China is implementing policies to reduce CO2 emissions from shipbuilding and vessel usage. New emissions standards for coastal and inland vessels will be introduced in 2018 and 2021 respectively, focusing on particulate matter and other pollutants. China is also promoting technologies like LNG fuel and shore power to cut emissions. The government's 5-year plans establish targets for reducing emissions from shipping activities. Finnish companies should consider local partnerships and production to successfully supply the Chinese market as it transitions to lower-emissions shipping.

1. China cutting CO2 emissions related
to shipbuilding and usage of vessels
Authors: Jari Makkonen, Senior Advisor, Partner at B&B Advisors Shanghai
Maggie Li, Advisor at B&B Advisors Shanghai
16.10.2015

2. Contact information
Jari Makkonen, Senior Advisor and Partner
B&B Advisors Finland Oy
Mobile (FIN): +358 40 809 6606
Mobile (CH): +86 186 2187 6221
Email: jari@bietbi.com
Web: http://www.bietbi.com/
B&B Advisors provides professional management consultancy services to Nordic companies aiming
for success in the Chinese market. On top of tailored market research and analysis, our service
portfolio includes Business Opportunity Check, China Business Audit, Partner Search and Interim
Management. Our clients represent various industries such as maritime industry, energy, district
heating, packaging, professional services, FMCG and tourism.
Tekes – the Finnish Funding Agency for Innovation
Tekes is the main public funding organisation for research, development and innovation in Finland.
Tekes funds wide-ranging innovation activities in research communities, industry and service sectors
and especially promotes cooperative and risk-intensive projects. Tekes’ current strategy puts strong
emphasis on growth seeking SMEs.

3. 1
Executive
summary
China is amongst the three (3) biggest shipbuilder countries globally. Up till now
there has been two very distinctive cases in China: market for domestic vessels and
for export; export being the usual domain for Finnish and other foreign component
suppliers. This however might change soon since China is considering establishing
ECA regions in some part of the territory (Bohai Bay Rim, Yangtze River and Pearl
River Delta) and more technology-content must be built in the vessels used
domestically, too. However, the limits for pollution are gradually implemented and it
will take easily time till 2025 before any major impact on the domestic shipbuilding
market.
Timetable for improved marine engine and other emissions-control measures are
2018 for coastal vessels (supposed to sail abroad, too) and 2021 for inland waters.
The exact targets are reported in the enclosures of the report. This timetable is
however a bit in contrast with the work of authorities: Inland Waters Authorities seem
to encourage earlier usage of LNG and Maritime Safety Bureau instead is against it,
since there are safety and supply of LNG -related concerns in case of coastal
navigation or ocean navigation.
Case of inland waters in China is particularly interesting, since China has as much
inland waterways than EU and the U.S.A. put together.
China has given more emphasis on the fight against air pollution (against small
particles in particular mode) during the last couple of years and clear targets for
pollution control have been identified and are part of this report as Ministry of
Transport is reporting them in the autumn 2015. Attention has been to small particles,
since the air quality is catastrophically in several Chinese cities and towns. However,
also CO2 and other greenhouse gases are tackled more actively between 2015-2024.
Major focus in technology is given right now in China on LNG and LNG dual fuel –
engines. Clear targets for number of vessels using this type of technology up till end
of 2020 are identified (target according MoT around 10% of new-built vessels by
2020). Bulk carriers for inland and coastal use seem to be the first focus of this
technology. The latest examples of this are 300 bulk carriers in Shanghai, which are
supposed to be operated with LNG and be operated for transport of construction
waste and similar.
Shore power/ cold ironing is an important topic as from the autumn 2015. Two cities
in Mainland China seem to lead this work: Shenzhen and Shanghai. State Grid
Corporation of China is leading the electrification of ports in the East Coast. The local
government subsidizes electricity for cold ironing in order to improve air quality of
cities. Current pilots are also trying to find solution to the dilemma of ports authorities
not capable to invoice electricity supplied. 70% of the ports will have shore power in
place by the year 2020.
Electrical propulsion is a topic tackled by three (3) Chinese integrators identified and
reported in this document. However, this seems not to be any specific focus of
Ministry of Transport on shipbuilding and usage of vessels. Some pilots of building

4. 2
ships with electrical propulsion have been identified and in the inland waters there
are some vessels in use (even solar-electrical), but they seem to be rarity rather than
some imminent future mainstream of the Chinese shipbuilding.
Most materials studied are based on the 12th 5 year-plan of China related to the
years 2011-2015. The new five-year plan is in preparation and shall be released soon
for comments and corrections. It is presumed that the final version of the said plan
will be released during March 2016 and is valid for 2016-2020. This plan is
particularly interesting and important since it will bring China to the celebration of the
year 2021, which officially is the year of establishment of China Communist Party.
Finnish companies have vivid interest in entering the market and developing their
position in the Mainland China market place for obvious reasons. Operation forms
applied have been usually basing on the idea of direct export, but the most
successful operations normally require local presence:
- Wärtsilä having multiple JV with Chinese State-owned (“SOE”) -shipbuilding
groups
- ABB opening relatively recently production operation of Azipod products in
Lingang in Shanghai
- Kewatec opening JV in the province of Shandong for producing working
boats
- Several Finnish component suppliers present especially in Shanghai and
Jiangsu provinces with productive operations
Recommendation for Finnish companies is to become local, but not only.
Work on hands-on market analysis and partnering with domestic and foreign clients
and stakeholders is utmost important before the actual entry, as well work on market
segmentation and positioning according the local market needs.
Selection of partners must be in function of the future market segment to be served
locally. Partnering with important Chinese partners – sometimes also in JV - is
important to consider in case we want to become important in our respective sector.
Should JV be the format selected, then it requires from the Finnish party lot of time
invested in getting to know the local partners and win their trust and respect.
Local production hence is very often also a must, but to be implemented in the way
that IPR in all its formats (patents, trademarks, other) are all the time sufficiently
protected and fought for.
China market place offers many opportunities not only for serving foreign shipping
companies, but to become considered supplier also for local and Asian clients
through localization of our offering. Further opportunity is Chinese projects abroad on
building ports and other infrastructure in Africa and elsewhere globally for projects,
which are supposed to guarantee reliable flow of food and raw materials to China.

