Working Paper Series
HONG KONG AND SHANGHAI PORTS:
Challenges, Opportunities and
Global Competitiveness
CITY UNIVERSITY OF HONG KONG
June 2011
Alexander McKinnon
(Email: [email protected])
About the Working Paper
This Working Paper is part of a series produced by the Hong Kong Centre for
Maritime and Transportation Law, School of Law, City University of Hong Kong.
The Working Paper Series is designed to stimulate practical and academic research
into specific aspects of Maritime and Transportation Law in Hong Kong. The Series
provides a starting point for more detailed investigation. The Working Papers will be
updated periodically as necessary.
Opinions and comments are invited and encouraged.
© Copyright is held by the School of Law, City University of Hong Kong.
The Working Paper cannot be republished, reprinted, or reproduced in any format
without the permission of the Hong Kong Centre for Maritime and Transportation
Law.
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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
Executive Summary
Shanghai is the world‟s largest container port. It is strategically located next to one of
the world‟s leading manufacturing regions, the Yangtze River Delta. The Port‟s rapid
growth in recent years is due to a number of factors, not the least of which has been
China‟s attractive policies for foreign investment. Shanghai is now establishing a
presence as an international shipping and financial centre.
Shanghai‟s rise poses some significant challenges for Hong Kong. The development
of the Yangshan Deep-water Port off the coast of Shanghai has enabled the Port to
enhance its transhipment capabilities. Perhaps most importantly, the advancement of
Shanghai‟s “maritime cluster” of services may challenge the superiority of
international maritime centres such as Hong Kong and Singapore.
Regulatory Framework
While Hong Kong‟s Port operates largely free of governmental interference,
Shanghai‟s port governance structure is more complex. It has rapidly evolved with
China‟s developing economy but drawbacks are cited in a number of sources.
Shanghai International Shipping Centre
Beijing plans to create a world-class international maritime centre in Shanghai by
2020. Some initiatives, for example the Shanghai Shipping Exchange, have attracted
criticism. Others, such as education, arbitration and tax incentives, appear to be
enticing maritime business to Shanghai. The Shipping Service Centre project looks to
be successful in establishing a multifunctional business district to serve the maritime
sector.
Free Trade and Foreign Investment
Shanghai‟s free trade zones and bonded logistics areas have the advantages of space
and significant (continuing) government investment. Bonded zones ensure that goods
can move freely between free trade areas. The administrative laws governing the
Yangshan Free Trade Port are very competitive. Increasingly these policies are being
targeted toward insurance and marine finance businesses.
Closer Economic Partnership Agreement (CEPA)
The role of CEPA in boosting Hong Kong‟s international competitiveness may be
diminishing as Shanghai seeks to appeal to businesses directly. Many businesses may
consider basing operations in Shanghai without the need for a Hong Kong presence.
The issue is uncertain, however; and at this stage CEPA is still referred to as a major
feature of Hong Kong‟s appeal to foreign investors seeking to enter China.
Shanghai‟s ultimate success will be due more to its ability to effectively establish a
wider maritime service sector than its dominance in container throughput (although
this does enhance its overall attractiveness). It is clearly making substantial progress
in creating an international maritime centre.
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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
1. Introduction
Shanghai Port overtook Singapore as the world‟s busiest container port in 2010. In
that year, Shanghai took up almost a quarter share of China‟s foreign trade1 and it is
arguably the most important commercial city in China. China is the largest container
market in the world today.2 Consequently Beijing is focusing attention on Shanghai
and hopes it will be a world-leading international shipping and financial centre by
2020. In its 12th five-year plan, Beijing also emphasised the importance of the
development of Hong Kong‟s maritime industry. The ports are considered crucial
gateways: Shanghai to the booming Yangtze River Delta region and Hong Kong to
the hugely successful Special Economic Zones in the Pearl River Delta region of
southern China.
Shanghai‟s proximity to the Yangtze River Delta is expected to contribute to
significant growth in port traffic driven by exports. However, with the development
of the Yangshan Port approximately 27 kilometres from the coast of Shanghai, the
Port has established competitive transhipment capabilities. Asia‟s dominance in
world seaborne trade will require the continued development of ports and bonded
areas to attract associated maritime services. Infrastructure is crucial but it is not the
whole story: competitive strategies and collaboration through effective government
policy will help shape the future success of individual ports.
Although it has been suggested that the Port of Shenzhen may overtake the Port of
Shanghai by the end of the decade,3 Shanghai‟s increasing dominance in transhipment
and more generally as a maritime centre makes it a crucial comparator port to Hong
Kong. This working paper will first identify the key features of the ports of Hong
Kong and Shanghai. In order to identify disparities and opportunities, it will examine
the regulatory framework of the Port of Shanghai, including incentives for the
maritime industry.
2. Port Competitiveness
There is a substantial body of academic research concerning interaction between
ports: predominantly in the fields of economics, management and transport logistics
and geography. It is perhaps only through such a broad spectrum of analysis that the
overall competitiveness of a port can be properly assessed – it is impossible to
attribute the success or demise of a port to a single factor. Moreover, modern ports
are a complex agglomeration of stakeholders including terminal operators, regulatory
bodies, logistics companies, shipping lines, and many more. Although it is the
intention that the present working paper focus on two specific aspects of maritime
competitiveness, namely governmental regulation and policies, the wealth of
1
Sha Hailin, Deputy Secretary-General, Shanghai Municipal People‟s Government and Chairman,
Shanghai Municipal Commission of Commerce, „Shanghai‟s Economy and Commerce in 2010 and
the Future Outlook‟ (Speech delivered at the 2011 Briefing on Shanghai‟s Commerce and Investment,
28 February 2011).
2
United Nations Conference on Trade and Development, „Review of Maritime Transport 2010‟
(Report by the UNCTAD Secretariat, UNCTAD/RMT/2010) 149.
3
„Free Trade Zone and Port Hinterland Development‟ (Report by the United Nations Economic and
Social Commission for Asia and the Pacific, ST/ESCAP/2377, 2005) 29. The UNESCAP report cites
a study by Morgan Stanley in 2004.
2
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
discourse on port competition and integration is instructive and reference will be
made where relevant.
3. Some Historical and Geographical Considerations
The modern financial relationship between Hong Kong and Shanghai dates as far
back as the mid-1800s. Following the First Opium War, the British Oriental Banking
Corporation was the first western-style bank to establish itself in both Hong Kong
(1845) and Shanghai (1847). Other international banks followed in what has been
described as a „critical century‟ for Shanghai – it became a „world city, ranking in size
and influence just behind London, Paris and New York.‟ 4 Although some
advancements were made in terms of governance during the early part of the 20th
Century, from 1949-1984 the vast majority of local revenues were extracted by the
central government. This resulted in the volume of foreign trade clearing the port
falling below that of the „comparatively underdeveloped‟ Hong Kong.5
Although it was not until the 1980s and 1990s that Shanghai properly opened to
foreign trade, as early as the 1930s it accounted for approximately half of China‟s
annual recorded foreign trade.6 Deng Xiaoping, the architect of China‟s economic
reform program of the 1970s and 80s, commented:7
Shanghai has obvious advantages in respect of human resources, technology, and
management. It has a very broad radiation range. My big mistake was to leave out
Shanghai when we established the four economic zones. Otherwise, the situation of
the Changjiang Delta, the whole Changjiang Basin, or even the prospects of the
reform and open door policies of the whole country, would have been very different.
Notwithstanding this early setback, Shanghai‟s success cannot be understated. The
port first began to handle container shipping in 1983.8 Soon after, in the 1990s, it
entered a dramatic growth phase following the establishment of Shanghai Container
Terminals, a joint venture between Hutchison Port Holdings and the Shanghai Port
Authority. In 1996 the State Council established the “Yangtze River Delta
International Shipping Centre” which was eventually to become the Shanghai
International Shipping Centre (ISC).9
In terms of container transport, the “Shanghai Port”10 consists of Wusongkou Port, the
main port prior to the 1990s and used primarily for domestic container vessels;
Waigaoqiao Port, constructed in the early 1990s and still a major container port
despite being limited by the depth of water in the Yangtze River; and Yangshan Port
(also known as the Yangshan Deep-water Port), Shanghai‟s main port built on an
4
Kerrie L MacPherson, „Shanghai‟s History: Back to the Future‟ (2002) 7(1) Asia Pacific Review 37,
38.
5
Ibid 39.
6
Joseph E Spencer, „Trade and Transshipment in the Yangtze Valley‟ (1938) 28 Geographical Review
112.
7
Xiaoping Deng, Selected Writings of Deng Xiaoping (1993, Vol 3, People‟s Publishing House) 376.
8
James Jixian Wang and Brian Slack, „Regional governance of port development in China: a case
study of Shanghai International Shipping Centre‟ (2004) 31 Maritime Policy & Management 357, 362.
9
Ibid.
10
In general, “Shanghai Port” shall refer to the totality of ports in Shanghai.
3
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
archipelago of 35 islands in Hangzhou Bay and connected by a 32 kilometre bridge to
the mainland. 11 The Yangshan Port has been operational since 2005 although
construction is not expected to finish until 2020 at which time the port is expected to
have an annual handling capacity of 15 million TEUs12. More than 10 billion yuan
has recently been allocated to the construction of new deep-water berths in Yangshan
and the project is about to enter its fourth phase which should increase capacity by
more than 40 per cent.13
Prior to the introduction of Yangshan Port, Shanghai‟s ports in the Yangtze River
could not compete with Hong Kong‟s natural, deep-water harbour. Hong Kong has
invested heavily in its port infrastructure and has focused policies on attracting
shipping business. Traditionally a manufacturing centre, Hong Kong lost most of this
industry since the establishment of the Shenzhen Special Economic Zone in 1979.
The service industry today accounts for more than 90 per cent of the Hong Kong
Special Administrative Region‟s (HKSAR) GDP. It is a significant transhipment hub
with over half of cargo movements in 2009 being transhipment movements.14 Prior to
the development of Yangshan Port, transhipment in the Shanghai Ports was reported
as less than two per cent.15 The United Nations Economic and Social Commission for
Asia and the Pacific (UNESCAP) adds:16
[the recent] opening of Yangsan Container Terminal is expected to lead to a reduction
in the number of direct calls by major services at other ports of mainland China,
contributing to the increased trans-shipment opportunity at Shanghai.
