Asian shipbuilding: The politics behind the success

Asia dominates global shipbuilding – but low wages are only half the story. The real driving force is the Politics: state credit guarantees, targeted subsidies and an industrial policy coordinated over decades. A look at the history of Japan, South Korea and China – and at why the purchasing process is the key to success.

Estimated reading time: 9 minutes

The policy behind the success of the Asian shipbuilding industry

Shipbuilding has one aim: to build and sell ships. In other words, it is the purchase or ordering of a ship that drives the shipbuilding industry. However, many factors come into play in this process, which is so simple in theory. This is hardly surprising, given the circumstances. There are the high prices, insurance, requirements, legal regulations and the demands that the operator places on the ship.

What are the risks involved in buying a boat?

In other words, nobody wants to buy a ship costing millions only for it to break apart at the first wave. Whilst the circumstances associated with shipbuilding complicate what is, in theory, such a simple process, politics is in a position to intervene here. If approached correctly, it can at least take on a number of the risks and problems associated with ship purchases and, by extension, shipbuilding, or at least cushion their impact.

Why is Asia’s leadership role no coincidence?

In the case of the Asian countries that now lead the global shipbuilding industry, this leading role is by no means a coincidence. Rather, it is the result of a careful, politically driven process, the outcomes of which are now becoming apparent. Government strategies, as well as cooperation between businesses, banks and the political sphere, play a key role in this.

From the 1990s onwards, governments in Asia have actively intervened in the shipbuilding plans and capacity of local industries. In doing so, they were pursuing a far-reaching industrial and geopolitical strategy.

How did Japan become a shipbuilding nation?

In the case of Japan, this strategy was based on a simple approach. Before and during the Second World War, Japan was neither a fully industrialised nation nor were efforts being made to increase industrialisation. This was due, amongst other things, to constant rivalry between the naval and land forces, which led to a fragmentation of efforts and initiatives. As a result, production was often carried out by hand and was consequently labour-intensive and slow.

During the Second World War, American efforts devastated the Japanese merchant and naval fleets, as well as the whole of Japan itself. Industry, which was dependent on imports, lay in ruins. The merchant and naval fleets had largely been sunk. What could happen next?

What role did the Korean War play?

From the US perspective, it was important to prevent a communist takeover by promoting the capitalist development of the market and industry in the country. With the Korean War, this led to the targeted use of Japanese shipyards to repair vessels damaged during the conflict. This provided the Japanese shipbuilding industry with funding, brought it experience and enabled the development of new skills; together, these factors accelerated its development into a modern and efficient industrial sector.

How did this cycle of costs and exports come about?

This politically driven support gave the Japanese shipbuilding industry a strong starting position. The government further bolstered this through direct funding schemes and export support. This set in motion a virtuous cycle in which lower costs led to more exports, more exports fostered greater technical capacity, which in turn led to lower costs, which then led to even more exports, and so on.

How did South Korea and China replicate the model?

To this day, this model continues to dominate the Asian shipbuilding industry. South Korea and China have replicated this model in their industries with substantial state subsidies. Added to this is the establishment of state-controlled or state-affiliated conglomerates, such as Hyundai Heavy Industries and Hanwha Ocean. These are designed to ensure that the government retains control over this sector of the economy.

Whilst low labour costs are now cited as the reason for the success of shipbuilding in Asia, it was in fact the political will and the strategies of governments that brought about this success. For the nations concerned, this involved vital issues such as international trade, jobs for the population and the ability to defend themselves at sea.

Why is the purchasing process the most important policy lever?

The most important area in which government policy currently supports the industry is the ship-purchasing process. Without purchases, there is no industry. Nobody builds ships just to display them at home. Instead, what matters is a process that makes the purchase – or the order for the construction of a ship – as straightforward as possible for the client. To achieve this, the Japanese Government provides guarantees for the financing of the ships. This shifts the risk associated with building a ship onto the Japanese state.

The Japanese model is based on the country’s dollar reserves, which are held by the government. In this way, the government secures loans at low interest rates and provides guarantees for financial compensation. This makes purchasing or commissioning a ship in Japan much more attractive, as the state now acts as a co-borrower.

How does the state credit system work?

These guarantees from the Japanese government are essential. Purchasing or ordering a ship is a costly undertaking and, as an investment, carries considerable risk. Private banks do not normally lend hundreds of millions of euros or dollars without government guarantees.

Japan has, from its own perspective, resolved this problem by using political institutions to mitigate the financial risk. In other words, the politically facilitated credit system is the main reason for Japan’s position as a market leader in shipbuilding.

In the case of South Korea and China, both countries apply exactly the same principles: state-owned banks guarantee the loans and thus assume, at least in part, the risk involved in ordering a ship.

What does this mean for the European shipbuilding industry and its skilled workers?

Whilst Asia excels in state funding and mass production, the strength of the European shipbuilding industry lies in specialisation, innovation and quality. This strength stands or falls on the availability of skilled workers – and this is precisely where it is worth looking to Eastern Europe. Experienced skilled workers from Poland, the Czech Republic and Romania are filling staff shortages and bringing solid craftsmanship to modern, digitalised production environments.

Welder & CNC operator
Precision work in specialist engineering and component manufacturing

Electricians & Electronics Technicians
Control, safety and navigation technology

Mechanics & Industrial Mechanics
Drive and Energy Systems

Pipe fitters & pipework installers
Supply and Fuel Systems

Shipbuilder & Steelworker
Fuselage and section construction, structural work

---

Enquire about skilled shipbuilding workers from Eastern Europe

Do you want to stand out from the international competition through innovation and quality, and need the right skilled workers to achieve this? We recruit experienced welders, electricians, mechanics and shipbuilders from Poland, the Czech Republic, Romania and other EU countries – quickly, in full compliance with the law and with the right qualifications.

---

Frequently asked questions

Why does Asia dominate the global shipbuilding industry?

It is not just low wages that are the decisive factor, but above all political will and decades of coordinated industrial policy. Governments, banks and shipyards work together to make buying a ship as easy and low-risk as possible for customers.

How did government policy help Japan to develop its shipbuilding industry?

After the Second World War, the US used Japanese shipyards for ship repairs during the Korean War. This brought in money, experience and new skills. In addition, the government provided support through direct funding schemes and export subsidies, thereby setting in motion a self-reinforcing cycle.

What is the most important instrument of state support?

The purchasing process. Japan offers guarantees for ship financing, thereby shifting the risk to the state. Loans are secured against dollar reserves at low interest rates – the state effectively acts as a co-borrower.

Why are government loan guarantees so crucial?

Building a ship costs hundreds of millions and involves a high level of risk. Private banks are highly unlikely to lend such sums without government guarantees. It is precisely this politically facilitated lending system that is regarded as the main reason for Japan’s market leadership.

What prospects remain for the European shipbuilding industry?

Europe excels through specialisation, innovation and quality rather than through mass production and subsidies. This strength depends largely on a skilled workforce – an area in which the placement of experienced EU staff makes a crucial contribution.

What is the legal procedure for seconded EU staff?

Full freedom of movement for workers applies to EU citizens. We apply for A1 certificates, ensure AÜG compliance and take care of minimum wage reporting to customs - completely and without any effort on your part.

Do you need shipbuilding subcontractors on a contract basis instead of temporary labour? Our sister platform takes care of that zeitarbeit-international.de.