5. 3
East Asia in
shipbuilding
East Asian shipbuilders in China, South-Korea and Japan have been the
dominating ones in the global scene of shipbuilding volumes. China, Japan and
South Korea currently produce most of the ships globally. China has been occupying
the position number 1 in the shipbuilding, but recently South Korea has improved its
market position, as is visible from the enclosures 1 and 2. As a matter of fact,
overcapacity since 2008 is depressing order books in China, resulting in that Korea
has recently passed China in delivery of vessels expressed in compensated gross
tons and that Japan is currently at the same level than China.
Roles between China and South-Korea can typically be defined by saying that
Koreans are occupying leading position in high-technology content type of vessels
and Chinese shipbuilders have been working on more standardized types of ships,
where price competitiveness is more important. Chinese shipyards are typically much
more numerous (200 truly active out of which 100 make 81% of the volume),
whereas South-Korean shipbuilding is much more concentrated on a fewer and
bigger shipyards (source: Danish Ship Finance 2015). The absolutely biggest
shipbuilders in China are the state-owned enterprise groups (later “SOE”) CSIC and
CSSC.
As reflection of the a.m. situation South Korea has been more successful in localizing
the production of components than China (and having components with higher
technological content), but both countries work actively on it and there is also wide
trade of B2B components and raw materials between Asian countries (source: Tekes
– East Asia Value Networks 2012).
Shipping moves about 80% of the world trade volumes (source: DNV 2014). Hence,
shipbuilding and shipping can contribute in an important way on cutting greenhouse
gas (later “GHG”) emissions by technical measures (ICT solutions, materials
technology, advanced ship design), operational measures and alternative
fuels; however affordability, sustainability and safety have to co-exist in the
current and future solutions and considerations for shipping (source: DNV 2015).
Shipping companies have been using up till now low-hanging fruits of slow-steaming
and using of low-SOx fuels in order to improve their economy of operation and
possibilities to operate. This has been understandable, considering the present
unstable state of the world economy.

6. 4
Chinese CO2
emissions
cutting
programs
2011-2015
Carbon emissions of China are estimated to be currently divided as follows:
source: JOURNAL OF ENGINEERING STUDIES Article: The Status Quo of Energy Saving and Emission Reduction in
Shipping Industry and Its Approach to Low-Carbon Development by Li Biying from China Classification Society)
Usage of fossil fuel will massively further increase in China thanks to the
economical growth and urbanization coupled with it. China is as well the
number three (3) in the world in the carbon-intensity of energy production
though also for example the U.S is pretty high on the same scale (source: DNV report
on Fuel Trilemma 2015).
Some of the targets for the Chinese national targets on emission reduction (later
“ER”) are described in this paragraph. These targets are obviously relative to the
current five-year plan (the 12
th
5 year-plan, later “5 yrp”) on 2011 – 2015 in which
the Chinese government quotes “protection of environment” and “reduction of CO2”
as important targets (source: KPMG 2011).
During the current planning period China (in general) would like to save some 670
million tons of standard coal, and reduce total CO2 emissions and total sulfur
dioxide emissions to 23.476 million tons and 20.864 million tons, decreasing by 8
percent from 25.517 million tons and 22.678 million tons from 2010, respectively.
According to Ministry of Transportation’s Highway and Waterway Transportation
Energy Saving and Emission Reduction in the Twelfth Five Year Plan (2011-2015),
the targets for energy saving are:
a) Comparing to 2005, energy consumption per unit of vessels will decline by
15%, among which ocean going and inland waterway vessels reduced
respectively by 16% and 14%
b) CO2 emission for operating vessels unit volume of transport will decline by
16%, among which ocean going and inland waterway vessels reduced by
17% and 15%
c) CO2 emission per unit throughput of port will decline by 10%.
Power
and
Heat
Supply
49
%
Construc7on
–
related
31%
Transporta7on
7
%
Living
4
%
Other
energy
source
4
%
Others
5
%

