This article is written based on public information and is intended solely for information exchange, not constituting any investment advice.
Over the past year or so, there have been few sectors in the A-share market that can rival the memory sector, and shipbuilding is undoubtedly one of them.
In 2025, after Hengli Zhonggong completed a backdoor listing through Songfa Gufen, this shipbuilding enterprise with the most growth attributes globally embarked on a strong rally in the secondary market, with its market capitalization exceeding CNY 200 billion. Meanwhile, the market capitalization of another state-owned leading enterprise, Zhongguo Chuanbo, approached nearly CNY 300 billion.
Over the past year or so, the shipbuilding sector has once become one of the few representatives of boom cycles that can rival the memory industry. In the most recent quarter, Songfa Gufen has even significantly outperformed the memory index.
These two sectors may seem completely unrelated, but they share astonishing similarities at their core: both are "tough industries" that only East Asians can play in—characterized by heavy assets, strong cyclicality, labor intensity, and heavy engineering management. Developed countries in Europe and the US cannot afford such labor costs, while Southeast Asia and South America lack high-skilled talent, infrastructure, technological accumulation, and industrial support. Moreover, their climatic conditions are not suitable for long-term continuous outdoor operations.
At the global shipbuilding table, only China, Japan, and South Korea remain, and in this cycle, China seems to hold the best hand. Against the backdrop of increasing attention, this article attempts to dissect the pros and cons of the current shipbuilding cycle:
Why is the boom logic of shipbuilding so solid, and how strong is the sustainability of this cycle?
In the current market where everyone is unanimously bullish, what are the hidden concerns that are easily overlooked?
01Industry Supply and Demand: The "Favorable Timing" Creating an Ultra-Long Boom
Behind the continuous new highs of the K-line lies the fact that the current upswing in new shipbuilding is not a short pulse, but an ultra-long boom. In fact, the overall cycle boom is expected to last at least until after 2030.
1. Resonance of Three Forces on the Demand Side
The fundamental base on the demand side is the rigid demand for renewal brought about by the aging of the fleet. As of 2026, measured by deadweight tonnage, the average age of the global fleet has reached 13.3 years, a year-on-year increase of 2.5%; measured by the number of vessels, the average age is about 22.4 years, a year-on-year increase of 1.5%.
Conservative estimates indicate that from 2025 to 2030, the global average annual delivery demand for ships will be about 100 to 110 million deadweight tons, of which the demand for lifespan renewal accounts for over 50%. Simply put, even if global trade volume no longer grows, replacing old ships with new ones alone can sustain a delivery peak of over five years.
Meanwhile, the rigid environmental protection requirements for green and carbon reduction have pressed the acceleration button for the renewal and transformation of global ships. The International Maritime Organization (IMO) has clarified the vision of "achieving net-zero emissions around 2050," requiring that international shipping carbon emissions in 2030 be reduced by at least 20% compared to 2008.
Hard emission reduction targets are forcing shipowners to accelerate the phase-out of high-energy-consuming old ships and turn to alternative fuel-powered ships such as LNG and methanol. In 2025, alternative fuel ships accounted for about 46% of global new orders; the proportion of new energy ship deliveries/new orders for Chinese shipyards also reached about 45%/40%.
Geopolitics has added fuel to the fire on an already relatively booming demand.
There is a counter-intuitive phenomenon here: against the backdrop of de-globalization, international trade is theoretically damaged, but in reality, trade volume is still growing steadily; meanwhile, geopolitical conflicts (such as the recent strait blockades) have instead significantly increased transportation distances, indirectly prolonging the demand boom cycle of shipbuilding.
For example, this year, geopolitical conflicts in the Middle East have continued to escalate: the East-West Crude Oil Pipeline in Saudi Arabia was attacked and closed, the traffic volume in the Strait of Hormuz dropped to single digits, and the Bab el-Mandeb Strait tightened simultaneously. VLCC freight rates surged to historical highs, and the TCE for the TD3C Middle East-China route in September 2026 has approached USD 1 million/day.
Geopolitical conflicts are transmitted to shipbuilding through two paths: first, the elongation of shipping ton-miles → soaring freight rates → enhanced willingness of shipowners to make capital expenditures → increased new ship orders; second, the accelerated phase-out of old oil tankers → forward release of replacement demand. From January to July 2026, global oil tanker orders reached 509 vessels, making it the strongest year for oil tanker ordering in the past 20 years; the average price of new VLCCs rose to USD 126 million, the highest since 2010.
