Charting a New Course: Countering China's Dominance in Global Shipbuilding

K. Good afternoon everyone. The sub subcommittee on East Asia and the Pacific will come to order. This hearing will explore how the CCP uses instruments of the state to facilitate non-competitive business practices allowing China to push out foreign competition and control international ship building markets. and what the United States, working alongside its regional allies can do to push back. I now recognize myself for an opening statement. Good afternoon. I wanna welcome everyone to today's hearing. This hearing is titled " Charting a new course, countering China's dominance in global shipbuilding". Shipbuilding lies at the center of our national security, our economic sovereignty, and the future of free commerce. For decades, Washington policymakers looked the other way, while the Chinese Communist Party e- executed a highly coordinated predatory strategy. Their goal was very simple, corner the global maritime market. Today, the People's Republic of China controls over fifty percent of global commercial shipbuilding capacity. Meanwhile, the United States accounts for less than one tenth of one percent, Our domestic shipyards are backlogged, understaffed, and structurally fragile. Every dollar a Western company spends to build a commercial vessel in a Chinese shipyard directly subsidizes the People's Liberation Army Navy. Furthermore, China's commercial dominance allows them to hold global supply chains hostage. In a conflict over the Taiwan Strait, Beijing will not hesitate to weaponize its maritime infrastructure. Meanwhile, our own military logistics rely on an aging fleet of auxiliary and sea-lift commercial vessels uh command vessels. This is not just an economic failure, but also a serious national security vulnerability. By outsourcing our commercial shipbuilding to our primary geopolitical adversary, we have handed Beijing the keys to the global supply chain and the industrial engine, driving the fastest naval build-up since world war two. American ingenuity and domestic manufacturing must always be our guide. That is why I introduced H R eighty-six fifteen, the fleets now act, that has provisions to increase training for American ship builders. If we want to restore balance to the oceans, we need to look to our greatest advantage. our international allies and partners. Specifically, we must forge an aggressive shipbuilding alliance with the world's oth- other maritime heavyweights, South Korea and Japan. By integrating our industrial capacities, we can create a counterweight that Beijing cannot match. This is about leveraging the commercial capacities of Seoul and Tokyo to secure our supply chains and free up American yards for high-end naval combatant production, and systematically decouple the free world from China's maritime empire. As the President's maritime action plan lays out, we must aggressively pursue allied foreign direct investment to revitalize our underused domestic shipyards, creating tax incentives for firms like HD Hyundai, Hanwha Ocean, and Imabari to buy, renovate and operate shipyards on our own American soil. The United States is blessed with an unparalleled network of alliances. If we link American innovation with the industrial muscle of South Korea and Japan, we can and will break Beijing's maritime monopoly. We will rebuild our domestic shipyards, empower our global allies, and ensure that the free world continues to command the seas. Let me Our ranking member uh Ami Berra is here for your opening comments.

Thank you Madam Chairwoman, um

Sorry.

And thank you for um chairing this this hearing. It's a incredibly important um topic that we're talking about, and it's not a partisan issue. Um, you know, if we think about our history through World War Two, post World War Two, We know how to build ships and and so forth. But over the seventy five, eighty years, post-World War Two through the Cold War, we've lost some of that industrial capacity. Our shipyards have aged. Um, we've lost a a a a workforce. I've had the chance to visit shipyards ar- around the world. You know, had the chance to visit Hanwha Oceans, um, research facility two years ago with Congresswoman, um, Kiggins from Virginia, um, also a Navy veteran. Um, and I think there's a recognition that if we wanna compete in the maritime space, both in the commercial maritime space, but also, um, in the, the naval, um, geostrategic security space, we're gonna have to step up our game. Um, I think there's also recognition in a nonpartisan fashion, that we have lots of challenges ahead of us. As I mentioned, aging shipyards, um, and, you know, a, a workforce that um, does not exist at this juncture. We've got capable workers, but not enough of them. Um, and not enough of the next generation going into, um, this line of work. So there's a lot to be done. And as the chairwoman suggested, we're falling further and further behind China. China does have that capacity. They've been very intentional in understanding global security is maritime security. You talk to, um, our staff at Indopaycom, um, you know, пару and others recognize the importance and while we maintain a technological advantage and and so forth um we don't have that numerical advantage and you know in aircraft carriers and other things they'll they're rapidly catching up the beauty is though china is doing this alone and i think the importance of this particular hearing with a focus on some of our friends and allied nations particularly korea and japan that rank number two and number three in ship building. We don't have to do this alone. Um, having talked to the Koreans, um, with with the chairwoman, but also having visited Japan and talked to the Japanese, there's great interest in helping the United States build ships. Um, we have to figure out the technical details. Um, we have to understand the resource allocations and the resource certainty, um, so that, you know, I applaud the the National Assembly, um, And the Koreans for making the decision to invest three hundred and fifty billion dollars in the United States a hundred and fifty billion of which is allocated to shipbuilding but we have to create some certainties as well you wanna create those demand signals that say yes make those investments here and here's what we're gonna do over the next um you know twenty five years to catch up. Um and we can do this and again I think the advantage we have where China is doing this on their own We have allies that we can do this with. We have technical issues that we have to work through. You know, does all the components of the ship need to be built in the United States? Can you build um non-critical components, not um non-technical components elsewhere in Japan or Korea? Um, do final uh installation here in the United States? Again, none of these are easy issues. We'll have to work with our um our unions and others um to make sure um we're training up a workforce. Can we get the Koreans to make the big investments, you know, in the Philadelphia shipyards, other shipyards, um, that they've expressed an interest in. If they're gonna make those investments, they wanna make sure we're building ships there. Um, can we solve visa issues that allow Korean instructors to come in and perhaps train up that workforce? And we're not talking about Korean workers building the ships, but we're talking about Korean instructors, Japanese instructors, training up American workers to build ships, we should be able to, in a non-partisan way, work through that. You know, there are obviously efforts, um, like the Ships Act, um, that are non-partisan. I'm happy to see, um, portions of the Ships Act in the NDAA, so I think that is a good thing moving forward. So, again, Chairwoman, thank you for the timeliness of this hearing. It's of critical national security, um, interest, but it also is interest of American competitiveness around the world. And I look forward to hearing from the witnesses and thank you for being here.

Thank you. Other members of the committee are reminded that opening statements may be submitted for the record. And today we're pleased to have a distinguished panel of witnesses before us on this very important topic. Doctor Matthew Faniola, the Vice President and Jurakopoulos Chair in Innovation at the Center for Strategic and International Studies. Mister Brent Sedler, a Senior Research Fellow for Neighbor Warfare and Advanced Technology in the Allison Center for National Security at the Heritage Foundation. Mister James Kim, the Program Director for the Korea program at the Henry L. Stimson Center. I want to thank all three of you for joining us today. This committee recognizes the importance of the issues before us, and is grateful to have you come before us and speak. Um, your full statements will be made part of the record and I'll ask each of you to keep your spoken remarks to five minutes in order for the members to ask you questions. So let me now recognize the uh Doctor Faniola for an opening statement.

