In the "Eleventh Five-Year Plan" proposal, the central government emphasized enhancing the independent innovation capability of enterprises as a national strategy. Meanwhile, a number of listed companies have shifted their focus from simple scale expansion to investing in new technologies and market development. From the perspective of the securities market, since the second half of 2005, sectors such as new energy, new materials, energy conservation, environmental protection, circular economy, and 3G concepts have become highly active, emerging as key themes in the value discovery market due to the rise of the new economic industry. With strong policy support, these industries are poised for significant growth, making the theme of technological innovation a major focus for investors.
The newspaper’s editorial team has launched a series of in-depth reports on “new technologies, new energy, and new materials†to help investors understand the immense opportunities and investment potential within these sectors under China’s national strategy of independent innovation.
The crankshaft, often referred to as the “heart†of a ship’s engine, has long been a critical component that China struggled to produce domestically. For decades, the Chinese shipbuilding industry was unable to manufacture this essential part, leading to missed opportunities and heavy reliance on foreign suppliers. During the Tenth Five-Year Plan period, many domestic shipbuilders were forced to abandon millions of tons of orders due to the monopoly of foreign crankshaft technology.
On June 30, the second phase of the Shanghai Marine Crankshaft Company, which plans to invest 592 million yuan, was completed. Once fully operational in the second quarter of next year, this project is expected to significantly boost the development of China's shipbuilding industry, improving the performance of hundreds of related listed companies.
Millions of shipbuilding orders were lost due to the lack of domestic crankshaft production. The second phase of the Shanghai Marine Crankshaft Company, located in the Nanhui Lingang Heavy Equipment Industrial Zone in Shanghai, covers an area of one square kilometer. Nearly 2,000 construction workers from seven different units are working tirelessly to meet the tight schedule, as every day of early completion means earlier production and faster progress for the shipbuilding industry.
Since the first domestically produced crankshaft was made on January 31 last year, Shanghai Crankshaft Co., Ltd. has been able to mass-produce, marking a turning point in China’s ability to manufacture marine crankshafts independently. This breakthrough has drawn widespread attention from the shipbuilding sector.
Statistics show that between 1978 and 1997, China spent over 90 million U.S. dollars on imported crankshafts. In recent years, with rising prices and increased demand, annual import costs have reached $40 million. However, the high cost is not the biggest issue; rather, it's the monopolization by a few countries that has led to situations where Chinese shipbuilders had to pay twice the previous price or even be denied supplies altogether.
At an international trade fair, a head of a domestic marine diesel engine factory joked that he would only sell a crankshaft after drinking a glass of white wine. The reason? Because the foreign suppliers prioritize their own countries and rarely commit to selling to Chinese customers. He Rongguang, director of the China Shipbuilding Association, pointed out that the “ships, machines, and other axes†problem has become a bottleneck for the sustainable development of China's shipbuilding industry.
Large marine crankshafts are now expected to break through. These components are crucial for transferring propulsion from diesel engines to propellers. There are two main manufacturing methods: integral crankshafts used for smaller ships and assembled crankshafts for larger vessels. While China has achieved localization for the former, the latter was previously limited to just four countries: Japan, South Korea, Spain, and the Czech Republic.
Despite its seemingly simple appearance, a marine crankshaft involves complex design and manufacturing processes. The first crankshaft of Shanghai Crankshaft Company was initially scheduled for completion in June 2004 but faced delays due to technical challenges. To overcome these issues, the company collaborated with research institutes like the 12th Institute of China Shipbuilding, the Shanghai Electric Academia Sinica, and the Institute of Metals of the Chinese Academy of Sciences, ultimately achieving core intellectual property rights.
As the second phase of the project progresses, Shanghai Crankshaft Co., Ltd. is accelerating the development of large-scale marine crankshafts. With the growing demand for high-power diesel engines, the company aims to produce crankshafts with cylinder diameters of up to 800 mm. Lin Yiwu, deputy general manager and chief engineer, said they are working on developing 700 mm and 800 mm diameter crankshafts, which are expected to be released in the second half of this year and the first half of next year.
Shanghai Crankshaft Company has significantly improved its production efficiency. The machining time for the first crankshaft was over six months, but it has now been reduced to just 18 days. The company also plans to further shorten this time to around 10 days by the end of the year.