2. A Decade of Industry Clearance on the Supply Side
Shipbuilding is a typical industry where "capacity destruction is easy, but reconstruction is extremely difficult."
After the financial crisis in 2008, maritime shipping demand entered a downward phase. The shipbuilding market fell into a decade-long depression since 2011. Shipyards in China, Japan, and South Korea accelerated integration and clearance, and new ship orders continued to concentrate on leading enterprises.
According to Clarkson data, the number of active shipyards globally has dropped from over a thousand at the peak in 2008 to less than 500 today—over the past decade or so, more than 60% of the players have been permanently eliminated.
Even with full order books and new ship prices climbing to historical highs, leading shipyards remain highly cautious about expanding capacity. An intuitive comparison is that the projected delivery volumes for China, Japan, and South Korea in 2027 will be about 1.6 times, 0.6 times, and 0.8 times the 2010 peaks, respectively—capacity in Japan and South Korea has not yet recovered to the peak of the previous cycle, while about 80% of the globally planned capacity expansion comes from China.
The deep-rooted reasons for supply rigidity include:
Shipbuilding is a labor-intensive industry that requires a large number of skilled technical workers. The training cycle takes decades, and throwing money cannot achieve quick results. South Korea still faces severe labor shortages, and even hiring foreign workers cannot fill the gap for key technical workers.
The gap in labor costs is significant. The per capita annual salary in Chinese shipyards is CNY 200,000 to 450,000 (including executives), while in leading South Korean shipyards, the annual salary for ordinary employees alone exceeds CNY 400,000, and it is even higher in Europe and the US.
Steel cost advantage. The price of 20mm shipbuilding plates in China is 15%-24% cheaper than in Japan and South Korea, respectively, and this is a long-term stable price difference.
Moreover, even in China, the main contributor to incremental capacity, the elasticity of the supply curve is also limited.
The result is that the global order book coverage has reached about 4.2 years, approaching the cycle peak in 2007; the schedules of leading shipyards generally extend to around 2030, which means that ship prices and new orders are expected to remain at high levels before 2030.
This is precisely the essential difference between this cycle and the previous one. The main driving force of the previous ship cycle (2000-2008) came from the demand side. This cycle started in 2021, with the core drive coming from stock renewal, and supply elasticity is weak—the peaks of orders and deliveries may be weaker than in the past, but the duration will be longer.
02Competitive Landscape: The "Favorable Geographical and Human Conditions" of China's Shipbuilding
In the current global shipbuilding boom, Chinese enterprises are the most core beneficiaries. If the industry boom is the favorable timing, then the share and capabilities of China's shipbuilding represent the favorable geographical and human conditions, forming a systematic advantage.
The capacity of China's shipbuilding industry has already ranked first globally. Moreover, our country possesses the most complete shipbuilding industry chain in the world, with a high supporting rate and embedded logistics. The localization rate has reached over 90%, and core main engine production has been realized domestically.
The entire industry chain brings a composite advantage of "cost-delivery-scale": long-term steel plate price differences, lower labor costs, faster supply chain response, and stronger delivery certainty. In the eyes of shipowners, delivery certainty is even more attractive than simply being cheap.
In addition, the low financing costs brought by the long-cycle low-interest-rate environment are also amplifying the competitive advantages of Chinese shipbuilding enterprises—the amount of capital advanced during the construction process continues to rise with the large-scale and high-end development of ship types, and the impact of interest rates on shipyard profitability is significantly amplified.
The share data is the most direct: China has ranked first globally in the three major shipbuilding indicators for 16 consecutive years. In 2025, the proportions of China's shipbuilding completion volume, new order volume, and order book volume to the global total were 56.1%, 69.0%, and 66.8%, respectively; in the first half of 2026, the proportions of these three indicators further rose to about 62.2%, 82.3%, and 71.2%, basically hitting historical highs or approaching the peaks of the previous cycle.
By ship type, China secured about 75% of global new shipbuilding orders by capacity in the first eight months of this year, with the shares of container ships, bulk carriers, and crude oil tankers reaching as high as 91%, 90%, and 80%, respectively.
The competitive landscape among China, Japan, and South Korea is also undergoing qualitative changes. China's shipbuilding capacity accounts for about 46% of the global total, South Korea about 25%, and Japan about 17%; Japan's global market share of new ship orders has dropped significantly from 47% in 1996 to 6% in 2025, gradually withdrawing from the tripartite structure; South Korea has retreated to high value-added ship types such as LNG, VLGC, and FLNG, with its new ship order share from January to May at about 21%.