Chairwoman Kim, Ranking Member Barra, distinguished members of the committee and subcommittee, thank you for inviting me to testify. The views I'll express this afternoon are my own, uh my employer, the Center for Strategic and International Studies does not take. China has developed the largest shipbuilding industry in recent history, which it now in increasingly wields as an instrument of national power. We just heard from Chairwoman Kim that China controls over fifty percent of the commercial market and the US is less than one percent. But maybe to put those figures in a little bit more perspective, a single state-owned conglomerate, the China State Shipbuilding Corporation, or CSSC, builds more commercial vessels by tonnage each year, than the entire US shipbuilding industry has produced since the end of World War Two. CSSC is also the principal builder of warships for the PLA Navy, and this presents both economic and national security concerns for the US and its allies but I wanna focus my comments on the national security implications. China's leaders seek to displace the US as the preeminent power in the Asia-Pacific and to project power far from its shores, and much of that ambition rests on its maritime industrial base. Over the last two decades, we've seen the transformation of the Chinese navy, uh moving from a largely regional com- uh defense coastal force into an increasingly modern and capable fleet of over three hundred and seventy ships and submarines, making it the world's largest navy. And if you look at the shipyards that are responsible for this ongoing build-up, military production often benefits and shares infrastructure with commercial operations. It's common in China to see warships being built right alongside tankers and container ships. And I've included in my testimony some satellite imagery that illustrates this. I think we might have some to be projected uh today potentially, and if not, that's okay. But what what you'll see in the testimony is that if you look at uh these dual-use shipyards in China like John Long's shipyard and there's others throughout it, you'll see container ships and military vessels peppered throughout these massive sprawling facilities. And if you look at it over time, you'll see that they're right alongside each other, or they're using the same dry docks, they're using the same gantry cranes. And this is a feature of what China has designed its ship building industry to do. It seeks to fuse together both the military and commercial sides of its operations. Importantly, commercial firms also rely on China for ships. Up up to seventy-five percent of the ships produced at shipyards owned by CSSC and its subsidiaries are destined for markets outside of China, many of which are US allies and partners, both in Europe and Asia. And complicating that entire picture is that it is an opaque ecosystem. We don't have a lot of clarity into revenue flows or technology transfers within that system. And so what that means is that these companies who have few commercially viable alternatives outside of China because capacity is constrained and because Chinese yards can often deliver ships at a lower cost, and less time than competitors, are pouring billions of dollars into Chinese dual-use shipyards. Foreign technology is falling into Chinese dual-use shipyards. And that collectively is helping to strengthen its maritime industrial base, which both helps on it increasing its market share, but also supports those ambitions of the PRC that I mentioned earlier, which seeks to displace the US in the region. To respond effectively, the US needs to get creative. Uh, my personal assessment is the US shouldn't be trying to out-compete China, out-build China in the commercial sector for commercial holes hole for hole. And we certainly shouldn't be trying to do that alone, but instead focusing on three interrelated lines of effort. The first is transparency. Uh, by focusing on trying to understand what those linkages are between shipyards and China, how they support foreign capital, and how they support foreign orders, and how that capital fun uh funnels back into building up the maritime industrial base, will help companies make better risk assessments. The second is to drive investment into high-value maritime components and systems so that the US can compete with China on its own terms and then finally, and maybe most importantly for this hearing, working with allies and partners like South Korea and Japan as well as others, uh India's a new entry into the shipbuilding uh game as well, to both align on long-term objectives and then also to build up allied capacity at scale outside of China. China's advantages were built over the course of decades. Uh, it's not something that's gonna be easily released and it's not something the US can address overnight. But by focusing on those three lines of effort and sustaining that focus for the years to come, the US can compete from a position of strength. Thank you, and I look forward to your questions.

Thank you, Doctor Fanioli, I now recognize Mister Sadler for your opening statement.

Thank you for the opportunity to speak before you all today. I've got some graphics over the side on this, and they're also uh electronically on the uh the hearing site. So again, good afternoon uh Chairwoman Kim and Ranking Member Vera and other members of the committee. Uh, today's discussion, you know the title, Charting a New Course, Encountering China's Dominance in Global Shipbuilding is timely, to say the least, and action is urgently needed. In my twenty-six years as a active duty naval officer, most of it in the Pacific on nuclear submarines, and the last six years with Heritage Foundation, this has become a passion project. and the opening statements uh by the members of the committee that this is a biparti it is a whole of nation endeavor and we have partners and friends overseas that we can also draw on like you've mentioned Japan and South Korea, principally, but by all means not limited to them. My message today is we with key allies must must forge a united front to China's assault on our maritime industry and national security. Today our erstwhile adversary, the Chinese Communist Party, dominates global shipping. over twenty percent, shipbuilding over sixty-three percent of deliveries, and controls a global network of over a hundred strategically placed ports. On this commercial foundation, China has built the world's largest navy of over four hundred modern warships tasked with being ready to win a war over the fate of Taiwan next year. Without action and assured access to a fleet of over thirteen hundred commercial ships of various classes, China will be able to control the terms of trade and manipulate markets, Some of that we are already seeing. In the immediate future, sustaining a multi-year war relies on shipping to fuel wartime industry and ship building to repair and replace battle losses. China knows this, and deterrence cannot be enhanced with a viable independent maritime industry. The Cold War required six hundred and sixty commercial ships to win a fight against the Soviets. Today the challenge is greater and more complex. Our response to date has been tardy to say the least, and incomplete. But the past two years has witnessed a maritime awakening here in DC and with our allies, not seen since the early nineteen seventies. It is historic, and it is one not to be missed. This nascent national endeavor is a threat to Beijing's bottom line, as well as its global aspirations. As such, this generational effort must be protected and nurtured against predatory and nefarious attacks to undermine it, some of which are already happening as we speak. Given the scale of the challenge and shared threat, Allies are vital. If I can go to the next slide. Together as a united front, given our collective maritime power and capacity for innovation, China will be unable to manipulate our markets, or economically coerce us. Recall how China did this in two thousand ten against the Japanese over rare earths, and again to us very recently, for political purposes and strategic intent. The nation is at a historical moment in unity on this issue. Legislation such as your own, the Fleets Now Act, and the Ships for America Act are welcome and needed. Actions echoed in executive orders by the President in section three O one complaints against China make clear uh the path forward. These are important, but a bias to action is urgently required. Channeling our collective advantages requires a maritime group of nations, modeled on the informal structures of the G seven, membership to include allies like South Korea, Japan, the Philippines, Greece and perhaps even Taiwan. If you can go to the last slide. This M so-called M-seven would work to align regulatory and trade policies as well as positions in international organizations for common cause. Moreover, it should enable greater intellectual and skilled labor exchanges, as mentioned earlier, like naval architects, and invigorate our maritime industrial revival. A key element is also at the foreman level. For more on that in question. And China won't be idle, and here's where the threat is. Effectively c- encountering China's expected attacks, requires expanded investigative and intelligence gathering and analytical capacities across departments and agencies. The Federal Maritime Commission only had six agents to investigate hundreds of COVID recovery shipping irregularities. Incognizant of my time, it is time now in league with our allies to focus our energies, capital, and advantages to assess access to shipping in a crisis, to ensure that we have that, almost at a treaty-level obligation. regain competitiveness through innovation and restore needed maritime industrial capacity. In some respects, we need to enable and nurture those captains of change and have a SpaceX kind of moment inside the the broader maritime industrial base, to change the terms of trade to our advantage and also seize what could be an American comparative advantage that can lead to a sustained revival of American, maritime, industrial might. Thank you.

Thank you, Mr. Sadler. I Let me now recognize Mister Kim for your opening statement.

