Joint venture for major engine factory in China

Wärtsilä Corporation, Trade press release, 27 September 2006 at 10:00 UTC+2

China Shipbuilding Industry Corporation, Wärtsilä and Mitsubishi Heavy Industries to establish a joint venture to produce low-speed engines in China.

China Shipbuilding Industry Corporation (CSIC), Wärtsilä Corporation of Finland and Mitsubishi Heavy Industries Ltd (MHI) of Japan are preparing for the building of a joint-venture factory in China for the manufacture of large low-speed marine diesel engines. The joint-venture agreement is being signed by Qingdao Qiyao Linshan Power Development Co Ltd (QQLPDC) and Panda Shinco Holding BV (PSH). The joint venture is subject to final official approvals which are expected to be received at the end of October 2006.

QQLPDC is jointly owned by Yichang Marine Diesel Plant (YMD) and Shanghai Marine Diesel Engine Research Institute (SMDERI), both being underlying units of CSIC. PSH is jointly owned by Wärtsilä and MHI.

Under the terms of this agreement, QQLPDC and PSH will establish the company Qingdao Qiyao Wärtsilä MHI Linshan Marine Diesel Co Ltd (QMD) in China. QMD will be dedicated to the research and development testing, prototype manufacture, production and sale of large low-speed two-stroke marine diesel engines.

“Our aim is to better serve the shipbuilding industry in China and thereby strengthen our market position in the low speed engines in rapidly growing Chinese shipbuilding market. The QMD factory  is a practical demonstration of our strategy of working through partnerships to bring the aspirations of the partners into reality”, says Mr Ole Johansson, President and CEO of Wärtsilä.

For CSIC, the QMD factory is much more than increased manufacturing capacity. “It enables CSIC to further develop the technological capabilities of its ship machinery industry; an objective which is greatly facilitated by international cooperation with strong technological partners such as Wärtsilä and MHI. Improved technological capabilities will, in turn, also encourage technical innovation among CSIC employees that will raise the competitiveness of Chinese shipbuilding and grow its market share”, says Mr Li Chang Yin, President of CSIC.

“Developments such as the QMD factory will raise the reputation of Mitsubishi UE engines in world shipbuilding markets while extending the Mitsubishi UE engine business in an important country that is a rising dragon in shipbuilding. It will also bring more opportunities to offer Mitsubishi UE engines to shipowners in the world”, says Mr Hiroo Uchimura, General Manager, Industrial Energy Power Systems Department of MHI.

Strong demand in China

The Chinese shipbuilding industry is growing rapidly and currently requires more engines than can be manufactured locally. As China has set itself the target of being the world’s leading shipbuilding country by 2020, there is a strong demand for a matching increase in two-stroke propulsion engine manufacturing for which QMD will make an important contribution. The QMD factory will primarily serve Chinese shipyards, it will also be able to export engines to other shipbuilding markets, such as Europe, India, etc.

Location in the middle of a shipbuilding and marine/industry cluster

The QMD factory will be located in Qingdao, Shandong province, close to the Beihei shipyard in the Haixiwan shipbuilding area where CSIC is establishing a marine industry cluster. The QMD factory is planned to start production in the fourth quarter 2008.

The purpose of the QMD joint venture is to provide a world-class supply of large marine engines for Chinese shipyards, together with local technological expertise and support in the same field. The chosen site for the factory in Qingdao is on the water front thereby facilitating the transport of engines without dismantling to the shipyards where they will be installed in ships.

R&D, production and products

QMD will be dedicated to the research, development, prototype manufacture, production and sale of a new generation of energy-saving and environmentally-friendly low-speed diesel engines using the advanced technology of Wärtsilä and MHI. QMD will also be dedicated to the manufacture, assembly, testing, sale and maintenance of low-speed two-stroke marine diesel engines under licence from Wärtsilä and MHI.

QMD will concentrate on engines of 500 mm cylinder bore and larger while YMD will continue manufacturing engines of smaller bore sizes. Thus QMD will be capable of building the full range of large marine engines, today extending up to 960 mm bore. Initially the factory will have a capacity to build engines of about 880 MW/year (1.2 million bhp/year) with planned development to increase capacity to about 2600 MW/year (3.5 million bhp/year).

Local supplier network

The QMD factory will, to the largest extent possible, utilise local suppliers. It will thus do much to add both to the local economy while channelling the transfer of technology that will support local companies in raising and maintaining their production standards to world class. The technological importance of the QMD factory will also be enhanced through its use by Wärtsilä and MHI for the research and development testing of new engines.

A further step between the partners

The QMD joint venture is a further step in the development of the comprehensive co-operation agreement signed between Wärtsilä and CSIC in 2005 and also of the strategic alliance in the field of two-stroke marine diesel engines signed between Wärtsilä and MHI in September 2005. Wärtsilä has already established the joint venture factory Wärtsilä Qiyao Diesel Co Ltd (Shanghai) with Shanghai Marine Diesel Engine Research Institute for the manufacture of four-stroke marine diesel generating sets near Shanghai.

About China Shipbuilding Industry Corporation
China Shipbuilding Industry Corporation (CSIC) is the largest group in China in the field of merchant and military ships, marine engineering and marine equipment which it designs, manufactures and sells. CSIC consists of more than 100 subsidiaries, including six shipyards, some 48 industrial enterprises and 28 research institutes. Its factories manufacture many types of ship equipment and include four major engine factories. It is also involved in offshore engineering and manufacturing non-marine products. The total number of CSIC employees is 160,000 in more than 20 provinces and cities in China.

About Wärtsilä Corporation
Wärtsilä enhances the business of its customers by providing them with complete lifecycle power solutions. When creating better and environmentally compatible technologies, Wärtsilä focuses on the marine and energy markets with products and solutions as well as services. Through innovative products and services, Wärtsilä sets out to be the most valued business partner of all its customers. This is achieved by the dedication of 13,000 professionals manning 130 Wärtsilä offices in over 60 countries around the world.

About Mitsubishi Heavy Industries Ltd
Mitsubishi Heavy Industries, Ltd (MHI), headquartered in Tokyo, Japan, is one of the world’s leading heavy machinery manufacturers, with consolidated sales of 2,790 billion yen (approx. EUR 19 billion) in fiscal year 2005 (year ended March 31, 2006). MHI´s diverse line-up of products and services encompasses shipbuilding, steel, structures, power plants, chemical plants, steel plants, environmental equipment, industrial and general machinery, aircraft, space rocketry and air-conditioning systems, and it has 32,600 employees.

For the marine industry, MHI supplies a wide-range of products, including diesel engines, turbines, boilers, propellers, deck machinery, water jet pumps etc. It supplies high-, medium- and low-speed diesel engines and provides related services for various types of vessels.

For further information please contact:

Mr Clas-Eirik Strand
President, Wärtsilä Switzerland Ltd.
Tel.:   +41 52 262 22 66

Mr Weng Zhenping
Deputy Director, Planning & Development Department, CSIC
Tel.:  +86 10 68047784

Mr Tomoo Kuzu
Senior Manager, Marine Diesel & Machinery Business Section
Industrial Energy Power Systems Department, Mitsubishi Heavy Industries Ltd
Tel.:  +86 3 6716 3383