China’s Maritimization: The Bottom Line.
In this Asia-Pacific Insight, Christophe Granier analyses the rapid development of China’s maritime economy – China’s maritimization – both in terms of size and in diversity. He notes that China’s maritimization is moving in (at least) three ways. One is the country’s complex but powerful fisheries industry. Another relates to maritime farming and the major investments in technological development China is putting in place to acquire leadership on the matter. The third relates to China’s efforts towards developing a non-fisheries-related maritime industry. Overall, Granier concludes, China’s maritime industry has a promising future.
The Maritimization of China: Beijing Developing a Promising Global Vision?
[By Christophe Granier]
Ocean-related activities are an integral part of China’s globalization policy, and governmental support on the matter has increased over the recent decades. Major dynamics operate over there, with, on the forefront, the “Made in China 2025” plan presented in 2015 which partially focuses on producing strategic maritime assets.
Different approaches are being taken by the Chinese authorities. First, eleven types of strategic equipment goods are under development. Think naval architecture here, but also ocean exploration and exploitation techniques for instance. Second, efforts are made to deliver in ten areas, including the development of maritime engineering equipment and high-tech shipbuilding know-how. Also tremendously significant was, in late 2013, the launch of the 21st century Maritime Silk Roads (The Belt and Road Initiative) which directed important financial flows towards the financing of maritime, fixed, mobile and intellectual infrastructure, from port quays to transport vessels and training of specialists.
Interestingly, while these new orientations primarily aim at developing shipbuilding and research capacity, the whole maritime sector has benefited from the trend, from the related subsidies, and from the significant public support. Yet, the maritimization of China is not an easy topic. So, where is the trend going?
In this insight, I am pointing towards three different ways China’s maritimization is moving.
One presents the maritimization of China in light of its complex fisheries industry. Another rather focuses on the significant progress made by the fish farming industry as a result of major investments in technological development. The third discusses China’s efforts towards developing a non-fisheries related maritime industry and suggests that China’s maritime industry might have a promising future in relation to marine minerals exploitation and energy production too.
1. The fishing industry is currently under Chinese domination, but for how long?
The big picture is as follows: China’s maritimization first relates to its fishing industry.
China is the world’s largest producer of fish and other aquatic animals these days. Its production reaches about 50 millions of tons per year, out of the approximate 100 millions of tons produced worldwide. It has also been the largest exporter since 2002 (before Thailand and Norway) and currently accounts for ten to twenty percent of world exports of fishery products. In 2016 alone, Mainland Chinese vessels accumulated about 17 million hours of fishing, before the Taiwanese fleet (2 million). According to Greenpeace, China’s deep-sea fishing vessels alone represent more than 2,500 units around the world.
Despite these numbers, however, China’s fisheries-based maritimization efforts face significant challenges. Starting with the issue of long-range fishing.
The issue of long range fishing.
Long-range fishing tends to be a delicate topic because the habits of the Chinese fleet are questioned by various countries which have denied them access to their exclusive economic zones (125 miles or 200km from the coast). For instance, Chinese trawlers were stopped in 2017 by the authorities of Senegal, Guinea, Sierra Leone and Guinea Bissau and in 2018 in Liberia. In 2016, coastguards also sank a Chinese trawler fishing illegally in Argentine territorial waters.
The maritime areas in which the fishery produces the largest amount of resources are indeed very international. They encompass the continental shelves of the China Sea, followed by those of Northern and Southern Europe. Two other areas where the proportion of the local resource collected by Chinese vessels is highest are the coasts of West Africa and South-West America. As a matter of fact, a recent census by Greenpeace reports the presence of more than 400 Chinese deep-sea trawlers off the coast of West Africa (over 70% of the Chinese fleet positioned around Africa), which tend to benefit from the lack of means of control of the surrounding countries.
Resource preservation complexities.
Fishing is a complex matter from China’s perspective and makes the country’s maritimization a real challenge. To some extent, the protection of the resource of the near-sea area of South China might even be at the origin of distant fishing. Problematically, the trend impacts the countries which resources are used.
In West Africa, for instance, the progressive utilization of the resource is compensated very temporarily by the conditioning carried out on the spot. Unhappy with the remaining substandard fish left behind by the trawlers, the African artisanal fishermen resell their catches to Chinese factory ships which reprocess them into different products. Yet, the stakes are significant as the near-programmed depletion of the resource might kill the circular economy to which the local fishermen are subject. As for the jobs offered to local workers onboard Chinese trawlers, they are eminently precarious and hardly provide a solution to the issue.
Some regulatory complexity too.
China’s maritimization efforts also have to deal with a certain degree of regulatory complexity. In the South China Sea, Beijing has established a blackout period to allow the resource to regenerate (it peaks this year from May 1 to August 16). Yet, things do not really work as planned.
First, the blackout is systematically ignored by bordering countries, with the Vietnamese fisheries ministry even recommending that its fleet disobey Chinese instructions. On May 22, Vietnamese fishing vessels were even evicted by Chinese Coast Guard and military guards from a disputed area.
