CHINA: MARITIME SHIPPING DEVELOPMENTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000401880001-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 10
• Document Creation Date: December 22, 2016
• Document Release Date: October 27, 2010
• Sequence Number: 1
• Publication Date: December 22, 1983
• Content Type: MEMO

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
22 December 1983
China: Maritime Shipping Developments
Summary
We believe China will continue to expand its merchant fleet
but that reported plans to increase the fleet from almost 13
million tons to 30 million tons by the year 2000 are overly
optimistic. The depressed state of the world maritime industries
and the shallowness and congestion of Chinese ports will work
against China's ability to meet the target. The limited capacity
of Chinese shipyards and the shortages of experienced crews also
will affect fleet expansion plans. Nevertheless, we expect
Beijing to push development of its maritime industry to carry as
much of its foreign trade as possible in Chinese ships, both as a
means of earning foreign exchange and of employing its abundant
labor force. China's desire to avoid the controls of the US
Controlled Carrier Act implies it is interested in cross
trading--a practice that could help finance expansion plans. 25X1
Fleet Development
In the 1970s, the Chinese began an impressive fleet
development program primarily aimed at eliminating China's
dependence on chartered foreign vessels. The fleet now includes
float-on and float-off ships, roll-on and roll-off ships,
container ships, refrigerator ships, bulk carriers, oil tankers,
and log carriers, as well as traditional general cargo and
passenger ships. Chinese ships now make calls at 420 ports in
over 100 countries. By 1982, the Chinese had opened full
container service routes to the east and west coasts of the
United States, adding to the existing routes to Hong Kong, Japan,
This memorandum was prepared byl Ithe Development
Issues Branch of the China Division, Office of East Asian
Analysis at the request of Robert G. Adam of the Federal Maritime
Commission.
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and Australia. In August 1983, they opened a full container
route to Western Europe.
With an expanded domestic shipbuilding capacity and the
purchase of both new and second hand vessels on the world market
China has built the world's 12th largest maritime fleet. By the
end of 1982, China's merchant fleet consisted of 957 ships or
almost 13 million deadweight tons (dwt), some six times the
deadweight tonnage of 1970 (see table). And, according to a
China Ocean Shipping Company (COSCO) official, the Chinese have
set a target of 30 million dwt target for the end of this
China:
Merchant Fleet Tonnage
Year End
Number
of Ships
Deadweight Tons (dwt)
(thousand)
Average dwt
(thousand)
Ocean Cargo
Originated
(Million Metric Tons)
Ratio of
Cargo to dwt
1965
190
1,075
5.66
2.46
2.3
1970
269
1,944
7.23
4.99
2.6
1975
495
6,082
12.29
24.24
4.0
1980
870
11,800
13.56
42.81
3.6
1981
907
12,220
13.47
41.53
3.4
1982
957
12,817
13.39
46.06
3.6
Fleet Productivity 2
World economic conditions have so depressed the shipping
trade that a record 13 percent of the world's merchant fleet was
idle at the end of January 1983, according to the General Council
of British Shipping. This slowdown in world trade has affected
the productivity of China's fleet even though it continues to
carry the bulk of Chinese exports and imports. Although the
Chinese added 1 million dwt to the fleet between.1980 and 1982,
the'1982 ratio of cargo to deadweight tonnage showed the same
3.6 ratio as80, after dropping slightly in 1981 (see
4 4. 1 .. \
1 Appendix A contains a brief introduction to those sectors of
the Chinese Maritime Industry that are concerned with
international trade.
2 The ratio of cargo tonnage carried to total deadweight tonnage
of the fleet is used as a measure of productivity for this
paper.
3
In contrast, the Soviet fleet showed a 11.4 ratio of cargo to
deadweight tonnage in 1982. F----] 25X1
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The rapid rise in China's foreign trade that has fostered
fleet expansion in the past will probably continue to allow the
fleet to maintain current productivity levels. Chinese foreign
trade is expected to continue its upward trend, especially with
China's current foreign exchange reserves of $17 billion.
Nevertheless, China will be hard pressed to raise productivity if
the fleet expands too rapidly. According to some industry
analysts, it could be as late as 1988 before the current
overcapacity (more ships than cargo) in world trade is reduced to
an acceptable market balance.