7. 5
CO2
emissions
and shipping
Up till now Chinese government together with the U.S. government has paid
relatively little attention to greenhouse gases. However, there has been
announcement of President Obama and President Xi Jinping during Xi’s recent
trip to the U.S.A of both countries activating to fight GHG and pollution. This
coupled with The Global Maritime Energy Efficiency Partnership project (GloMEEP)
announced in September 2015 in Singapore will bring some more dynamics to the
Chinese fight against pollution.
One of the recent answers of fight on the air pollution has been gasification of China
with attempt to bring down share of coal of the total energy used in China yearly.
Gasification is based on increase in import of gas to China, but also better use of
domestic sources (natural gas, CBM - coal-bed methane to be liquefied into LNG,
shale gas and offshore oil & gas). Usage of natural gas and LNG and is also
connected with the Chinese initiative on “Silk Road”, which primary target is energy.
President Xi also speaks about “1+2+3”, where 1 = energy as core, 2 = two wings =
infrastructure and trade & investments, 3 = nuclear energy, space satellites and new
energy.
At the same time global maritime regulations incentive steps for improving the
environmental impact of shipping especially in so-called ECA regions. There however
has still been globally plenty of room for national legislation for shipping in non-ECA
regions.
China has three national oil companies, which are CNOOC, CNPC and Sinopec.
Sinopec participated in the 3
rd
Green-shipping summit in Shanghai and enclosed
some of their materials and comments.
Also the controls of the quality of ship fuels have been the same time non-existent
and the situation on the Chinese market place has been very wild (see enclosure 3
and 4 – theory and reality from Sinopec presentation of September 23, 2015). To
illustrate better the same situation of greenhouse gases and air protection in China it
can be stated that both land and sea transport currently suffer from low-quality fuel
and lack of catalysator technology to be implemented though theoretically speaking it
should be already in place (see e.g. “Under the dome” documentary by Chai Jing on
the Chinese pollution released in 2015). However, the Enactment and
Implementation of Emission Limits and Atmospheric Pollutants from Vessels should
improve the situation of the quality of fuel.
Ship fuel considerations globally and in China are currently done and they seem to
be focusing right now on more immediate usage of LNG (dual fuel), in the long-run
there could be also concrete solutions at hand on electricity, biofuels, methanol,
ethanol and hydrogen (source: IEA 2015, other). More advanced ways of generate
ship power (see DNV on energy harvesting: thermal, wind, solar mechanical and
waste heat recovery solutions) are considered, but not that much in focus of the
present report, since the solutions seem to be relatively far away.

8. 6
Ministry of Transportation issued Guideline for Mid-term and Long Term Energy
saving and Emission Reduction regarding road transportation, inland waterways
and port (source: China Ministry of Transport website). These documents are listing
possible target areas of saving; however, LNG –related motors, electrical propulsion
or wind power are not mentioned in the material for 2011-2015, but they are
mentioned for the topics in 2016-2030.
In April 2014 Ministry of Finance and Transportation co-issued “Inland Waterway
Vessel Standardization Subsidy Management Measures” in which subsidies are
granted to vessel standardization for inland waterway vessels including Yangtze and
Xijiang (Pearl River). Newly built LNG driven vessel could be granted up to 1.4 million
RMB subsidies (Singapore with 1.4 M USD funds for a new built vessel).
There are Chinese projects, which involve building energy saving and emission
reduction capacity in terms of electrical propulsion for ships and other, which will be
debated in their own paragraph. Shipbuilding industry is supposed to make its
contribution on the following topics through Energy Efficiency Design Index, which is
listing conventional measures on ship body optimization, with which the Chinese
government believes to reduce CO2 emission with 15%:
• Propeller design optimization
• Rudder blade optimization
• Energy saving device to improve propulsion efficiency
• Ship main engine selection optimization
• Increase of loading capacity
• Reduce the wind resistance on the superstructure
• Welding improvement to reduce friction resistance
Port infrastructure is also going to get its share of interest and following is supposed
to take place there: Shore Power (recently in apparently strong progress); Container
Terminal “Diesel to Gas power" and applications of Energy Saving Technology for
Port Machinery.
Chinese Ministry of Transport has very recently announced (the Maritime
Executive 1.9.2015 and 3
rd
Green shipping summit of September 2015 in Shanghai
http://www.borscon-gm3.com/2015gm3/en/) that it is considering to reduce by 2024
sulphur and nitrogen oxide emissions in the Pearl River Delta, Yangtze River and
Bohai Rim and as well establish in the future Emission Control Areas
(implementation and timetable subject to confirmation). China is home of seven
of the world’s ten most busiest container ports: Shanghai, Shenzhen, Hong Kong,
Ningbo-Zhoushan, Qingdao, Guangzhou and Tianjin. There will be a program of
stepwise implementation of future ECA areas (see enclosure 5 extract from MoT
presentation). As single cities Shenzhen and Shanghai in Mainland China seem to
be leading this development right now.
Some cities in Asia might also take lead in some single technologies about which
Singapore can be mentioned about LNG bunkering (trying to become leading LNG