The study estimates that by 2015 the total volume of containers transhipped in the
ESCAP region will increase exponentially; however, despite Shanghai‟s rising
dominance, it concludes that „Singapore and Hong Kong will remain as the main
trans-shipment ports of the region.‟17
3.1
The Yangtze River Delta Region
The Yangtze River Delta economic zone comprises 16 cities including Shanghai,
Hangzhou and Ningbo. The region surrounds the Yangtze River, the longest river in
China and the „major east-west artery for container traffic‟. 18 There are 26 ports
11
„Since 1985, mainland China has invested more in its port development than the rest of the world
combined‟: Kevin Cullinane, Wang Teng Fei and Sharon Cullinane, „Container Terminal
Development in Mainland China and Its Impact on the Competitiveness of the Port of Hong Kong‟
(2004) 24 Transport Reviews 33, 36 (reference omitted). It should be noted that technically the
Yangshan Islands are located in the Qiqu Archipelago.
12
Twenty-foot Equivalent Units.
13
„Yangshan adds depth to planned Shanghai hub‟, International Maritime Information Website, China
(9 June 2011) < http://www.simic.net.cn/news_show.php?lan=en&id=82230> as at 17 June 2011.
14
„Port Transhipment Cargo Statistics 2004 to 2009‟ (Hong Kong Monthly Digest of Statistics, August
2010) FB2. The largest share of the transhipment cargo movements was attributable to China.
15
Jan Svendsen and Jan Tiedemann, „Port Development in the Greater Shanghai Region‟
(Containership Info, Autumn 2006 special report).
16
ESCAP, „Regional Shipping and Port Development Strategies (Container Traffic Forecast)‟ (Report
by the United Nations Economic and Social Commission for Asia and the Pacific, ESCAP/2398,
2005) 45. The forecast period was through to 2015.
17
Ibid vii.
18
Claude Comtois and Jieshuang Dong, „Port competition in the Yangtze River Delta‟ (2007) 48 Asia
Pacific Viewpoint 299, 303. The growth in container transport along the river surpassed that
4
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
along the river.19 In 2009 the region‟s GDP accounted for almost a fifth of China‟s
total GDP. According to Xu, when considering the likelihood of success of an
emerging hub port (and for that matter, an international shipping centre) a favourable
geographical location is first critical. 20 Xu considers Shanghai‟s proximity to
international trade routes and its location as a gateway to the Yangtze River Delta as
„most favourable‟.
The Yangtze River Delta was designated an Open Economic Zone (OEZ) in 1985.
The OEZ was modelled on the Special Economic Zones already in existence
throughout China. Liberal policies concentrated on attracting foreign investment and
trade through preferential tax treatment, lower tariffs, solid infrastructure and less
government interference.21
There is some evidence of competition in the region, especially between Shanghai and
Ningbo, 22 although the development of Yangshan Port has arguably shifted the
balance in Shanghai‟s favour. Comtois and Rimmer report that the „expansion of
facilities at both Ningbo and Shanghai is a signal of the magnitude of the expected
traffic growth in the Yangtze River delta.‟ 23 Indeed as a gateway to the booming
Yangtze River Delta, Shanghai‟s Port handles an enormous amount of coal, crude oil
and metal ore in addition to containerised goods. Furthermore, many containers
originating in the mid and upper reaches of the Yangtze River are transhipped at
Shanghai Port to international destinations. This is an important aspect of the
Yangtze River Delta: significant investment over the past decade has boosted inland
port development and China‟s inland waterways network continues to grow.24
3.2
Pudong New Area
Shanghai Pudong was opened in 1990 as part of Shanghai‟s vision to promote itself as
a leading financial, trade and shipping centre. A merger with the Nanhui
Administrative Area was announced in 2009 making the total area 1210 square
kilometres with a permanent population of 4.12 million.25 It is connected to China‟s
high-speed rail network. The area consists of a number of “development areas”
transported by road in 2000: Claude Comtois and Peter J Rimmer, „China‟s competitive push for
global trade‟ in David Pinder and Brian Slack (eds), Shipping and Ports in the Twenty-first Century
(2004, Routledge) 40, 45.
19
See Kevin Cullinane, Sharon Cullinane and Teng-Fei Wang, „A Hierarchical Taxonomy of Container
Ports in China and the Implications for their Development‟ in Tae-Woo Lee and Kevin Cullinane
(eds), World Shipping and Port Development (2005, Palgrave MacMillan) 217, 233.
20
Xu Jianhua, „A Long-term Development Strategy of Shanghai Port‟ (Paper presented at the
“Marketing Strategy of the Port of Busan for a Logistics Center in Northeast Asia” Symposium,
Busan, Korea, 29 May 2001) 6.
21
Arvind Panagariya, „Unraveling the Mysteries of China‟s Foreign Trade Regime‟ (1993) 16(1) The
World Economy 51.
22
See generally Kevin Cullinane, Yahui Teng and Teng-Fei Wang, „Port competition between
Shanghai and Ningbo‟ (2005) 32 Maritime Policy Management 331. Comtois and Rimmer report
that as at 2004 Ningbo had experienced an annual average rate of growth of over 40 per cent since
1990: Comtois and Rimmer, above n 18, 42.
23
Comtois and Rimmer, above n 18, 42.
24
ESCAP, „Regional Shipping and Port Development Strategies (Container Traffic Forecast)‟, above n
16, 106.
25
This accounts for one-fifth of Shanghai‟s total population. See „Pudong‟, <http://english.pudong.
gov.cn> as at 13 June 2011.
5
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
including Luijiazui Financial Trade Zone, Zhangjiang Hi-tech Park, Waigaoqiao Free
Trade Zone, Jinqiao Export Processing Zone and Yangshan Port Area. The area is a
major contributor to Shanghai‟s GDP.
Lingang New City is an additional area dedicated to transportation and logistics. It is
located near to where the Donghai Bridge from the Yangshan Port reaches the
mainland. Identified as part of Shanghai‟s plans to create an international shipping
centre, 26 Lingang Industrial Area will incorporate the functions of an export
processing zone, free trade zone and bonded logistics park. Once complete it will also
include residential areas and related amenities. Together with the Waigaoqiao free
trade zone and the Lujiazui financial hub, Lingang is expected to be one of the „major
driving forces in Shanghai‟s trade development over the next 10 to 20 years‟.27
The Lingang Industrial Park is administered by the Lingang Industrial Park
Administration. 28 Special development funds have been allocated for the future
development of Lingang (art 5). Upon accreditation, enterprises and projects within
the industrial park enjoy preferential treatment (art 15):
1. various preferential policies for encouraging the development and technical progress
of the modern equipment manufacturing industry;
2. various preferential policies for encouraging the transformation and industrialization
of scientific and technological achievements;
3. various preferential policies for encouraging the software industry;
4. relevant preferential policies for promoting the development of small and medium
enterprises; and
5. other preferential policies for encouraging investment and improving investment
environment.
The Administration shall also provide services including financial, accounting, legal,
insurance, patent and labour for the enterprises within the park (art 16).
4. Regulatory Framework
4.1
Hong Kong’s Port Law
Hong Kong‟s port law is to be found in the Shipping and Port Control Ordinance.29
Under s 56 the Secretary for Transport and Housing may declare any area of the
waters of Hong Kong to be a port. Other provisions of the Ordinance give permission
to the Director of Marine 30 with respect to port facilities, defined as „any aid to
navigation, mooring or signal station‟; give the Director power to refuse a vessel entry
or departure from Hong Kong; provide for inspections; outline pollution offences,
26
Svendsen and Tiedemann, above n 15.
Mike Grinter, „Shanghai‟s Next Step‟ (2011) 12(18) Journal of Commerce 51, 57.
28
Measures for the Administration of Shanghai Lingang Industrial Park (People‟s Republic of China)
Order No. 46 of Shanghai Municipal People‟s Government, 1 July 2010, art 4. Translation available
at <www.lawinfochina.com>.
29
Cap 313.
30
Within the Marine Department of the Hong Kong Special Administrative Region.
27
6
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
reporting and defences; and deal generally with other practical port-related issues
such as port dues.
4.1.1 Government Involvement in the Port of Hong Kong
All terminals in Hong Kong are privately owned and operated. 31 Cullinane writes
that:32
The port governance model that prevails in Hong Kong is one where the private
sector is left to finance, develop and operate terminal facilities, while government
concentrates on providing the back-up infrastructure needed to service the port, as
well as strategic planning for port development.
This is evident from the structure of the Shipping and Port Control Ordinance.
The Transport and Housing Bureau is responsible for managing maritime policy in
Hong Kong; in particular to enhance its competitiveness and strengthen its position as
an international shipping and maritime centre. In 2003, two non-statutory bodies
were created: the Port Development Council (PDC) and the Maritime Industry
Council (MIC).33 The organisations advise the government through the Secretary for
Transport and Housing, which is the chair of each. 34 The PDC advises on port
development strategy and port facilities planning as well as assists the government in
promoting the port. The MIC on the other hand focuses on formulating policies and
initiatives to strengthen Hong Kong‟s position as an International Maritime Centre. It
is also concerned with promoting careers in the industry and supporting the wider
maritime service sector.
31
Operators are Asia Container Terminals Ltd, COSCO-HIT Terminals (Hong Kong) Ltd, CSX World
Terminals Hong Kong Ltd (DP World), Hongkong International Terminals (HIT), Modern Terminals
Ltd and River Trade Terminal Co Ltd.
32
Kevin Cullinane, „The Governance of the Port of Hong Kong‟ in James Reveley and Malcolm Tull
(eds), Port Privatisation: The Asia-Pacific Experience (2008, Edward Elgar) 62.
33
The predecessor to these organisations was the Port and Maritime Board, established in 1998 and
itself a product of the previous Port Development Board.