The technical capabilities of Chinese shipyards have also been enhanced in this cycle. China's international share of new orders for green ships was about 69.2% in 2025, and exceeded 80% in the first quarter of 2026; technology routes such as LNG, methanol, and ammonia are blooming in multiple areas. In the "three crown jewels" of the shipbuilding industry (large LNG carriers, aircraft carriers, and large cruise ships), China has achieved comprehensive breakthroughs.
Another interesting point is that China's capacity expansion in this cycle is restrained, and supply is not infinitely unleashed. This is essentially different from the disorderly expansion in the 2000-2010 cycle. The investment entities are different—the previous cycle saw a large number of small and medium-sized shipyards entering the industry for the first time driven by a surge in trade demand, while this cycle is dominated by mature players in the industry who have experienced complete cycle fluctuations, make prudent investment decisions, and mostly expand capacity reasonably based on orders in hand and new order inquiries.
There is an easily overlooked logic of scarce resources. That is, domestic port shoreline resources are non-renewable and are gradually becoming a bottleneck restricting shipyard expansion; however, policies allow the existing shoreline resources of old shipyards to be restarted, which is also one of the sources of scarcity for Hengli Zhonggong.
03Investment Thoughts: Two Mainlines and Unignorable Cycle Concerns
1. Two Logics—Certainty VS High Elasticity
At the investment level, two types of leading enterprises in this cycle correspond to two logics: investing in Zhongguo Chuanbo is buying "certainty realization + asset integration premium," while investing in Songfa Gufen is buying "capacity expansion + profit imagination space."
As a central enterprise integration platform, Zhongguo Chuanbo saw significant year-on-year increases in both revenue and net profit excluding non-recurring gains and losses in the first half of 2026, which also verified the industry's profit recovery curve. With orders scheduled until 2030, the path for performance realization is clearly visible.
Songfa Gufen has attracted more attention, and its backing company, Hengli Zhonggong, is the shipbuilding group with the highest elasticity and strongest growth certainty in this cycle. As mentioned earlier, the restart of old domestic shipyards is the most direct and effective way to release capacity, and the STX Dalian base acquired by Hengli is precisely this kind of scarce shoreline resource obtained immediately upon restart.
Its predecessor was South Korea's STX (Dalian)—once the largest foreign-invested shipyard in China, which entered bankruptcy proceedings in 2013 due to the financial crisis and cycle downturn. In July 2022, Hengli Jituan established Hengli Zhonggong, spending CNY 2.1 billion to acquire the idle STX assets and investing CNY 18 billion to revitalize them. The industrial park officially operated in 2023, and in 2024, it achieved the early delivery of its first built ship and the delivery of its first engine.
As of the end of April 2026, Hengli Zhonggong had 277 vessels in hand, totaling 50.78 million DWT and 10.28 million CGT, ranking third globally, with delivery schedules extending to 2030. There are also two marginal changes:
Order structure upgrade: transitioning from a structure dominated by bulk carriers (by CGT, accounting for 88%/60% in 2025/2026) to one dominated by oil tankers + container ships (accounting for 42%/87% in 2027/2028), with the value per ship and profitability continuously rising. Technically, Hengli Zhonggong can cover MAN G95 and below models, and has achieved full coverage of four low-carbon and zero-carbon dual-fuel engines: LNG, LPG, methanol, and ammonia.
Capacity is still expanding: phases one and two are at full production, phase three will be put into operation in 2026, and there are also plans for a new phase four, ensuring delivery while leaving room for new orders.
2. Risks Behind the Boom
After discussing the positive logic, we must face that key question: are there hidden concerns? Yes, and they need to be viewed from two dimensions: short-term and medium-to-long-term.
In the short term, risks focus on delivery pressure, geopolitics, and shortcomings in high-end products.
Currently, with high order books and high capacity utilization rates, the industry has shifted from "grabbing orders" to "ensuring delivery." Some enterprises have accepted orders beyond their capacity limits, facing risks of delivery delays and prolonged payment cycles for suppliers. Delivering ships on time has become a common pressure point for the entire industry. On the cost side, the appreciation of the RMB and the price increase of key equipment form marginal constraints on profits.