Thank you. Chairwoman Kim, Ranking Member Barra, distinguished members of the committee, thank you for the invitation to testify. My full statement is in the record. I'll summarize its main points here where my fellow witnesses' testimony covers related grounds in more depth. I'll try to build on their work rather than repeat the same points. My reading of the Chinese leadership's public statements shows shipbuilding frequently described as an important part of China's advanced productive capacity and a pillar of its economy linked to a broader national strategy. The numbers bear this out. At the turn of the millennium, China accounted for less than seven percent of compensated gross tonnage in global shipbuilding while Japan and Korea together accounted for nearly two-thirds of the same today China builds more than half of all commercial tonnage globally while Japan and Korea's combined shares have fallen. This dominance carries two sets of risks. The first is economic. If there's no alternative to Chinese shipbuilders, countries have no choice but to accept China's terms for ship orders and critical components. And China's use of economic coercion in this space has already been covered by Mister Stadler. But even if there is no deliberate coercion, concentrating a critical global supply chain in one country is a structural vulnerability, a lesson the pandemic taught us well. The second risk is national security. My fellow witnesses have documented in detail how China's military civil fusion strategy blurs commercial and defense shipbuilding. I'd simply add that even those who come to this evidence with some caution, given the knowledge about the differences in naval and commercial shipbuilding, should still agree the risk warrants serious scrutiny rather than dismissal. If Chinese shipbuilders uh can squeeze out competitors globally, that capacity for the US and its allies alike shrinks with them. This is where I want to focus the rest of my time, not on the scale of the threat, which my colleagues have laid out, but on the question that ought to follow. Why haven't attempts to address this issue not resulted in more ships for us, and what stands in the way? The opportunity is very real. Over ninety-four percent of the world ships were built in East Asia last year, more than half in China, and the rest in Japan and Korea. These are proven and capable partners. But turning that opportunity into results requires confronting three concrete challenges which Representative Baer has already outlined. One is labor, the other is supply chain, but the final one is demand. According to many estimates, US shipyard labor turnovers runs between twenty to thirty percent, with first year attrition as high as sixty percent. Korea's top shipbuilders each draw on thousands of local suppliers. The US commercial supply chain is much smaller. And on demand, the US had just twelve commercial ship orders on its books last year, compared to over four thousand in China. Japan and Korea have each moved to help, though at different speeds. Prime Minister Kakaichi has made shipbuilding central to Japan's economic security agenda. And the two governments signed a formal memorandum of cooperation last October. But translating Japan's five hundred fifty billion dollars investment pledge into actual maritime allocation remains unresolved. South Korea has moved boldly with Hanwha's acquisition of Philly shipyard, to the MASCA initiative, dedicating a hundred fifty billion dollar ship building allocation, and establishing a partnership center in Washington. We must however also recognize and address some real vulnerabilities. The recent US-China agreement suspending section three O one port fees shows that much of our leverage against China rests on tools, that the administration can potentially trade away in a broader negotiation. A durable strategy cannot rest on only one such measure. My written testimony offers several recommendations, including converting our allies' investment pledges into binding milestone-based commitments tied to actual demand, support for commercial shipbuilding, worker skill development, encouraging increased allied cooperation on export controls and combating Beijing's coercive tactics, and leveraging allied capacity for near-term procurement through the maritime action plans so-called bridge strategy. I'd also note that all three of us uh in our written statements uh working independently arrived at a similar conclusion that there needs to be a uh designated accountable coordinating mechanism within the government. Revitalizing the US maritime industry while countering China's market dominance is a significant challenge, but the United States does not need to do it alone. Japan and South Korea are allies with a proven track record of delivering world-class ships on time, at cost, and at scale. My recommendations are also not the only path forward, but they reflect the reality that the status quo is not sustainable, and continued inaction carries real risks to our national interest. Chairwoman Kim, Ranking Member Beira, I'd like to thank you for the opportunity to testify. I'll be happy to respond to any questions that you or the members may have.

Thank you, Mister Kim, and to all our witnesses, thank you for your opening testimonies. I now recognize myself for five minutes of questioning. And I wanna start with uh Mister Settler. Can you talk about uh how much of China's commercial shipbuilding infrastructure is dual use? Meaning it can pivot immediately to neighbor manufacturing during wartime, right? Can you talk about that?

Well, the easy answer to that uh, Chairwoman Kim, is all of it, because the way the Communist Party, it's a state-controlled economy,

Mm-hmm.

even the labor cost, it's driven by principles that are not free markets, so Marx's evaluation of labor calculations. And in with the sieve mill fusion they've made it explicit uh that even a ship that is built for commercial standards has to also be ready to be utilized for military purpose an old shipmate sailor uh b common uh shipmate was uh Tom Shugart's been looking at this with car ferries with hardened decks and now a new one's being built with the ability to sustain amphibious Uh and also as mentioned earlier, Mat, Doctor, Donigoli also mentioned about how you have a l very large shipyard, where one side is building tankers and the other side is building destroyers. The labor also moves between there. So the the competencies and the modern techniques they get,

Yeah.

for example to build next, you know, future very capable niche uh commercial ships can then be show up in their submarines, can also show up in their destroyers and their aircraft carriers, and we see that. I've seen that before.

So to address some of those issues, uh should Congress implement targeted tariffs or poor entry fees on Chinese-built commercial vessels to level the global, uh, playing field? What what about sanctions on, uh, Chinese state-owned shipbuilders like, uh, CSSC?

Well clearly we need to do a lot more on that front, but um

Sure, I would like both of you to answer if you can.

Yeah.

Yes.

Yeah, so I think the fees are one tool. Uh, tariffs are another tool that could be used to the same end. Uh again, the three O one complaint gives a very strong case for a host of economic uh tools that can be brought to bear, and all of those should. As far as specific entities, uh specific ship builders, I mean there's lots of these activities are being blacklisted by the Pentagon because of their their their affiliation with the People's Liberation Army. Uh and that needs to be continued, it needs to be perhaps constantly monitored, because one thing's true with the Chinese business model is it's very fluid. one day one company is named something, and the next day they change their name and their business model just enough to get off the sanction list we have to be very fluid which is why we need a very much more adept maritime intelligence kind of focus, both in uh the economic forensics but also in the pure it uh intelligence gathering.

Mm-hmm. Mm-hmm.

Uh, Taton, I certainly agree on the the better need for intelligence into what's going on, because things in China can shift uh pretty quickly. But on the fees itself, uh I think a any effort to try and shift the market needs to be paired with building up capacity, right? So if fees are implemented and there is not an increase in capacity outside of China, you're going to see increase in costs, and where are those costs gonna get passed on to? And I think that's something that really needs to be worked through and understood, because at the end of the day, if it's increasing costs on US consumers, you might be having, you know, ancillary unintended consequences on the industry itself. Um, in the vein of of penalties or penalizing companies for buying ships from China, I also think it's important to to focus on future behavior rather than past behavior. You know, I mentioned in my oral comments and then I also in my written testimony, this is a different difficult ecosystem to really understand what's going on. And so, if that information is out there and transparent and companies are able to better formulate their risk assessments, that changes their calculus based off of what they do in the future rather than They ordered five ships from China five years ago and they're just now getting delivered today. So I think it's really important to think about what the cost implications are for any measures uh in that vein.

Sure. You know, so all of you uh know that uh Fleets Now Act is uh introduced, and it proposes the creation of maritime group of nations. This will be a dedicated multilateral platform for the United States to work with our top ship building allies in commercial building and we're gonna try to do more fleet expansion, industrial base uh resilience and maritime workforce development. So, Mister Fanyulek, uh can you talk about how these multilateral platforms like that can be even more focused on like talk about also the trilateral uh ship building alliance with South Korea and Japan that we talked about and then uh section two O four in the Fleets Act authorizes the exchange program specifically to bring skilled ship building workers to the US for training and knowledge sharing purposes. So can you address that and then I would like, mister Kim, hopefully we have some time for you to talk about the exchange area.

Uh, yeah, I'll I'll keep my comments brief. Um, the the most important part in any effort in that vein to me is aligning on what the long-term objectives are and making sure that any agreements that are put into place are robust enough that they are going to be maintained for years and decades to come, right, this is not something that can be solved in five years or ten years, we're talking about a several decade time horizon in order to address some of the concerns that we're facing now. Uh, part of those efforts also need to be identif identify where it is we're going to compete with China and where are areas that maybe aren't necessarily valuable to, compete with China, right? There's a whole value chain in ship building, and are we talking about container ships where the value and profitability is much lower? Or are we talking about LNG tankers where the profitability is much higher, but there's also much more complexity? that goes into it. So for me, the most important initial component is a shared risk assessment of what it is that we're talking about and identify what the niche areas are where the US in the short term can start to build up capacity and drive towards those long-term objectives.

Uh, I know my time has gone up, but uh, Mister Kim, if you like to address it in thirty seconds, I'll.

I'll just very briefly and say that uh on issues like export control coordination, trilateral mechanism can be a very useful tool. um uh as well as on dealing with course of tactics by beijing um to absorb or offset the the cost incurred uh from those tactics um as you know because uh hanwha subsidiaries were cooperating with the ustr on section three O one investigation they've been sanctioned by the chinese government so there's precedence for this and there needs to be some kind of an offset mechanism for that on the jobs exchange uh front uh that can work both ways but there are clear benefits to be had through uh the worker uh skill upgrades in the US, raises wages, it uh it also allows uh these workers to stay on the job, um and and and and frankly it South Korea is also very short on labor, so these workers cannot be tied down here, they need to go back um to their yards.

Thank you very much. Thank you. I would like to recognize rank and number, Vera, for your questioning.

Thank you Madam Chairwoman, um So it does occur to me that, you know, by ourselves, we won't catch up to the the Chinese. It'll take us a long time, but in conjunction with our like-valued allies and others, recognizing the unique skill sets that Korea might have, Japan, you know, maybe the Indians, Austro- others, um, that we can together catch up. I guess, Mr. Kim, we chatted briefly, um, you know, about the MOU that the united states signed with finland um you know again we recognize part of the strategic economic playing field is gonna be um the arctic region as as global warming melts the ice and new um routes of passage you know um new natural resources potentially pop up as as well um that mlu authorizes um i believe finland to um build eleven new um arctic security cutters for us. Um, negotiations for similar deals with Canada and Norway are underway. Um, does this, yeah, what are the the positives about this, the negatives? Does this give us a a pathway um to address other areas?

