Hutchison Whampoa's disposal of prime terminal assets at Kwai Chung should bolster its bottom line, but will also dampen any competitive urges awakened by the recent injection of new blood into Hong Kong's tight-knit group of port operators. PSA Corp and Hutchison - by far the world's two biggest terminal owners - may seem strange bedfellows, but the combined effect of inflated terminal asset prices, a deteriorating operating outlook for Hong Kong port and the Singapore firm's ambitious expansion mandate made Hongkong International Terminals a tradable asset. The joker in the pack is Hutchison's need to generate one-off gains to maintain bottom-line growth despite mounting third-generation telecommunications losses. Selling an asset once considered a crown jewel will have been made easier by the fact that Hong Kong's status as the world's pre-eminent container port is threatened by Guangdong-based operators - the Hutchison and Wharf Group duopoly among them - that are increasingly capturing the gargantuan export volumes flowing from south China's factories. In 2000, Kwai Chung operators handled 78 per cent of the 13.29 million 20-foot containers of manufactured goods that moved directly through south China. By last year, the proportion had dropped to half of the 26.6 million boxes of direct trade; this year, they will be lucky to see 45 per cent. Such trends have resulted in allegations that vested corporate interests are taking precedence over Hong Kong's wider interests, given the absence of a clear strategy to arrest the decline in market share. Some industry watchers lay the blame squarely at the feet of the administration of former chief executive Tung Chee-hwa. They say that with his family in control of Hong Kong's biggest shipping line, Mr Tung bent over backwards to avoid the perception of a conflict to the clear detriment of the port and transport sector in general. Pragmatists, however, argue Hong Kong's demise is part of a broader global trend for maritime trade which always sees trade infrastructure cluster around production centres. Simply put, Hong Kong no longer produces cargo and is not close enough to the factories that do. The result has been shrinking profit margins for the operators, which have kept expanding the volume of their trade by cutting handling prices to siphon off lower value transshipment trade from the midstream operators. Throughput in Kwai Chung was up a comparative 13.1 per cent in the first four months at the expense of the midstream and river trades, which fell 16.3 per cent. But the port's decline may not have been enough to tempt Hutchison to sell to its arch-rivals if recent acquisitions had not placed such a strain on its books. Asset trading has become a common way for Li Ka-shing's flagship to fill the earnings gaps arising from astronomical losses in its 3G mobile ventures. With the salaries of the company's top executives heavily weighted towards annual performance bonuses, that strategy seems unlikely to change. Hutchison is committed to investing most of its budgeted US$25 billion in rolling out 3G services in 10 countries. In the past two years, the group recorded 3G operating loss of nearly $56 billion, or half of the proceeds it received from selling Orange in 1999. It has relied on creating exceptional gains to boost its bottom line. Last year, Hutchison sold its 20 per cent stake back to Procter & Gamble, its mainland partner, for $13.7 billion to offset its $37.49 billion 3G losses. It also spun off Hutchison Telecommunications International Ltd and sold a substantial stake in Hutchison Global Communications Holdings for a quick profit. This year, Hutchison secured an accounting profit of $9.4 billion by buying back from British joint-venture partners NTT DoCoMo and Royal KPN 10 per cent of its initial investment. It also expanded rapidly in the European retail arena, acquiring French perfume retailer Marionnaud Parfumeries and British perfume-seller Merchant Retail Group for a total of $8.5 billion. While the Hongkong International Terminals deal may be one whose time had come, it will nevertheless squash the hopes of shipping lines and traders who thought that when PSA paid top dollar to buy its way into Kwai Chung's gated community, some full-blooded competition may rekindle Hong Kong's lagging fortunes. 'This level of partnership strengthens both parties,' said a source close to the deal.