International demand for commercial ships is fueling the growth of the Chinese navy, according to a new report, which found that billions of dollars in foreign shipbuilding contracts could be being used by Beijing to fund new combat vessels.
"China's opaque business ecosystem offers limited transparency into the flow of capital within its shipbuilding industry, but available evidence indicates that profits from foreign orders likely lower the costs of upgrading China's navy," the report said.
This is because of the Chinese Communist Party's (CCP) strategy of military-civil fusion (MCF), which aims to prioritize commercial, technological, and research endeavors which simultaneously serve civilian and military purposes.
With MCF in mind, China's premier state-owned shipbuilders are able to use the profits from international contracts to hasten military projects, such as the CCP's expanding fleet of aircraft carriers.
The report notes that one such company, state-owned China State Shipbuilding Corporation (CSSC), is the primary builder of Chinese naval vessels, and also develops weapons and other national security equipment for the regime.
According to the report, CSSC alone accounts for 21.5 percent of the world's shipbuilding market, and the mammoth company controls more than 100 subsidiaries. The United States placed CSSC on an investment blacklist in 2020 but, as the numbers demonstrate, such has had little to no effect on international demand.
The example of CSSC highlight the important issue of China's centrality to the global shipbuilding market. In 2020, China accounted for more than 40 percent of all merchant shipbuilding in the world. Second place went to South Korea with 31.5 percent, and third to Japan with 22.2 percent.
The rest of the world combined accounted for less than eight percent of all merchant shipbuilding.
Vitally, the report found that the same shipyards used to build the world's merchant vessels were also being used to rocket China's navy to global ascendency.
Four shipyards, Dalian, Jiangnan, Hudong-Zhonghua, and Huangpu Wenchong, received billions from foreign investors in recent years, where top firms from France and even Taiwan commissioned ships to be built in the same drydocks as China's combat vessels.
Previously, a French ship was being built in the same drydock that is now constructing China's newest and most advanced aircraft carrier. Recent satellite imaging, moreover, showed that a commercial container ship for Taiwan's Evergreen Marine Corporation was being built in the next dock over.
The incident raises concerns that the Taiwanese shipping titan could be essentially funding China's capacity to invade the self-governed island.
"It should raise more than a few eyebrows in Taipei that Taiwan’s premier shipping company is pouring money into the coffers of shipyards assembling warships for the Chinese navy," the report said.
"Given CSSC’s lack of transparency and its central role in supporting the PLAN [People's Liberation Army Navy], foreign companies should exercise more caution when engaging with it and other Chinese shipbuilders. For democracies, especially those in the region that must weather the brunt of China’s rising assertiveness, these ties are more than just worrying. They present a tangible threat to national security. "
In all, CSIS found that Evergreen purchased 44 vessels from China from 2018-2022. Only two of those orders were built by shipyards that were not known to produce combat vessels for the Chinese navy.
Evergreen's contracts with CSSC are just the tip of the iceberg, however.
The CSIS report found that from 2019 to 2021, the four aforementioned shipyards received 211 orders for commercial vessels, with some 64 percent of those orders originating from outside of China and Hong Kong.
As such, the report warned that global demand for commercial vessels was likely accelerating Chinese naval development by a significant margin at a time when the West is increasingly at odds with the communist regime over its global ambitions.
Nevertheless, the report said that there was a silver lining in the fact that the two other largest shipbuilders were South Korea and Japan, which CSIS described as "thriving democracies." Both nations also enjoy favorable trade and security agreements with the United States.
As such, CSIS recommended that lawmakers in Washington seek to draw international shipbuilding contracts away from China and into the markets of more democratic societies in the Pacific.
"Policymakers in Washington should explore opportunities to incentivize foreign companies away from China and toward partnerships with South Korean and Japanese alternatives," the report said.
"The shift will not be easy or immediate. Short-term capacity issues will arise. But in managing hard choices vis-à-vis China, especially those critical to national security, the United States should be prepared to steer the lead ship. "