9. 7
trading Centre as from September 2015) and Shanghai can be mentioned related to
electrical buses (source: IEA 2013) and regulation regarding the port and maritime
fuels (source: Green4Sea 2015).
In 2014 DNV in the visions about the future of shipping foresees further growth of
Intra-regional trade and business “south-south” and not any more that much to
the U.S and Europe. This might marginalize IMO as organization according DNV.
Growing intra-Asian trade has been also debated in the FinNode 2012 –report, which
stated that trade (and integration) between Asian countries has been driven by
business, whereas it has been driven by politics in Europe (EU integration) and
hence there could be less attention to public policies imposed by developed
countries.
However, the recently received materials of Ministry of Transport (Qiao Bing:
Shipping and Port Emission Inventory etc., September 2015) suggest that the
Chinese authorities seem to closely follow regulation from the European Union and
from the U.S.A (related to ECA and other) so that the a.m. prediction of DNV on the
role of IMO and developed countries does not look too accurate right now.
China’s inland waterways are the most important in the world and have about
125.900 km of navigable inland waterways (railways 103.100 km in
comparison), which carried 235.30.000 people (1.1% out of the total people flow)
and 5.597.850.000 tons of freight - 13.7% of the total transported inland freight in
2013 (source: National Bureau of Statistics of P.R. China).
There is reported to be 172.554 units of civil transport vessels in operation in
China in 2013. Out of them 156.340 are classified as motor vessels of various size
and 17.214 barges used for carrying bulk freight.
Ships represent a high capital investment and have long commercial lives globally. In
2006, the average age of vessels being withdrawn from commercial service for
recycling was approximately 32 years, up from approximately 27 years in the early
1990s (source: IEA 2009). In China the product life of vessels might be shorter than
the a.m. since less quality components are often used etc.
Related to this supposed gasification, according to Ship Economy & Trade, there are
in China about 30.000 vessels below 7 years of vessel age, which satisfied with
dual-engine retrofit conditions and about 17.000 vessels with age of 8-15 years,
which are possible to retrofit (for LNG dual fuel in practice).
Hence, gasification of shipping seems also to be somehow in focus of the Chinese
authorities. However, retrofitting will heavily depend on public support on doing so.
There are some programs in place by MoT for promoting investment into conversion,
but there might be more to be done in order to see it take place in reality. Enclosure
6 illustrates the year as from which the new built vessels should be according the
new emission limits and it also give information about the transition period foreseen
for the existing fleet, which might be very long in real life terms (enclosure 6: …”if

10. 8
CO2
emissions
cutting
programs
2016-2020
ships fail to meet requirements…they should be obsoleted within a given time limit” –
limit not yet given and remains to see, if the future limit will be respected). Enclosure
7 shows, how is the plan to promote new vessels and scrap some obsolete
ones: 28.000 ships to be built and 32.000 ships to be scrapped. MoT also has
target of having 2% of the inland vessel fleet running on LNG (generally dual-fuel) by
end of 2015, over 10% by 2020 and 20-30% by 2030.
Regarding the vessels and their standardization, it seems that there is target to
have 80% of the inland water ships modernized to a certain level (new ships). This
work however concentrates on the dimensions of the ships and for the time being
does not address the fuels used except just states the engine power level required.
The Chinese government will release the draft 5 –year plan of 2016-2020 most
probably sometimes in October-November 2015. This will be debated during the 6
months to come and it will be confirmed in the final format by March 2016. Currently
we do not have at hand any future 5 yrp draft version and related to CO2), but hope
that as part of its analysis of the future 13
th
5 yrp by Team Finland China. Should we
receive new data about the 13
th
5-year plan by October 5, we will however deal with it
in this report.
Material of Chinese Ministry of Transport (September 2015) has been however
very useful in this context and anticipates some of the future trends. It is enclosed as
separate document enclosure to this report.
Possible technical future measures for shipbuilding for the years 2016-2030 are
however already now listed as follows and should be supported in the next planning:
• Low resistance paint
• Bubble drag reduction system
• Waste heat recovery device
• LNG as fuel
• Wind Power Utilization
• Solar energy utilization
• Other technologies, including fuel cell, biomass material, the use of LED
technology, marine power management system and the use of nuclear
energy
Out of the a.m. listed items LNG dual fuel engines are reality already now and
strongly promoted by the governmental players.
Regarding the a.m. list of action the biomass –related developments might be very
interesting to address and understand in the future, since Finland has important
wood-biomass –related resources and industrial tradition. IEA assumes that higher
quality biodiesels such as biomass- to-liquids (BTL) fuels could become blended into
petroleum fuel and to provide 30% of maritime transport fuel by 2050, with an

11. 9
Electric
propulsion in
China
average 85% reduction in CO2 per liter (L) used compared to HFO (source: IEA
2009).
DNV expects electrical propulsion becoming a commonplace solution by 2020
especially to short-sea and offshore –related vessels and equipment and this will
happen in connection of future solutions having direct current (DC) electricity grid on-
board in ships facilitating for example functioning of motors and generators at a
variable speed and helping to optimize fuel consumption amongst other. Moving from
the conventional combustion-based engines to electricity has been one way of trying
to find reduction of CO2.
In China this development might be somewhat slower for the vessels for domestic
use since several components related to this might be often imported or of foreign
production in China and hence have a certain price tag, which unwillingly will be
sustained by the shipping companies active on the national coastal and inland
waters.
However we have found three (3) most interesting players in this field in China, which
players are briefly reported as per below. We have also enclosed their references in
the enclosure 8.
712
th
Institute of CSIC acts as one of the Chinese Marine Electrical Propulsion
System (later "EPS") Integrators.
The Institute in question claims to be the leading Research Institute for Electrical
Propulsion System in China. They also provide all EPS application for Navy vessels
in active service. They claim they have supplied as from 2008 a dozen of EPS for
civil applications such as bulk cargo ship, expedition ship, cruise, cable laying ship
etc.
CSIC Group has also another Institute for the study and application of EPS, namely
the 704th Institute of CSIC. They claim to have testing capability: EPS below
12MW, and providing life cycle service for EPS: design, analysis on equipment
selection, system commission, testing and delivery. Since 2008, they claim to have
delivered more than 20 EPSs to river cruise, expedition ship, semi-submerged ship,
dredger, barge, measuring ship, life boat, platform supply vessel, ocean-going trawler
etc.
A third identified Chinese Marine Electrical Propulsion System (EPS) Integrator
is CRRC Corporation (merger between CNR / China North Railway + CSR / China
South Railway). China South Railway (CSR) purchased Shanghai Han Ge
Automation Engineering and Technology Co., thus entered into marine system
integration field in 2011. In EPS field, CSR Han Ge claims they can provide diesel
engine generator set, power distribution board, transformer, frequency converter,