34
Each acts according to specific Terms of Reference. See the websites <http://www.pdc.gov.hk> and
<http://www.mic.gov.hk>.
7
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
-
-
Figure 1: Diagram of the port governance structure in Hong Kong.
In 2001 the Logistics Development Council (LOGSCOUNCIL) was formed to further
promote Hong Kong as a key logistics hub. Although its focus is wider than the MIC
and PDC, it performs an important role in representing stakeholders from this sector.35
Further, directly under the Marine Department are 11 advisory, statutory and
consultative committees. In terms of port governance the most relevant are the Port
Operations Committee, 36 the Pilotage Advisory Committee, 37 and the Local Vessel
Advisory Committee.38
35
36
It too is chaired by the Secretary for Transport and Housing.
Non-statutory; its terms of reference are to advise the Director of Marine on all matters affecting the
efficient operations of the Port of Hong Kong, except those dealt with by the Pilotage Advisory
Committee and the Local Vessel Advisory Committee.
8
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
The variety of advisory bodies suggests that while the Government of the HKSAR
seeks to minimise its role in the physical operation of the port, it retains an active
policy-making and strategic role (see Figure 1). It must also be noted that Hong
Kong has active industry groups, many of which hold memberships on the various
committees reporting to the Marine Department as well as the MIC and PDC.
4.2
History of China’s Port Governance
The consideration of port governance as a factor of port competition is not new.39 In
many cases, advancements in port governance policy have followed market
developments as a whole. „As the conduit for the nation‟s international trade, the port
industry in China has also had to develop rapidly in order to keep pace with an everexpanding economy and cargo flows.‟ 40 The reform of China‟s economic system
since the 1980s has had a direct effect upon port governance. In a publication on
China‟s inland water transport network, Zhang discusses the impetus for the two
stages of reforms, the first beginning in 1978 under the leadership of Deng
Xiaoping:41
In the original economic system, the responsibilities of administration and
management were not identified, and the government over-controlled enterprise.
Thus, enterprises lacked vitality; commodity production, the law of value and the
market regulation function were neglected; equalitarianism was practiced in
economic distribution; the economic form and the business mode were unitary,
seriously constraining the broad masses‟ initiative and hindering the development of
the productive forces.
Cullinane and Wang dissect the evolution of port governance in China into three
phases: 1979 – 1984, 1984 – 2004, and 2004 – present.42
The first period, 1979 – 1984, is characterised by central control of the port sector.
The Ministry of Communications owned the ports, controlled planning and strategy,
managed operational activities, and determined infrastructure priorities. During this
period the Ministry of Communications neither benefited nor suffered from underperforming ports. Further, a lack of funding restricted the development of the ports.
37
Statutory body established under the Pilotage Ordinance (Hong Kong) cap 84, ss 4-5; its functions
are to advise the Pilotage Authority on any of its powers or duties under the Ordinance, and advise on
the general regulation or control of pilotage in Hong Kong.
38
Statutory body established under the Merchant Shipping (Local Vessels) Ordinance (Hong Kong)
cap 548, s 4; its functions are to keep under review the management, control, operations, standards of
safety, security and protection of the environment by local vessels, and to advise the Director of
Marine on any matters referred to it by the Director of Marine.
39
See, eg, Cullinane, above n 32, 51-2.
40
Kevin Cullinane and Teng-Fei Wang, „Port Governance in China‟ in M R Brooks and K P Cullinane
(eds), Devolution, Port Governance and Port Performance: Research in Transportation Economics
(2007, vol XVII, Elsevier) 331, 332.
41
Zhang Changkuan, „Reform in Inland Water Transport: China‟s Experience‟ in Economic and Social
Commission for Asia and the Pacific, Traning of Trainers Manual for Inland Water Transport (1997,
United Nations) 3.
42
The information below draws on the detailed research contained in Cullinane‟s and Wang‟s chapter:
Cullinane and Wang, above n 40, 331.
9
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
From 1984 – 2004, China began to decentralise control of its ports. 1984 saw the
classification of 14 coastal cities, including Shanghai, as „open cities‟.43 Increased
foreign investment resulted. In 1985 the State Council of the People‟s Republic of
China (PRC) promulgated regulations which aimed to „promote the economic
cooperation and technical interchange between China and foreign countries and to
speed up the development of ports and terminals‟. 44 The regulations (art 2) gave
„preferential treatment‟ to „joint ventures with Chinese partners, foreign corporations,
enterprises or individuals‟ when financing „port or terminal projects‟ in China. The
Sino-foreign joint ventures brought much-needed skills and investment into the port
sector. Local port authorities also gained new powers; for example, the State Council
transferred responsibility for the Port of Shanghai to the Shanghai Municipality in
1986.45 China‟s maritime policy framework was promulgated during this period in
the form of the Maritime Code.46
From 2004 onwards the ports sector experienced more decentralisation and entered an
era of corporatisation. The Port Act of the People’s Republic of China (‘Port Law’)47
was adopted in 2003 and is, according to Cullinane and Wang, evidence of the „great
importance attached to the port industry by the Chinese government.‟ 48 The Port Law
is discussed further below. Although Wang et al state that „major‟ decentralization
efforts began in 1984, it wasn‟t until the late 1990s that local authorities obtained
primary responsibility (under a „dual leadership‟ platform). 49 Today the central
government is no longer involved in the ownership of ports but it retains an oversight
role in strategic planning.
China‟s ports are not without problems. In an article published in 2004, Wang et al
identified six major problems:50
1.
2.
3.
4.
5.
Inadequate physical infrastructure, including a weak multimodal inland network.
Inadequate deep-water ports by international standards.
Heavy bureaucratic redundancy.
Weak and ambiguous legal framework, including customs thickness.
Lack of a healthy competitive and innovative environment in port and shipping
industries.
6. Strong political culture of localism (danwei) as resisting change.
43
See James J Wang, Adolf Koi-Yu Ng and Daniel Olivier, „Port governance in China: a review of
policies in an era of internationalizing port management practices‟ (2004) 11 Transport Policy 237,
240.
44
Interim Regulations of the State Council of the People’s Republic of China on Preferential Treatment
to Sino-Foreign Joint Ventures on Harbor and Wharf Construction (State Council of the People‟s
Republic of China) 30 September 1985, art 1.
45
The Ministry of Communications retained an oversight role.
46
Maritime Code of the People’s Republic of China (Adopted at the 28th Meeting of the Standing
Committee of the 7th National People‟s Congress) 7 November 1992. It came into effect on 1 July
1993.
47
Port Act of the People’s Republic of China (Adopted at the 3rd Meeting of the Standing Committee of
the 10th National People‟s Congress) 28 June 2003. It came into effect on 1 January 2004.
48
Cullinane and Wang, above n 40, 347.
49
Wang, Ng and Olivier, above n 43, 241-2.
50
Ibid 240.
10
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
4.3
China’s Port Law
As noted above, China‟s Port Law was adopted in 2003 and came into effect in
2004.51 It has been noted that „the competitive port environment currently at play is
further complicated with the promulgation of the Port Law‟.52 To the contrary other
authors clearly view the Port Law as an integral and beneficial part of the
decentralisation of power in China‟s port sector.53
The Port Law is divided into a number of chapters: General Provisions, Port Planning
and Construction, Port Operations, Port Security and Supervisory Management, Legal
Responsibilities, and Supplementary Provisions. It applies to port planning,
construction, maintenance, operation, management and other related port activities
(art 2). The law empowers authorised local authorities to establish a department for
administering local ports (art 6). While the local authority may engage in port
planning, any plan must be consistent with the national strategy and approved by the
central government (ch II). Importantly, the law encourages foreign investment in
ports. Cullinane and Wang also point out that the revised version of the Catalogue for
the Guidance of Foreign Investment Industries, approved by the State Council in
2004, abolishes „the ceiling on stakes in ports held by foreign investors‟.54
Operators of the docks, passenger facilities, handling, lighterage and warehouse
facilities, and other related operators must obtain a licence from the local department
(art 22). Chapter III details requirements for port operators such as prohibiting
monopolistic conduct, prevention of pollution and environmental harm, prices and
statistical data. Article 27 has caused some concern: it requires port operators to give
priority to handling supplies for rescue, relief and national defence requirements.
Failure to do so may lead to fines or revocation of licences. Chapter IV concerns Port
Security and Supervisory Management and outlines requirements for dangerous
cargoes, emergency plans, port congestion, and other security related matters.
4.4
Shanghai Port Authority
In 2003 Shanghai‟s port oversight body underwent a restructure resulting in the
Shanghai Port Administration Bureau, which took responsibility for port planning,
administration and regulations, and the Shanghai International Port Group (SIPG).
The latter was designated port manager and operator and also given responsibility for
the operation and management of Yangshan‟s first five berths.55
51
Port Law of the People’s Republic of China (Adopted at the 3rd Meeting of the Standing Committee
of the 10th National People‟s Congress) 28 June 2003.
52
Comtois and Dong, above n 18, 309 (italics not in original).
53
Le and Ieda have recently written that the Port Law marks „the changing of China‟s port governance
structure to a fully decentralized system‟: Yiping Le and Hitoshi Ieda, „Evolution Dynamics of
Container Port Systems with a Geo-Economic Concentration Index: A Comparison of Japan, China
and Korea‟ (2010) 1 Asian Transport Studies 46, 58.
54
Cullinane and Wang, above n 40, 348.
55
See Comtois and Dong, above n 18, 308.
11
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
Today administration of the Shanghai Port is the charge of the Shanghai Municipal
Transport and Port Authority (the “Shanghai Port Authority”), which has the authority
to:56
 implement guidelines and polices and enforce laws, rules and regulations
related to the harbour and shipping;
 formulate plans and strategies for the Shanghai harbour (including Yangshan);
 enforce trade regulations application to the Yangtze River (within the
Shanghai municipality);
 supervise and manage environmental issues in the port‟s vicinity and organise
emergency response protocols;
 coordinate research and development into issues concerning the harbour and
shipping;
 supervise the quality and safety of construction projects within the harbour
and inland water passages;
 demarcate and authorise berths for the loading, unloading and storage of
dangerous cargoes including key State materials, emergency, disaster relief
and military materials;
 levy and collect stipulated fees and other fees related to the harbour and
shipping;
 supervise and administer pilotage within the port;
 conduct cooperation and technical exchanges between the Shanghai Port and
other domestic and foreign ports; and
 administer technical and vocational training, including examinations and the
issuance of certificates for workers engaging in port activities.
