While subject to the aforementioned inefficiencies, the naval side appears to have by far the best funding, infrastructure, research institutes, designers, and workers. State-owned shipyards on the Ministry of Industry and Information Technology’s favored “white list”—the ones building most of China’s warships—receive not only preferential treatment, but preferential support. The advantages enjoyed by military shipbuilding may be further enhanced as state shipbuilders seek to compensate for recent declines in commercial orders by securing contracts for naval and coast guard ships, the latter of which are being built even more swiftly and numerously. Learning is occurring rapidly. It typically takes 10-20 repeats to double labor efficiency and the PLAN is ordering longer production runs of fewer seriesfacilitating advancements in shipbuilding knowledge and competence. That said, China’s military shipbuilding industry still faces challenges in subcomponents (especially propulsion/power) and some sensors (e.g., anti-submarine warfare versions). On the commercial side, in marked contrast, many private shipyards risk bankruptcy and closure. The civilian shipbuilding workforce remains undereducated. Worker quality, lower than in South Korea and Japan, remains a major drag on productivity and high-end achievement. With regard to commercial shipbuilding, therefore, China has a massive capacity to build small, less-complex ships and large, non-complex ships, but has demonstrated less capacity to build large, complex ships. However, even the commercial side is improving over time. For instance, partnerships between shipyards and “feeder” technical schools are being created to help improve the workforce’s quality, in part by offering guaranteed jobs for graduates.

Particular Propulsion Weakness: Compared to the United States, China retains particular shipbuilding limitations in propulsion, some electronics, and certain advanced weapons systems. Propulsion is the single biggest shortcoming and is unlikely to progress until China’s precision manufacturing capability improves. Conventional propulsion in submarines is moving toward advanced Lithium-ion batteries, possibly as an alternative to air independent power (AIP) systems. Nuclear propulsion advances—especially in power density and acoustic quieting—remain difficult to ascertain, but a key variable affecting future progress will be the degree of Russian assistance.

Points of Contention:

To be sure, in keeping with CMSI’s rigorous academic approach, the conference produced significant debate. In my personal assessment, the most important areas of disagreement included:

  1. Will Chinese state-owned shipyards re-merge in a substantive fashion? CSIC and CSSC were unified until 1999, then divided along geographic and functional lines so as not to compete directly (CSIC has the majority of R&D centers, for instance). Some believe true reintegration will occur—as has been widely reported in Chinese and foreign media—to increase efficiency and available resources and to reach a State Council-mandated reduction in the number of commercial shipyards from several hundred to 60. Those doubting that meaningful merger will occur observed that most unions to date exploit geographical efficiencies and that this “low-hanging fruit” has been thoroughly plucked. They also note that CSIC and CSSC naval yards have already reduced to only 7 major facilities between them.
  2. What are China’s prospects for reducing organizational barriers and increasing technological diffusion and absorption?China is responding to organizational and technological impediments by emphasizing integration of commercial and naval shipbuilding processes, which some industry experts believe could improve quality and efficiency. Others maintain that this will actually reduce efficiency and increase challenges because of the fundamentally different natures of naval and commercial shipbuilding.
  3. Are Chinese shipbuilding standards effective design and construction tools, given cultural barriers to standardization and regulation?Some highly knowledgeable experts believe that overall they “offer a workable road” to improved future construction. Others believe they are “hopelessly convoluted,” outdated, and probably used selectively. Of note, in China’s space industry it took top-level leadership intervention before program managers actually started to follow standards consistently. Several observers well versed in naval affairs emphasized that whatever the specifics, China is clearly putting sophisticated, capable warships to sea. Developments causing concern for U.S. and regional observers has been accomplished in spite of the limitations on Chinese shipbuilding raised by presenters, primarily those focusing on commercial issues (where Chinese shipbuilding is weaker than on the military side). To the extent that China can reduce or overcome these limitations, its accomplishments will be even greater. Shortly after the CMSI conference, in June 2015, a new joint PLA-China Classification Society (CCS) standard (GJB) levied certain requirements on new construction of commercial ships in support of military mobilization needs. While these requirements are strongly advocated by national security stakeholders, they have reportedly received pushback from ship builders and owners, complicating their implementation.