I think the first thing we need to uh be uh clear on is that this is about investment of uh the capacity build-out in at home. That's number one. And secondly, it's about job creation here at home as well. So the question is how do we do that uh while we have this immediate near-term need for vessels of different types, whether it be commercial or even naval vessels. And uh if the allies are are far better at producing these ships at cost and on time, at scale, then perhaps maybe we could have them reproduce some of that success here, but that takes time. That takes a lot of investment and time. And so, in the near term, essentially what you have is an arrangement like uh the Finland uh arrangement, uh which the Maritime Action Plan calls for, it calls it the bridge strategy. It would be a staged uh process, multi-ship block order, where in the near term, first few ships uh are going to be built uh in our foreign yards, while the while the capacity build-out and and the investments happening here at home. And uh as that uh capacity is building at home, and the second phase of this process, uh the uh some parts or even modular uh build-outs of holes would happen in a foreign yard and uh the internal components piping and electrical work um among others and propulsion systems can be retro-fitted here uh, in the domestic yards. Uh, ultimately at the end of the day, what you wanna do is transition to the third phase, where the build-out happens from start to finish at a domestic yard, uh, by American workers. And, and, and so this would be a, a phase or stage process, and

Shedlard.

Yeah, so I'm really deep on this one, this is the ice pact, and it goes back several years. Uh, this is a, this is not a new approach in the industry. It's something I, I also saw in Southeast Asia. with orders that were made from China, but also to mitigate the systems that would go on, for example, their offshore uh uh corvettes. This also has applicability, you know, the approach with Davies Canadian firm working buying out uh Finnish ice brack uh ice uh breaker building companies that actually very expert in that and the workforce to then bridge it into the United States. This also applies in naval ship building. It's also a way to mitigate the risk, because we do have concerns about transfer of technological technology that we uh still hold very close. Uh but again bringing in treaty allies, like the Canadians, but we're also talking about the Japanese, South Koreans, also the same approach applies to naval ship building. And it's also a very additive way to do it, it makes good engineering sense too.

Um, do you wanna add anything?

Just very quickly, um different partners are gonna help solve the problem differently, right, and I think the icebreakers i highlight, you know, we can identify the partners that are best suited for trying to solve that Um, just on the commercial side though, it it it's a little bit different in the sense of like who's the consumer, who's the customer here, right? Icebreakers are gonna be different than than building a tanker. And in that sense, it's not just those building the ships themselves. We also need to take account the companies that are buying those ships and what their logic is and how they're thinking about risk of engaging with China.

Um, another area that seems easier to solve is ship repair, ship maintenance. Um, Yeah, I know under the Biden administration, there were deals negotiated with Japan to, you know, do ship maintenance in theater. You know, I was just in Gibraltar visiting a a a shipyard there, obviously with the Mediterranean, um, and and some of the stuff happening in the Middle East. You know, I think they're very excited to to do ship maintenance and so forth. I assume that should be part of our strategy as well, it should be an easier component, the maintenance.

Abs- as a Navy man, absolutely. And we need that type of resiliency because you never know when you're gonna have an active got and a ship is damaged, or if you're in combat you need to get safely to place to repair, and get that ship back out. The Bighorn had a grounding. Uh, that was a hard, that was a hard loss for carry strike group operations at the time. We don't have much backbench that we can pull forward to fill gaps, so we have to have options to fix the ships close to where the fight is, and we do that through allies. So this military repair operations It's another way to get familiarity with the way that we build our ships and maintain our ships with our closest allies. We've already done this with India, we've done this with the Japanese obviously, looking at with the former ambassador, with looking at expanding that much more broadly throughout Japan, but also South Korea, a lot of learning's been done, much can be done, much still can be done on that.

Great, thank you.

Thank you. I now recognize the general lady from South Carolina, Rep Bix.

Thank you, Madam Chair, and thank you to our witnesses for your testimony here this afternoon. South Carolina is home to a maritime industrial base that includes the largest commercial shipyard on the East Coast. And as of last year, a facility serving within the Navy's distributed shipbuilding initiative to expand naval manufacturing across the country. I've seen firsthand how much investment, workforce training, and time it takes to stand up, even a fraction of additional capacity here at home, which is exactly why the scale of what China has built is so alarming to me. Office of Naval Intelligence data, made public in recent years, put Chinese shipbuilding capacity at more than two hundred and thirty-two, yes I said two hundred and thirty-two times that of the United States, and Chinese shipyards now account for nearly half of the global shipbuilding capacity. But raw tonnage alone does not capture the full risk. What matters just as much is how much of that capacity is purpose-built to convert on short notice. China's military civil fusion strategy deliberately taps the dual-use resources of its commercial shipbuilding sector to support naval modernization, with many yards producing warships alongside merchant vessels as a matter of design. The numbers bear that out. China State Shipbuilding Corporation alone delivered over two hundred and fifty ships in a single year, totaling roughly fourteen million gross times, more tonnage than the entire US shipbuilding industry has produced since World War Two combined. And O and I has identified more than fifty Chinese dry docks, large enough to physically accommodate an aircraft carrier. That combination, scale plus deliberate dual use design, is what should concern this committee. So my question is, and I think we touched on it a little bit with the chairwoman's question, but what does understanding that with uh China's dual use model, tell us about how to strengthen our own defense industrial base, including states like South Carolina that are already building out um to this capacity. I'll open that to anyone. Please feel free to answer.

Uh, the the key thing is that you wanna have it's a generational challenge so the only way we're gonna be able to stay in this game and get back into this sector is to have a comparative advantage. So we have to innovate things like small modular nuclear reactors on commercial vessels, that also serve a military purpose. And that means high speed ships carrying supplies for to say Marines and soldiers that are in the first island chain in the Western Pacific. Uh, that's gonna have to be the only way forward because if you only followed what we've been doing since the end of the Cold War, trying to focus only on the naval shipbuilding, you have an unsustainable industrial sector. That's why we're one of the reasons why We're having so many problems finding the workforce and having ships produced on time and at cost, one of, not the only. Uh, the other thing is I'm very f- very fond of Charleston, South Carolina, Southern Cal- Southern Cal- Carolina. Um, the nuclear part there, as well as your commercial port, there is a potential to actually seize this opportunity now. Things like maritime prosperity zones, which are in the president's exec executive order, could be a way to attract the capital. they can actually start to trigger that industrial growth. As far as ad- addressing the Chinese sieve mill fusion, uh we don't wanna r- replicate their approach, cuz it's not appropriate for us, but we should start to hold them accountable in the way we do trade. And I think the three O one complaint that was submitted and adjudicated earlier this uh last year is the tool to use.

Thank you.

Uh, I'll just quickly echo that, uh, you know, they're, you can look at what China's done and say, is that a model that that works with US and I agree, it's it's not a model that works with US. We have other strengths to to lean on. We've talked a lot about allies and partners and how that could be part of the solution. But one area that we haven't talked really about is, we're focused on the hardware side of it, but there's a whole software component to this as well. So the onboard systems, the navigation systems, increasingly autonomous systems are going to be important to the shipbuilding industry. They're already important to the military and there's probably some cross over there if you think about the innovation that's happening, especially and autonomous systems that could benefit on the commercial side. Um, this is something China knows, right? They know that they've cornered the hardware side of this, the physical infrastructure construction side of it. They still lag the US in some important areas, especially on the sort of bleeding edge of technology. They're trying to catch up, but the US still has advantages there to lean on.

You mentioned earlier about distributed shipbuilding. Um, this is one approach. You don't have to do the whole build-out. completely uh in one yard. You can partner up with different yards um and uh be part of a supply chain and a distributed ship building network. And so um these two these two ideas um clearly uh but you don't need to uh have uh the same kind of yard that every other uh country or even for that matter other states have. Uh and and that to to to try to look for ways to play to the strength. that South Carolina offers or the yards that he there offers.

