Hong Kong faces mainland China challenge as ports expand

Guangdong's ambitious plan to boost its shipping infrastructure poses risk to city's terminal operators but creates an opportunity for exporters

PUBLISHED : Monday, 29 April, 2013, 12:00am
UPDATED : Monday, 29 April, 2013, 4:11am

Guangdong's plan to spend billions of yuan to create a network of ports, railways and waterways will pose a competitive threat to Hong Kong. But it may benefit Hong Kong exporters as a strike at the city's port enters its fifth week, say industry players.

"Look at the mess we have with the port strike now. With the strike in Hong Kong, we Hong Kong exporters depend on Guangdong to help us now," said Willy Lin Sun-mo, the chairman of the Hong Kong Shippers' Council.

As the strike at Kwai Tsing container terminal shows no sign of ending, the council has advised vessel operators to divert their cargo from Hong Kong to Guangdong ports. Right now, Guangdong ports are reaching the limits of their capacity. Guangzhou's Nansha port can hardly handle more than 20 per cent of Hong Kong's cargo, so it would be welcome if Guangdong built more port facilities, said Lin.

Over the next three years, the province will spend 55.4 billion yuan (HK$69 billion) on building port facilities, waterways and railways, according to the Shenzhen Ports Association's website.

About 28.7 billion yuan of that will be spent on port projects, including the third phase of Nansha, container terminals at Yantian port in Shenzhen, container terminals in Gaolan port in Zhuhai and a coal terminal in Quanwan port in Huizhou. This will increase Guangdong's annual container capacity by 10.5 million 20-foot equivalent units (teu) to 50 million teu and raise Guangdong's annual cargo capacity to more than 1.3 billion tonnes. A further 8.2 billion yuan will be invested in waterways in Guangdong in the next three years.

The province will invest 18.5 billion yuan in building railways over the next three years, linking various ports including Nansha, Maoming and Zhanjiang in southwest Guangdong, and Chaozhou and Shantou in northeast Guangdong.

Creating rail links to ports would improve the hardware, efficiency and cost of Guangdong's ports, said Anthony Wong Foo-wah, a former president of the Hong Kong Logistics Association. "Guangdong's ports will be more competitive, efficient and cost-effective. That will not be good for Hong Kong, which competes with them."

Liu Boyong, an equity analyst at investment bank Jefferies, said: "The aggressive building of port facilities in Guangdong will be a threat to Shenzhen and Hong Kong, and will take away business from Shenzhen and Hong Kong."

Guangdong ports were offering much lower fees than Shenzhen and Hong Kong to attract volume, Liu said.

"Guangdong's plan to spend heavily on building port facilities could be a wasteful investment and unhealthy competition with Shenzhen and Hong Kong. It could be a waste of money because Guangdong's export growth is going down and there is unused capacity in Dachan Bay in west Shenzhen."

Although Shenzhen is within Guangdong province, it has more independence from the provincial government than other cities, thanks to its status as a special economic zone. Port terminals in Shenzhen are owned by firms such as Hutchison Port Holding Trust, controlled by Hong Kong's richest man, Li Ka-shing. Hongkong International Terminals (HIT), also controlled by Li, manages the Kwai Tsing container terminal in Hong Kong, where the strike is occurring.

"Thus, Guangdong officials do not care too much about the threat to Shenzhen from other Guangdong ports," Liu said.

Guangdong officials would benefit from these port investments because they would boost the province's GDP, which would reflect well on their track record, Liu said.

"They don't care about the returns," he said. "The return on investment on some of these port facilities will probably be low."

Another motivation for building more port facilities in Guangdong is to enhance the assets of Guangzhou Port Group ahead of its flotation. The company would be able to sell its shares at a higher price-earnings ratio if it could achieve a higher growth rate, Liu said.

Guangzhou Port Group, the state-owned operator of Guangzhou's ports, has been planning a listing since 2007.

Lin said: "Competition is always good. It drives down prices, keeps people on their toes and gets people to work harder. If you are a monopoly, you will be lazy."