By Dan Katz

Ten years ago, the Chinese Communist Party, under the leadership of Xi Jinping, introduced two major policy initiatives: Made in China 2025 and military-civil fusion. Each represents an upgrade of existing policies aimed at boosting China’s economic and military strength, and now receives more attention and resources. Made in China 2025 aims to establish China as the world’s leading advanced manufacturer in ten key sectors by 2025, while military-civil fusion seeks to foster a closer, innovation-driven relationship between defense and civilian industries. Much was written about both, but there is little analysis of how these policies impacted Chinese shipbuilding. While there is extensive writing on Chinese shipbuilding overall, few sources examine the true goal of Made in China 2025 beyond capturing market shares and making China more technologically innovative.

To help address the gap, this article will delve deeper into the capabilities of China’s dominant shipbuilding industry, rather than focusing on typical discussion points such as its total production and market share. Instead, this article aims to highlight the significant technological advancements the sector has made in the years since the announcement of Made in China 2025. It will also highlight the military-civil fusion implications from the commercial sector’s innovative capacity. With the naval balance in the Indo-Pacific rapidly shifting, such work will become increasingly crucial as policymakers determine how current trends will persist and how their countries might be affected.

Made in China 2025 and Military-Civil Fusion

For China’s shipbuilding industry, Made in China 2025 aimed to develop five globally competitive companies, capture a 40 percent share of the maritime equipment market, attain a 50 percent market share in high-tech ship design and manufacturing equipment, and reach an 80 percent parts localization rate for advanced vessels. It also sought to create a comprehensive supply chain that included design, assembly, equipment, and service for ships and marine engineering tools. The initiative encouraged Chinese shipyards to move into more complex vessel types, such as liquefied natural gas (LNG) carriers, green-fuel-powered ships, cruise liners, and roll-on/roll-off (RORO) vessels. Although Made in China 2025 is mainly an economic growth strategy, it has significant military implications for shipbuilding and naval capability. Generally, a country’s economy has a direct influence on its hard and soft power, as well as its economic security.

Made in China 2025 clearly influences China’s economic and soft power, but its military-civil fusion policy amplifies its impact on military power. In short, military-civil fusion aims to enhance the integration of China’s commercial and defense sectors, thereby supercharging their respective technology ecosystems. The intent is to make both more technologically advanced and innovative, thereby driving greater economic and military capability growth. While the policy was formally launched in 2015, the ideas of military-civil fusion are not new. There were various formulations for decades, but the concept has proven challenging to execute. China’s shipbuilding industry is deeply intertwined with the civil-military construct, with all of China’s naval shipbuilders engaging in major commercial production, generating billions of dollars in revenue from foreign orders. Satellite imagery of these yards regularly shows merchant vessels being constructed alongside large surface combatants such as aircraft carriers. Honed through commercial enterprise, expertise, revenue, manufacturing capacity, and vertically integrated supply chains are easily converted into satisfying military objectives.

Much like military-civil fusion seeks to create symbiosis between the defense and civilian economies, Made in China 2025 is a complementary policy aimed at enhancing China’s innovation and increasing its comprehensive national power. Therefore, analysts and researchers should not investigate one without considering the other when viewing sectors covered by both policies, including shipbuilding. The connections between commercial maritime powers and naval powers are well established. Naval theorist Alfred Thayer Mahan’s writings are widely discussed in China, and his theories have been incorporated into their naval development.

Chinese Shipbuilding in 2015: Vast and Simple

By the time of Made in China 2025’s announcement, China had already established itself as a shipbuilding superpower. In 2010, China became the world’s largest shipbuilder after the government established an industrial policy designating the industry as a priority years earlier. As a result, the sector received at least $90 billion in subsidies by 2013, mostly in entry subsidies that encouraged companies to enter the sector. By 2015, China received 27.6 percent of global new ship orders. Still, orders were mainly at the lower end of the shipbuilding value chain and excluded complex ship types such as LNG carriers. For example, China only had one shipyard capable of producing large LNG carriers as late as 2019. Generally, Chinese shipbuilders produced simpler vessels, particularly in larger ship categories. Although China produced large numbers of containerships, the average tonnage was under 60 percent of the world average.

