Russia Plans Shipbuilding Partnerships With China

A partially completed icebreaking LNG carrier, right, at Zvezda Shipyard. Russia's other partners in shipbuilding face compliance issues for projects like these - but not China (Zvezda)

It is no secret that Russia's shipbuilding industry is struggling. Foreign components and expertise have been cut off by sanctions, workforce availability is limited, and Russian shipbuilders have been lagging behind delivery deadlines - prompting the government to seek new solutions.

In August, the Kremlin handed control of state-owned United Shipbuilding Corporation (USC) over to Russia's second-largest banker, VTB, in hopes of a turnaround. Now in command, VTB chief Andrey Kostin has an idea: USC should partner with the world's leading shipbuilder, China, he told SCMP this week.

“We are coming to China because it is number one shipbuilder globally. We need cooperation with China," Kostin told SCMP at a Belt and Road Initiative conference in Beijing. "I’ll probably return in November to meet with Chinese companies, we might even look to build a new shipyard with China."

He emphasized that any partnership would focus on commercial shipbuilding, not defense, which is a robust business area for USC.

In general, the Russian government has encouraged self-sufficiency in the commercial shipbuilding sector. Its efforts include a government-backed fishing fleet recapitalization project for the Pacific trawl and crab fleets, as well as a series of informal instructions from President Vladimir Putin, who has sought to direct business to the refurbished Zvezda Shipyard complex near Vladivostok.

Russian yards have worked with foreign shipbuilding partners in the past. Novatek and Zvezda signed with Samsung Heavy Industries for a 15-ship LNG carrier project in 2019, but that arrangement now faces headwinds due to sanctions. The first three hulls have been delivered for outfitting and two more are in progress, but work on the remaining 10 in the series has "halted" due to sanctions on payment processing, according to Korea JoongAng Daily. "The concurrent timing of Russia's sanctions has cast doubt on the progress of the 10 pending vessels [for Zvezda]," a Samsung Heavy Industries official told the outlet in August. "Negotiations are ongoing to chart a way forward."

If Chinese shipbuilders were to step into the Russian market and help solve problems like these, it could increase Russia's growing dependency on ties with Beijing. China is Russia's top trading partner, by a wide margin, and supplies about half of all Russian goods imports. It is the top export buyer of Russian oil, as well as the top buyer of Russian pipeline gas.

Critically, Chinese interests have stepped in to plug gaps left by the departure of Western firms. Chinese LNG technology companies are key to the completion of Novatek's Arctic LNG 2 plant in the Russian far north, filling in after the departure of Western engineering firms.