The government will encourage foreigners to invest in China's shipping industry to help expand its fleet, a senior official said yesterday.

The country plans to not only make its ocean-going fleet the third largest in the world by 2010, but also improve maritime security and better protect national interest, Cao Desheng, deputy director of the Ministry of Communications' Water Transport Department, told China Daily.

The total deadweight tonnage of Chinese-flag flying ocean vessels will reach 100 million by 2010, up from the present 44 million, which makes it sixth largest in the world, Cao said.

To fulfill the goal, the ministry will encourage banks, logistics enterprises, cargo owners and foreign investors to invest in its shipping industry.

"They can set up new companies along with domestic shipping enterprises, with the latter holding at least 25 percent of the total shares of a new company to overcome worries over shipping security," he said.

Foreign investors have to necessarily register their companies in China first, and the ships should fly the Chinese flag.

This is important because during "special times like wars, ships flying foreign flags and with foreign sailors won't be able to take shelter in the country". In case that is not done, shipping "essential materials such as oil will be threatened", he said.

Also, China National Petroleum Corporation (Sinopec) and China Petroleum & Chemical Corporation (Petrochem) will join hands with China Changjiang National Shipping (Group) Corporation and China Shipping (Group) Company to form a new shipping company, Cao said.

Another reason for the fleet expansion is that the Ministry of Communications (MoC) wants more Chinese-owned ships to register at home instead of in other countries.

High tariff and value-added tax on imports, or 27.53 percent cost of shipbuilding, has caused many Chinese ship-owners to register their vessels in other countries. An ocean vessel costs several hundreds of millions of yuan, and that should give an idea about the additional costs.

According to official figures, the number of Chinese vessels registered abroad has been increasing, and they account for half of the country's total international tonnage.

The MoC has decided to grant tax exemption to Chinese-owned ships that were registered abroad before 2006. This incentive is expected to make them register at home -- in Shanghai, Tianjin or Dalian - in the next two years, till July 1, 2009. The ministry is also discussing some long-term policies to encourage Chinese-owned ships to register at home.