Shanghai has agreed to allow the nation's leading shipbuilder to construct the world's largest shipyard on one of its islands.

The US$3 billion scheme aims to turn the China State Shipbuilding Corp (CSSC), as well as the nation, into the largest shipmaker in the world by 2015.

Shanghai - also China's financial hub - has set aside 8 kilometres of coastline along Changxing Island in the Yangtze River to the company for free to house the shipyard, said Chen Xiaojin, CSSC general manager.

The allocated area is the largest of its kind in the world, allowing the company enough space to build up its capacity.

The company is also expected to move its existing two large shipyards - the Jiangnan and Hudong shipyards - from suburban Shanghai to the Changxing base. The relocation is being made to make way for Shanghai to host the 2010 World Expo.

In the company's ambitious blueprint, the shipbuilding capacity of the base is expected to increase to 12 million tons by 2015 from the current 3 million tons, Chen said yesterday.

By then the company will be able to build ships with a total tonnage of 15 million tons, accounting for 60 per cent of the nation's total.

"This will make China the world's largest," said Chen.

China now is the world's third largest shipbuilding country, following South Korea and Japan.

Yesterday, Chen also beckoned foreign investment into the construction of the Changxing base, which will require up to 30 billion yuan (US$3.6 billion).

But he maintained that CSSC should keep the controlling share, despite the fact it could dampen the enthusiasm of foreign investors.

"Foreign investors are welcome," said Chen. "But we hope to control the majority shares because shipbuilding is a strategically important industry for the country."

Preparation for the construction of the base is expected to start in November and is scheduled to be completed in eight or 10 years.

By landing the shipyard, Shanghai hopes it can further boost its economy.

Guo Xiwen, vice-director of CSSC's administrative office, said the Changxing base is expected to directly bring in business worth up to 50 billion yuan (US$6 billion) by consuming millions of tons of steel and many large electricity generators, cables and lumber.

It will also provide an estimated 80,000 jobs, said Guo.

China's growing shipbuilding capacity has put it on a collision course with its major competitors, but Chen said the company is confident it will be able to take care of its rivals.

"We are not inferior to South Korea and Japan in terms of technology, quality and on-time delivery," said Chen.

"And we have an advantage in cheap labour costs. Should the capacity increase, we will grab more of the market."

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