The export proportion of our country's order book has long been at a high level, reaching 92.1% in the first quarter of 2026, making it highly sensitive to external demand and changes in overseas policies. The US Section 301 port fee policy was temporarily suspended for one year until November 2026, which once led to a decline in China's order share in the first half of 2025; this suspension is about to expire, and if it is restarted or intensified later, it may continue to disrupt the pace and structure of order acceptance.
Secondly, there is the gap in high-value ships. For example, in ultra-high-end gas ships and some core supporting equipment, South Korea's order book for LNG ships accounts for 66% of the world, while China's share is significantly lower than South Korea's; the core supporting parts for high-tech equipment such as large cruise ships and LNG still rely on imports, and high-end patented technologies for low-speed engines are monopolized by three major brands: MAN, WinGD, and J-Eng, with domestic manufacturers mostly producing under patent licenses.
But on the flip side: precisely because of the low penetration rate of gas ships and the large space for localization, every breakthrough by China's shipbuilding in the high value-added field is an incremental growth logic, rather than a stock game.
The biggest hidden concern in the medium to long term is the cyclical attribute and the valuation ceiling.
Shipbuilding is essentially still a strong cyclical industry, and this fundamental attribute will not change just because this cycle is longer. From historical patterns, there is no eternal boom; the current full order books precisely mean that after the future delivery peak, the industry may face the pressure of falling demand.
A more specific risk lies in shipowners canceling orders. The shipbuilding industry adopts an order-driven model, where shipyards only receive a small advance payment when accepting orders. The value of a single ship is often hundreds of millions of US dollars, and the construction cycle is as long as 2-4 years. If the shipping market declines significantly in the future and the operating conditions of shipowners deteriorate, leading to mass order cancellations, it will cause a major impact on the shipyards' cash flow and performance. The current market is generally in optimistic expectations, and the pricing of this risk is not sufficient.
Overseas enterprises have been washed out by the waves for many years, and many leading companies have disappeared into the long river of history. Domestically, state-owned enterprises have experienced complete cycle rounds and have credit and financial resources to back them up; since its establishment, Hengli Zhonggong has always expanded in a pro-cyclical manner and has not yet experienced a real downward pressure test. The performance of its organizational resilience, balance sheet, and customer structure during headwinds remains unknown.
Another aspect is valuation and dilution, which also need to be priced in.
Currently, according to the market's relatively optimistic expectations, the profit of Songfa Gufen in 2028 will be between CNY 25 billion and 27 billion, corresponding to a valuation of about 8 times; if we assume that 2030 is the peak of the boom and a 10x PE is given at that time, then from the current market capitalization, there is still some room, but the stock price has indeed priced in quite a lot of optimistic expectations.
In addition, the probability of needing financing in the future is very high. Hengli still has huge capital expenditure plans for the production of phase three and the new construction of phase four, while the shareholder controlling ratio of Songfa Gufen is as high as about 80%. The probability of expanding capacity through additional issuance in the future is relatively high, which means that potential quantity dilution cannot be ignored.
04Conclusion
Combining opportunities and risks, we give a "neutral to positive" judgment on the shipbuilding industry.
The positive part is indeed solid enough; this boom is ultimately China's advantage under favorable timing and geographical conditions.
At the industry level, this cycle is in the middle to late stage of "simultaneous increase in volume and price—profit realization," but the boom is expected to continue until 2030.
At the company level, the systematic comparative advantage of China's shipbuilding is still strengthening, with leading shipyards scheduled until 2030, orders in hand, and profits beginning to be realized in financial statements.
The prudent part is equally real: the pressure of ensuring delivery and controlling costs in the short term, the gap in high-end ship types and core supporting equipment, policy disturbances such as Section 301, the medium-to-long-term cycle test, as well as the valuation space and potential dilution of shareholders' equity.
Shipbuilding, like memory, is a "tough industry that only East Asians can play in." The universal rule for tough industries is: profits are astonishing during high booms, and the landscape is littered with casualties during downturns. The difference is that the slope of this shipbuilding cycle is long enough (at least until 2030), the snow is thick enough (the simultaneous increase in China's share and profit margin), and it is also one of the very few industries where China holds global pricing power.
For investors, the right posture might not be to dwell on "how much more it can rise," but to clearly see both sides of the industry logic, fastening the seatbelt while enjoying the thick snow on the long slope—closely monitoring the three leading indicators of delivery, cost, and order acceptance pace, and maintaining sufficient awe when cycle signals change. This point applies equally to industry practitioners and capital market investors.