12. 10
motor and propulsion integrated solution or single bow thruster’s design, integration,
installation and commissioning.
We tried to identify further players of this field and interviewed one of the major state-
owned marine technology research centers, which is Shanghai Ship Research
Institute (SSSRI under China Shipping). They basically identified no further
integrators or particular players and seemed to have some contacts especially with
CRRC Corporation. About their international work they mentioned Swedish co-
operation on fire alarms for shipping, the Netherlands on hydrodynamics and Japan
on ship automation.
The other relevant state-owned research Institutes are for reference and further
contacts: MARIC Marine Design and Research institute of China, Changliang Ship
Design Institute (Yangtze), Shipbuilding Technology Research Institute (STRI under
CSSC), China Ship Research & Design Centre (China Shipbuilding Heavy Industry
Corporation), Guangzhou Marine Engineering Corporation (Gumeco under CSSC)
and Jiujiang Precision Measuring Technology Research Institute (China State
Shipbuilding).
We did not find price information on the electrical propulsion supplied by the local
integrators and their work on the basis of very low number of projects and pilot -like
approach to the matter.
In case of EPS it was said that Chinese shipyards delivered EPS ships mostly using
medium speed engine from Wärtsilä, Caterpillar and Cummins; they rarely installed
Chinese brand of medium speed engine on the ship. This might indicate the wish of
the ship owner or also the level of quality and reliability of the Chinese solutions right
now.
WuChang Ship Building Group and Chongqing Changchang Dongfeng Ship Group
were for example mentioned as shipyards with most understanding on EPS.
Further Chinese development trends for electrical propulsion systems (source: Ship
Economy & Trade Magazine ISSN 1008-1054) are claimed to address “large-scale
medium and high voltage applications; Direct Current propulsion; multi-energy hybrid
power solutions and ICT solutions for overall steering & ship control systems.” “Large
scale application systems” would involve attention to large offshore platforms, heavy
lifting pipe laying vessels, Multi-purpose vessels, large container vessels and luxury
cruises with system total capacity of 50 MW with system voltage of 6.6 kV and/or 11
kV medium and high voltage applied.
Chinese seem to be following closely developments in the field of DC grid concepts
for ships and they seem to refer amongst all to ABB introducing Marine DC Power
Grid Concept in 2011 and Norwegian Kleven delivering 1
st
platform supply vessel
Dina Star as from 2013 using ABB DC electrical propulsion system, which is claimed
to save 20% fuel and 30% layout space than the more traditional AC electrical
propulsion system.

13. 11
Diesel and
dual-fuel
engines,
other marine
components
Diesel-driven electrical propulsion is making its way to the ships currently and battery
technology currently available for shipbuilding – even for short-range shipping - is not
that common for the time being and some application exist for small short-range
passenger ferries in operation (Norway, eventual others in Europe).
Current battery technologies base them in practice on Lithium-ion batteries even
though there are new studies on more advanced solutions (source: Lloyd’s 2015).
We have found the following practical pilots on the China market place:
- pilot owner: Chongqing Changjiang Shipping company: solar-photovoltaic all-
electric battery –powered ship for passenger capacity of 150 people; the
vessel is designed by BMT (UK); vessel used at Yangtze River
- pilot owner: Xiamen Boat Technology, Usun Yachts: all-electric solar
powered passenger boat for 10 guests; vessel operated at Yundang Lake,
Fujian province.
The a.m. projects did not seem to rise lot of attention on the market even though we
also did find some solar-power –operated leisure boat solutions at Alibaba e-
commerce site, which seem to be more marketing gigs than real-life solutions.
At the 3
rd
Green shipping summit in Shanghai we noticed presence of Haldor Topsoe
A/S, who presented itself there as “fuel cell manufacturer” and hence also very
innovative companies are trying currently to penetrate the Chinese market place and
partner with the Chinese ship building and shipping stakeholders.
According to the IEA’s Baseline scenario (source: IEA 2009) it projects slightly more
than a doubling of shipping tonne-kilometres (tkms) between 2005 and 2050.
Assuming about a 25% reduction in energy intensity of shipping over this period, fuel
use increases by 60% in the Baseline scenario by 2050. Hence, it is clearly
understood that all type of improvement in fuel economy and quality and consequent
environmental impact is very important.
Applying gas engines with relative LNG system and piping means additional
CAPEX of 30%, when applied on any new ship (source: DNV Fuel Trilemma report
2015). Hence, it is very clear that both new ships and retrofit will exist in China only in
case of very heavy state support on pilot projects and ramping up of the technology
for domestic use.
ECA Retrofit study in fact also concludes that a ship operating not too much in ECA
region should convert to use low-SOx fuel instead of investing into LNG motors or
scrubbers. This seems to be the case of the Chinese government: LNG is very much
debated and promoted as from the last year or so.