Implications for the U.S. Navy:

CMSI conferences are designed to offer insights and policy recommendations specifically useful to the USN. From my perspective, the conference yielded the following takeaways:

  1. Chinese ship-design and -building advances are helping the PLAN to contest sea control in a widening arc of the Western Pacific.
  2. Experts generally agreed that by 2020, the PLAN will be the world’s second most powerful navy, with naval assets dedicated to distant waters (“Far Seas”) missions greater in capability than those of the UK, France, Japan, or India. Given the likelihood of continued government investment, cost advantage, and pursuit of integrated innovation, China’s shipbuilding industry appears to be on a trajectory to build a combat fleet that could be, in hardware terms, quantitatively and qualitatively on a par with that of the USN by 2030. Whether it can stay on this trajectory, given downside risks to China’s economy, is another question.
  3. Regardless of China’s precise economic future, the PLAN—together with other PLA forces—will be increasingly capable of contesting U.S. sea control within growing range rings extending beyond Beijing’s unresolved island and maritime claims in the Near Seas. Experts generally agreed that by 2020, China is on course to deploy greater quantities of missiles with greater ranges than those systems potentially employed by the USN against them. China is on track to have quantitative parity or better in surface-to-air missiles and anti-ship cruise missiles (ASCMs), parity in missile launch cells, and quantitative inferiority only in multi-mission land-attack cruise missiles. Retention of USN superiority hinges on next-generation long-range ASCMs (the Long-Range Anti-Ship Missile and the vertical launch system-compatible Naval Strike Missile variant)—which are still “paper missiles,” un-fielded on USN surface combatants. Additionally, new U.S. ASCMs may be unable to target effectively under contested anti-access/area-denial conditions. Failing to fill this gap would further imperil U.S. ability to generate and maintain sea control in the Western Pacific.

The Way Forward:

At the CMSI conference and beyond, the aforementioned dimensions of China’s maritime rise have rightly attracted growing attention. Directed by civilian authorities, the U.S. Navy, Marine Corps, and Coast Guard have taken notice. The current U.S. Maritime Strategy, issued in 2015, states: “China’s naval expansion into the Indian and Pacific Oceans presents both opportunities and challenges.” It adds: “The U.S. Sea Services, through our continued forward presence and constructive interaction with Chinese maritime forces, reduce the potential for misunderstanding, discourage aggression, and preserve our commitment to peace and stability in the region.”

Like its predecessors, this conference continued the CMSI tradition of both addressing challenges from, and pursuing opportunities with, China. Increasingly, the U.S. and Chinese navies are meeting at sea and ashore. While the two sides will not always agree, to ensure avoidance of worse outcomes than the current peacetime mix of cooperation and competition, they must always understand each other clearly. It was in that spirit that NWC welcomed PLAN Commander Admiral Wu Shengli to represent his navy for the first time ever at the 21st International Seapower Symposium in September 2014. Admiral Wu is clearly focused on enhancing professional military education for his service. In February 2015, twenty-nine “fast-track” Chinese naval officers participated in a six-day exchange program with USN counterparts, including visits in Newport to NWC, with which I assisted, and the Surface Warfare Officers School. In July 2015, I was honored to accompany a delegation of twelve NWC students and NWC’s deans of international programs and domestic and foreign student programs to reciprocate with visits to the PLAN Headquarters in Beijing and to China’s Naval Command College in Nanjing.

On a subsequent visit to Nanjing, I visited the Zheng He Memorial Shipyard. Here, in the central Gulou district of what was once the Ming Dynasty’s capital along the Yangtze River, lie the Treasure Boat Factory Ruins. A world-leading shipyard six centuries ago, they produced many vessels for the maiden fleet of Zheng He, a Chinese Columbus who made seven Indian Ocean voyages from 1405-33, reaching as far as Mecca, Mogadishu, and Mombasa. In a testament to the scale of the enterprise, this included Zheng’s flagship vessel, which may have been as long as 136-meters (448-feet). A smaller replica welcomes visitors today. Walking its expansive if creaky decks one sunny afternoon, I could not avoid the questions that informed the CMSI conference: To what extent, and to what end, is China going to sea? Is China once again poised to engage in world-class shipbuilding? And if so, what use will Beijing make of this historic opportunity?

Whatever the ultimate answers, the U.S. Navy must understand its Chinese counterpart, and where it is heading. Assessing what ships China can supply its navy and other maritime forces with, today and in the future, can help to point the way.

Dr. Andrew S. Erickson, Professor of Strategy in the China Maritime Studies Institute at the Naval War College, blogs at www.andrewerickson.com. The views expressed here are his own personal perspectives and do not reflect the official policy or position of the U.S. Navy or any other organization of the U.S. government. An edited, updated version of the CMSI conference proceedings will be published by Naval Institute Press in early 2017.