The cover of The Economist Weekly, issues of November 4 and 11

, providing 1 trillion yen in funding to Japan's national shipyard "Shikoku Shipyard", aiming to revive Japan's share of the global shipbuilding market to 20%.

Shipbuilding stocks are booming. The catalyst was an emergency proposal submitted by members of the Liberal Democratic Party's Economic Security Promotion Headquarters (Head, House of Representatives member Takahiro Kobayashi) to Prime Minister Ishiba on June 20th. Following this, from October 20th, the stock prices of marine industrial companies such as Furuno Electric rose sharply to 2.8 times, followed by Utsui Shipbuilding up 75%, Japan Engine Company up 62%, Nakamura Shipyard up 35%, IHI up 31%, and Mitsubishi Heavy Industries up 28%.

In the emergency proposal, the part that received particular attention was the section "establishing a fund led by the government that can invest over 1 trillion yen" and the statement "we will also consider expanding capital investment through private operations of state-owned facilities (GOCO)". The latter surprised the stock market, which was considered as the "national shipyard concept". GOCO is based on the Act on Promotion of Economic Security enacted in 2022. When it is difficult to ensure the stable supply of "specific important items", the government can take necessary measures, one of which is GOCO.

In other words, using this framework, the government can acquire and own factories and equipment and outsource commodity production to private operators. In January, after the second term of the Trump administration took office, he visited the United States and was pointed out by a U.S. official that "the catastrophic capability of U.S. merchant shipbuilding has affected the construction of warships for the U.S. Navy, which is a security issue."

The Trump administration also intended to shift merchant ship procurement from China to other countries. Mr. Ono said, "So we will build them in Japan, I want the private sector to make the decision." After returning to South Korea, during the party discussion, Japan decided to invest domestically instead of investing in American shipyards like South Korean shipyards, leading to the emergency proposal.

◇ Shimonoseki rises to fourth in the world

Japan used to be the largest merchant shipbuilder in the world. However, during the decline of the shipbuilding industry since the 1970s, major shipbuilding companies such as Mitsubishi Heavy Industries and Kawasaki Heavy Industries have continuously reduced their building capacity, currently ranking third in the world, exceeding South Korea and China. The key point of the LDP's emergency proposal is "in February this year, according to the Act on Promotion of Economic Security as a cabinet order, a system that can be interpreted as 'factory' was established."

A factory refers to a factory directly controlled by the army and navy before and during the war. The navy set up naval shipyards to develop and build warships in Higashihiroshima City, Sasebo City, Yokosuka City, and Maizuru City. These shipyards were abolished at the end of the war, and the Ministry of Defense did not manufacture its own equipment after the war. However, Mr. Ono only compared it to the meaning of a "government-owned shipyard" and stated, "the image of the government purchasing private shipyards, investing in equipment, and building merchant ships" (Mr. Ono).

The current Japanese shipbuilding industry is mainly composed of shipyards known as "slipways," such as Shimonoseki Shipbuilding (Shimonoseki City, Ehime Prefecture), Oshima Shipbuilding (Nishisonogi City, Nagasaki Prefecture), and Nakamura Shipbuilding (Osaka City). Although large companies have reduced their building capacity due to the downturn in the shipbuilding industry since the 1970s, they have managed to survive by utilizing the industrial cluster built in the Seto Inland Sea area. Shimonoseki Shipbuilding now has the sixth largest shipbuilding capacity in the world.

In June this year, Shimonoseki Shipbuilding announced that it would increase its stake in Japan Marine United Corporation (JMU) to 60% and become a subsidiary. Tachibana Shipbuilding (Fukuyama City, Hiroshima Prefecture) acquired all shares of Mitsu E&S Shipbuilding from Mitsu E&S, becoming a wholly owned subsidiary of Japan. The restructuring of the shipbuilding industry is underway, mainly within the companies. JMU is a company formed by integrating Devia (formerly Hitachi Zosen) from Canada and IHI's shipbuilding division over 13 years, and with JMU's subsidiaries, Shimonoseki Shipbuilding will become the fourth largest shipbuilding company in the world.

The global situation in the shipbuilding industry is undergoing significant changes. President Trump expressed concerns about the almost disappearing U.S. merchant shipbase and imposed sanctions on China, the country with the largest shipbuilding volume globally, stating that he would "revitalize the U.S. shipbuilding industry." On the other hand, under the "National Vessels Built in the Nation" policy, China is also making every effort to support domestic shipbuilding to enhance its own cargo transportation. China is also deepening its relationship with Russia on the Northern Sea Route, and the importance of icebreakers is increasing more and more.

According to shipbuilding industry officials, the LDP's emergency proposal "was not communicated to the industry in advance," but it coincided perfectly with the timing of Japan's restructuring. In September this year, the government set a target of 18 million gross tons by 2035, approximately twice the current building volume, as a goal to revitalize the shipbuilding industry. This number was calculated based on the number of ships that Japanese shipowners need to build over 35 years, but it also aligns with the target level of the shipbuilding industry.

Original: www.toutiao.com/article/1847270895778816/

Statement: This article represents the views of the author.