While orders streaming in from shipping companies worldwide are creating fantastic business opportunities, Chinese shipbuilders are also facing very real challenges.

"China still lags far behind the top shipbuilding countries in many ship functions, in structural design and technology. It is leagues behind the other players in many key technologies, with no domestic brands to provide support products for exported ocean ships," said Zhang Xiangmu.

"A lot of key components simply cannot be manufactured in China at the present time. The country's capacity to provide the products required for high-tech and high added-value ships is woefully insufficient," said Zhang Xiangmu.

He pointed out that 88.4 percent of ships built and exported in the first six months of the year used components outsourced from abroad.

Overall, at least 60 percent of shipboard equipment is imported from overseas, creating a bottleneck for the shipbuilders.

International ship prices have declined since the second half of 2005, with competition becoming more and more intense. Raw material costs, RMB appreciation and exchange rate fluctuations are all key factors for manufacturers to take into consideration.

Besides, the headlong rush to build shipyards may produce an overcapacity situation because China will soon have the capacity for 40 million dwt, or 80% of total global demand.

"China's shipbuilders need to adopt a different approach and control shipbuilding capacity. Despite galloping output, investment risks in the shipbuilding industry in China are high," said Zhang Xiangmu.

Although China ranks third in terms of shipbuilding output, its productivity is only about one sixth that of ROK and Japan, making it unable to compete with them on high-value added products such as large liquefied gas and container carriers.

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