China eases port rules

PUBLISHED : Thursday, 28 March, 2002, 12:00am
UPDATED : Thursday, 28 March, 2002, 12:00am

China will scrap from April 1 regulations restricting foreign companies to a minority stake in mainland port facilities, according to the State Planning and Development Commission (SPDC).

The new industrial catalogue of detailed guidelines will allow foreign investors to take a controlling stake or wholly own terminal facilities and their operating companies, an SPDC official said.

The new catalogue replaces one that restricted foreign 'water transportation' investment to less than 50 per cent.

The news is likely to be greeted warmly by port operating companies such as Hutchison Whampoa and Wharf (Holdings), as well as the Port of Singapore Authority and Britain's leading terminal investment firm, P&O Ports.

The liberalisation is bound to enhance the development of port facilities in south China, which have been taking a greater share of the ex-China cargo market.

The eventual foreign capital-led revamp of terminals in Guangdong should put even more pressure on Hong Kong's port operating companies to expand service portfolios and remain competitive with their low-cost regional rivals.

However, industry experts say this is unlikely to happen overnight.

'The new act is important because the old regulations were out of date and foreign investors were looking for new assurances before considering investments in this sector,' said John Grobowski, a lawyer at Baker & McKenzie who specialises in foreign investment in China.

'The SPDC's new catalogue shows that a number of initiatives are now being phased in agreement with the [World Trade Organisation] schedule. It was always wrong to assume Beijing would want to wait until the last possible minute.'

Water-transportation investments at present are classified as a restricted 'B' category, which means any project with a stated value of US$1 or more needs central Government approval. It has made approval for all projects time-consuming and complicated. The new catalogue cancels B-classified foreign-investment criteria, setting pre-clearance requirements only for projects exceeding US$30 million.

William McHugh, chairman of CSX World Terminals (Asia), said: 'It is a positive, solid move that gives foreign investors some flexibility. We are not going to see billions of dollars worth of investment pouring in overnight, but it definitely is an opportunity for foreign enterprises to take a larger role.'

Speculation had been mounting that Beijing might be on the verge of changing the port ownership model away from foreign ownership of any form for future projects.

Instead, it was thought to be leaning towards the Japanese model, where the state typically funds the infrastructure development then leases out the finished terminals to shipping lines, keeping ownership in local hands.

Port operating executives pointed to China's apparent wish to go it alone in building the 52-berth container terminal project on the Yangshan islands, at the mouth of the Yangtze, as evidence of a shift in strategy. However, the lifting of foreign investment restrictions in this sector would appear to have laid that speculation to rest.

Mr McHugh said: 'These developments have to be taken in the context of port development in China. The door may have opened, but it has historically taken years for approval of even expansion projects. The terminal development business has a small number of players and there is a reason for that - it takes a substantial capital investment.'

The liberalisation of foreign ownership applies only to terminals, not the ports. They will remain in the hands of the port authorities, and it is believed that possession of the more promising facilities will continue to be difficult to wrest from local and state bodies.

The continued promise held by the rapid containerisation rate of mainland products will see more than one foreign investor step up to the plate, analysts said.

Between 1990 and 2000, annual throughput of the top 10 container ports in China increased from 1.24 million teu (20-foot equivalent units) to 18.68 million teu.

Last year, throughput at China's main ports passed the 27 million teu mark.