Foreign Trade Drives Maritime Expansion
One of China's maritime objectives is to carry as much of
its foreign trade in Chinese bottoms as possible. Thus, the
Chinese tend to export on a cost, insurance, and freight basis
and to import on a free on board basis. China's claim that 70
percent of its foreign trade moves on COSCO ships is in our view
accurate. The failure of the US fleet to get the one-third share
of the US-China trade called for in the now-expired US-China
maritime agreement is further evidence of China's strong effort
to carry as much of its foreign trade cargoes in Chinese vessels
as possible. The US fleet managed to carry only 15 to 16 percent
of the bilateral liner cargoes and a negligible amount of the
bulk cargoes.
In value terms, China's foreign trade has more than doubled
since opening up to the West in 1977, totaling some $38 billion
in 1982. The Sixth Five-Year Plan (1981-85) calls for an
additional increase of some $19 billion by 1985--a real growth
rate of 8 to 9 percent per year. We believe these increases will
continue to cause serious congestion problems in Chinese ports.
Toward the end of the 1980s, however, congestion problems--
particularly in the dry bulk and general cargoes trade--could
ease somewhat as the Chinese open new facilities. Construction
of 132 new deepwater berths (for vessels 10,000 dwt or greater)
in coastal harbors is to begin by 1985, adding 100 million tons
of cargo capacity. The Chinese are also trying to improve the
capacity of river ports, especially on the Chang Jiang (Yangtze
River). They plan to construct 30 new berths on the river below
Nanjing and, this past spring, opened the Chang Jiang ports of
Nantong and Zhanjiagang to foreign ships, mainly to relieve the
pressure on Shanghai--the largest and busiest port.
Draft Restrictions Increase Ship Calls
Because shallow depths limit access of larger ships to
Chinese ports, the Chinese use more and smaller ships than would
be needed with deeper ports. As the table shows, the average
ship size has hovered around 13,000 dwt although there are some
tankers and bulk carriers in the 60,000-to 80,000-dwt class.
China's dredging fleet, one of the world's most modern, tries to
maintain a minimum clearance for 20,000-dwt ships at most major
ports. Most ports, however, are located at river mouths, where
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deposits of clay, silt, and sand necessitate constant dredging.
For example, about half of Shanghai's berths cannot handle ships
over 10,000 dwt, and there is little hope for significant
improvement even with additional dredging. Alternatively, China
could side step the draft problem by developing more deepwater
ports at new coastal locations. A 100,000-dwt berth is under
construction as Shijiusuo, but we know of no long-range plans for
building additional 100,000-dwt class berths at other new coastal
locations.
Domestic Ship Production
China's shipbuilding industry has significantly increased
its exports since building its first export vessels in 1977, and
we believe the industry will continue to go after a larger share
of the global market. Since 1980, China has contracted to build
for the world market over 1'million dwt valued at around $1
billion. The Chinese agreed to these contracts even though plans
for expanding their own maritime fleet already exceed yard
capacity (Chinese shipyards produced 1,025,000 tons in 1982).
The Sixth Five-Year Plan calls for 5.8 million dwt to be added to
the fleet during the 1981-85 period. Domestic shipyards are
slated to produce 2.5 million of this between 1982 and 1985.
Thus, China needs to purchase over 2 million dwt abroad to raise
the 1982 fleet up to the 1985 target.
We expect China will continue to expand its shipbuilding
capacity and to produce both for domestic and foreign sales.
China's shipyards are increasing the percentage of domestic
materials used in ships for export through licensing and joint
production agreements with foreign firms. Although these
shipyards now produce high quality ships for export, China is
buying similar ships abroad. For example, a Shanghai shipyard is
constructing a 12,800-dwt container ship for a Singaporean
company at a time that China has a contract with a West German
shipyard for four container ships (12,300 dwt) and reportedly is
negotiating with West German yards for nine more container-
ships. We believe the Chinese also will continue to buy ships
abroad because they need to replace a number of the older second-
hand vessels that were purchased at bargain prices during the
expansion program of the late 1970s. The need to replace older
ships, the desire to export ships, and expansion goals for the
future, in our opinion, will keina active as both buyer and
seller in the world market.
Experienced Crews
A shortage of skilled crews also works against achievement
of the planned increase'in tonnage to 30 million dwt. Although
around 1,500 seamen are now trained yearly at eight colleges and
high schools, graduates go to both the Chinese fleet and to
foreign shipping lines. By supplying Chinese crews to foreign
ships China not only has another source of foreign exchange but
also gains from the skills acquired by the crews on foreign
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vessels. Even if the Chinese continue this practice, we believe
they probably will not have enough experienced crews to man a
rapidly expanding fleet. The need for skilled seamen will
probably be particularly acute if future fleet additions include
a large number of specialty vessels such as container ships.