4.4.1 Shanghai International Port Group (SIPG)
Established in 2003, the SIPG was wholly floated on the Shanghai Stock Exchange in
2006. Its major shareholders are the Shanghai Municipal Council (44.23%), China
Merchants International Terminals (Shanghai) Co Ltd (26.54%), and Shanghai
Tongsheng Investment (Group) Corp (16.81%). The Shanghai Municipal Council‟s
major stake is consistent with the model of governance adopted throughout China
since it began to corporatize and privatise ports from 2001. However, Qiu
distinguishes Shanghai from other Chinese ports because „the main port corporate
body, SIPG, is not completely owned by the Shanghai Municipal Commission
[Council]‟.57
The SIPG operates a total of 125 berths. Its main activities comprise those related to
terminal and port operations: cargo handling, transhipping and arranging multimodal
transport of containers; warehousing, custody, processing, distribution and logistics;
provision of facilities for international passengers; pilotage, towage and freight
forwarding; bunkering; and port and terminal construction, management and other
general operations.58 The SIPG has a number of subsidiaries, many of which operate
56
This is a non-exhaustive list. The responsibilities are delegated by the Shanghai Municipal Council.
For further information refer to <http://www.shanghai.gov.cn/shanghai/node17256/
node17679/node17704/userobject22ai13003.html>.
57
See Min Qiu, „Port Corporatisation and Privatisation: China‟s Experience‟ in James Reveley and
Malcolm Tull (eds), Port Privatisation: The Asia-Pacific Experience (2008, Edward Elgar) 84.
58
For further information refer to SIPG‟s website. The English version is available at
<http://210.5.155.56/en/index.html>.
12
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
certain aspects or parts of the ports. For instance Shanghai Shengdong International
Container Terminals Co Ltd serves as the operator and manager of the first and
second phases of Yangshan Port (see Figure 2).
-
-
-
-
-
-
-
Figure 2: Diagram of the port governance structure in Shanghai.
5. Incentives: Shanghai International Shipping Centre
The State Council of the PRC approved the plan to develop Shanghai as an
International Shipping Centre (ISC) in 1995. Further guidelines were mapped out in
2009 with the goal of making Shanghai a world-leading international financial and
13
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
maritime centre by 2020.59 The guidelines identify the features required to establish
the ISC: highly centralised shipping resources; a complete shipping service sector;
strong industry groups and an attractive business environment; world-class logistics
services; and capability in allocating global shipping resources. Consequently the
Shanghai State Council has concentrated efforts in three major areas: economic
enhancement and business attractiveness; improved shipping efficiency and customs
processes; and continued physical development through, for example, the Yangshan
Port, Lingang New City and a “Shipping Service Centre” project. It should be noted
that the Shanghai ISC often refers to a wider area than Shanghai itself. It supports a
number of air and sea ports including Yangshan, Waigaoqiao, Zhoushan, Ningbo,
Taicang and others.
Shanghai‟s Shipping Service Centre project was launched in 2007. Located along the
waterfront of the Huangpu River in Pudong, the Centre is designed to perform the
„core functions‟ of shipping trade by establishing a multifunctional business district
focused on serving the maritime industry. These functions include ship financing,
leasing, accounting, legal affairs and personnel training. The developer, Franshion
Properties, states that the project will benefit the Shanghai International Shipping
Centre (SISC) by generating economies of scale and creating synergies in shipping
services. 60 A recent report has suggested the area has been almost fully occupied
since opening in April.61
The Shipping Service Centre is an integral component in Shanghai‟s goal to cultivate
a world-class maritime cluster. However, the Service Centre alone will not achieve
the goal. 62 Presently Shanghai accounts for less than one per cent of the global
shipping finance market and the Shanghai Financial Industry Federation is lobbying
for improvement in this field. In February 2011, Shanghai launched a 50 billion yuan
investment fund to support the ISC. The fund will primarily invest in ports,
shipbuilding, modern logistics and modern shipping service businesses. 63 In
particular, the fund will support the emerging marine insurance market in Shanghai.
59
Opinions of the State Council on Promoting the Development of Modern Service Industries and
Advanced Manufacturing Industries and Establishing Shanghai as an International Financial Centre
and an International Shipping Centre (Guofa (2009)) No. 19. For a detailed examination of the
history of the development of Shanghai as an International Financial Centre see „The Development of
Shanghai as an International Financial Centre‟, Information Note (Legislative Council Secretariat,
Hong Kong, IN03/10-11, 7 January 2011).
60
For further information refer to „Shanghai International Shipping Service Centre‟, Franshion
Properties (2009) <http://www.franshion.com/ > as at 17 June 2011.
61
Raymond Duan, „Global maritime centre still eludes an eager Shanghai‟, Cargonews Asia, 6 June
2011 <http://www.cargonewsasia.com/secured/article.aspx?id=43&article=25788>.
62
The Chairman of SIPG, Chen Xuyuan, has been quoted as saying that shipping service has been the
„weakest link in Shanghai‟s bid to be regarded as a global shipping centre‟, mainly due to „a lack of
variety in services, inadequate gathering of information on related sectors, high costs and
unsatisfactory carbon emissions‟: „Global maritime centre still eludes an eager Shanghai‟, eCargonews Asia (online), 6 June 2011 <http://www.cargonewsasia.com/secured/article.aspx?id=
43&article=25788>.
63
„Shanghai to launch new marine fund‟, International Maritime Information Website, China (16
February 2011) <http://www.simic.net.cn/news_show.php?lan=en&id=81268> as at 22 June 2011.
14
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
5.1
Shanghai Shipping Exchange (SSE)
The Shanghai Shipping Exchange (SSE) was established by the Ministry of
Communications and the Shanghai Municipal People‟s Government in 1996. It is the
world‟s first container index derivative. The SSE launched the Containerized Freight
Index (SCFI) in 2009 which publishes a weekly rate index. The exchange enables
companies to hedge against adverse movements in freight rates.
Although it is unlikely the SCFI will encourage a major shift to using the exchange
for all basic contracts, the use of derivatives has been suggested as a possible answer
to growing complaints about freight rate volatility. 64 However, it was reported in
May 2011 that „[s]hipping lines and shippers have not embraced the idea‟. 65 This
may stem from the initial suspicion some international lines held with the creation of
the SCFI. Some saw it as the Ministry of Communications attempting to favour
China‟s COSCO which at the time of the SCFI‟s introduction shipped most of
Shanghai‟s containerised freight. 66 It remains to be seen whether the SCFI will
succeed in enhancing Shanghai‟s maritime cluster.
5.2
Education
Education is a vital part of the strategy to expand Shanghai‟s maritime cluster and
experience. Shanghai Maritime University and DNV (a global risk management
company and one of the world‟s leading classification societies) have signed a
partnership agreement to establish the “SMU-DNV International Cooperation
Centre”.
The Centre provides training, maritime research, technical skills
development and scholarships to promote the growth of the SISC.
The Shanghai Ship and Shipping Research Institute has been in existence since 1962.
Moreover, the Shanghai Maritime University is working with the industry in the
development of the ISC. It has established the Shanghai International Shipping
Research Centre. Also, Zurich Financial Services in collaboration with the Pudong
New Area government created the Zurich Research and Development Centre in early
2010. Its research focus is concentrated on developments and trends in the global
shipping and finance industries. In particular, research will be targeted to assist the
development of marine insurance and financing in Shanghai.
5.3
Tax
Tax law in China is voluminous, especially considering the vast number of
clarifications that have been made to general principles of policy. Therefore this
working paper will aim to identify the most important policies related to the maritime
sector. The analysis that follows will serve to highlight China‟s continued efforts to
promote Shanghai as an ISC.
64
See, eg, Peter Tirschwell, „Futures Shock‟ (2010) 11(19) Journal of Commerce 62.
Grinter, above n 27, 52.
66
„Shanghai Shipping Exchange: In the rigging‟ (1996) 22(25) Business China 12.
65
15
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
The major taxes in China are value-added tax, consumption tax, customs duty,
business tax, enterprise income tax, individual income tax and land appreciation tax.
Enterprise income tax law was modified in 2007 to take account of China‟s joining
the WTO.67 All enterprises are subject to a general rate of 25 per cent but small-scale
and new-technology enterprises are treated favourably, each being subject to a lower
rate. The changes were significant for foreign investors particularly „in cases such as
the Special Economic Zones…where, under the outgoing law, virtually all foreign
investment enterprises were receiving a low tax rate.‟68 As of 1 January 2010 income
derived from international transportation services has been exempt.69 “International
transportation services” includes transportation of outbound passengers or goods,
inbound passengers or goods, and carriage services for passengers or goods provided
offshore.
The policy applies to all enterprises engaged in international
transportation.70
The State Council continues to pass additional notices extending preferential
treatment and clarifying previously announced policies. As part of the Opinions
issued by the State Council in April 2009,71 a number of preferential tax and customs
policies were announced. The policies extend the tax exemption for China-funded
flag of convenience vessels to 30 June 2011. For enterprises registered in the
Shanghai Yangshan Free Trade Port (FTP), business tax is exempt on transportation,
warehousing, loading and unloading revenue, and income derived within the FTP may
be separated from the international part of the business. The policies also outline
programs to increase customs and administrative efficiency within the FTP, measures
designed to prevent tax fraud, and permission for companies to set up offshore bank
accounts.
These policies were reaffirmed by the Ministry of Finance and State Administration
of Taxation on 1 May 2009. 72 Business revenue of enterprises registered in the
Yangshan FTP and engaged in the international transportation business would be
exempt. This exemption would extend to transportation, loading and unloading
businesses; and insurance companies‟ income derived from international shipping
insurance business.