Second, in China itself, this seasonal ban only holds because the government compensates with fuel subsidies, supports the construction of new vessels and the extension of fishing areas. At the same time, the move also has the effect of encouraging operators to go farther and farther seeking new fishing territories.
In matters relating to long-range fishing (such as resource preservation), the Chinese authorities then face difficulties overseeing the initiatives taken by elements of their own fleet acting far from home. This is particularly true with regard to the protective bans imposed on certain protected species. Following the arrest in 2017 by Ecuador of a refrigerated vessel carrying 6233 carcasses of protected sharks caught in the prohibited waters of the Galapagos Islands, the Chinese Ministry of Agriculture for instance had to suspend the operations of the 78 offshore vessels of the company concerned (Fuzhou Honglong).
Not to forget economic complexity.
Last but not least, the fisheries sector is still largely controlled by state-owned companies, led by China National Fishery Corp (CNFC), the main operator of fleets active in distant waters. According to the journal Science Advances, overall, subsidies granted to the offshore fishermen would indeed place China in 3rd place after Japan and Spain, at a similar level to South Korea’s, thus making the fisheries industry a noodle bowl.
Taking a Greater China perspective, groups from Hong Kong and Taiwan have also initiated significant internationalization processes involving the acquisition of foreign assets. To this extent, one will remember the resounding bankruptcy of China Fishery, owner the USD 800 million Copeinca group (Peru), eventually ruined by the impact of the El Nino phenomenon in 2016.
Further, deeper, more diversified.
From the perspective of Beijing, one reaction to the long-range fishing problem has consisted in enacting fishing reduction measures. In particular, a 20.000 fishing vessels cap is to be imposed by 2020, with a 3.000 unit limit being fixed for the open sea fleet. Moreover, an agreement has been signed with eight countries and the European Union in December 2007 to stop fishing in the Arctic Ocean.
Official fishing declarations are hardly reliable. They may be exaggerated in China, but other countries tend to underestimate them for fear of environmental name and shame. Nonetheless, it is accepted that Chinese companies produce 18% of the resource caught on the high seas. Half of which is then re-exported.
As the preferred alternative to a variety of endangered species, squid represents half of the total catch and force fishing companies to go further and further. Argentina, in fact, forced some Chinese trawlers to retreat into Peruvian and Chilean waters where they now campaign.
Yet, diversification is the key to unlocking China’s maritimization ambitions. Hence, subsidized by public funds, significant investment in marine technology support this quest for new resources. The China Ship Development & Design Center, an entity of China Shipbuilding, is developing boats designed to catch krill in the Antarctic (tiny crustaceans that are the main food of giant cetaceans and which depletion could threaten marine ecosystems). Worth highlighting, also, the same center publishes together with the Ministry of Agriculture the first manual aimed at supporting the construction of polar fishing vessels. Diversification, in sum.
2. Fish farming, a traditional activity turning into excellence
China’s maritimization also develops through fish farming, which nowadays has clearly shifted from a subsistence activity into a very significant industry.
Aquaculture most likely started in China about 3.500 years ago, but the activity has long been limited to the ponds and rivers. Nowadays, however, China produces 30 million tons of edible fish through aquaculture – out of the 75 million tons produced globally.
Domestic production has tripled in the last twenty years, to such an extent that in China the aquaculture fish stocks represent a significant part of the total domestic production. A larger part than in the major industrialized maritime countries, as a matter of fact. Hence, the Chinese fish farming industry ranks first. Far beyond the Indian competition which is more than ten times smaller.
The sea surface used by China for aquaculture purposes has actually been multiplied by five during the 1990s as a result of public incentives and a rocketing demand. Incidents (such as viral shrimp infections in 1996) have occasionally slowed production, but nothing has interrupted the trend.
Recently, however, the order was given to reduce production to favor quality over quantity so the dynamics might change. A little.
At all times, nonetheless, the industry has made major efforts from a technological research point of view. In fact, the modernization and rationalization measures put into place suggest that the Chinese aquaculture production could be increased by thirty percent by 2025 while the markets shares of traditional fishing could stabilize if not reduce.
From limitations to investment.
Despite significant technological improvements, one of the limits of this rapidly progressing industry is the common use of low-end products originating from traditional fishery (itself limited) to feed the farmed fish production.
To achieve its quality objective, China therefore hopes to cooperate with countries already specialized in the sector such as Norway. Beyond cooperation, moreover, China also invests heavily to develop its own capabilities. Following a collaboration with military underwater specialists, the Wushang Shipbuilding company – Norwegian farms supplier – has for instance developed a submersible salmon cage capable of automatically moving to deeper and colder waters to preserve the resource, even in hot waters.
Wuchang Shipbuilding Industry, a subsidiary of CSIC, has furthermore started the world’s largest intelligent fishery consisting of three 110m x 75m platforms capable of producing 6000 tons of fish each whilst withstanding the most powerful typhoons. The platform, needless to say, is to be piloted by 9 employees only.
But the Chinese maritime sector has more players to rely on, including the promising Tongwei group which has become the world’s leading producer of nutrients for aquaculture farms. Hence, with such world-class leaders, no doubt that China shall continue to export a greater share of its production while making even more progress from a technological perspective.
