Study on the Optimal Localization Rate for Shipbuilding Industry in China

Abstract

In China, the target setting on loading rate of domestic equipment for shipbuilding industry has not been studied from a perspective of an optimization problem. Based on the constant elasticity of substitution production function, a localization rate model for shipbuilding industry is established to investigate the government’s trade-off between the interest of shipbuilding industry and that of ship supporting industry and to set the optimal localization rate. The results show that the market capacity has a significant effect on localization rate. In particular, when the market capacity is too small, the optimal localization rate is zero. When the market capacity is too large, the optimal localization rate is one. When the market capacity is in a certain range, a regular localization rate target exists. Moreover, the optimal localization rate could be affected by the technology gap and prices of domestic and foreign marine equipments. When the market capacity is large and the technology gap between domestic and foreign marine equipments is small, or the price of domestic equipment is too low, a higher localization rate target should be set. Finally, the substitutability of domestic and foreign equipments affects the optimal set of localization rate. If the substitutability of domestic and foreign equipments is too low, the improvement of localization rate caused by technological progress or price reduction of domestic equipment will be limited. This study provides several significant policy suggestions on dynamic adjustment of localization rate, classified implementation, and core technology mastering.

Keywords

Localization rate / shipbuilding industry / market capacity / technology gap / price difference / equipment substitutability

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