Further Opinions aim to foster the development of ship leasing and insurance in
Shanghai. The first, released on 8 May 2009, includes providing preferential
67
New Enterprise Income Tax Law of the PRC (5th Session of the 10th National People‟s Congress, 16
March 2007) (effective 1 January 2008).
68
Nolan Sharkey, „China‟s New Enterprise Income Tax Law: Continuity and Change‟ (2007) 30
UNSW Law Journal 833, 837. See also Li Qun, „Tax Incentive Policies for Foreign-Invested
Enterprises in China and their Influence on Foreign Investment‟ (2008) 18 Revenue Law Journal 1.
69
Notice on Business Tax Exemption for the Service in the International Transportation Business
(Caishui (2010)) No. 8, 23 April 2010.
70
Previously it was unclear whether this policy was directed only to Yangshan Free Trade Portregistered enterprises: see, eg, „Sailing With the Wind‟ (Transportation and Logistics Industry
Information, PriceWaterhouseCoopers publication, May 2010) 3.
71
Opinions of the State Council on Promoting the Development of Modern Service Industries and
Advanced Manufacturing Industries and Establishing Shanghai as an International Financial Centre
and an International Shipping Centre (Guofa (2009)) No. 19, 14 April 2009.
PriceWaterhouseCoopers has produced a useful summary of the changes: „Sailing With the Wind‟
(Transportation and Logistics Industry Information, PriceWaterhouseCoopers publication, May 2010).
72
Notice on Business Tax Policies in relation to establishing Shanghai as an International Financial
and Shipping Centre (Caishu (2009)) No. 91, 1 May 2009.
16
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
treatment to finance leasing companies engaged in finance leasing activities for
international shipping vessels; supports analysis into premiums paid by importers and
exporters; and incorporates policies designed to attract import and export companies
to take out domestic insurance for their shipping enterprises.73 The second Opinions
were released on 24 July and provide more detail.74 According to the Opinions, in
order to support the development of Shanghai as an ISC, favourable treatment must be
given to insurance businesses engaged in the international shipping sector. Moreover,
better tax refund coordination is mentioned in addition to rules designed to prevent
tax fraud. To boost domestic insurance and leasing, the policies focus on research and
development which could set a clear plan for shipping businesses, manage industry
development, and set up a financial support system for logistics providers and
professional service firms. In order to help establish the finance system in the
shipping industry, a pilot programme is outlined which will involve further research
into preferential policies.
Recently a senior official with the Policy and Legal Affairs Department of the State
Taxation Administration announced that further tax benefits will be introduced
including, for example, increased exemptions for enterprises within the Yangshan
Bonded Zone.75
China has signed Double Taxation Agreements (DTAs) with 95 countries. Some
incorporate specific provisions dealing with international shipping income. For
example, in the DTA concluded between Singapore and China on 11 July 2007, 76 art
8 provides that profits derived by an enterprise of a Contracting State from the
operation of ships or aircraft in international traffic are taxable only in that State. A
protocol agreed at the time of signing the DTA clarified that Singaporean companies
operating ships or aircraft internationally shall be exempt from business tax and any
other similar tax in China.77
73
Opinions on Implementation of Promoting the Development of Modern Service Industries and
Advanced Manufacturing Industries and Establishing Shanghai as an International Financial Centre
and an International Shipping Centre (Hufufa (2009)) No. 25, 8 May 2009.
74
Opinions on Implementation of the establishment of Pudong New District as the function centre to
help position Shanghai to become the International Shipping Centre (Pufu (2009)) No. 267, 24 July
2009.
75
„Global maritime centre still eludes an eager Shanghai‟, e-Cargonews Asia (online), 6 June 2011
<http://www.cargonewsasia.com/secured/article.aspx?id=43&article=25788>.
76
An older DTA was signed in 1986 but a renegotiation resulted in the latest which was concluded on
11 July 2007 and took effect on 1 January 2008 (Agreement between the Government of the Republic
of Singapore and the Government of the People’s Republic of China for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income). Three protocols
have amended it.
77
A Departmental Interpretation Note on the DTA issued by the State Administration of Taxation
provided clarification on art 8. It focuses on the words „profits from the operation of ships or aircraft
in international traffic‟ and confirms that it includes, for example, profits from the transportation of
passengers or cargo by ships or aircraft; and profits from activities ancillary to the international traffic
business such as leasing a ship or aircraft (wet or dry) and profits from leasing, using or maintaining
containers.
17
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
5.4
Yangshan Free Trade Port (FTP) and Other Zones in the Pudong New
Area
It is to be noted that many of the preferential policies outlined immediately above
apply to entities registered in the Yangshan FTP (sometimes referred to as the
Yangshan Bonded Port Zone). The Yangshan FTP area incorporates the operational
area at Yangshan, the Luchaogang Supporting Area (this area provides supporting
services for the port and includes an inspection area, dangerous goods area and other
auxiliary facilities) and the Donghai Bridge connecting the port with the mainland.
The FTP is managed by the Shanghai Integrated Bonded Zone Management
Committee which also oversees the Waigaoqiao Bonded Zone (including the
Waigaoqiao Bonded Logistics Park) and the Pudong Airport Integrated Bonded Zone.
The area has the highest concentration of port resources in the country. 78
Additionally, each area has a specific statutory committee to administer the individual
zone. Although the three zones have been criticised for not aligning policies,79 the
introduction of the Integrated Management Committee may enable each to focus on
particular strengths in order to establish a general regional attractiveness.
The following sections briefly identify the administrative laws applicable to the key
port zones. Other regulations and regular notifications apply; and they tend to add to
the region‟s attractiveness for business. At the time of China‟s accession to the World
Trade Organisation (WTO) in 2001 there was concern that the competitiveness of the
FTZs would be diminished. There appears little evidence of this among the literature.
The more favourable position is that China‟s accession to the WTO has boosted
foreign investment generally.80
5.4.1 Yangshan Free Trade Port
According to the Administration Law applicable to the Yangshan FTP, its functions
include the loading and unloading of containers, international transit of cargoes,
international logistics, international procurement, international transit trades, export
processing businesses, and the supporting services such as finance, insurance, law and
so on. 81 The provisions of the law outline the responsibility of the authority
empowered to oversee the FTP, list the permits required, procedures for establishing
enterprises within the area, and deal with tax and customs.
Article 19 of the Administration Law concerns Customs Duties and Import Taxes. It
provides:
78
„Shanghai Defines Functions of “Three Ports and Three Zones”‟, Hong Kong Trade and
Development Commission, Business Alert (online), 1 December 2009 <http://www.hktdc.com/info/
mi/a/bacn/en/1X06HLWD/1/Business-Alert-%E2%80%93-China/Shanghai-Defines-Functions-of%E2%80%9CThree-Ports-and-Three-Zones%E2%80%9D.htm#>.
79
Ibid.
80
See, eg, Elena Ianchovichina and William Martin, „Economic Impacts of China‟s Accession to the
World Trade Organisation‟ (World Bank Policy Research Working Paper 3053, World Bank, May
2003).
81
Procedures of Shanghai Municipality on the Administration of Yangshan Free Trade Port Area
(Shanghai Municipal People‟s Government, Decree No. 63) 24 October 2006, Art 3 [trans available
at <http://www.shanghai.gov.cn/shanghai/node17256/node17413/node17414/.html>]
(‘Administration Law’).
18
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
Goods originating out of border that come in and go out of the FTPA [Yangshan Free
Trade Port Area] shall not be subject to the administration by import and export
licenses, and shall be exempted from customs duties and import taxes. Where laws
and administrative regulations have other provisions, such provisions shall prevail.
Article 20 deals with Taxes on Production and Circulation:
The products produced by the enterprises in the FTPA that are for sales within the
FTPA or delivery to destinations out of border shall be exempted from the VAT and
consumption taxes; for the goods from the FTPA to be sold within the country, it is
necessary to go through the formalities of customs clearance in accordance with
relevant provisions on imports, and levy taxes in accordance with the actual condition
of the goods.
Finally, art 21 states that the „taxes shall be reimbursed as prescribed for the domestic
goods entering the FTPA which are to be taken as export goods.‟ The State
Administration of Taxation reported that the national export rebate total from January
to March 2011 totalled 231.1 billion yuan; an increase of 32 per cent on the previous
year.82 The report also noted that „[s]ome analysts pointed out that policy factors, in
addition to export growth, serve as a critical contributor to the expanding export
rebate‟.
5.4.2 Waigaoqiao Free Trade Zone
The Waigaoqiao Free Trade Zone (WFTZ) is located in the Pudong New Area of
Shanghai. It is one of the largest FTZs in China and employs over 200,000 people.
The area specialises in international trade, logistics and has an advanced
manufacturing industry. The most recent available regulations were promulgated in
1997.83 Article 18 concerns imports and exports and provides that businesses may
conduct basic processing such as packing, sorting and subpackaging within the FTZ.
Goods brought in or taken out of the FTZ are considered exports and imports
respectively (art 22). However, article 38 states that goods exported via the FTZ will
be exempted from customs duties. Under these regulations enterprise tax within the
zone is levied at 15 per cent (arts 41, 42).
It has been reported that policies were implemented in 2009 to increase the number of
manufacturers in the zone; attract new business expertise such as pharmaceutical
distribution, medical equipment and automotive supplies; improve foreign exchange
management practices; and expand the bonded functions of the zone. Overall the
changes will aim to refine operational efficiencies across the FTZ.84
82
State Administration of Taxation, „High Growth in Import Duty and Export Rebate‟ (25 May 2011)
<http://www.chinatax.gov.cn/n6669073/n11561411/11562000.html>.
83
Regulations on Shanghai Waigaoqiao Free Trade Zone (Shanghai Municipal People‟s Government,
Decree of the 32nd Session of the 10th Congress ) 19 December 1996 [trans available at
<http://www.shanghai.gov.cn/shanghai/node17256/node17413/node17425/userobject6ai827.html>].
84
At the time of writing further specific information was unavailable.