Cross-Trade Potential
Some international carriers have expressed concern that a
rapid growth of China's merchant fleet carries with it the
potential for China to undercut foreign liner services in the
cross trades--the carrying of cargo between two foreign ports.
Indeed, some cross-trade cargoes are already moved along Chinese
liner routes, and one service specifically for cross trading
between Malaysia and Europe has been established. We believe the
Chinese have been less active in the cross trades because most of
the fleet tonnage is dedicated to carrying their own trade. 25X1
However, we expect that as the Chinese fleet expands--
especially with container ships--the fleet will take advantage of
opportunities for carrying cross-trade cargoes. Cross trade can
be a valuable source of foreign exchange, as it has been for the
Soviet maritime fleet. Moreover, bargain-priced ship additions
and low labor costs provide the fleet an opportunity to undercut
established shipping rates. We believe, however, the continuing
acquisition of containerships and the opening of new container
routes will enable the Chinese to increase cross-trade cargoes
without resorting to excessive rate cuts. For example, the first
voyage over the new container route to Western Europe included
calls at Hong Kong, Singapore, London, and Rotterdam before
docking in Hamburg--all of which add to cross trade
opportunities. 25X1
Although the Chinese have container routes to the East and
West coasts of the United States they have not been active in the
cross trade from US ports. However, the Chinese.demands for
most-favored-nation status and exemption from the Control Carrier
Act for cross trade, along with the strong interest in improving
access to US ports expressed during the latest US-Chinese
maritime negotiations, probably indicate a Chinese interest in
carrying cross trade cargoes from US ports. The Controlled
Carrier Act (Ocean Shipping Act of 1978) requires a foreign
government owned or controlled (in excess of 50 percent) carrier
to maintain just and reasonable classifications, rules, or
regulations and to have on file with the US Federal Maritime
Commission rates and tariffs that are deemed just and reasonable
in order to obtain the Commission's approval for cross trading.
The granting of most-favored-nation status would remove the
Chinese from these controls.
At a future date, the extent of government ownership or
control of shipping companies could become a controlled carrier
issue because the Chinese are encouraging the development of non-
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central government transport services. Beijing is encouraging
city, provincial, and individual operators to invest in shipping
fleets for both domestic and foreign trade. A number of the
larger port cities and a few provinces have begun independent
operations not only for short hauls but also for foreign trade in
Asian waters. According to the Chinese media, these provincial
and lower level enterprises by early 1983 controlled some 300,000
deadweight tons of shipping, which offered services to Hong Kong,
Japan, the Philippines, and Singapore. So far, there are no
indications that these independent operators will expand service
to the United States.
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Appendix A
Principal Organizations in China's Maritime Industry
The following discussion reviews the more important
organizations in the Chinese maritime industry that are involved
in international trade. There is some overlap in organizational
responsibilities and the potential for bureaucratic conflict.in
Chinese maritime affairs is large. The Ministry of
Communications controls most of China's water transportation
resources through the China Ocean Shipping Company, the China
Ocean Shipping Agency, the China Merchant Steamship Navigation
Company, Ltd., and the Hong Kong-based companies. The Ministry
of Foreign Economic Relations and Trade controls the China
National Foreign Trade and Transportation Corporation and the
Chinese National Chartering and Ship Brokering Corporation. The
Chinese are particularly aware of the overlap between the
Ministry of Communications'and the Ministry of Foreign Economic
the government is studying the possibility of
reorganizing the maritime industry.
the study could result in the creation of a new maritime agency
reporting directly to the State Council whereby dual
responsibilities would be reduced in maritime affairs.
Ministry of Communications (MOC)
MOC is responsible for most of China's ports and road and
water transportation systems.
China Ocean Shipping Company (COSCO) controls the Chinese
international fleet through its six operating divisions based in
the ports of Shanghai, Tianjin, Dalian, Qingdao, Guangzhou, and
Nanjing. COSCO, while retaining the responsibility of overall
coordination, is reportedly allowing more decentralization of
authority in its structure by giving each division greater
responsibility in operating its own fleet. COSCO carries out the
following specific functions:
o Administration and operation of China's fleet of oceangoing
ships.
o Direct chartering of foreign vessels.
o Administration of Chinese-flag ships participating in joint
shipping operations with foreign countries.
o Overseeing the Chinese-owned flag-of-convenience shipping
companies in Hong Kong.
o Assisting in the purchase and registration of new shipping.