Additionally, China had not begun major construction of medium-sized passenger vessels. Prime Chinese shipyards were less productive and underperformed relative to those of South Korea and Japan, according to one study. Similarly, a 2019 article highlighted that Chinese shipyards were still reliant on foreign partners for advanced technology and production methods, and that they were unable to design and build specialized vessels, such as LNG carriers or those for offshore drilling. Chinese workers were also found to be between seven and 17 percent as productive as Japanese workers. The statistic highlights that as Chinese shipbuilders expanded into more technologically advanced ships, traditional advantages declined due to increased labor costs, the appreciation of the renminbi, and the growing importance of innovation in competitiveness.

Chinese shipbuilders were also exiting the doldrums of their post-2008 Financial Crisis downturn. The Chinese government has shifted its strategy from encouraging market entry to facilitating sector consolidation, aiming to eliminate underperforming firms, better allocate capital, and foster globally competitive companies. A key action was the 2014 release of a “white list” of shipbuilders who met specific performance requirements and therefore qualified for government support, such as export tax rebates and easier access to credit. By 2016, shipyards on the list handled about 90 percent of all Chinese vessel deliveries.

Chinese Shipbuilding in 2025: Goals Met and Goals Not Met

By 2025, China’s shipbuilding market share and manufacturing had continued to grow. According to the Ministry of Industry and Information Technology, Chinese shipbuilders received new orders for 113.05 million deadweight tonnage in 2024, a 58.8-percent year-on-year increase. Other statistics highlight China’s current capacity dominance. In 2024, China accounted for 53.3 percent of global shipbuilding, and state-owned China State Shipbuilding Corporation alone produced more commercial vessels by tonnage in one year than the United States has since the end of World War II. Overall, China dominated new orders in 2024 for bulk carriers, tankers, and container ships, surpassing South Korea in new orders for liquefied petroleum gas carriers, with a share of 48 percent to 46 percent. Analysts also expected additional orders in offshore vessels and other subsectors. South Korea maintained its lead in liquefied natural gas carriers, with 62 percent of new orders, while China continued to narrow the gap due to improvements in quality and capacity. Chinese production of offshore support vessels increased 256 percent year-on-year due to consistent growth in quality and production efficiency. Chinese output of roll-on-roll-off (RORO) vessels is set to increase drastically, with orders for as many as 200 ships placed as of October 2023, to be delivered between 2023 and 2026. China completed its first cruise liner in 2023. According to Chinese state-affiliated media, the value of marine engineering equipment delivered in 2023 increased 50 percent year-on-year through the first three quarters of 2023, making up 64.3 percent of the global market, and its marine offshore engineering market made “solid breakthroughs” in the 2020s.

Chinese shipyards have accelerated their transition to green and intelligent shipbuilding, developing their domestic design and industry-supporting capabilities, particularly in LNG carriers, car carriers, core components, and new materials. In the first nine months of 2024, Chinese shipyards received 70 percent of global green-energy ship orders across all major vessel types. Their yards additionally significantly reduced construction times and costs. Aside from green-energy technology, Chinese shipyards appear to be matching their foreign competitors in technologies such as smart adaptive sails, autonomous container vessels, and “Industry 4.0” manufacturing processes.

Market consolidation continued in the years following Made in China 2025’s announcement, with China State Shipbuilding Corporation and China Shipbuilding Industry Corporation merging in 2019 (and finalized in July 2025). However, new companies are entering the market. China’s global market share will also likely hold steady if not increase, as most of its shipyards are fully booked for the next three to four years.

How Innovative Is The Sector Now?

China has met most of its Made in China 2025 maritime goals, moving up the value chain and developing and implementing advanced technologies. China’s significant expansion in building LNG carriers is a clear sign of China’s growth, as for years, only one Chinese shipyard could produce them. China’s increasing dominance in constructing alternative-fueled vessels (76.9 percent of new orders in 2024) is possibly a more significant indicator of the industry’s growing innovativeness. These include independently developed pure-electric container ships, hydrogen fuel cell-powered vessels, and methanol fuel engines. Foreign competitors are feeling this progress, with half of respondents to a survey of European companies in China’s maritime sector reporting lost market share in general or for at least one product since 2015, while 80 percent said that Chinese competitors could create substitute products. Made in China 2025 has proven highly successful based on China’s performance across the market’s sectors overall, with China becoming a market leader in 14 of 18 ship types.

Despite China’s rapid entry into higher-value sectors, it has yet to achieve a dominant market share in these more advanced sectors. It has not surpassed South Korea and achieved its goal of a 50 percent market share in specialized vessels, such as LNG carriers. China saw less success with other complex vessel types such as cable-laying ships, drilling ships, and luxury yachts. It just entered the cruise liner market, with its second domestically built cruise liner nearing completion in early 2025. Additionally, these early cruise liners have a parts localization rate (the percentage of their parts made in China) of 30 percent, a problem broadly faced in Chinese shipbuilding, which continues to rely on foreign technology for components such as engines and propellers.