Thank you very much. I was uh recently able to observe some of the REM pack exercises. And my background is Air Force, but I got to tell you, it was super exciting. And if I were younger, I would uh think about joining the Navy uh in a heartbeat. But thank you for your time today and I yield back.

Thank you. I recognize the gentleman from Rhode Island, Mister Amo, for your questions.

Thank you to our witnesses for being here and thank you, Chairwoman, for holding a hearing on a topic near and dear to my home state of Rhode Island. Uh, so Rhode Island, South Carolina, I guess we have that going on. Uh, since long before the United States became a nation, Rhode Island has been a hub of shipbuilding. Starting with the first shipyard established in sixteen forty-three, Rhode Islanders understood the importance of shipbuilding to our local economy and to national security. That's why Rhode Island created the first naval s- force in the colonies in seventeen seventy-five. Now, times have changed and uh and certainly uh in the decades since World War Two, uh the ocean state still remains a leader in shipbuilding. Uh manufacturing everything from commercial sailboats to nuclear submarines, Rhode Island shipyards provide thousands of good paying jobs, but are always in need of more skilled workers. Uh as we refocus on investing in our shipyards, uh one of the challenges remains uh workforce shortages. uh, as one of the most significant constraints on expanding our ship building capacity. Now, Rhode Island has several programs to support, uh, workforce development at our universities through the National Institute for Undersea Vehicle Technology and the Southeastern, New England Defense Industrial Alliance. But state-level action, uh, is not enough. The federal government, of course, uh, needs to play, uh, a partnership role. Um, so starting with Mister Kim, Give me a sense of what your thoughts on how we can collaborate, uh, in the ecosystem with universities, apprenticeship programs, industry partners, uh, to support workforce development, uh, and meet the needs of our shipbuilding industry.

Thank you, Representative Amel, for that question. Um, I can tell you based on the experiences in Korea and Japan, uh, how they're dealing with, uh, dual challenges there. They have also labor shortages in their yards, uh and also a very aging society. And so the labor pool itself is also shrinking. Uh and the way they're doing this, there are multiple different um channels. One is obviously standardizing the the ship building uh design and to make that a bit more efficient, so that it's a bit easier to to teach uh uh incoming uh workers on how to build these ships. The other is automation. Uh and then third is foreign workers. Um so uh they're uh dealing with this in different ways. Uh with the United States, uh depending on uh needs, if there's investments happening by some of these foreign ship building companies, uh there could be skill transfers. Skill transfers can occur through exchanges both here and also in uh the foreign yards. Uh, you can also have uh R and D uh uh arrangements with universities and community colleges these are all things that are happening right now as we speak.

Thank you. Uh, you know, I I I do wanna touch on a another topic that's important, yeah, because in some of our conversations um, you know, we've learned some of the about the supply chain um, uh, disruptions from China. And, you know, would love to hear uh perspectives on how we should support domestic shipyards so they c- can assess their supply chain security. Right, how can we help them avoid key Chinese tools, machines, components, other raw materials that are embedded in uh the the ship building supply chain, especially as we look to build resilience domestically. I'll start with Mister Kim but I certainly would would welcome other thoughts.

So one of the recommendations I made in my written testimony was um standardizing the design and uh the components and the technical specification associated with these ships uh with our allies. Um so that um our allies would ha would be using the same parts and and they would be become part of essentially the supply chain itself.

Mm-hmm.

So um if there's a need and and and and and an urgency to dip into that uh network, then we can ask for that help. Uh the other is um also coordinate using uh coordinating mechanism like the trilateral um uh cooperation arrangement that we have, or the G-seven, to try to figure out how to offset some of these coercive um uh practices by China.

Thank you.

Mr. Sadler.

Yeah, real quick. Uh, as a new submariner, it having naval architects that have wisdom and experience, that understand when a mi what seems to be a minor change is gonna have massive delays and cost overruns is an important avenue to also in the intellectual exchange with our partners in South Korea and Japan. to try to get their more seasoned and salty foreman, as well as their naval architects exchange to share that knowledge. This is one of the other root causes for why we're having delays and also cost overruns in the naval shipbuilding program. We're only just now addressing that dearth. Uh, University of Michigan is also helping to address this issue. We produce only dozens of these naval architects when we need hundreds. Uh, on the, I guess the industrial-based questions for for your state in particular in the nuclear realm, um, There is going to be a need for more capacity in the training,

Big time.

so the university's there that may have had in the past a Naval Architect program and also in the blue-collar realm. So we need also highly skilled technical folks that are gonna be the foreman, and it's the foreman that are running the small workshops that really make the difference and they need to be supported with very responsive Naval Architects to know when a design change can be made without any real, significant implications. So your state's at the hub of this, I think on the as a nuke submariner, uh and also with the production that's yet to come, the nuke submarine fleet is gonna be growing.

Yes, definitely. Thank you. And Doctor. Uh I

Yeah, just uh I'll just quickly add on a a couple of things. Um, yeah one is a is just a a a I think a reality check. Uh, it's we're not gonna be able to get China out of the supply chain any time in the short term right and there needs to be an assessment of what's realistic today, tomorrow, five years from now, ten years from now. You know I mentioned high value components a couple of times in focusing on what that looks like, but you're right, there needs to be a comprehensive assessment of what level of China being engaged in the market is acceptable, what reduces our risk and what does that look like, and it's gonna be different uh for different platforms. I'll I'll just add, and I know it's a a little bit different than the specific question that you asked, but you know China's maritime ambitions aren't isn't just shipbuilding, right? There's port infrastructure, there's technology, there's a whole host in the maritime ecosystem that China seeks to dominate. So yes, we need to upskill our own labor force for ships. But we also need to think about port infrastructure. We need to think about cranes. We need to think about um operating software. All of this is really critical to ensuring that the US has the ability to secure its interests.

Thank you for that feedback. My time's expired. I yield back.

I now recognize Representative Barr from Kentucky for five minutes.

Thank you, Madam Chair. Um, you all have laid out the uh the challenge in stark terms. Um, a single state-owned conglomerate, the Chinese, the China State Shipbuilding Corporation builds more commercial vessels by tonnage each year than the entire US shipbuilding industry has produced since the end of World War Two. Um, China's share of global shipbuilding output is now more than fifty-three percent. Ours is point one percent of global share. That that disparity is simply unsustainable. Um, Thankfully, American companies are making meaningful strides in maritime autonomy and advanced manufacturing. Additionally, as noted, South Korean and Japanese companies have similarly advanced uh developed advanced ship building methods that have allowed them to remain globally competitive. What specific advanced ship building methods employed by South Korean and Japanese yards offer the greatest potential for improving US competitiveness, Mister Kim?

Thank you, Representative Barr, for that question. Uh, let me just say that if you take a look at the the share on the commercial side, of the kinds of ships that the Koreans and the Japanese have uh still um a significant market share in these are the more complex vessels, uh vessels uh that uh like uh uh very large LNG carriers, uh uh LPG carriers, um ships that use dual fuel technology to lower emissions, um these are areas that uh that the koreans and the japanese shipyards are still uh quite uh competitive in uh it's on the low end that the that the chinese yards are are dominating uh on the commercial side and so uh if you were to take a look um staying at the cutting edge of ship building uh with uh with technology that that that that allows us to stay ahead uh i think that is one way that that that we could try to prevent.

Um, l- l- let me ask you, and and uh maybe um uh uh Doctor you could answer this question. Uh, how are Chinese state-backed banks using predatory financing to undercut undercut uh American shipbuilding bids globally? Um uh I know that they provide uh the the state-run banks provide below-market financing to China's major shipbuilders. Um, how does the US combat that?

