“The [shipping] industry is really decimated over time here in the United States, but it’s not as though it shifted to a friend of the United States. . . . It shifted to our greatest adversary.”~Mike Waltz, U.S. National Security Adviser

In the next round of global competition in sea power, what matters is not only the size of combat fleets, but also the capacity to build these fleets. Obviously China has established an astonishing production network of shipbuilding. But how big and how complex is that network? What should the U.S. do to counter the emergence of the Chinese shipbuilding empire?  In March 2025, Center for Strategic & International Studies (CSIS) published a report that investigated the reality of China’s shipbuilding industry, and discussed the associated risks and implications for America and its allies.

In the beginning, the report gives an overview of China’s strategic thinking on shipbuilding industry, which goes hand in hand with China’s military modernization. This “military-civil fusion” (MCF) model aims to simultaneously promote China’s national security, defense industry, and economic development. The core of China’s shipbuilding industry is China State Shipbuilding Corporation (CSSC), which integrates shipyards, manufacturers, and research centers. CSSC is the world’s largest makers in commercial vessels, and is also the primary contract maker for People’s Liberation Army Navy (PLAN).

The report then seeks to unravel China’s dual use shipbuilding network. Based on the risk levels, the report classifies China’s 307 active shipyards into four tiers. Tier-1 contains 12 CSSC-owned shipyards that serve as both naval contractors and commercial powerhouses, who receive a huge volume of state subsidies and a huge number of military contracts. Four big players account for the lion’s share of China’s shipbuilding: Dalian, Guangzhou, Jiangnan, and Hudong-Zhonghua. Tier- 2 contains 23 shipyards that feature big commercial shipbuilders like Shanghai Waigaoqiao Shipbuilding and Qingdao Beihai Shipbuilding HI. Though officially not naval contractors, Tier-2 shipyards, fully owned or partially owned by CSSC, maintain close ties with PLAN and retain accesses to government resources. Tier-3 contains 41 shipyards that are fully or partially owned by China’s SOE (state-owned enterprises), like COSCO and China Merchants Group, or by regional governments, like Jiangsu or Fujian provinces. Tier-3 shipyards supplement China’s military-civil-fusion regime with production of commercial vessels, as well as provision of materials and equipment. Tier-4 contains 210 private or foreign-owned shipyards that are mainly involved in the business of commercial shipbuilding, without direct involvement in defense contracts. Tier-4 shipyards mostly target niche markets like passenger ships or refrigerated cargo carriers.

The rapid growth of China’s shipbuilding industry is not merely driven by domestic policies and subsidies, but also by foreign capital and technology. Seventy percent of China’s ship production is sold to foreign buyers, who bought 304 hulls between 2019 and 2024 from Tier-1 shipyards. According to China’s National Shipbuilding Industry Association, China’s exports of commercial ships totaled to $165 billion between 2019 and 2024. Apart from ship orders, foreign companies also supply Chinese shipbuilders with critical technology that helps to upgrade PLAN warships and production capabilities. For example, the partnerships between France’s GTT (Gaztransport & Technigaz SA) and China’s three Tier-1 shipyards (Hudong-Zhonghua, Jiangnan, and Dalian) facilitate technology transfer through technical assistance and licensing agreement. Moreover, China’s licensing agreements with German-based MTU and France-based SEMT Pielstick enable PLAN to make marine engines that could be installed in cruisers, destroyers, frigates, and diesel-electric attack submarines. These licensing agreements provide China with convenient ways to circumvent Western export restrictions in military equipment, and instead import defense-related knowhow. Besides, CSSC’s affiliated subsidiaries and holding companies allow it to easily raise private capital from American investors and channel the capital to pursue strategic objectives.

How does China’s dominance in global shipbuilding industry threaten American national security? Militarily, the PLAN has surpassed the U.S. Navy by hull count, and has largely shortened its gap with the U.S. Navy in both tonnage and the number of vertical launch systems (VLS). The U.S. shipyards face various production problems like backlogs, cost surge, and labor shortage. These problems recently forced the U.S. Navy to cut the order of Virginia-class attack submarines from two to one. On the contrary, China is converting its huge stock of commercial vessels, such as “roll-on/roll-off” ships, for military purposes. Furthermore, China’s large shipbuilding capacity constitutes a strategic advantage in a future war of attrition with the U.S. Navy, as PLAN is capable of swift restoration of destroyed or damaged ships. Besides, China’s surge in the global commercial shipbuilding threatens to reduce or even hollow out the shipbuilding industry of the U.S. and its allies. In 2024, America’s share of global shipbuilding fell to 011%, while Korea’s dominance in LNG tankers and dual-use vessels was severely eroded by Chinese competitors.

What should American policymakers do to counter China’s shipbuilding empire that fuse military and civil uses?  The authors offer a number of suggestions. To counter China, the U.S. should impose docking fees, weighted based on the risk profile of the Chinese shipbuilders, on multinational shipping companies that operate China-made vessels. The U.S. should take actions to reduce American companies’ transaction with Tier-1 and Tier-2 Chinese shipbuilders. The U.S. should also strengthen inter-agency coordination in monitoring China’s shipbuilding ecosystem in which the party-state, state enterprises, and private firms cooperate to pursue global dominance. Besides, the U.S. should work closely with allies to reduce shipbuilding orders and prevent technology transfer to Tier-1 and Tier-2 Chinese shipbuilders.

What should American policymakers do to revitalize the shipbuilding industry? The top priority is active investment, which can be funded by targeted docking fees paid by shipping firms equipped with China-made vessels.  The U.S. should also encourage Korea and Japan, two major global shipbuilding players, to infuse capital and bring expertise into America through technical training and knowledge sharing. The Committee on Foreign Investment in the United States (CFIUS) should relax restrictions on foreign investment from key allies. Furthermore, the U.S. should take the lead in raising the global share of non-China-made vessels through export requirement. The U.S. should also promote collaboration in shipbuilding technology development among key allies. A good example is the Icebreaker Collaboration Effort signed by the U.S., Canada, and Finland in 2024.

There’s no way for America to close the gap with China in shipbuilding within a short period of time. However, there’s still a lot for American policymakers to do to reduce the gap, and more importantly, to rekindle American shipbuilding, either in Alabama, Mississippi, or California. During WWII, America’s victory in the Pacific theater was largely attributed to American superiority in shipbuilding supply chains. It is time to unite with key allies, like Korea and Japan, to regain that lost superiority.

The article is based on CSIS’s “Ship Wars: Confronting China’s Dual-Use Shipbuilding Empire”, written by Matthew P. Funaiole, Brian Hart, and Aidan Powers-Riggs. Read the full report