19
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
5.5
Strategies
The SIPG has three strategies aimed at maintaining growth in container throughput,
expanding transhipment business and supporting Shanghai‟s international shipping
centre ambitions (see Table 1). 85 The strategies represent local, regional and
international foci.
Strategy
Yangtze
River
Strategy
Aims
 Container market
growth
 Strengthen cargo
consolidation
network
Northeast
Asia Strategy
 Attract and
support hinterland
cargo sources
 Enhance ship-toship transhipment
operations in the
Yangshan Port
Current action
A number of feeder
ports in the Yangtze
River have been
identified and
research has been
undertaken.
Future action
SIPG will promote the upgrading of
allowable vessel size within the
Yangtze and work to improve safety,
navigation and operational standards.
Boosting shipping capacity on the
Yangtze and developing a regional
cargo network with Shanghai at the
terminus are the core goals.
Unknown.
A study into the level of services
provided at Shanghai‟s Port will help
to design a “shipping service
placement plan”.
Improving barge efficiency and better
integration between Shanghai‟s three
ports.
Development of a coastal public feeder
network to attract cargo from the
Northeast Asian region. This will
incorporate enhanced transhipment
capabilities.
New marketing campaign to promote
the Port.
A plan exists to purchase overseas
wharves.
Further cooperation opportunities will
be explored.
 Establish
Shanghai as an ISC
 Further promote
the rapid
development of the
SIPG
Internationalization
Strategy
 Improve
management of
international trade
 Promote a shift in
operational
structure and
capacity to target
international
markets
A joint-venture
acquisition of
Zeebrugge Container
Terminal Co,
Belgium with A P
Moller-Maersk was
concluded in 2010.
SIPG holds a 25%
stake in the project.
Table 1: Shanghai International Port Group strategies.
In addition to the above strategies, the Shanghai Port has instituted cooperative
arrangements with international ports. The purpose of cooperation is to expose
Shanghai to international experience from foreign ports and seek opportunities for
business collaboration. The Port has signed memoranda of understanding with the
Georgia Ports Authority, Ports of Seattle and Miami (USA), Port of Barcelona
(Spain), Busan Port Authority (South Korea), Ports of Hakata and Nagoya (Japan),
Port of Rotterdam Authority (The Netherlands), and the Port of London (UK). It also
has a number of “Ports of Friendship”.
85
For further information see the Shanghai International Port Group‟s website <http://210.5.155.56/en/
channel1/channel17.html>.
20
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
5.6
Arbitration
One of the core functions of Shanghai‟s Shipping Service Centre is to develop legal
expertise. International commercial arbitration centres and specialised maritime
arbitration services are already established. As the experiences of Hong Kong and
Singapore show, a developed maritime cluster counts maritime arbitration as an
important component. Indeed Singapore and Hong Kong have been described as86
the leading arbitration jurisdictions in the Asia-Pacific, resulting from several factors
including geographic convenience, prominence as global financial centres, English as
the main business language, excellent international arbitration laws, and efficient,
supportive, corruption-free courts.
The use of arbitration is becoming increasingly more common in the Asia-Pacific
region and the leading maritime centres are constantly looking to attract maritime
arbitration business.
5.6.1 Hong Kong International Arbitration Centre
The Hong Kong International Arbitration Centre (HKIAC) established the Hong
Kong Maritime Arbitration Group (HKMAG) in 2000. The Group, which maintains a
register of experienced maritime arbitrators, is a response to growing demand from
the industry. The HKIAC handled 624 dispute resolution matters in 2010 and 291
were arbitration matters.87 Of the arbitration matters, most were commercial disputes;
17 per cent of the total were maritime related. The HKMAG reported that in 2010 its
members were appointed 131 times compared to 97 appointments the previous year.88
A new Arbitration Ordinance was passed by the Legislative Council on 11 November
2010 and entered into force on 1 June 2011.89 The new ordinance aims to reduce the
costs of arbitration through a number of measures including reduced judicial
intervention, retaining provisions for “documents only” hearings for smaller claims,
and incorporating maximum recoverable limits for arbitrators‟ fees and lawyers‟
costs.
5.6.2 Arbitration in China
China acceded to the New York Convention in 1987.90 The overriding arbitration law
provides that any commissions and associations related to arbitration are to be
„independent of any administrative organ‟.91 The law enables the China International
86
Simon Greenberg, Christopher Kee and J. Romesh Weeramantry (eds), International Commercial
Arbitration: An Asia-Pacific Perspective (2011, Cambridge University Press) 36.
87
See „Case Statistics‟ available at the HKIAC website <http://www.hkiac.org/show_content.php?
article_id=9> as at 23 June 2011.
88
Hong Kong International Arbitration Centre, Annual Report (2010) 5.
89
Arbitration Ordinance (Hong Kong) cap 609.
90
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature
10 June 1958, 330 UNTS 3 (entered into force 7 June 1959) (‘New York Convention’). The
Convention is applicable to Hong Kong.
91
Arbitration Law (People‟s Republic of China) 9th Meeting of the Standing Committee of the 8th
National People‟s Congress, Decree No 31, 31 October 1994, ch II. The translation is available at
<http://www.cietac.org/>.
21
HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
Chamber of Commerce to, among other things, create foreign arbitration
commissions, appoint arbitrators, and formulate rules.
Greenberg, Kee and
Weeramantry note that several key principles in the arbitration law „appear to have
been inspired by the [UNCITRAL] Model Law‟. 92 The Chamber established the
China Maritime Arbitration Commission (CMAC) and it oversees the China
International Economic and Trade Arbitration Commission (CIETAC).
5.6.3 China Maritime Arbitration Commission (CMAC)
The CMAC is based in Beijing, has a sub-commission in Shanghai, and liaison offices
in Tianjin, Ningbo, Dalian and Guangzhou. Its 165 arbitrators are experienced in
navigation, insurance, maritime law and other related fields.93 The Commission also
incorporates a Logistics Dispute Resolution Centre (LDRC) and a Fishery Dispute
Resolution Centre. The former is authorised to accept all cases arising from or in
connection with logistics such as ocean shipping, land and air transportation,
container transport, storage, agency, handling, loading and discharging, and
insurance. The LDRC maintains a panel of arbitrators who are considered specialists
in logistics. The Chamber has given its approval for the LDRC to accept all cases
arising from or in connection with logistics.94
Article 2 of the CMAC Rules95 permits the Commission to accept cases involving:
(1) Disputes arising from charter party, contract of multi-model transport, carriage of
goods by sea or waters or carriage of passengers in connection with bill of lading,
waybill or any other transport documents;
(2) Disputes arising from sale, construction, repair, chartering, financing, towage,
collision, salvage and raising of ships or other offshore mobile units, or from sale,
construction, chartering, financing and other relative business of containers;
(3) Disputes arising from marine insurance, general average or ship‟s protection and
indemnity;
(4) Disputes arising from supply of ship‟s stores or fuel, ship‟s security, ship‟s agency,
seamen‟s labor service or port‟s handling;
(5) Disputes arising from exploitation and utilization of marine resources or pollution
damage to marine environment;
(6) Disputes arising from freight forwarding, non-vessel operating carriage, transport by
highway, railway or airway, transport, consolidation and devanning of containers,
express delivery, storing, processing, distributing, warehouse distributing, logistics
information management, or from construction, sale and leasing of tools of transport,
tools of carrying and handling, storage facilities, or from logistics center and
distribution center, logistics project planning and consulting, insurance related to
logistics, tort or others related to logistics;
(7) Disputes arising from fishery production or fishing; and
(8) Other disputes submitted for arbitration by agreement between parties.
In order to enhance efficiency of proceedings, the Rules provide a „Summary
Procedure‟ for claims totalling not more than 1,000,000 yuan or in other cases where
92
Greenberg, Kee and Weeramantry, above n 86, 35.
See CMAC‟s website available at <http://www.cmac-sh.org/en/> [English].
94
See CMAC‟s website <http://www.cmac-sh.org/en/logistics.asp>.
95
China Maritime Arbitration Commission (CMAC) Rules (adopted 5 July 2004, effective 1 October
2004).
93
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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
the parties agree.96 Under the Summary Procedure, written submissions are provided
within certain timeframes and the tribunal is empowered to hear the case on the
written materials alone. The wide range of capabilities (such as the LDRC and
Shanghai sub-commission) and rules focused on efficiency and finality of the award97
arguably place the CMAC in an internationally competitive position. Nevertheless
challenges remain for China especially in respect of its hostility toward enforcing
foreign arbitral awards.98
5.6.4 Shanghai Arbitration Commission (SAC)
The Shanghai Arbitration Commission (SAC) was founded in 1995 by the Shanghai
Municipal People‟s Government. It has over 500 arbitrators whose collective
specialties cover a broad range of areas including finance, engineering, maritime,
international trade and investment, and general commercial such as contracts. It is
empowered to accept and hear disputes over contracts and other property rights and
interests.99 The Rules also provide a summary procedure where the disputed amount
of the case is less than 500,000 yuan. 100 In the summary procedure, only one
arbitrator presides and shorter timeframes are in place, including a shorter time for the
making of the award.
5.6.5 China International Economic and Trade Arbitration Commission
(CIETAC)
The CIETAC „independently and impartially resolves, by means of arbitration,
disputes arising from economic and trade transactions of a contractual or noncontractual nature.‟ 101 The Rules provide that CIETAC will also accept cases
involving disputes related to the HKSAR and domestic disputes (art 3). Agreements
may incorporate an arbitration clause providing for arbitration by CIETAC or one of
its sub-commissions.
CIETAC‟s international caseload appears to be significant. Between 2001 and 2008 it
received between 422 and 562 new international cases annually and in 2009 it
received 559. 102 In comparison, the HKIAC had 309 international arbitrations in
2009. It is unclear whether the CIETAC hears any maritime-related arbitrations but it
is certainly possible, according to the Rules, that commercial disputes involving
maritime parties could be received by it.
96
See Ch III.