Yeah, thank you for the, thank you for the question. Um, you know, the the the approach that the Chinese government has taken to shipbuilding has changed over the last couple of decades, right? When it started off, it was big state subsidies to try to build up uh shipyards. They hand-picked ones that they decided that were gonna be champions and they threw the the weight of the state behind that. That's changed now that they have market competitiveness, and the big advantage that they have is on indirect subsidies. So steel, for instance, one of the the biggest costs that goes into ship building. Well, China's also the world's largest producer of steel, and they get very much undervalue, undermarket uh steel for their shipyards. The same when it comes to labor, the same when it comes to energy. It's something we don't often talk about when we think about industrial capacity. But China heavily subsidizes energy into its shipyards, which means that those shipyards' fixed costs are way, way lower than they would be in a place like South Korea and Japan. So you have to think about the entire ecosystem in what you wanna do from the US perspective. It's not just the labor force, it's not just the cost per vessel, it's what do those inputs look like and how do you ensure that you can remain competitive with that type of behavior. Um, I'll also echo what Mister Kim mentioned earlier on, the high value versus low value uh vessels. You know, Korea is still producing around sixty, sixty-one percent of those sort of higher value vessels, and so to me that's an area for the US to

Um, obviously we need to revitalize pre-existing shipyards that are outdated, but it's not enough. To compete with China, we do need to invest in new greenfield shipyards, designed from the ground up to incorporate modern manufacturing techniques and advanced technologies. I hear about this Forever California project, for example. I don't know if that's viable or not. But do you agree, um, and Captain, I'll ask you. Do you agree that expanding our capabilities

Yeah, thanks. Great question. Uh, California Forever is one of several greenfield projects that I think are very viable. And uh, things like the maritime prosperity zones are s- intended to try to attract the capital, and also focus it on maritime shipbuilding new maritime industry. Uh, so you have to do the greenfield, but we also have We're far behind, so we have to also start at the very basics, so building the bulk ships, building the MR tankers, uh in order to start to step up. We're not gonna be able to jump to the higher end value chain of the ship building. So the brownfield industry that can start building a tanker, that we need in in the tens of, up to forty just for a specific war scenario, additional, but we need more than ninety if we're gonna start getting into a nation-led effort, wartime effort, and that's a simple ship. That's a good way to start. It's also what you're seeing in the Philadelphia shipyard. So we have to iterate, and it's gonna take a generation to get there, so how can you get strategic capital moving in the right direction, sustained not just for one budget cycle or one fight out, but it's gotta be there for probably two or three to ten to fifteen years, generational. Things like the Office of Strategic Capital inside the Pentagon come to mind, things like the Development Finance Corporation, but those are for external. We also need to take a fresh look at our Pacific islands.

Thank you. I'm glad you mentioned Guam because now I'd like to

Thank you. Thank you.

uh, Representative Moylan

Hmm.

for five minutes.

Thank you, Madam Chair. Uh, Dr. Funioli, you know, I've long been working to advocate for targeted reform on the Jones Act for the non-contiguous uh and especially to expand to the territories and you got some great research through the CSIS and it suggests that even further reforms are necessary because of what China is doing with the ship building and uh capabilities, and even expanding it through the military civilian fusion strategies. So what, tell, tell me what additional recommendations for, you believe Congress should be aware of, and specifically on energy supply, right? We're really concerned about LNG. How would this help?

Uh, thank you for the, for the question. Um, before getting into specifics, there's one sort of, I think, framing component that needs to be sort of brought into the conversation that we haven't had a chance to touch on yet, and that is the the the customers themselves for vessels, right? So for the US, if we're talking about US shipbuilding uh capability, I think Mister Southerer talk talked a little bit about, okay, we need to be the customer for what that looks like, right? And so maybe that doesn't have to be as um market competitive with China, right? Like we can incur some additional costs on that front. But when we're we're talking about China's specific shipbuilding capability, We're not just talking about Japan and South Korea as as partners for this. European countries are very much involved in buying those vessels to fill out shipping companies themselves. And so we we run the risk, you know, we can certainly talk about working with allies and partners, uh, for ship building, but we need a shared risk assessment with everyone who is facing a you know threat or pressure from China to understand what those risks really look like, right? If you're sitting in Europe and you're saying I'm gonna, I need ships, I need to fill out my fleet, what's the logic that you're going to go to in terms of, okay, what is the US gonna offer versus Korea versus China? It's often cheaper to get it in China and you get it faster, and that's why the the market dynamics have sort of shifted in that direction. On the, you know, a strategic support fleet or on a commercial domestic fleet or, you know, of that nature, I think the most important thing to think about is those resources are gonna be costly, right, we're gonna have to build up infrastructure for it, we're going to have to support it. So they need to be able to fulfill a mission set across the entire domain. That means in peacetime, what are they able to do? In a crisis, what are they able to do? In a conflict, what are they able to do? And that's where I think it takes some maybe creative thinking about the restrictions of the Jones Act and what that means in terms of how in peacetime, if we do build up that capability, can we insure that we're getting the best return on that investment for maritime trade.

It can expand on the supply chain, energy supply chain, and LNG.

Yeah, for sure. So one thing, and we we spelled this out in in sort of our report, y- the US doesn't have as much leverage in shipbuilding as it does in some other areas, right? You look at something like semiconductors, it has a lot of advantages that it can leverage to try and change market dynamics. It's less so in shipbuilding. But one area where the US does have dominance is on energy. It's an energy exporter. And so if we think about that as a critical part of our ecosystem in which we can effect change we can start to think about who and what trusted nations could be able to transport those goods and does that come with certain types of tax incentives or um other types of carrots to lessen the cost while also increasing uh market penetration.

Uh thank you. Mister Kim, let's let's continue on with that chain of thought regarding the Jones Act and targeted exemptions. Uh, can Congress work toward deepening the co-production with Korea and Japan shipbuilding companies without compromising uh American workforce concerns?

Uh, the short answer for that, Congressman, is is exactly what I said before. As long as we keep our eye on the prize with respect to the American workforce and developing our domestic capacity here and the investments are going to happen in that way with

Would you say there is a um uh demand for ship building for LNG ships?

Some of those twelve that I mentioned before from last year uh are for uh the energy-based uh energy transport and one of them I think was uh for the LNG. And so, yes, I we will need to expand uh that portfolio.

OK. Uh, thank you. I'm just running out of time. Hopefully we have round two.

Thank you so much. Um, now I'll recognize Representative Sherman from California for five minutes.

Um Let's see here. Uh the maritime action plan calls for the elimination of regulations that protect our national environment. This administration regards those requirements as burdensome. Uh the White House would like to abolish uh inspections of unmanned barges on the Great Lakes. And it wants to change uh the Environmental Protection Agency's Engine International Air Pollution Prevention certificate requirements. I uh wonder if uh we really need to do this. I know that Japan and S- South Korea uh have uh been successful in the uh ship building uh industry, and yet they maintained uh their environmental standards. Doctor Kim, uh Are other countries able to uh protect the environment and still have a viable shipped uh building industry?

Congressman Sherman, uh I it's it let me put it to you this way, any regulation, whether it's environment or labor related, um it it is cumbersome a and and costly for uh businesses. Yet, uh historically speaking, uh we have uh we have regulations in place for a reason. uh whether it be for the environment or for for labor um and businesses as long as it's supplied fairly across the board um they they they comply uh and and and and maintain doing business in in that country now the problem here is that china is not beholden to these kinds of uh pressure uh these kinds of regulations or restrictions compared to uh uh the us here or or even for that matter korea and japan yet as you have mentioned uh Congressman, uh Korea and Japan still the second and the third largest uh producers of ships. And they do this through what they call green ship building. And there are two ways to do it, uh it's to create the ships that are uh engaged in lower emissions, uh following through on the International Maritime Organization's uh uh desire to go net become net zero by twenty fifty they are on on track to try to do that, uh with dual fuel technology. um, that that lowers emissions. Um, second is to have a shipyard that is, um, compliant with the environmental regulation in the respective countries.

I I'm here to try to sneak in another question if uh

And they have So, yeah. So they they do this, um, and and they are competitive, that's that's how I would say.

Mm-hmm.

OK. And I would point out that without subsidies or quotas, uh, we're not gonna revise the shipbuilding industry in this country. And uh, Uh, the environmental requirements are just a small portion of the economics uh that need to be overcome. Um, if we're gonna revitalize the domestic uh ship building capacity, we have to invest it in a domestic supply chain, not just final assembly. There are countless products uh that are needed uh from uh uh plates to engines to cables to coatings. Um, after decades of decline driven in part by China's state-subsidized dominance of global ship building, the US Navy estimates that China's shipbuilding capacity now stands at uh two hundred and thirty-two times that of the United States. Uh uh Mister Kim uh uh do you agree with groups uh such as the AFL CIO uh that we need to reverse this trend and uh oppose any uh proposal to move domestic shipbuilding and uh the ship uh repair uh offshore.

