FCT Fincantieri SpA

By Trefor Moss 

SHANGHAI--A Shanghai shipyard will build the first oceangoing cruise ships ever constructed in China, as the global cruise industry chases surging Chinese demand for foreign travel.

Wednesday's deal calls for China State Shipbuilding Corp. to build two ships in partnership with Italian shipbuilder Fincantieri SpA for cruise operator Carnival Corp., with an option for an additional four. It is a shot in the arm for China's embattled shipbuilding industry, which is reeling from a sustained slump in global demand for new vessels.

A local joint venture between Fincantieri and CSSC will deliver the two ships to Carnival--which also operates cruises under brands such as Costa, Cunard and P&O--for $1.5 billion starting in 2023. Fincantieri CEO Giuseppe Bono said the deal would boost his company's access to China's growing market.

Chinese tourism is booming, and cruises are no exception.

Nearly a million Chinese people cruised in 2015, up 40% from the previous year, according to the most recent data from the Cruise Lines International Association.

That is still relatively modest compared with the 11.3 million Americans who took cruises that year, accounting for nearly half of the global total.

Even so, China has emerged as the sector's fastest-growing market, with the Ministry of Tourism estimating that 4.5 million Chinese will take cruises by 2020, rising to 10 million in 2030.

With China's cruise sector set to boom, local shipbuilders see cruise ships as a potentially lucrative niche as they struggle in most other segments of the market, said Robert Willmington, a shipbuilding analyst with IHS Maritime & Trade.

"There are only a few bright spots like cruise in shipbuilding right now, " Mr. Willmington said. "That's why China is trying to get into the cruise sector." Cruise liners are one of the few types of ship that Chinese industry isn't yet able to build, he said.

Half of China's major shipyards have closed since 2013, despite government subsidies. Orders for new ships fell by a third in China last year.

The joint venture between Fincantieri and CSSC, split 60-40 in the Chinese state-owned company's favor, would likely involve technology transfer to help China acquire its own cruise-ship-building capability, Mr. Willmington said.

Announcing their partnership last June, Fincantieri and CSSC said they wanted to build ships tailored to the demands of Chinese customers.

CSSC general manager Wu Qiang said at a cruise industry conference in China last year that the global cruise industry needs 15 new liners a year to keep up with demand, and that China wanted to help meet it. CSSC's foray into cruise-liner construction is backed by an industrial fund set up last year by five leading Chinese banks.

Carnival signed a deal with CSSC in 2015 to operate cruises under a new Chinese brand.

Write to Trefor Moss at Trefor.Moss@wsj.com

(END) Dow Jones Newswires

February 22, 2017 23:27 ET (04:27 GMT)

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