With the combined capacity of Phase I and II, Shanghai Crankshaft Co., Ltd. is now comparable to Korea’s Doosan Heavy Industries, positioning itself among the world's largest crankshaft manufacturers. Lu Yachen, chairman of Shanghai Heavy Machinery Co., Ltd., stated that in 2006, the company planned to produce 20 crankshafts, and by 2007, it would reach full production capacity of 40. After the second phase becomes operational, annual production is expected to increase to 200.
China’s shipbuilding industry is making significant strides. Even before the second phase of the Shanghai Crankshaft Company is fully operational, several domestic marine diesel engine manufacturers have already placed orders. As of the end of 2005, the company had received orders for 65 crankshafts.
Among the 20 crankshafts planned for production this year, Hudong Heavy Machinery secured 18 of them. Lin Qinguo, secretary of the board of Hudong Heavy Machinery, noted that although these 18 crankshafts represent only about 25% of the annual demand, the future production from the second phase will ensure a stable supply for the next three years. This stability is a key factor in the rapid expansion of Hudong’s heavy machinery capacity.
By 2007, the first diesel engine at the Hudong Heavy Machinery Port Base will be ready for production. Earlier this year, Jiangnan Shipbuilding Group signed a contract for the H2388 and H2389 ship mainframes, which will be used for 297,000-ton super-large tankers. This demonstrates how Shanghai Marine Crankshaft Co., Ltd. is profoundly impacting the development of China’s shipbuilding industry.
One of the key advantages of the Korean and Japanese shipbuilding industries is their strong control over the crankshaft market. In this context, the role of Shanghai Crankshaft Company is crucial. It not only addresses the shortage of high-power marine engine components but also plays a vital role in helping China achieve its goal of capturing more than 25% of the global shipbuilding market by the end of the Eleventh Five-Year Plan.
The development of the shipbuilding industry is set to benefit numerous listed companies. According to Zhang Zhongjie, a researcher at the Central Plains Securities Research Institute, there are many industries directly linked to shipbuilding, including ports, steel, electronic control systems, instrumentation, information technology, and chemicals. Smaller industries such as welding materials, wire and cable, and rare metals can also benefit from this growth.
Researchers estimate that at least 100 listed companies, both directly and indirectly, will benefit from the shipbuilding industry's expansion. Companies like Hudong Heavy Machinery, Guangzhou Shipyard International, and Jiangnan Heavy Industry, which are directly involved in shipbuilding, are expected to see significant performance improvements.
In 2005, China’s domestic marine engine output was approximately 2 million horsepower, with another 50% supplied through imports. By 2010, the demand for marine engines is projected to reach 5-6 million horsepower. At that time, Hudong Heavy Machinery’s total capacity will be 4.8 million horsepower, making it well-positioned to capitalize on the industry’s growth.
Compared to imported crankshafts, domestically produced ones allow Hudong Heavy Machinery to grow more efficiently. The cost of a marine diesel engine includes the crankshaft, patent fees, and other manufacturing costs. The crankshaft is the most significant and easily adjustable part, accounting for 10%-15% of the total cost.
According to reports, the pre-sale price of a crankshaft purchased by Hudong Heavy Machinery in 2004 was about $400,000. By 2005, the price of crankshafts ordered for 2006 had risen to over $800,000, with some reaching as high as $1.05 million. Since the crankshaft is the only major component still mainly imported, the rising costs have not negatively impacted the company’s profitability.
Hudong Heavy Machinery received 90% of its total output in 2006 from Shanghai Crankshaft Co., Ltd. Given the close relationship between the two companies, it is likely that future access to crankshaft supplies will continue to benefit the company. This could provide a significant opportunity for GSI International, which is on the verge of major expansion.
In addition to direct beneficiaries, companies supporting the shipbuilding industry will also see benefits. For example, the demand for steel and other materials in the shipbuilding industry is expected to grow rapidly. A researcher calculated that if shipbuilding steel reaches 8.3 million tons annually between 2006 and 2010, and 10.28 million tons between 2011 and 2015, the market size could reach 60 billion yuan, providing substantial benefits to steel producers like Baosteel and Anshan Iron and Steel.
Overall, the rapid development of China’s shipbuilding industry is creating significant investment opportunities across multiple sectors, offering long-term growth potential for both direct and indirect participants.
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