14. 12
At the same time China has done a lot to get the international regulatory work for
LNG use implemented in China even though there remain some challenges in it, see
more on enclosure 9.
Gas engines have three variants, them being LNG –gas only engine and dual fuel
four-stroke and two-stroke engines. Chinese claim to be studying localization of
components and follow in this the Korean shipbuilding industry. Chinese claim to be
capable of producing the most advanced low and medium speed diesel engine,
having localization rate of critical components above 70%.
Yuchai Engine (company owned by Yuchai Group, CIMC and Chery) was presented
at the 3
rd
Green summit for maritime in Shanghai (September 2015) as best
practice of the Chinese know-how in this field. Yuchai claims to be capable of
producing dual-fuel machines up to 680 kW.
Some other Chinese brands considered famous in China are Zhong Chai Dong Li
and Guang Chai amongst other. Chinese recognize they have low serialization ability
and hence market coverage, but they will experiment their know-how on the domestic
fleet and build up their capabilities in this topic.
Enclosure 10 illustrates some Chinese dual-fuel engine –ships, which are first put
into function in Grand Canal (Jing Hang Canal from Hangzhou to Beijing) and
Yangtze River between Wuhu-Nanjing and Wuhu-Wuhan. This is because there are
available LNG bunkering stations along these sites indicated. When talking about
this type of ships (as per enclosure), it seems that the ships in question can be built
by the leading Chinese shipyards and with in-house design capabilities with the top
local engine manufacturers. Names of the shipyards quoted in this context were e.g.
Wuhu Lvdong Environmental Protection Technology Development Company Co.,
Ltd. and Shanghai LNG Power Shipping Company. This is probably also thanks to
the foreseen investment of Shanghai LNG Power Shipping Company of 650 million
RMB to build 200 ships together with Wuhu Lvdong in order to use them as bulk
ships for transporting construction waste from Shanghai and other inland water cities.
There is a working team led by MoT on limits and measurement methods for
exhaust pollutants presented at the 3
rd
Green summit in Shanghai: Jinan Motor
Vehicle Inspection Center, China Research Academy of Environmental Sciences
(http://www.craes.cn/cn/SUSTIANH2O/home.html), Zibo Diesel Engine Parent
Company (http://en.zichai.com/), Weichai Power Co. Ltd. (http://en.weichai.com/)
and Shanghai Internal Combustion Research Institute. Tsinghua University
(http://www.tsinghua.edu.cn/publish/newthuen/index.html) and China Automotive
Technology & Research Center (http://www.catarc.ac.cn/ac_en/index.html) seem to
participate in studies of emissions of heavy-duty vehicle engines, too.
Chinese developments within Multi-energy hybrid power are described in the local
press as follows:

15. 13
Shore power
/cold ironing
• “Dual fuel engine and pure gas engine has been developed in the field of
electrical propulsion prime motor. Some Chinese engine producers are told
to master supply of dual fuel engines of power range from 1.320 to 4.400 kW
• Storage cell, fuel cell, super capacitor and solar power have been applied in
vessels
• Dual fuel engine has been applied in electrical propulsion LNG vessels, ferry
boat, marine work ship, icebreaker.
• By Nov.2014, Wärtsilä has installed in 76 vessels with dual-fuel medium
speed engine, 74 of them are for LNG vessels.”
Some of the leading marine power generator producers are as follows: Fen Xi Heavy
Industry and Zhong Chuan Dong Li. Chinese still claim that in the comparison with
foreign competitors Chinese products are lacking fine design ability of size and
weight of their products.
In the field of frequency converters CSR Zhu Zhou Institute and the 712
th
Institute
of CSIC are claimed to be the most capable ones in China.
Marine thruster system may use Azimuth thruster, podded propeller, controllable
pitch propeller, fixed pitch propeller, hydraulic propeller etc. Most applied systems are
Azimuth thruster and podded propeller. Many shipyards are told to use ABB Azipod
products, whilst Zhen Hua Heavy Industry and Wu Han Marine Machinery are
developing own podded-propeller system.
Control systems (power management system, propulsion control system, engine
room monitoring and alarm system etc.) of Chinese origin seem to be often made by
712
th
Institute, 711
th
Institute and Shanghai Marine Research Institute. 712
th
Institute’s control system has been applied onto electrical propulsion testing ship,
cruise, bulk cargo ship, dredge and measuring ship etc. Shanghai Marine Research
Institute ‘s control system has applied to ships without electrical propulsion.
Ports in China are co-owned by central and local government. Central government
has organized the ownership through State-owned Assets Supervision and
Administration Commission (later “SASAC”). Some ports have private minority
owners, but mainstream has been that of public ownership.
Shore power starts being currently installed in the East Coast cities of Mainland
China and Shenzhen and Shanghai seem to lead this trend. State Grid
Corporation of China will be the main actor on the whole territory together with the
Ports Authorities in respective cities to make shore power being available at quay
and to be connected to the ships’ shore connection boxes. There seems to be current
problem of only State Grid legally capable of invoicing for shore power even though
Ports are supposed to do it in practice. Pilots in Shenzhen and Shanghai should find
concrete solution to the roles at the Ports in this respect.

