Move allows greater manufacturing focus on both military and commercial vessels

China Shipbuilding Industry Corp, the primary contractor for China's naval force, is transferring the assets of its subsidiary, Qingdao Beihai Shipbuilding Heavy Industry Co, to Wuchang Shipbuilding Industry Group Co, another of its subsidiaries, to enlarge the latter's capacity in building both military and commercial vessels.

Wuchang Shipbuilding, in Hubei province, is one of China's manufacturing bases for conventional submarines and frigates, as well as maritime defense equipment and patrol vessels.

Subsequent to the asset transfer, it had restructured the management of Qingdao Beihai Shipbuilding, the main business of which is ship maintenance and building bulk ships with an annual capacity of 3 million deadweight tons. It is also capable of repairing 212 vessels a year.

A spokesman for the state-owned CSIC says Wuchang Shipbuilding specializes in building warships, patrol vessels, offshore engineering ships and large-scale steel structures, but it needs to improve its ability in building large surface warships and long-distance commercial carriers.

"Even though Qingdao Beihai Shipbuilding has a proven ability in building large-scale bulk ships, it has a narrow product pipeline," the company says. "The integration (of Qingdao and Wuchang) will have complementary advantages. The new shipyard will be capable of producing not only military ships, including the next-generation frigates and amphibious warfare ships, but a wide range of commercial ships such as chemical tankers, megacontainer ships and wood-cargo vessels."

Last year, Wuchang Shipbuilding pulled in 12 billion yuan ($1.82 billion; 1.62 billion euros) in sales revenue, while Qingdao Beihai Shipbuilding netted 4.05 billion yuan. With a total investment of 3.9 billion yuan, Wuchang Shipbuilding also operates a manufacturing facility that produces offshore engineering products in Qingdao.

Dong Liwan, a shipbuilding industry professor at Shanghai Maritime University, says Qingdao Beihai Shipbuilding's three large dock facilities in Qingdao can provide a solid foundation to support the merged company's maintenance support ability.

"A merger is an effective method of cutting surplus in oversupplied industries," Dong says. "So I'm not surprised to see more restructuring going on this year, as the government deploys more resources in state-owned enterprise reform."

Sun Bo, the president of CSIC, says the group is eyeing more market growth points as China embarks on supply-side reform with gusto.

It also wants to improve its ability in 10 areas, including power and underwater defense products, electronic information and intelligent equipment, and mechanical and electrical equipment to integrate its civilian and military businesses over the next five years, he says.

The supply-side reform includes a series of policies to improve the manufacturing and agricultural sectors, public services, environmental protection, quality and scale of production and further opening up of Chinese markets for foreign investors.

With a workforce of about 150,000 employees, CSIC is one of the country's two major shipbuilding behemoths. It operates more than 50 industrial subsidiaries and 30 research institutes, including Dalian Shipbuilding Industry Co, Bohai Shipbuilding Heavy Industry Co and the China Ship Research and Development Academy. It has exported various types of vessels to more than 70 economies.

China State Shipbuilding Corp, the other state-owned shipbuilding giant, also has more than 50 subsidiaries and research institutes.