Academic publication and patent activity exhibited rapid growth, but are also accompanied by persistent shortcomings. Data from the Emerging Technology Observatory shows that China published over four times as many articles on marine engineering in the past five years as the following country, but trails behind multiple countries in average yearly citations. Chinese universities and organizations also dominate the top ten lists for publication numbers and articles funded in that period (with all of its top publishing universities in the field having close People’s Liberation Army ties). Furthermore, China became the leading publisher of vessel design research around 2018 and has since established a significant lead, accounting for 18.11 percent of total publications since 2000. However, its citation-to-publication ratio was lower than that of other leading publishers. Conversely, a separate study found that China has been the leading publisher of high-quality research on autonomous underwater vehicles, advanced undersea wireless communication, air-independent propulsion, autonomous systems operation technology, advanced robotics, and all the advanced materials and manufacturing fields reviewed by the report, for at least the past five years. China is a leader in shipbuilding-related patents, with state-owned China Shipbuilding Group reportedly publishing the seventh-highest number of patents worldwide from June 2024 to May 2025. By 2021, China’s low- and zero-emission maritime technology patenting had matched Europe’s collective contribution for the global lead. According to one market report, China leads in shipbuilding patent issuance, accounting for approximately 40 percent of the total.

Signs of progress also exist in naval shipbuilding. A 2020 assessment by the Office of Naval Intelligence (ONI) found that Chinese design bureaus were already utilizing modern software, design practices, machinery, and ship construction methods comparable to those of U.S. shipyards. The assessment further stated:

“China builds both domestic and foreign (under license) machinery, control systems, and other ship components. Almost all weapons and sensors on Chinese naval ships are produced in-country, and China no longer relies on Russia or other countries for any significant naval ship systems. Chinese naval ship design and material quality are, in many cases, comparable to USN ships, and China is quickly closing the gap in any areas of deficiency.”

While China long struggled to develop indigenous marine propulsion technology, a 2018 U.S. Department of Defense report declared that China had reached near-total self-sufficiency in naval gas turbine technology. However, continued efforts to acquire foreign propulsion technology suggest that China believes itself to be still lacking in this technology. Challenges developing indigenous propulsion systems also persist with submarine propulsion, with many Chinese diesel-powered submarines being reliant on imported, license-produced engines.

How one evaluates Made in China 2025’s successes is also important, such as determining whether China has met the specific goals of Made in China 2025 or how well and efficiently it has achieved the broader goal of creating a more advanced industry. For instance, there are doubts regarding the quality of China’s production. While nearly half of European companies surveyed in China’s maritime sector reported a loss in market share, only 26 percent reported their Chinese competitors could create products of an equivalent or higher standard, with only half reporting their competitors could do so at a better price.

Many analysts also question whether the returns on the massive investment in the sector have been worthwhile. One study found that despite the amount of innovation promotion subsidies provided, there was limited statistical evidence of productivity improvements or of an increase in patenting rates and profitability measures among recipients. Another 2022 study found that China’s quantity-based subsidies could theoretically cause reductions in productivity and public welfare. Such findings suggest that the low productivity improvements from earlier subsidies have persisted. Considering that China spent an estimated $231 billion on industrial subsidies overall in 2019 alone, and with the policy seemingly generating minimal productivity gains, many question whether the funds for Made in China 2025 could have been better spent elsewhere. The ongoing surge in market entrants and expansion in shipbuilding capacity in China also risks “involution,” or an intense competition resulting in damaging price wars that undercut profitability, productivity, and innovation. Involution is currently occurring in the electric vehicle sector, which enjoyed broad government support and numerous entrants.

There are additional signs that Made in China 2025 and military-civil fusion are falling short in naval modernization. Many Chinese technical journals discuss issues related to shipboard electronic defense technology, particularly in the context of command and control technology. China continues to face challenges with submarine propulsion systems and quieting technology. The fact that there are problems with the former important technology, which is intended to benefit from Made in China 2025 and military-civil fusion policies, whereas submarine-related technology more broadly would not, further highlights the shortcomings of these policies.

Overall, Made in China 2025 achieved success in most of its official metrics and made significant progress in advancing China’s shipbuilding industry. However, it fell short of reaching the more abstract goals of becoming a broadly advanced, efficient, and productive manufacturing sector. As with many of its economic challenges over the years, China achieved success primarily through scale and persistent effort, even if it meant generating vast amounts of waste along the way.

