China plans to cap foreign holdings in the country's ship makers at 49 percent as the government moves to both maintain control over the fledgling industry and tap overseas knowhow.

Foreign shipbuilders seeking to form joint ventures in China must also transfer their expertise to local partners through the establishment of technology centers, the Commission of Science Technology & Industry for National Defense said in a Website notice over the weekend.

"As international competition heats up, China's ship making industry faces challenges such as a weakness in technology innovation," said the agency's Zhang Xiangmu.

"We want to learn advanced foreign technology and management skills and will adjust overseas involvement in the sector to ensure sustained development."

A 49 percent ceiling in foreign ownership means ship manufacturing falls into the central government's "strategic" industry category and needs special oversight and support.

Foreigners invested US$220 million in China's shipyards last year, up 45 percent from a year before, according to earlier media reports.

The government wants local shipyards to produce 17 million dead-weight tons of vessels a year by 2010, up from 12.1 million last year, Zhang said, citing guidelines approved by the State Council and set to be published by the National Development & Reform Commission.

The country also expects 60 percent of the parts used on China-made ships to be domestically produced, up from 46 percent now, according to Zhang. Four to five Chinese ship makers will likely remain among the world's top 10 by output in the five-year period, he said.

China, ranked third by shipbuilding output in the past 11 years, has an average productivity that's only about one-sixth that of South Korea and Japan, the world's top two, the notice said.

The productivity gap helped offset China's advantage in cheaper labor, according to Zhang. The government aims to reduce the productivity comparison to between one-fourth and one-third by 2010.

China plans to build three advanced shipbuilding centers by 2010, at Bohai Bay near Dalian and Qingdao, the mouth of the Yangtze River near Shanghai and the Pearl River region around Guangzhou, the notice said.

Editor: Yan