3. Non-fishery maritime resources as the new Eldorado?
The third axis of China’s maritimization relates to the exploitation of non-fishery maritime resources. Understand, marine energy and mineral resources.
The trend is not a surprise since the move was announced as part of the previously mentioned “Made in China 2025” plan. Yet, built upon on a thorough exploration process, the exploitation of marine resources is more than ever one of China’s priorities, both in economic and influence-building terms.
The borders conflict in the South China Sea is an example of Chinese ambitions on the matter, mineral resources are a strategic objective. Nickel, cobalt, copper, manganese, rare earth and metals are contained in the nodules that lay at the bottoms of certain oceanic zones. Hence, China is investing in efficient equipment while negotiating concessions with friendly or interested countries. In particular, the small states of the Pacific rim are an important zone of influence which the United States and Australia try to contain as much as possible.
Again, technology first.
Containment or not, on the technological front China is making progress in developing specialized equipment.
Following plans designed by Nautilus Minerals, Mawei Shipbuilding has developed a Deepwater Minerals and Precious Metals trawler which ought to start operating in early 2019 along the coasts of Papua New Guinea.
China’s competitors are trying to speed up their research, of course, and Japan’s recent discovery of a very large deposit of nodules in the territorial waters of one of its islands in the Pacific appears to promising.
Yet, offshore hydrocarbon extraction is best-mastered by the largest Chinese oil companies which have recently obtained several operating licenses and concessions in various parts of the globe. In fact, their ability to process high temperature and high-pressure deposits (developed by CNOOC in the South China Sea) puts China in second position behind the United States in this specific area. In the transformation of petroleum products, too, China has made major efforts when it decided in June 2017 to invest USD 7 billion in the still fledgling technology of floating liquefied natural gas plants (to be installed off the coast of Africa at some point).
Still in the energy sector, China has been managing the world’s fourth tidal power plant since 1980 on the Zhejiang coast. However, few developments are to be reported on this side of energy technologies even though China dominates the construction of turbines of all types globally.
Mega energy for mega maritime projects?
Another opportunity for China would relate to the development of mobile energy sources capable of supporting the country’s building needs.
Embarked nuclear power is increasingly relevant to that extent. Inspired from Russian and ex-USSR technologies, mini reactors transported on barges or submarines and cooled by sea water have recently experienced a renewed interest. Chinese progress on the matter has been important, but so far Russia seems to be maintaining its technological lead.
>> Related reading: Tongwei: From aquaculture to solar energy production.
The first vessel benefiting from such equipment, the Akademik Lomonosov, was launched on 28 April. And several additional units should be produced in Chinese shipyards by 2020. Their use could be versatile, from producing the energy needed by shipyards and oil rigs to developing floating power stations capable of contributing to humanitarian operations off foreign coasts. In the not-too-distant future, energy-deficient BIS countries (Pakistan, Bangladesh, Myanmar) could also benefit from this technology. No surprise, therefore, that the nuclear giant CNNPC has already built a joint venture to develop the matter further.
The maritimization of China: the bottom line.
Supported by a strong development policy, China’s maritime economy is growing rapidly, both in size and in diversity. China’s maritimization is moving in (at least) three ways. One is the country’s complex but powerful fisheries industry. Another relates to maritime farming and the major investments in technological development China is putting in place to acquire leadership on the matter. The third relates to China’s efforts towards developing a non-fisheries-related maritime industry.
Absent from this insight is the potential that services, transportation and communications also have to offer. These industries, indeed, could also have an impact on developing China’s maritime expertise and leadership. All in all, nonetheless, China’s maritime industry has a promising future. To be continued.
>> Further reading: China’s Global Vision of the maritime sector (continued), by Christophe Granier.
Note: This Asia-Pacific Insight was originally published in its French version titled ‘Les blocs de données cryptées : des projets à la chaîne’ in LA CHINE HORS LES MURS #24 (20.7.2018), as published by the French External Trade Advisors (Comite National des Conseillers du Commerce Exterieur).
Christophe Granier | China Expert Contributor
During his 37 years banking career, Christophe Granier was most of the time involved in asset finance activities, running specialized leasing subsidiaries of Soc Gen in seven countries including Japan, Turkey, and the Netherlands.
His main positions were Senior Country Officer of the Bank in Pakistan, Managing Director of Trilease International Ltd and Sogelease in Hong-Kong, before moving to Shanghai in early 2005 to establish the wholly-owned Soc Gen subsidiary specialized in leasing and renting activities.
Christophe Granier devoted more than 10 years of its career to Greater China. French Trade Counselor since 2000, he was also the Secretary-General of FTC sections in Hong Kong & China for 8 years. Coordinating the booklet on the International Strategies of French Groups in 2011, he took the lead of the worldwide inquiry on the China globalization “La Chine Hors Les Murs” in 2013, publishing the main study in 2014 then heading the Observatory for China Globalization.
Disclaimer: The views expressed are those of their author(s) only and do not reflect those of The Asia-Pacific Circle or of its editors unless otherwise stated.
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