See, eg, r 67 which states „The award is final and binding upon both disputing parties. Neither party
may bring a suit before a law court or make a request to any other organization for revising the award.‟
98
The problem is alluded to in Greenberg, Kee and Weeramantry, above n 86, 40. The authors refer to
a 2008 report by PricewaterhouseCoopers and Queen Mary College which, at p 11, states „China was
the country cited most often with India and Russia also considered as potentially problematic
territories‟.
99
Shanghai Arbitration Commission (SAC), Arbitration Rules (revised and adopted 28 January 2005,
effective 1 May 2005), art 2 („the Rules‟). See <http://www.accsh.org/accsh/english/node67/
node68/index.html>. There are some disputes which the Commission is not entitled to hear such as
marriage, labour, administrative and agricultural contracting disputes. Maritime disputes are not
specifically precluded (nor are they specifically included).
100
Ch VIII.
101
China International Economic and Trade Arbitration Commission (CIETAC), Arbitration Rules
(adopted 11 January 2005, effective 1 May 2005), art 2 („the Rules‟). See <http://www.cietac.org/>.
102
Greenberg, Kee and Weeramantry, above n 86, 39.
97
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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
6. Closer Economic Partnership Agreement (CEPA)
The Closer Economic Partnership Agreement (CEPA) is an agreement between the
Mainland and Hong Kong designed to improve trade and business integration. 103
Article 1 of the main text provides that the strengthening of trade and investment
cooperation between the two sides will be achieved by:
1. progressively reducing or eliminating tariff and non-tariff barriers on
substantially all the trade in goods between the two sides;
2. progressively achieving liberalization of trade in services through
reduction or elimination of substantially all discriminatory measures;
3. promoting trade and investment facilitation.
Essentially both sides are required to „progressively reduce or eliminate existing
restrictive measures against services and service suppliers of the other side‟ (art 11).
Specifically, CEPA enables Hong Kong service suppliers to set up wholly-owned
enterprises in the Mainland to operate international ship management services, storage
and warehousing for international maritime freight, container station and depot
services, and non-vessel operating common carrying services. 104 Other business
services related to the shipping sector are permitted under CEPA including liberal
policies for freight forwarding agencies. In respect of the latter, the easing of
restrictions has given many freight forwarders a „first to market‟ advantage. 105
Supplements to the main text have extended benefits and advantages to other
businesses within the maritime sector.106
CEPA has provided a competitive advantage to maritime-related companies which
may have struggled otherwise since the opening of China‟s economy. According to
the Hong Kong Trade and Development Council, many achievements are visible
within the Pearl River Delta region, for example, increased cooperation between
business.107 Whether CEPA confers any particular advantage in respect of Shanghai
is unclear.
With Shanghai‟s increasingly business-friendly policies, Fong‟s
supposition that „[t]he best way for overseas service suppliers to leverage on CEPA to
103
The main text and six annexes were signed on 29 June 2003 and 29 September 2003 respectively.
The WTO was notified of CEPA on 27 December 2003. Note that CEPA was signed in the Chinese
language only. A number of supplements to the main text have been signed.
104
See Annex 4 of the main CEPA text (signed 29 September 2003).
105
See, eg, Margaret Fong, „CEPA: Your Shortcut Into China‟ (Winter 2007) Harvard Asia Pacific
Review 58, 60.
106
See, eg, CEPA Supplement IV (effective January 2008) which enabled Hong Kong service suppliers
to set up joint venture enterprises in the Mainland in order to provide third party international
shipping agency services.
107
See, eg, Michael Enright and Edith Scott, „The Greater Pearl River Delta‟ (Report commissioned by
Invest Hong Kong, 5th ed, 2007) 12-13; Hong Kong Trade and Development Council
<http://www.hktdc.com>; Edward Leung, Chief Economist, Hong Kong Trade and Development
Council, „CEPA: Cross-boundary Business Opportunities‟ (Presentation to Advantage Austria, 18
September 2009); „Breaking into Shenzhen Logistics Market under CEPA‟, Hong Kong Trade and
Development Council (1 May 2004) <http://info.hktdc.com/alert/cba-e0405p1.htm> as at 1 April
2011. A study on CEPA‟s effect upon Taiwan‟s economy highlighted the benefits to Hong Kong and,
conversely, the disadvantages faced by other countries such as Taiwan: Lin Chu-chia, „Development
of the China-Hong Kong CEPA and Its Impact on Taiwan‟ (2005) Taiwan Development Perspectives
57.
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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
gain access to the Mainland market is to set up a service company in Hong Kong, or
partner with, invest in or even acquire service suppliers in Hong Kong‟108 may no
longer be the case. For example, many suppliers may see the advantages of Pudong
New City as easily accessible thereby bypassing Hong Kong and the need to utilise
CEPA.
7. Implications and Inferences
7.1
Challenges
Hong Kong Port‟s successful rise during the latter half of the 20th Century is partly
due to the inability of many Mainland ports, including Shanghai, to cope with
growing exports. Especially during the 1960s and 1970s, the Mainland was
dependent on Hong Kong as an outlet of its exports.109 It is therefore of little surprise
that since opening to foreign trade and benefiting from substantial domestic and
foreign investment Chinese Mainland ports have flourished. They are close to the
manufacturing source, benefit from low wages, and, as has been identified, liberal
policies continue to be implemented further enabling foreign enterprises to set up in
China with less need for a “middleman” such as Hong Kong.
Shanghai draws much of its strength from the size of its port and the burgeoning
Yangtze River Delta. But it is still not considered a “Singapore” or “Hong Kong”
arguably because it lacks an established, complementary service sector.110 Shanghai‟s
push to develop a broader maritime cluster suggests that a successful port is not built
on steel and concrete alone.
Hong Kong faces significant challenges in the Pearl River Delta region. For example,
Yeh and Xu write that „the dependence of the [Pearl River] delta on Hong Kong‟s
services has decreased, because the delta has greatly improved its own level of
services.‟111 They point to the improved quality of logistics services in the region.
There are also developing professional services sectors in Shenzhen and Guangzhou,
including an established maritime arbitration centre in the former.
The competition Hong Kong faces in this region is critical to bear in mind because the
feeder points for the ports of Hong Kong and Shanghai are different. At least for the
longevity of its export cargo, Hong Kong is reliant upon the Pearl River Delta
region‟s growth.112 Shanghai is similarly reliant on the Yangtze River Delta; and at
least one report has suggested some manufacturers are shifting from the increasingly
costly Pearl River Delta region to the more economical Yangtze River Delta.113
108
Fong, above n 105, 59.
Anthony Gar-on Yeh and Jiang Xu, „Turning of the Dragon Head: Changing Role of Hong Kong in
the Regional Development of the Pearl River Delta‟ in Anthony Gar-on Yeh et al (eds), Developing a
Competitive Pearl River Delta in South China under One Country - Two Systems (Hong Kong
University Press, 2006) 63, 83.
110
See further Grinter, above n 27, 57.
111
Yeh and Xu, above n 109, 71.
112
Ibid 78.
113
See, eg, Toh Han Shih, „HK, Shenzhen losing export role as factories move inland‟, South China
Morning Post (Hong Kong), 18 April 2011. Another report suggests that China is embracing a “Go
109
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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
Furthermore, development of the Yangshan Deep-water Port poses a threat to major
Asian transhipment ports. As noted above, UNESCAP points out that it is expected to
lead to a reduction in direct calls at a number of other Mainland ports. Yang and Ho
believe the effects will be felt wider, although not necessarily damaging to Hong
Kong:114
The commission of the [Yangshan] port in December 2005 has widespread negative
repercussions on nearby Chinese, Korean and even Taiwanese ports, forcing the latter
to alter their strategies in order to survive in the increasingly competitive
environment. For Hong Kong, anchored by the Pearl River Delta manufacturing hub,
it will lose some trans-shipment container traffic to Yangshan deep water port, but the
impact will not be detrimental.
It is important to remember that transhipment statistics are susceptible to a certain
degree of definitional manipulation. In Hong Kong, goods that are imported or
exported (or re-exported) are considered direct shipment. Goods transhipped in Hong
Kong under a through bill of lading115 are classified as transhipment. However, goods
“in transit” through Hong Kong are not included; for example, containers that remain
on the same vessel without being moved. Since 2004 transhipment cargo as a
proportion of total cargo has grown by an average of 4.5 per cent annually. In 2009,
52.7 per cent of cargo shipped in Hong Kong was transhipment cargo. This is a slight
decrease from the 54 per cent transhipped the previous year.116 It is so far unclear
whether or not Yangshan Port (indeed incomplete at this stage) is having any effect on
Hong Kong‟s transhipments.
The development of the Shanghai Pudong New Area is a significant step toward
attracting a broad range of services to the region. For instance, combining the
functions of an export processing zone, free trade zone and bonded logistics park in
the Lingang Industrial Area will promote the region as an attractive base for logistics,
export and transhipment operations. Additionally, businesses established within the
area will receive preferential treatment. Hong Kong is a free trade port; however, it
cannot boast an organised zone dedicated to supporting its port. While the resultant
benefits of concentrating services in a particular area could be considered trivial, it is
Shanghai‟s ability to attract and retain quality services that may impact Hong Kong.
Industry groups in Hong Kong report that an inadequacy of similar zones (for
example, bonded logistics zones ensuring goods in transit are not technically imported
or exported) are having costly effects upon local logistics enterprises such as freight
forwarders. Notwithstanding Shanghai‟s competitive free trade areas, Ota notes that
West” policy aimed at establishing a manufacturing industry in its inner-regional areas: Lee Perkins,
„High time in Shanghai‟, Cargo Systems (online), 1 March 2008 < http://www.cargosystems.net/ >.
114
Yang Mu and Lionel Ho, „Shanghai‟s Yangshan Deep Water Port: An International Mega Port in
the Making‟ (Background Brief No. 290, East Asian Institute, National University of Singapore, 22
June 2006) 3.
115
A bill of lading that is used where different ships and/or transportation will carry the goods (i.e.
cargo intended to be transhipped).
116
„Port Transhipment Cargo Statistics, 2004 to 2009‟, Hong Kong Monthly Digest of Statistics
(Census and Statistics Department, Government of the HKSAR, August 2010). At the time of writing,
specific statistics on Shanghai‟s transhipments were unavailable.