16. 14
Internet of
Things
City of Shenzhen has declared that they will invest annually 200 million RMB
(about 29 MEUR) on promoting the shore power and usage of low-sulfur fuels
(“Interim measures for Shore Power facility and Low-Sulfur Fuel Subsidy”). This can
be considered as pilot for China at state level, too. State Grid or Port Authorities are
supposed to sell port power to ships at lower price and the price difference between
the “normal” and shore power is supposing subsidized by the respective local
governments.
Normally businesses pay for electricity 1.1 RMB per kWh. For loading electrical cars
households pay the same as for electricity for households, which is about 0.67 RMB
per kWh. Foreseen price for shore power in Shenzhen is 0.7 RMB per kWh (1 Euro =
7.2123 RMB 13.10.2015). This price – hence 0.4 RMB cheaper than normal rate -
can be recognized for ships using shore power at Shenzhen Port. Shore-power
cannot supply enough electricity for peak loads, when ships loading/unloading or
using big electrical equipment (cruise ship A/C, other) and hence contemporary
subsidies on low-sulfur marine fuel is very logical.
By 2020 70% of the cities are supposed to have shore power installed at their
major ports.
The subsidy on low-sulfur fuel is covering 75-100% of the price difference between
heavy fuel and low-sulfur fuel. Difference on pricing will refer to Singapore IFO380
and MGO/MDO/LSMGO monthly average price difference. Shenzhen Transportation
Bureau will roll out details in due course on this topic and about how to apply for
subsidies.
In Jiangsu province there are five (5) ports for piloting shore power as well,
comprising ports like Lianyungang and Zhangjiagang.
Industrial Internet and Internet of things will enter in the shipbuilding and usage of
vessels though slower than in some other industries used to introduce novelties (car
industry, aviation, ICT hardware, other). There are opportunities for ship owners
and operators to reduce costs, improve fuel efficiency and increase uptime and
reliability with about 20 billion dollars today and this will exceed 50 billion
dollars by 2030 (source: ESRG 2013). This will mean also possibility of cutting GHG
emissions in a very major scale. However, currently only a minority of ships have the
equipment and management skills to seize the a.m. opportunities for important
savings.
Should the development of introducing a.m. technologies in shipping proceed well,
we could have first automated ships by 2025 (source: DNV 2014).
As well, ship design already has available lot of tools, which can be used not only in
the old segmented way of working – elaborating systems and components in an
isolated way (source: DNV 2014), but in order to have a more holistic way on ship

17. 15
Operational
modes to
enter market
in China and
East Asia
design and apply Model-Based Systems Engineering in the future for ship-building.
Currently MBSE is applied for ship machinery system planning, but will become
major tool for the entire ship manufacturing according DNV.
Amongst Chinese stakeholders there are programs about
• Intelligent ships, which will realize holistic control all critical system
equipment
• Electrical propulsion system management control, which is believed to be the
key component in Integrated Bridge System (IBS) and Intelligent Ship
System
• Suppliers in this field are rolling out no-man controlled EPS management
system, which can be integrated together with dynamic positioning and ship
automation system.
MoT has mentioned IoT in their September 2015 presentation at 3
rd
Green Shipping
Summit in Shanghai, but they as well talk about “Internet of ships”, which means
improved control of the current fleet and its movement. Local initiatives for ship
controls and “intelligent ship” might be in development phase, but Chinese are
working heavily on this sector, too and will make this kind of systems for their
domestic vessels and shipping companies and learn about the sector so that global
players will have more and more competition on this type of products from East Asia.
Big Chinese Internet player like Alibaba has their business segment for B2B products
and services. It has formed strategic alliance with China Shipping and introduced
100.000 more trading companies into this “E-Shipping” –platform to facilitate booking
and charting information flow for cargo transportation. There are several online
platforms in China providing similar service, for example Epanasia from COSCO.
More ship information will be expected to integrate online like ship trade and
maintenance, material supply and crew management. Shipping –related information
like customs clearance, insurance, financing and credit evaluation will be covered as
well.
Silk Road initiative of the Chinese government is supposed to have also its digital
form so that the Chinese products and services will become available in the region of
Silk Road, which is basically from Kashgar of West China to Duisburg in Germany.
Finnish companies are often encouraged for direct export. Sometimes direct export
takes format of serving the existing European clients, best Finnish companies
achieve a good local clientele as well.
Sometimes direct export is rather complicated and you have to work both on global
clients e.g. in Europe and then work on making your product or service know e.g. by
local shipyards in China. There are good examples in the regarding for example work
of Bluetech Finland Oy performed in China for selling their ship construction

