LADIES and Gentlemen. ASK a shipowner anywhere in the world what they know about building a ship in China, and you will always get the same reply. China, they will say, is going to be the world�s largest shipbuilder soon. China, they will tell you, is expanding its shipbuilding capacity rapidly. Then most of them will go on to say that there are drawbacks to ordering ships in China, and they will produce a series of misconceptions about yards here.

Today, I am not going to produce yet more figures about how many yards China has, or how many ships it might build in the future. What I am going to do is to tell you my own experience as a shipowner who has built ships in China. Then I shall highlight the common misconceptions that others owners have, look at the real benefits, and the real problems, of building here, and finally, outline what we have learned are the keys to getting the best out of Chinese yards.

Let me start by saying that our experience here in China has been very positive, and you are about to hear a positive message. I truly believe China is the place to come to build ships today, and my group is committed to being a part of the growth of the Chinese shipbuilding industry.

What do I base this positive message on? Well, on supervising the building of 25 ships here so far, on behalf of ourselves and five other European owners. We have been in China since 1996, and have had over 22 ships delivered from the Zhonghua yard, and we are currently working with a number of yards on other projects. In addition we have been employed in a consultancy role dealing with a large number of different yards and newbuilding projects right across China. It has beena good experince, it has been profitable and it has been a learning process, for all of us. Today I am pleased to be able to share some of what we have learnt with you.

Let�s take a step back from the Chinese scene for just one moment, and put our experience here into context. Shipyard production methods and ship building standards are coming under the spotlight globally. The well known tanker owner Basil Papachristidis has spoken out about the difficulties of getting ships built to the standards he requires. He was dealing with orders for vlccs and ulccs from two major Korean yards. Class societies are also coming under pressure to produce rules, and standards, which ensure that ships are fit for their purpose. There are fears that yards have become too powerful, and that the quality of ship is being sacrificed to the needs of shipyard production. The big powerhouse yards of Japan and Korea wield enormous influence with classification societies, and make formidable negotiating partners for shipowners. Very often, owners get the ship the yard wants to give them, rather than the ship they want. That goes for design, equipment and the way the ship is actually put together.

Given that we, the owners, are the customers, this is not a wonderful situation. But if we see owners� problems in a worldwide context then it helps us to see the real benefits of building here in China.

The most common misconception that you will hear about Chinese yards is that building quality is poor. The second misconception is that ships will be delivered late. The third is that ships will have a lower resale value and the fourth, and most damming, is that in the end, with additional supervision costs, ships built her in China will cost as much as a ship built in Korea.

Ladies and Gentlemen, given the world wide worries about shipbuilding standards, you will see that these misconceptions are damming reasons for avoiding China when considering a new project. I am sure, too, that there are owners in the world who have had all these experiences. Unfortunately, when things go wrong, we tend to talk about that more than when things go right.

So let me tell you now that things do go right, if you make them. Our own experience is absolutely the opposite to the misconceptions I have outlined above. The ships we have ordered and supervised have been of high quality. We still manage and operate twenty of them, in a demanding high quality field of project cargo shipping. The ships perform very well and are popular with both charterers and crews. As for resale value, we have sold some of the ships, and the price achieved has been the same as if the ships had been built anywhere. We received all the ships on time, and best of all, we made a significant cost saving on the ships compared with building them in other Asian countries.

We don�t claim any miracles here. This is just our experience. Let�s take a look at some of the real strengths and weaknesses of the whole shipbuilding complex here, and then I will go on to show how we benefit from the strengths and compensate for the weaknesses.

First, the strengths. The best thing must be that labour and steel costs are low, which for a straightforward ship should mean an average cost saving of 30 per cent when compared to a Korean yard.

Then there is the flexibility of the yards. If you have a one-off project, you can find a yard her to build it. You can have the ship you want, not the ship the yard wants to build for you.

There is capacity here, making for short delivery times.

There are few labour disputes.

The yards and associated equipment firms and sub contactors are technically competent, innovative, entrepreneurial and open and pleasant to work with. They want our custom and our technical input.

What about weaknesses? The most obvious is that quality control is still patchy. You can get the quality you want here, but it does require an unrelenting effort to control the quality, from the design right through the building to the outfitting and testing.

Some of the yards have yet to learn about focussing on the customers needs.

The available books of designs the yards currently use are weak and need upgrading and modernising.

There is still too much mild steel in the ships, the opposite of Japan, which has gone too far the other way.

Sales and marketing of the yards is still weak.

The management process is often convoluted, and there is a lack of clear reporting lines.

There is a lack of financing expertise. The big trading houses and sophisticated financial packages which facilitate ordering for Japanese and Korean yards are not yet in place.

The local equipment industry is still underdeveloped, so that up to 70 per cent of the ship has to be imported. That can lead to scheduling problems.

You might think that I have just outlined a short list of strengths, and a long list of weak points. But all of those weaknesses can be overcome, and the benefits of the strengths realised.

How? Three simple words. Trust, relationships, guanxi.

Those three concepts are what make shipbuilding in China successful and what make it a pleasure too. Those concepts need time to develop.

The way to get the best out of China is to order a series of ships from one yard. That means you get a low entry cost, and have the opportunity to develop close relationships with the yard. You can institute clear controls, and build in improvements in quality.

Confrontational approaches don�t work. A collaborative approach does, and series construction allows that collaboration to flourish.

You need a good supervision team on the spot, and they must be resilient individuals with Chinese language skills in addition to good technical knowledge. Of course, that costs money, but it buys you peace of mind, it buys you a good ship, and you save money overall.

The supervision team need to understand the whole shipbuilding process, the way China works, and the needs of the customer. That way they can guide and control the yard as it moves upwards on the quality curve.

And of course, it helps if you work closely with a major classification society which has got experience of China.

What of the future?

I believe we shall see more yards moving up the quality curve and being able to bid for, and deliver, more sophisticated ships.

The authorities here will support selected yards, and we shall see them beginning to work with more private and less state capital. That in turn will stimulate financial expertise and entrepreneurial solutions.

We see the local equipment content of ships rising, as Chinese firms begin to manufacture more and more ships� equipment. Engines, lifeboats, cranes, they are all locally sourced now and more will follow.

We shall see improved designs coming in, and we ourselves have established a design office in collaboration with Carl Bro to meet some of the demand for ship design.

We shall see more demand for on the spot supervision services, as owners overcome their misconceptions and realise that the only barrier to building here is their own lack of knowledge of the situation. We at Graig have geared up our Shanghai office to meet that demand, and I am sure we are not alone in that.

Above all, we are going to see more good ships coming out of China and going into operation for satisfied Western owners. It is a pleasure to be a part of that.