Why This Matters

The numerous, yet incomplete, successes of Chinese shipbuilding and the Made in China 2025 initiative are important from both economic and military perspectives. First and foremost, the sector’s advancements mean it will likely maintain its global dominance for the foreseeable future; however, its continued weaknesses provide opportunities for other nations to establish or maintain their shipbuilding industries. The volume of relevant research conducted, combined with continued government support, indicates that China will continue to advance up the value chain and develop new technologies. This will further strengthen China’s control over and distort the market, precluding a competitively healthy global industry, and risk an additional avenue for economic coercion, as seen with rare earth elements. A more innovative sector will also help offset the influence of a shrinking labor force on Chinese shipbuilding and maintain its manufacturing capacity.

Regarding military-civil fusion, the commercial dominance of Chinese shipyards provides ample resources that can fund military-relevant capital investments and research and development, as illustrated by the fact that some of the largest Chinese commercial shipbuilders also build the preponderance of their warships. As commercial yards adopt and perfect advanced manufacturing practices and technologies, such as modular construction and digital design, military-civil fusion and dual-use shipyards facilitate their application in naval yards. Greater manufacturing capacity and more advanced vessels also result in greater surge capacity for naval shipbuilding, especially as more commercial vessels are built to naval specifications. Such capacity will be most relevant for support and auxiliary vessels, rather than major surface combatants, which have greater complexity. These vessels could supplement naval ships in amphibious operations, gray zone operations, and underway replenishment, thereby improving China’s power projection capabilities. More advanced shipyards would also be capable of handling some naval maintenance and repair work, freeing up naval yards for more complex tasks and helping to overcome the greatest challenge of maintaining a large fleet – maintenance and sustainment costs. And while the purely commercial shipyards might not be capable of producing Type 055 and 052D destroyers, they could potentially make other combatants, such as the Type 022 missile boat, or retrofit commercial vessels with shipping container-based missile systems. This would further shift the military balance in China’s favor, even if by quantity rather than quality.

For policymakers and members of the global shipbuilding industry, the impact of Made in China 2025 on Chinese shipbuilding presents important lessons, as well as a cautionary warning. Shipbuilding nations, or those aspiring to be, can gain insight into which policies are likely to benefit their industries and those that will not. A central element in the success of Chinese shipbuilding is the official and de facto subsidies that have contributed to their cost advantage over other major shipbuilders, such as South Korea, Japan, and those in Europe, as well as the freeing up of funds for research and development and capital investments to move up the value chain. These include the billions of dollars the government pays to subsidize shipyard costs and critical inputs such as steel, and the revenues generated by dominating the global export market. These funds, along with government-driven industry consolidation, enabled the relocation of assets to the largest and most productive shipbuilders, such as the relocation of the Jiangnan and Hudong-Zhonghua shipyards to Changxing Island. Such policies enhance the benefits of clustering effects, create opportunities to implement the latest best methods and manufacturing technologies, and can speed up the diffusion of technology.

China’s example, therefore, shows how government support can generate incredible results in shipbuilding growth, but also how costly such endeavors can be. That most countries are ill-positioned to spend tens, if not hundreds, of billions of dollars on their shipbuilding industries reinforces the need for targeted and strategic policies and investments to maintain and grow the most efficient and innovative shipyards. The lack of such funds and a command economy like China’s means that similar policies will not be plausible for most countries to emulate. Therefore, government support, such as subsidies or tax rebates, should be tied to the adoption of efficiency-enhancing techniques and technologies, like additive manufacturing and “cobots,” to maximize returns on limited funds and the relative lack of economic control most governments possess.

Similar analyses of China can help shipbuilding nations identify areas of comparative advantage to focus on, like South Korea’s LNG tanker production. They can also serve as a warning to sectors and companies that could increasingly face Chinese competition in the coming years. Players in those sectors should take measures now to prepare for such eventualities. For those concerned about the implications for the maritime balance of power, greater research and focus must be devoted to uncovering the military-civil fusion ties in the sector and how seemingly innocuous investments and purchases could be undermining that balance.

Dan Katz is a graduate student in Georgetown University’s Security Studies Program, with a focus on the intersection of emerging technology and Indo-Pacific security. He works full-time as a consultant in the Washington, D.C. area. The views expressed in this article are his own.

Featured Photo: A Chinese shipyard. (NurPhoto/NurPhoto via Getty Images)