Congressman Sherman, thank you for the question, and I have been clear uh from the beginning that any kind of cooperation with our allies uh should have as its objective uh about revitalizing the shipbuilding industrial sector uh here at home, and also um creating uh jobs, American jobs here at home. So the question is how do we get there? Um and when you don't have the capacity built out here uh it uh it takes time, and in the near to medium term, we need vessels. So, there are different ways to do this, uh and I've uh uh included in my written testimony, uh a short comment about um uh a recommendation with respect to taking on uh the Maritime Action Plan's uh so-called bridge strategy um and and we can debate the values of this, but ultimately the goal of that strategy is to get uh to build out uh it needs to have a build out uh capacity here at home from start to finish.

Thank you.

Let me now recognize the gentlelady from American Samoa, Rep. Radu Aghen, for your five minutes questioning.

Thank you, Talofa. I wanna thank you, Chairwoman Kim, and the ranking members as well for holding this important hearing today and uh thank you all for testifying. I'm always happy to see my good friend, Brent Sadler, who's a great advocate for the Pacific islands and just recently visited my home in uh Pangpango, American Samoa, located deep in the Pacific. As you know, we are the only US soil south of the equator, and we have the best natural deep water harbor in the region. We rely heavily on shipping and We're lucky to be the only territory that is not held hostage by the Jones Act. American Samoa stands ready to host more US naval and shipping assets in the Pacific. So, and this question is for all three of you, who'd like to answer, uh, what specific incentives can the US offer global s- shipping companies to move their vessel orders from China to allied nations? Mister Kim.

Uh, I'll go very quickly at first and and maybe set uh things up.

Okay.

You know, there there are incentives that can be put in place uh from government and we can certainly talk about those but to me the most important aspect is there being capacity outside of China businesses that are buying ships from China aren't doing it out of a fondness for Beijing generally right? They're doing it because that is where the capacity is and that's where they can get ships at cost. So, yes, you can put incentives in place to try and curb the behavior of a particular uh company, or try to get it to buy ships from elsewhere. But if that's not paired with there being more capacity in the short term in South Korea and Japan and in the long term as Mister Kim has brought up capacity here in the United States, then you're always gonna be fighting against market dynamics. And I think you really have to broaden the market out in order for there actually to be effective change. Any any measures that are put in place by government are temporary fixes until there is an actual viable industry for companies to pull from. Thank you.

Yeah, so, Talofa, it's great to see you again. Uh, a couple of things on this to be real quick. One, the fact that we have US flag Jones Act fleet ships going to China to do maintenance or even doing significant modifications to be dual fuel use is a problem, and it's an indication that the system is broken and we need to look differently at this. So first off is trying to make that either prohibited or to put conditionality on any other benefits that the shippers get in that. But there does need to also come with some more caret or more incentivization on that. And perhaps looking at what we're learning with attempts to use DFC for flagging or provide uh assessments with uh or assistance with P and I insurance, rather than flags of convenience, perhaps looking at flags of confidence, where we provide more services when you have a US flag. Something an idea that still needs further development, but for our Pacific islands, it's you have small market economies, they're scattered over great distances. There needs to be a different model approach that also addresses the needs there, which are unique. But there is also a national security implication to this as well. So we need to do better on how we attract shippers. Uh, I agree that that we need to also address the supply side, which is a lot of it, but we as well as the demand. It's both sides of this equation, so we need to attract more of the production in the United States. And there's a reason why the Japanese and South Koreans are looking, partly because real estate's not easy to find and is expensive there, but labor is driving them to other places, to the United States. Now when it comes to repair, and again the distances involved, there's an opportunity for islands like American Samoa, Guam, as well as Hawaii to develop out more commercial uh repair and sustainment. Uh I know very well the port there in Pangpano has a, supports a lot of the local fishing fleets. There's a dual use there to support Coast Guard that should be looked at. Uh but we're not gonna get there with purely economic, market driven. There has to be a greater strategic drive in this. The Jones Act is not the solution, it's also not gonna be part of the problem, but we need to look at and focus on competitiveness. And I think that's partly uh why the Chinese have been undercutting us and preventing us from getting that comparative advantage in the field.

I would just add that um better logistics along with more vessels would be helpful. Uh even though American Samoa is exempt under the Jones Act, still has there are there are nodes that it uh it uh the ships have to go through, uh in order to get to American Samoa. And and some of those are Jones Act compliant ports. And so um I think that uh just having that exemption is not enough i think you need to have better planning with respect to uh the logistics and certain kinds of exceptions or waivers that are that potentially could be considered um if it's headed uh for our micro small

thank you i see that i'm out of time but i have some questions i will submit for the uh record madam chairwoman

great

thank you you're back

thank you very much i'm informed that uh we have one other member on his way any minute now or any second so in the meantime i will take the opportunity as chair to ask uh question if you don't mind you know beyond the uh shipyard themselves china has systematically locked down the vertically integrated sectors of the global trade including ports container leasing and maritime logistics software and that creates a strategic vulnerability even if we work with our allies to expand the ship building capacity So maybe uh, mister Fanioli, you can answer and uh, anyone of you too. Uh, if we successfully scale up allied uh shipbuilding capacity, how should the United States coordinate with partners to counter China's chokehold over the physical and digital infrastructure of global ports?

Uh, thank you very much for for the question. I think this is, you know, critical to take into account when we're trying to look at the broader maritime uh system. It, you know, ports themselves are, you know, complex operations. So there's the the physical infrastructure that China's heavily involved with in in expanding piers themselves, but there's also things like cranes. Um, you know, I know that there's been a lot of attention on CPMC uh cranes, China controlling most of the world's cranes that are used to move goods between vessels and to ports. But an area where they have struggled but they are getting better at, is on the software side of it, right? So CPMC hardware is but a lot of the software on some of those systems is comes from other places, right? They get it from European providers or from Asian providers, or companies that provide it uh to them. But their goal is complete dominance on both the hardware and software side of things. Um, that goes beyond just one port. Now this is really a a system of system, or a network, right? You have to think of it like a network analysis. They sometimes get more information from one port than they get from another port, the goal is to try to have a complete picture of their own vulnerabilities. They're extremely concerned about their vulnerabilities to maritime disruption, but also understanding with a level of granularity that I really don't think anyone else has access to what the vulnerabilities are of other countries, which could become a source of leverage in the future. And I think there needs to be alignment on that issue to understand that, yes, it might just look like an investment in a port in one place, but that's connected to a broader system and that opens up Sure. This was Adeline?

Yeah, a couple of things on this. Um, we saw we saw this at play with COVID zero policies where uh one one shipyard worker gets potentially COVID and they shut the entire container port down and that has month a weeks if month if not months of implications on cargo traffic. So imagine that for political purposes, and the Chinese do that. So the port operations are key, and it's important to note that even in those hundred plus ports that they have a presence they don't have to own or have a a majority ownership. to be able to impact. They don't even in some cases even have to have a presence in the yard if it's a country that's very pliable or one very reliant because then they can actually insist that a certain naval ship cannot have permission to visit or that there's not pier space available this was the excuse used in Solomon Islands a few years back, when it became clear they had a security pact agreed with Beijing. The Coast Guard cutter couldn't make a scheduled and previously approved visit because there wasn't pier space. It wasn't true. Uh the other is if you have commercial ships that are moving cargo, some of it, some of the containers say of the thousand that are on board one of these ships, several of them have military purposes or use, holding up the fuel, holding up perhaps uh other harbor services because it's inconvenient to the Chinese interest has an implication in the peacetime. In wartime that could be disastrous and cost lives of our s soldier, sailors and airmen. We saw this play out when former administration was trying to move supplies for the Gaza, you know, humanitarian relief and also supplies to the Israelis, and you had, you know, pro-Hammasa supporters shutting down ports in the Pacific Northwest and Washington State but also leaning on one of our allies the Spanish government to make it very hard to get into ports in southern Spain, and even complicating with our British allies in Gibraltar. So the problem is here and now, the ports are important, and I will say one thing on the supply chains, we they kind of missed the the opportunity to talk about it. There needs to be much more application of AI and supply chain understanding and intelligence is part of the intelligence piece. Many of our allies rely on second, third tier, not further down in on China's source of materials. That includes our key allies, Japan and South Korea. Knowledge is very powerful on this. We need to be far better at that and also understand when the markets are being manipulated to cause delays or interference.