China Merchant Steamship Navigation Company (CMSN) functions
as a shipping agent and charter broker for China and its joint
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shipping companies--Sino-Albanian Shipping Co., Sino-Polish
Shipping Co., and Sino-Tanzanian Shipping Co.,--and as a general
agent for COSCO. CMSN also oversees the Chinese owned--Hong Kong
registered companies--Ocean Tramping Co., and Yick Fung Shipping
and Enterprises, Co. which fly the Panamanian flag. CMSN
performs the following functions:
o Transport of passengers and cargo by water in China and
abroad.
o.Operation of wharves, warehouses, and subsidiary
transportation at home and abroad.
o Towing and lightering in Chinese and foreign ports.
o Selling ship's stores.
o Operating ship agencies at home and abroad.
o Operating as cargo agency for shipment, transshipment, and
through transit of cargo.
China Ocean Shipping Agency (COSA or PENAVICO) is the
primary Chinese port agency, acting as an agent for all Chinese
and foreign ships in Chinese ports. COSA operates 1.8 principle
branches in China. The agency arranges:
o Entry and departure procedures.
o Pilotage, berths, and cargo handling.
o Inspection, testing, weighing, and measuring of cargo, and
inspection, fumigation, cleaning, and sweeping of cargo
holds.
o Transshipment of international cargo by sea.
o Door-to-door container service within China and in a few
foreign countries.
o Shipments, booking space, and international sea passages.
o Ship repairs and marine surveys.
o Settlement of cargo claims and handling of marine casualties,
including salvage operations.
o Calculation and collection of freight and settlement of
claims for dispatch-money and/or demurrage.
o Chartering, purchase/sale, delivery/redelivery, and
handling/taking over of ships.
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o Medical treatment for crew members and procedures for their
replacement and repatriation.
Ministry of Foreign Economic Relations and Trade (MFERT)
MFERT has responsibilit for development of trade with
emphasis on exports.
China National Foreign Trade and Transportation Corporation
(SINOTRANS), directly under the Ministry of Foreign Trade, is
responsible for arranging the internal and external transport of
China's foreign trade cargoes by all modes of transportation.
Normally, SINOTRANS arranges for sea transportation on Chinese-
flag ships, but also can arrange with China National Chartering
Corporation for shipment by foreign vessels.
Chinese National Chartering and Shi Brokering Corporation
(SINOCHART OR ZHONGZU) charters vessels and books shipping space
on the international market at the request of SINOTRANS.
Headquartered in Beijing, SINOCHART has branch offices in 18
Chinese ports. F ]
Far Eastern Enterprises Company, Ltd. (FARENCO), is a
Chinese-owned, Hong Kong based agent for MOFERT organizations.
FARENCO obtains charters, makes cargo arrangements, and also buys
and sells vessels.
SINO-AM Marine Company, Inc., and China Interocean Transport
Inc., are US-based subsidiaries of MOFERT organizations and
arrange ers and freight-forwarding from the United States to
China.
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SUBJECT: China: Development of Maritime Shipping
Distribution:
Federal Maritime Commission
1 - Robert G. Adam, Office of Policy Planning, International
Affairs
National Security Council
1 - David Laux, NSC Staff
Department of Transportation
1 - John M. Pisani, Director, Office of Port and Intermodal
Development, Maritime Administration
1 - Vance Fort, Director, Office of Policy and International
Affairs
1 - Reggie Bourden, Chief, Office of International Affairs,
Maritime Administration
Department of Commerce
1 - David Peterson, Director, Office of Intelligence Liaison
1 - Debourne Piggot, Project Manager Ports
Department of State
1 - Charles Martin, INR/EAR/CH
1 - Richard Boucher, Office of Chinese Affairs
1 - Gordon Brown, Office of Maritime Affairs
Central Intelligence Agency
2 -
DDI
1 -
Executive Director/DCI
1 -
NIO/EA
1 -
C/NIC
1 -
PDB
1 -
D/OEA
1 -
Chief,
Production OEA
1 -
Chief,
China Division
1 -
CH/DOM
1 -
CH/DEF
1 -
CH/FOR
1 -
CH/DEV
1 -
2 -
OCR/ISG
5 -
CPAS/PDG/IMC/CB
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