HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities

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.

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without the permission of the Hong Kong Centre for Maritime and Transportation

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HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities and Global Competitiveness

1

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.


2

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.


3

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.


4

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


5

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.


6

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 Marine30

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. 27

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.


7

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>.


8

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

It too is chaired by the Secretary for Transport and Housing. 36

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.

-

-

Figure 1: Diagram of the port governance structure in Hong Kong.


9

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 ever-

expanding 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 under-

performing 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.


10

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. Inadequate physical infrastructure, including a weak multimodal inland network.

2. Inadequate deep-water ports by international standards.

3. Heavy bureaucratic redundancy.

4. Weak and ambiguous legal framework, including customs thickness.

5. 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.


11

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.


12

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>.


13

- -

-

-

-

-

-

Figure 2: Diagram of the port governance structure in Shanghai.

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).

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


14

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‟, e-

Cargonews 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.


15

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. 65

Grinter, above n 27, 52. 66

„Shanghai Shipping Exchange: In the rigging‟ (1996) 22(25) Business China 12.


16

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 Port-

registered 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


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.


17

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


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.


18

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’).


19

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.


20

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 Aims Current action Future action

Yangtze

River

Strategy

Container market

growth

Strengthen cargo

consolidation

network

Attract and

support hinterland

cargo sources

A number of feeder

ports in the Yangtze

River have been

identified and

research has been

undertaken.

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.

Northeast

Asia Strategy Enhance ship-to-

ship transhipment

operations in the

Yangshan Port

Establish

Shanghai as an ISC

Further promote

the rapid

development of the

SIPG

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.

International-

ization

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.

A plan exists to purchase overseas

wharves.

Further cooperation opportunities will

be explored.

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>.


21

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/>.


22

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. 93

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).


23

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 non-

contractual 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. 97

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.


24

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.


25

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. 109

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


26

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.


27

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.


28

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.


29

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

Cap 112, s 23B. 125

Heda Bayron, „Changing Tides‟ (November 2010) A Plus: Shipping 14, 17.


30

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.

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


Documents

HONG KONG AND SHANGHAI PORTS: Challenges, Opportunities