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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
the scope of such zones is „much limited when compared with that of free port cities
such as Hong Kong and Singapore fully equipped with absolute autonomy.‟117
7.2
Disparities
Although it is difficult to assess the attractiveness (and competitiveness) of a port with
respect to factors such as policies and port governance, the impact upon a port‟s
success should not be understated. In a study in 2001 conducted in the form of a
survey of port users, European researchers found that „the roles of local, regional,
even national governments remain a significant factor affecting port attractiveness‟.118
Shanghai has certainly tried to distance itself from the model that once prevailed in
China – virtually complete government control and ownership – to a model that
emphasises stronger private control. Hong Kong is widely praised for its limited
government interference in the operation of the port. This leaves the government and
its related bodies free to concentrate on policy formulation and supporting the wider
maritime cluster.
Some important changes have been made to China‟s Port Law, especially the lifting
of a ceiling on stakes in ports held by foreign investors. Nonetheless it is argued by
some authors that the role of port authorities in China remains a „grey area‟.119 Even
a cursory glance at the complex interaction between the Shanghai Port‟s largest
shareholder and the SIPG‟s various subsidiaries gives the impression that port
governance and control is far from a simple affair. Wang, Ng and Olivier point to the
practice in China they refer to as “separation”: where operations are transferred to a
registered, listed entity and a new port administration bureau is established to take
care of regulatory matters. The problem, the authors note, is that this role separation
process has moved at a slower pace from port to port, largely as a result of
government bodies being reluctant to offload profitable services.120 The piecemeal
transfer of control leads to convoluted issues of responsibility, making using the port
particularly inefficient. Moreover, „[a]s is traditionally the case in China, policies
tend to be formulated in such a strategically ambiguous way as to provide leverage
and flexibility to acting authorities.‟121 It must be remembered that the study referred
to is dated and there is scope for a review of its findings. At the time of writing,
discerning information about the Shanghai Municipal Transport and Port Authority is
difficult. It appears that the Authority retains enforcement, policy-making, and
supervisory roles; however, the precise reach of its influence is unclear.
On the other hand, Hong Kong‟s structure focuses government control in the areas of
infrastructure and policy-making. Instead of creating a direct link with terminal
operators by holding a stake in their businesses, the regulator and Marine Department
are advised by a number of bodies and committees, some of which represent the
117
Tatsuyuki Ota, „The Role of Special Economic Zones in China‟s Economic Development as
Compared with Asian Export Processing Zones: 1979-1995‟ (Asia in Extenso Research Publication,
March 2003) 5.
118
Wang, Ng and Olivier, above n 43, 238 referring to the study reported in M Huybrechts, H
Meersman, E Van de Voorde, E Van Hooydowk, A Verbeke and W Winkeimans (eds), Port
Competitiveness (2002, DeBoeck).
119
Wang, Ng and Olivier, above n 43, 245.
120
Ibid 245-6.
121
Ibid 244.
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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
interests of terminal owners and operators. There is therefore a clear distinction
between the operator and regulator. A future study into the exact role and power of
the advisory bodies would be welcome.
Shanghai‟s Port Group has three strategies for promoting growth and enhancing the
ISC, as well as cooperative arrangements with some international ports. The
strategies appear to have produced a limited number of results. Shanghai‟s
“internationalization strategy”, which produced a joint venture in a Belgian port, is
not unlike the international efforts of Hong Kong terminal operators such as
Hutchison Whampoa, one of the world‟s largest port operators.
Hong Kong is undoubtedly one of the leading centres for arbitration in Asia. Its use
of English as the main business language, modern arbitration laws, and the support
and reliability of the wider judicial system have been cited as crucial elements of
Hong Kong‟s success. Shanghai does have a strong domestic arbitration centre and a
developing international presence. A sub-commission of the China Maritime
Arbitration Commission is based there; the Shanghai Arbitration Commission is a
large commercial arbitration commission which also accepts maritime disputes; and
the China International Economic and Trade Arbitration Commission hears a number
of international cases. Hong Kong‟s attractiveness to American, British and other
western lawyers, particularly those trained in a common law system, will remain a
key advantage to its continued prevalence in maritime and international arbitrations in
the Asia-Pacific region.
CEPA continues to be a reference for those eager to highlight Hong Kong‟s
competitive advantage with Mainland China. As Shanghai proceeds with its plans to
introduce more preferential policies, the benefits once conferred by CEPA may cease
to be as attractive. Importantly, however, CEPA enables those companies that wish to
create a China presence to do so without physically moving to the Mainland. As
Hong Kong already has an established shipping sector, CEPA could in fact produce
beneficial outcomes for Shanghai as Hong Kong-based companies seek to explore
opportunities in China. The need for Hong Kong businesses to look to cooperative
arrangements with Shanghai is emphasised by the successful ventures the Hong Kong
Trade and Development Council exemplifies in the Pearl River Delta region. Hong
Kong, partly as a result of the burgeoning investment in the Pearl River Delta, has
become a „management, coordination, information, business service and financial
centre of global importance.‟ 122 It is possible that this reputation is maintainable
through well-managed cooperative efforts with Shanghai, which holds a very
dominant position in the Yangtze River Delta.123
7.3
Incentives
Shanghai‟s Shipping Service Centre project as part of its ISC goal is actively
promoting the city as a key player in international shipping. It is investing large
amounts of money into a fund to support the ISC. But reports are mixed as to its
success thus far. For example, the establishment of the Shanghai Shipping Exchange
122
Michael Enright and Edith Scott, „The Greater Pearl River Delta‟ (Report commissioned by Invest
Hong Kong, 5th ed, 2007) 9-10.
123
Comtois and Dong, above n 18, 310.
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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
has received criticism for a perceived degree of favouritism toward China‟s shipping
companies.
In terms of ship financing, Shanghai lags behind Hong Kong and Singapore, the two
major competitors in the Asian region. No doubt a result of Shanghai‟s dominance in
world containerised trade, it is gradually building a finance base for its shipping
industry. It has contributed a significant amount of funds to a research centre and a
number of banks have set up branches in Shanghai with marine finance as a focus
area. Certain incentives provide preferential treatment to finance leasing companies
and incentives for importers and exporters to use local insurance. Due to the
international nature of ship financing, however, it may be some time before Shanghai
is able to capture business from the well-established marine finance centres, Hong
Kong and Singapore.
Although there appears to be a degree of fluidity in Shanghai‟s maritime tax
incentives, they generally appear to be effective in creating an attractive region for
export and import processing, transhipment, and other related shipping activities.
Income generated from international transportation services is exempt and
international businesses operating in the Yangshan FTP are able to separate income
derived in the FTP from the international business operations. In comparison, Hong
Kong‟s Inland Revenue Ordinance provides a formula for assessing the profits of
shipping companies. 124 If a Hong Kong-registered ship uplifts its cargo in Hong
Kong and is navigating to international waters the income will be exempt. The
exemption extends to businesses not managed locally but with vessels that call at
Hong Kong. Hong Kong‟s approach to tax incentives is simple; Shanghai‟s is a
complex mix of ever-developing preferential policies and fluid taxation laws.
Importantly, China has signed 95 DTAs with other countries; Hong Kong has only
signed 22. Both countries have certain DTAs which deal specifically with shipping
(and other transportation) income; for instance, Hong Kong has eight DTAs
specifically related to those forms of income. It has previously been stated that the
lack of DTAs diminishes Hong Kong‟s competitiveness.125
124
125
Cap 112, s 23B.
Heda Bayron, „Changing Tides‟ (November 2010) A Plus: Shipping 14, 17.
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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness
8. Conclusion
One need only look at the throughput growth in Shanghai‟s Port to gain a perspective
of how a combination of favourable policies and growth in China‟s exports has
benefited the port. Foreign investment and a policy shift to encouraging privatisation
of ports in Mainland China will continue to contribute to the country‟s rising
attractiveness as a maritime centre.126
The city‟s aim to become a leading international finance and shipping centre by 2020
is ambitious. Major achievements have been realised and excellent incentives are in
place. However, competing with extremely well-established maritime centres such as
Singapore and Hong Kong is not an easy feat, especially when those centres are also
positioning themselves to be the leading maritime centre in the Asia-Pacific region.
Nonetheless Shanghai boasts enormous amounts of foreign investment, excellent free
trade zones connecting the port to cargo services, a growing professional service
sector, and incentives to encourage the development of a marine insurance and
financing sector. Additionally, the continuing expansion of the Yangshan Deep-water
Port is one of Shanghai‟s most critical competitive advantages. Not only is it
perfectly situated close to the Yangtze River Delta; it has a great deal of potential as a
transhipment hub.
It is to be remembered that Shanghai is still a “work in progress”. That considered, it
is having a marked effect upon the attractiveness of other ports in Asia: it is the
world‟s largest port in terms of container throughput. It must still confront a number
of challenges in its own administrative, regulatory and operational structure. Whereas
Hong Kong has an established and planned governance structure, the Shanghai Port is
subject to a number of layers of control which could lead to inefficiencies.
Undoubtedly, businesses crave certainty and consistency. Despite the preferential
policies, Shanghai‟s complex regulatory structure surrounding the various free trade
zones may not be as clear and consistent as otherwise possible.
Shanghai will continue to attract shipping business by virtue of its geographical
location and the physical enhancements being made to its port. Whether it will
succeed in developing an entire maritime cluster of industries will depend upon
numerous factors including a carefully measured, consistent and clear approach to
regulation and policy-making by the government. It is a major competitor for leading
maritime centres worldwide: but its success is not a foregone conclusion.
126
See, eg, E G Frankel, „China‟s maritime developments‟ (1998) 25 Maritime Policy and
Management 235.
30
Hong Kong Centre for Maritime and Transportation Law
School of Law, City University of Hong Kong
83 Tat Chee Avenue, Kowloon, Hong Kong
Phone: (852) 3442 8008
Fax: (852) 3442 0190
Email: [email protected]
Website: http://www.cityu.edu.hk/slw/HKCMT