"Most shipyards in China are operating at full capacity as they have received plenty of orders, with many of them to be delivered in 2010," Cao said.

The shipbuilding sector will face overcapacity in real terms after 2010 as the world's new ship market will keep thriving in the years to come, he said.

"I believe most domestic shipyards will be competitive at that time with low costs and improving productivity anddevelopment capabilities."

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He said China's ship production will reach 18-20 million deadweight tons this year and top 30 million in 2009.

In the first quarter of this year, shipyards in China won new vessel orders of 12.43 million tons, rocketing 67 percent from a year ago.

But according to China Association of National Shipbuilding Industry, there will also be a serious glut in the global vessel market as a battery of foreign countries are in a race to expand shipbuilding capacity, such as Japan, South Korea, Russia, India, Brazil and Vietnam.

The association predicts total shipbuilding capacity in the world will reach 115 million deadweight tons in 2010, compared with 70 million in new vessel demands by then.

Capacity in both Japan and South Korea will reach 32 million deadweight tons.