18. 16
optimization know-how and licenses to the China market place. The end customer
might be European ones, but still presence at shipyards in China require presence
there and active elaboration of shipyards then eventually implementing their part of
the project with this type of Finnish know-how.
In Shanghai there is an unofficial club of shipbuilding related Finnish companies, who
not only export their product, but many of them also produce it locally (Evac, Halton,
others).
Wärtsilä is a good example of a Finnish company to enter the China market place
very early already in 1986. They currently employ some 1.500 people in China and
they have done several joint ventures with Chinese maritime-sector main players
(CSIC, CSSC, other) for producing certain marine diesel, dual fuel and other products
directly in China (source: Wärtsilä annual report 2014, Talouselämä 27/2015). China
is producing some 9% of the total turnover of Wärtsilä Group.
As well, ABB with its production of Azipod products in Lingang in Shanghai has set
example of local penetration with its own organization (other Azipod products
produced in Finland).
M&A has been also way of some companies becoming increasingly important in their
sector and this has been the case of the previously Finnish Deltamarin, which was
relatively recently acquired by the Chinese Avic. This has give to Deltamarin good
access to financial resources and the Chinese ecosystem, which can produce
important benefits also for Deltamarin organization in Finland and elsewhere globally.
So, is the market entry with JV or own production operation only something big
Finnish or international players can consider? In some cases Finns should consider
more flexibly also other operation types than only direct export, which might lead for
bigger success and better economical results in a shorter time period. This would
also allow Finnish companies to gain resources for investment and growth of
operations in Finland, which has been the case of some successful Finnish
companies in China.
Considering the case of Kewatec Aluboat this seems to be the case. Kalle Wargh
(Chairman of Board of Kewatec Aluboat) has led his company to the China market
place through careful consideration of their China strategy in 2013, which led them to
consider, if to work on becoming somebody important on the China market place
through a Joint-Venture with a local important player, which in the case of Kewatec is
Congling Group with whom they have formed Shandong Congling Kewa
Aluminum Boat Co., Ltd. This company is based in Longkou City in the province of
Shandong and using “Ocean Hammer” as they marketing name for Sino-Finnish
working boats produced and sold in China. The JV is hence relatively recent and the
future years will show, how they manage to ramp up the company operations in
China and for export.

19. 17
In all co-operations partnering and making it well is an important aspect of success.
This is especially true in China and aligning the targets of ours with the Chinese
strategic partner together with strategic fit of what we dream to do on the market
place requires a whole deal of time on cultivating and working on the relationship in
order to make it work. Part of this is not only preparing legal documents of co-
operation or elaborate efficient marketing plans, but it is about designing and
managing brand of our company on the Chinese market place and for example
protecting IPR, which come out of this work.
Finnish companies have vivid interest in entering the market and developing their
position in the Mainland China market place for obvious reasons. Operation forms
applied have been usually basing on the idea of direct export, but the most
successful operations normally require local presence:
- Wärtsilä having multiple JV with Chinese State-owned (“SOE”) -shipbuilding
groups
- ABB opening relatively recently production operation of Azipod products in
Lingang in Shanghai
- Kewatec opening JV in the province of Shandong for producing working
boats
- Several Finnish component suppliers present especially in Shanghai and
Jiangsu provinces with productive operations
Recommendation for Finnish companies is to become local, but not only.
Work on hands-on market analysis and partnering with domestic and foreign clients
and stakeholders is utmost important before the actual entry, as well work on market
segmentation and positioning according the lcoal market needs.
Selection of partners must be in function of the future market segment to be served
locally. Partnering with important Chinese partners – sometimes also in JV - is
important to consider in case we want to become important in our respective sector.
Should JV be the format selected, then it requires from the Finnish party lot of time
invested in getting to know the local partners and win their trust and respect.
Local production hence is very often also a must, but to be implemented in the way
that IPR in all its formats (patents, trademarks, other) are all the time sufficiently
protected and fought for.
China market place offers many opportunities not only for serving foreign shipping
companies, but to become considered supplier also for local and Asian clients
through localization of our offering. Further opportunity is Chinese projects abroad on
building ports and other infrastructure in Africa and elsewhere globally for projects,
which are supposed to guarantee reliable flow of food and raw materials to China.

20. 18
Appendices
and list of
sources
Separate MS PowerPoint
LIST OF SOURCES USED:
China Ministry of Transport web site at: http://www.mot.gov.cn/
Rob Bradenham, Ken Krooner: ESRG –report on “Bringing the industrial internet
to the marine industry and ships in the cloud” (2013)
KPMG: “China’s 12
th
5 –year plan: overview” (2011)
Christos Chryssakis: DNV-GL report on “Future Fuels on shipping…” (2015).
船舶经济贸易 Ship Economy and Trade (2015).
DNV-GL: A broader view – the future of shipping (2014).
Tekes: East Asia value networks – case maritime cluster (FinNode 2012).
DNV-GL: The Fuel Trilemma – the next generation of marine fuels position paper
(2015).
IEA: Global EV Outlook – Understanding the Electrical Vehicle… (2013).
Green Ship of the Future: ECA Retrofit study (no date).
Lloyd’s Register: Driving new technologies (2015).
Danish Ship Finance: Shipping Market review May 2015.
Green4Sea quoting Shanghai daily on May 29, 2015.
IEA: Hydrogen and Fuel Cells (2015).
IEA: Transport, energy and CO2 (2009).
Chai Jing: “Under the dome” film (2015).
Talouselämä 27/2015 on Wärtsilä
Dr. Qiao Bing (China Waterborne Transport Research Institute, Ministry of
Transport): Shipping and Port Emission Inventory and Latest Progress in
Pollution Prevention and Control in China
The Maritime Executive 2015 (several)
Long Huali, Sinopec: Marine Fuel Specifications: Current situation & future
development
Several expert interviews according separate internal documentation