Mm-hmm.

I'll just add finally to add to what Mister Sadler said before about um uh infrastructure development in developing country we can utilize DFC financing uh for these activities um and we can do it in partnership with our allies uh uh through the trilateral mechanism as well.

Thank you very much. I was gonna ask like if there was a diplomatic and a economic tools that we can use to encourage allied and partner nations to diversify away from Chinese built systems and equipment.

Uh,

Um.

there's a few, um, if ones that we actually control right now, uh, it's mostly through f- foreign military sales. You tie it back to national security. We can try to set up partnerships where co-development, co-production, uh, and inside the stipulations and conditions of those type of deals, you tie them because of security implications more fully into our supply chain. you have to be careful, that can't be applied uniformly, the platform or the system in question matters. And the key thing is to start small. And we're doing this right now in munitions production, by necessity, uh things like Patriot batteries, uh hopefully we'll probably see advanced heavy weight torpedoes on this, with Australia. Now we start taking it to the systems of systems, which is a a ship. It's really a a systems engineering challenge when you're building these ships. Um, trying to integrate these things together, and the Navy's gonna be living with this very soon with the the new uh landing ship medium, which is a Dutch design, how to integrate a European supply chain and adapt it for the US. We have a lot of experience with our NATO allies to some of this, not to the extent necessary, but with our Asian allies because of things like MRO, these are the repair ops. We have several years under our belt of getting better understanding amongst the group of us what our ship standards are, build and repair standards, and familiarity with the actual platforms themselves. That's an important first step.

Thank you very much. I'm gonna now recognize gentleman from Pennsylvania, Rep McKenzie.

Great. Well, thank you Madam Chair, and thank you to all of our witnesses for coming today. Uh, I especially wanna recognize Mister Kim. I saw that you previously taught at Juniata College in Pennsylvania, so we like that. Uh, we appreciate you bringing your knowledge a little closer to home there for a time. Uh, we're discussing one of the most critical industries that uh has been ignored for far too long here in our country uh it's been allowed to languish for decades washington's negligence uh with regards to domestic shipbuilding has not only hurt manufacturing here at home uh but also left us vulnerable from a national security perspective so i'm glad to see that there is this greater focus both in congress and from outside stakeholders who wanna correct that and and rectify the situation uh one of the things that i saw recently was in philadelphia at the navy yard uh we have a partnership going on with an investment coming in uh from a korean stakeholder uh fantastic revitalizing and bringing back that old navy shipyard uh but the output is still incredibly low compared to uh adversaries like china and so i think part of that is that dual use production capability that they have uh at at their chinese ship building locations how can we increase the the amount of ships or send the demand signal that it's not just a a government uh imperative and desire but we wanna see more ships just in general built at us facilities uh so that they can start making the investments in newer technology and ultimately see more uh output from locations like that so what what can we do in a wider perspective and Uh I think Mister Sa Sadler was talking a little bit about kind of those types of things in your last comment, so maybe you wanna go first.

Yeah, so um Hanwha's investment is kind of like the canary in the shipyard, so to speak. And so what's key thing to watch now is what orders do they get for tankers. In the in the current budget that was proposed by the administration there's console tankers, uh there are oilers. How many of these civilian ships that preferably are gonna be built in a US yard go to Hanwha? They are they they are actually positioned to do that, and that'll be a proof that the concept and the investment was well worth it. On the labor side, and there are labor issues in the Philly yard, there's there should be expected anywhere that you're starting up a brownfield, and certainly a greenfield opportunity, but Philly is a brownfield. So getting and attracting that, you gotta pay a premium to get the uh the labor, but you also have to improve using technologies like AI and and some of these uh, augmented reality to be able to rapidly not to fight against the reality of high turnover, but to embrace it so that you can train up someone to be a wire running wires or pipe fitter or actually being a welder much more rapidly than has traditionally been the case. And that's something that it's moving too slow right now. And it's the Na- US Navy's ship building that you're seeing that, places like Huntington Ingalls has been trying to do this. But we need to take it to another level, to rather fu not fight but to embrace high turnover. When it comes to the time frame, everyone and I'm s I'm also very guilty of this, it's not fast enough. But when we're talking about capital investments and industrial uh uptake, you're looking at fastest three years, probably pretty much above average is five years. And so we're really into like the second year of the Hanwha investment into uh Philadelphia. In three years to fi to five years, we should start to see more production, we should see labor issues starting to stabilize out. But it's going to take no less than five years to really see solid return on investment and output on this. It's an industrial, slow-moving endeavor, and shipbuilding is perhaps one of the highest in the value chain and also the widest in employment. Uh, so when you build a ship, there's a thousand different things and parts and specialties that go into it. There's no greater job creator. There's no greater technological like innovation driver and motivator at the same time. But that comes at cost and that comes at time, unfortunately.

No, for this uh follow-up to anybody on the panel, is there anything additional that we in government can be doing to help that private sector investment achieve a better ROI make more investment sooner, to speed this process up?

Uh, so, uh, this one I've been involved with like the things like the Ships for America Act, the executive orders of the White House. We need to change the incentive structure with industry. Uh, capital investment and workforce, higher salaries, needs to be prioritized and and basically rewarded rather than focusing on the the the shorter one-year three-year invest return on investment. Stock buybacks, this is something that really infuriated the former Administration Secretary of the Navy and it's infuriating the current President as well because that money that's going in for orders for ships, the price is higher, needs to me means that salary should be paid at a higher rate to attract the workforce and capital investments made. So we have to change, and I think Congress has a key role on this in things like the Ships for America Act to try to memorialize this new incentive structure. A lot of ways to skin that cat. Um, some of our partners overseas, Japan, but also in Estonia have some very interesting tax uh mechanisms to insi to incentivize the right type of behavior.

Congressman, this is part of the reason why in my uh written testimony I recommended um converting pledges and tying them into the demand with uh specific milestones associated with um the the size of that demand this way there is some degree of predictability and and uh where you see uh different deliverables on the investment side and also from the company's perspective about you know how much they're going to invest and how quickly they will invest given uh given the demand um so instead of simply passing the act i think what you need to do is Um, link that in with specific milestones on these investments.

Uh, I know we're we're over time, so I'll be very, very quick on on this. Um, consistency is probably the most important part. Uh, and I and Mister Kim just brought that up, like this this is a a a multi-decade endeavor. And so, if you're gonna send the right demand signals to business, the US needs to be reliable in what it is, especially if it's trying to attract uh foreign investment. I wanna put one other thing out there, cuz you sort of cast a wide net, and what else uh we can be thinking about. A a lot of the legislations in place right now, or legislation that's working to be in place, is focused on the the ship construction component. And that's critical, but we also have to think about what advantages the US has. And it has advantages in AI and in automation, especially when it comes to China. China's very much aware that it is, it lags the US and it wants to catch up in those areas. And so we need to be thinking, in my view, more broadly about not just the holes themselves, but the onboard systems, how do you automate elements of the shipyards, how do you bring AI in so that we can train the workforce faster, and that they can be augmented in the work they do. If you have high turnover at a shipyard, AI can help to be a solution there, so that you're getting your workforce up to speed as quick as possible.

I, only to add one more very big American advantage, compared advantage in this is marinizing small module reactors. nuclear power. We have, as a nuclear submarine-er for many years, this is perhaps a trusted industry uh the world over. It's also a place where we have a comparative advantage, and why for many years been arguing that we need to put that on ships, both for military purpose, logistics, but also for this to take back market share from the Chinese by focusing in on the type of shipping that we need blue water international trade at the same time, we're actually providing a something that's very competitive in the market space. And there's a reason why everyone's looking to nuclear now, because it is green and because it it is actually very effective at having high-speed transits, less ships, more cargo throughput.

Great, thank you all. I'll be back.

Thank you. The I know we're up at our time here, so I wanna thank our witnesses for your testimony and answering all of our members' questions and I wanna thank the members for participating with your questions as well. Uh the members may have uh additional questions for the witnesses and will ask you to respond to those in writing uh pursuant to committee rules all members have five days to submit statements questions and extraneous materials for the record subject to the uh length of limitations so without objection the committee now stands adjourned