ALONG the sprawling coastline of the eastern provinces of Jiangsu and Zhejiang, the once bustling maritime industry is slowly turning from traditional shipbuilding to ocean engineering to salvage the bottom line as demand for bulk carriers wanes.

Three subsidiaries of China Shipbuilding Industry Corp went bankrupt last year, forcing the company to seek investors for a major restructuring. State-owned giant Sainty Marine Co is also in dry-dock for restructuring after suffering two consecutive years of losses.

Last year, Chinese shipbuilders turned out carriers with total deadweight capacity of 41.8 million tons, though orders for ships showed only 31.3 million tons of demand.

“Excess capacity is the current dilemma in the Chinese ship industry,” said Xue Yingchun, manager of a shipping agent and former head of a state-owned shipyard 20 years ago.

The industry is in need of a complete retooling to update technology and position itself in specialty segments that show prospects for growth.

Hudong-Zhonghua Shipbuilding Co is a “poster child” for that transformation.

Annual production at Hudong has been growing by an average 3.4 percent in the last five years.

It has upgraded its technologies to join the digital age and moved heavily into ocean engineering. It has become a leader in supplying the needs of liquefied natural gas transport. On April 29, Hudong delivered a LNG carrier named Kumul to clients Exxon Mobil Corp and Mitsui O.S.K. Lines.

The decline of traditional shipbuilding began in 2008, when China plowed 4 trillion yuan (US$608 billion) into its industrial base to soften the effects of the global financial crisis.

Shipyards were among the activists in rapidly expanding production.

According to one insider who declined to be identified, some shipyards were actively building ships for which they had no buyers.

Some inevitable bankruptcies took years or never happened at all. Bankruptcy laws in China are complicated and time-consuming. Large shipbuilders with insolvent subsidiaries and government backing simply masked the financial losses.

“Quite a lot of major shipyards were encumbered in this way,” Xue lamented.

The government is now trying to orchestrate a new order in the industry and encourage it along a more profitable path. The one thing the government can’t control is global demand.

Xue said he remains pessimistic about long-term trends and the need for traditional bulk carriers amid a global economic slowdown.

Is diversification into ocean engineering the answer to the industry’s woes?

The government’s “Made in China 2025” initiative for industrial transformation emphasizes support for ocean engineering, including deep-sea drilling and offshore floating facility technologies.

The Ministry of Industry and Information Technology said it expects offshore activities to generate revenue of more than 4 trillion yuan by 2025, up from 2 trillion yuan last year. It is targeting a 35 percent global market share for ocean engineering, compared with 20 percent in 2015.

Waigaoqiao shipyard is among the companies taking a lead in the transition. Since 2014, the Shanghai-based company has been expanding work in construction of offshore structures to serve large crude carriers, container ships, and oil and gas drilling platforms. Waigaoqiao’s conventional shipbuilding operations have been suspended for two years in favor of ocean engineering activity.

The shift echoes China’s growing demand for cleaner energy, with liquefied natural gas emerging as the best alternative to oil and coal. Indeed, China is aiming for coal use to drop below 50 percent of energy consumption from about 65 percent at present.

Gu Anzhong, secretary-general of the China LNG Association, told Shanghai Daily that the energy industry is a bright spot, both in terms of offshore drilling and in transport of LNG from abroad.

Bright but not without problems. Global oil prices have plummeted. In 2015 across the globe, 44 mobile offshore drilling units were dismantled, more than the total number in the past 20 years.

China National Offshore Oil Corp, commonly called CNOOC, reported a two-thirds drop in profit last year, its weakest performance in a decade. The largest China operator of offshore platforms blamed low oil prices.

The maritime and energy industries still rely heavily on overseas technology and on imports of gas and oil from abroad, according to industry analysts. These industries must adapt to new technologies in order to meet the challenges of a changing world.

MARITIME prospects expected to improve

TORGEIR Sterri is China regional manager for Norwegian-based DNV GL, which provides vehicle classification and technical services to the maritime, oil and gas, and energy industries.

In an e-mail interview with Shanghai Daily, Sterri shared his perspective on China’s maritime industry.

Q: How do you evaluate trends in the Chinese maritime industry?

A: The Chinese industry has changed substantially in the last 15 years. It has been one of the main drivers behind demand for seaborne transportation. Its shipbuilding industry has managed to diversify its portfolio from building bulkers to orders for tankers, container ships and offshore vessels.

We have seen ports development, world-class ship design, a focus on Arctic shipping and deployment of drill ships for subsea geological research. China is becoming a global maritime powerhouse.

We have had a presence in China since 1888, and have been working for a number of years with international companies on projects in China to support the fast development of the maritime industry there.

Q: In terms of oil and gas drilling, how do global clients rate Chinese equipment?

A: The offshore market is in a multiyear downtown, putting pressure on all equipment manufacturers worldwide. China still has to prove to foreign owners that its equipment is of quality and competitive in price. This is a conservative industry where perceptions can be hard to change. But many Chinese equipment manufacturers have the capability to offer products at an international standard.

Q: Plunging oil prices have hurt the maritime industry. How bad is it?

A: The low oil price has been a silver lining for the tanker market. There has been massive stockpiling, mainly in Asia. That has increased demand for transport, resulting in a shortage of ships. More than 60 VLCC carriers were ordered in 2015. On the other hand, the offshore market has taken a deep dive as the entire industry shifted into defensive mode. Exploration and production spending was cut by 23 percent last year and we expect a decline of 20 percent this year.

Q: Many shipyards in China have gone bankrupt. How do you see that playing out?

A: That is correct. Shipbuilding in China is likely to continue facing tough times. The decline in the price of steel has bottomed out, and wages at Chinese shipyards have risen substantially. All that greatly adds to cost pressures in Chinese shipbuilding. Retaining qualified works is also an increasing problem. Many yards find access to needed working capital difficult.

Q: What does the industry need to recover?

A: We estimate there won't be full capacity utilization at state-owned yard, and even lower for smaller yards. The options are: slower production, government contracts, consolidation, a focus on diversification and ship repair, and innovative technology projects.

The current state of the market is pushing the industry toward a stronger focus on research and development, new technologies, new designs and new products.

We believe that digitalization will have a profound impact on shipping over the next decade. The long-term prospects for shipping and shipbuilding remain positive. Shipping will be still at the heart of global trade.