The company last week appeared to send a compliance message to the West in an English-language post on LinkedIn, which is no longer active in China. The news came just weeks after one of the other four companies named two years ago, Shandong-based Penglai Juoda Marine Engineering Heavy Industry Co., was blacklisted by the U.S. Treasury Department for its dealings with Russia.
“We appreciate the good relationships we have built with our Russian partners and value the work we have done together,” Wisson’s statement said. “However, given the company’s strategic future, we must make this difficult decision.”
Analysts say the trend shows how Chinese companies are becoming collateral damage as Western countries tighten sanctions on Russia over the Ukraine war, discouraging them from doing business with Russia.
Chinese shipbuilders should diversify their customer base to weather geopolitical turmoil, they say, a tactic that 27-year-old company Wisun appears to be employing as it “actively seeks new development opportunities.”
Wisun also said it had decided to sell its stake in Zhoushan Wisun Offshore & Marine, a company in neighboring Zhejiang province that helped manufacture modules for the massive Arctic LNG2 liquefied natural gas project overseen by Russia’s second-largest natural gas producer Novatek.
Since the start of the Ukraine war in 2022, sanctions imposed by Western countries have complicated transactions between Chinese and Russian companies.
The Commerce Department on Monday protested the European Union’s listing of Chinese companies as targets of its 14th round of sanctions against Russia.
The June 24 sanctions measure adds asset freezes and travel bans to 69 individuals and 47 entities, 19 of which are Chinese companies. One of the EU’s latest targets is liquefied natural gas (LNG).
“This is a unilateral sanction and constitutes long-term jurisdiction,” the ministry said in response to a reporter’s question. It called on the EU to “unconditionally suspend the listing of Chinese companies.”
“China will resolutely safeguard the legitimate interests of Chinese enterprises.”
many [Chinese] Companies and banks are already self-regulating to avoid such risks.
Xu Tianjin, a senior economist at the Economist Intelligence Unit, a market research firm in Beijing, said Russia had emerged as a big market for Chinese shipbuilders but the sanctions were marring the market’s boom.
“Bilateral trade in shipbuilding has been very unbalanced for many years,” Xu said. “China’s ship-related exports are more than 100 times that of Russia, and this has been the case for many years, not just since the outbreak of the Ukraine war.”
“This reflects China’s huge shipbuilding capacity and growing global market share.”
“On the other hand, Russia is a very small shipbuilding industry and lags far behind countries such as China, South Korea, Japan and Greece.”
Xu added that Russia’s reliance on Chinese ships and parts is likely to increase from 2022 onwards as supply disruptions affect domestic ship construction and maintenance in Russia.
“[But] “Tighter Western sanctions pose immediate risks to Chinese companies, as ships can easily be classified as dual-use items and subject to greater scrutiny than before,” he said. “Indeed, many companies and banks are already imposing self-imposed sanctions to avoid such risks, or exploring alternative payment systems to circumvent potential sanctions.”
Chinese shipbuilders must now decide which is more important and make a difficult decision.
For some shipyards, severing ties with Russia could mean financial hardship that leaves them with no other choice.
Zeng Ji, a professor of marine engineering at Shanghai Maritime University, said it would be difficult for many Chinese shipbuilders to replenish orders from Russia given that they have overcapacity.
“We used to get huge orders from Russia because Russia doesn’t have the capacity to build large merchant ships. Many shipyards in China’s northern provinces of Liaoning and Shandong and eastern province of Zhejiang rely on trade with Russia to survive,” Zeng said, adding that Russian buyers feel Chinese shipyards offer products and services with better value for money.
“Chinese shipbuilders that make parts for Russia, but also take orders from Western customers and source parts from other regions, are now having to make tough decisions about which is more important. They now need to diversify their business and their customers.”
Shipbuilding cooperation, along with the space and aviation industries, was one of the focuses of a joint statement signed during Russian President Putin’s visit to China in May to mark the 75th anniversary of diplomatic relations.
In principle, sanctions will have some impact on the shipbuilding industry.
Also earlier this month, China’s state-run Economic Daily quoted Alexei Likhachev, president of Russia’s state-owned nuclear conglomerate Rosatom, as saying he had recently briefed Putin on the joint development of the Northern Sea Route with China, and that Russia intended to attract partners in shipbuilding, port construction and logistics cooperation.
“This will be a joint project that will truly serve the interests of both countries,” the paper quoted Likhachev as saying.
Xinhua also reported at a bilateral cooperation forum in St. Petersburg this month that Shanghai-based New New Shipping Line signed a joint venture agreement with Russia’s state nuclear corporation Rosatom to design and build ice-resistant container ships and jointly operate Arctic shipping routes between Chinese and Russian ports.
New New Shipping Line’s parent company, logistics company Turgumar, said in a phone interview that cooperation plans with Russia are “progressing well so far” but that it would closely monitor how the situation develops.
Lu Xiang, a US scholar at the Chinese Academy of Social Sciences, said some of China’s investments in Russia may remain “low-key” due to a lack of publicity.
“In principle, the sanctions will have some impact on shipbuilders there,” Lu said, adding that some shipbuilders still would not be deterred.
“If there is a commercial need, then of course there is a need for investment,” he said. “I don’t see the EU sanctions reducing investment – I see it growing. Companies in every region will take into account the laws and responses of other regions and weigh the risks and rewards. The risk/reward decisions will be different for each company.”
Demand for LNG carriers is high, but other customers are likely to have different requirements and specifications for their orders.
According to shipbuilding data provider Clarksons, global shipbuilding production in 2023 is expected to reach 35 million gross tons, up 10% from the previous year, with China becoming the frontrunner for the first time, accounting for 50% of total production, surpassing South Korea at 26% and Japan at 14%.
South Korean shipbuilders may sympathize with their Chinese arch rivals, who are suffering losses because Russian customers cannot pay to deliver ships.
Samsung Heavy Industries is in a legal battle with a Russian customer over an LNG carrier, and the case is set to be heard in the Singapore Court of Arbitration.
HD Hyundai has resold the vessels it built originally for a Russian customer, but Hanwha Ocean is still searching for a new buyer.
“The canceled projects were already underway, so shipyards are now faced with the challenge of finding another use for the hull blocks. Currently, Korean shipyards have a high demand for LNG carriers, but other customers likely have different requirements and specifications for their orders,” said Carl Martin, a technical researcher at MRC, a Busan-based manufacturer of high-tech navigation and communication equipment for a variety of ships.
“[Finding new buyers] “This could take some time, and in the meantime the vessels and hull blocks will be taking up valuable space that the shipyards could use for other orders in their backlog,” he explained.
