Journal of Transport Geography 10 (2002) 99–110 www.elsevier.com/locate/jtrangeo Regional container port competition and co-operation: the case of Hong Kong and South China Dong-Wook Song * Department of Shipping and Transport Logistics, The Hong Kong Polytechnic University, Hung Hom Kowloon, Hong Kong Abstract As the entrepoot^ to the Chinese mainland, the economy of Hong Kong has enjoyed a high growth rate of economic development. When Hong Kong developed its container ports in order to accommodate the regional economic boom, its counterparts in China were left far behind; there was no serious port competition from China. However, as China develops its economy, the port of Hong Kong faces real challenges from Chinese ports, particularly from southern ones. Interestingly, the handover of its sovereignty to China in 1997 caused an issue of competition and co-operation between these ports. This paper aims to examine the possible competition and co-operation of the adjacent container ports in Hong Kong and South China from a strategic perspective. Ó 2002 Elsevier Science Ltd. All rights reserved. Keywords: Competition; Co-operation; Container port; Hong Kong; South China 1. Introduction serious port competition from the Chinese mainland in the last 20 years, and the role of Hong Kong ports as a The fact that the global economy is shifting towards regional hub has been aggrandised. the newly industrialising countries in Asia and that Since China has, however, been developing its econ- greater seaborne trade links exist between Asian nations omy at a two digit growth rate since the early 1990s, the is resulting in fast regional economic development and port of Hong Kong faces real challenges from ports in growth. Since international trade is carried predomi- the Chinese mainland, in particular from southern ones nantly by sea transport, major container ports play a such as Chiwan, Shekou and Yantian (see Map 1 for the crucial role in regional economies. The latest available geographical location). Furthermore, the historical statistics (Port Development International, 2000) show handover of sovereignty to China in the middle of 1997 that, in terms of annual container throughputs, 10 Asian caused the issue of competition and co-operation be- ports are ranked among the top 20 container ports in the tween the ports to be more momentous. Even after the world, including the top four – Hong Kong, Singapore, handover in mid-1997, when Hong Kong became offi- Kaohsiung and Pusan. cially a part of China, Hong Kong still remains an in- Amongst Asian economies, the Chinese economy is dependent customs territory according to the Basic Law. arguably regarded as the world’s most fascinating in the With this context in mind, this paper aims to review the modern era. As the entrepoot^ to the Chinese mainland, current and prospective status of those ports and to the economy of Hong Kong has enjoyed a high rate of prescribe the possible competition and co-operation of economic development until the Asian financial turmoil the adjacent container ports in Hong Kong and South that broke out at the end of 1997. When the Hong Kong China from a strategic perspective. economy commenced its dramatic economic growth with the other ‘tiger economies’ and developed its con- tainer ports in order to accommodate the regional container traffic accordingly, its counterparts in China 2. Trade patterns between Hong Kong and South China were left far behind. Consequently, there has been no Since maritime transport is derived from interna- tional trade, it is logical to examine the trade patterns * Tel.: +852-2766-7397; fax: +852-2330-2704. between the two regions before moving on to the main E-mail address: [email protected] (D.-W. Song). theme. Hong Kong has always been open to China, and 0966-6923/02/$ - see front matter Ó 2002 Elsevier Science Ltd. All rights reserved. PII: S0966-6923(02)00003-0 100 D.-W. Song / Journal of Transport Geography 10 (2002) 99–110 Map 1. Hong Kong businessmen currently receive no special mainland also remained the most important partner of treatment from the Chinese mainland compared to other Hong Kong imports, accounting for approximately 38% foreign business people. Due to geographical proximity, of their total value in 1998. extended family relationships and linguistic closeness, Re-exports take place when imports to Hong Kong however, Hong Kong businesses often get informal ex- are consigned to a buyer in Hong Kong, who takes legal tra incentives, particularly from local authorities in possession of these cargoes. Re-exports are also required Guangdong (Fung, 1996). to clear customs. The buyer in Hong Kong carries out a Thanks to its strategic location, its modern facilities value-added economic activity, then re-exports the in banking, finance, and insurance systems, and its goods elsewhere. The value-added activity may include modern telecommunication and transportation net- grading, packaging, bottling, assembling, and types of work, Hong Kong remains the Chinese mainland’s main minor manufacturing functions, which do not, however, gateway to the rest of the world. On the other hand, to a change the basic nature of the goods. Hong Kong origin large extent, the world continues to view Hong Kong as is not, therefore, supposed to be conferred by the Hong the main entrance to the Chinese mainland (Sung, 1998). Kong government body. If the process alters substan- A large volume of trade in both countries is the so-called tially the nature of the products, then the goods are entrepoot^ trade. In other words, the role of Hong Kong entitled to be named as goods ‘made in Hong Kong’. in China’s trade is by and large as an intermediary. In Exports of goods ‘made in Hong Kong’ are classified as this respect, two notable trade patterns between the domestic exports rather than as re-exports (Sung, 1991). Chinese mainland and Hong Kong are worth discussing: Overall, re-exports via Hong Kong have registered a that is, re-exports and outward processing. significant growth in recent years. In 1998 alone, the value of re-exports to all markets was HK$ 718,631 2.1. Re-exports trade pattern million, which is more than 18% higher than in the previous year (Census and Statistics Department, 1999). Over the last few years, the Chinese mainland has In general, the value of re-exports has been growing been the largest market for Hong Kong’s total exports, rapidly and become a more and more important wealth- followed by the United States, Japan, Taiwan and Sin- creating trade pattern to the Hong Kong economy, gapore. Domestic exports from Hong Kong to the while the value of domestic exports has been shrinking. Chinese mainland were HK$ 314,651 million in 1998, up In 1998, re-exports accounted for 83% of the total in- 6.3% compared to the previous year in terms of real ternational trade, up from 79% in 1997 and from 75% in value (Table 1). On the import trade, the Chinese 1996. The Chinese mainland is the most crucial source D.-W. Song / Journal of Transport Geography 10 (2002) 99–110 101 Table 1 Hong Kong’s top 5 trading partners (as of 1998) (unit: Million HK$) Ranking Major Partners Total trade Total exports Re-exports Value Share (%) Value Share (%) Value Share (%) 1 China 1,116,117 36.3 314,651 35.2 276,012 35.9 2 USA 441,826 14.4 205,968 23.0 170,099 22.1 3 Japan 310,011 10.1 46,756 5.2 42,224 5.5 4 Taiwan 161,158 5.2 22,658 2.5 18,350 2.4 5 Singapore 116,975 3.8 19,730 2.2 16,190 2.1 Source: Census and Statistics Department (1999). of goods re-exported through the Hong Kong border: with China will continue to grow over the next years. Chinese goods re-exported via the territory of Hong Given its geographical location and its know-how in Kong amounted to HK$ 276,012 million, which was banking and finance, insurance, and telecommunication more than a third of total re-exports handled in 1998. and transportation, Hong Kong is expected to continue to serve as the gateway to and from the Chinese main- land, which benefits each side via trade, so as to create 2.2. Outward processing trade pattern and sustain economic synergy in the region. Outward processing arrangements are made if com- panies subcontract all or part of their production pro- cesses. These trading patterns often occur between Hong 3. The container ports in Hong Kong and South China Kong companies and manufacturing entities in China. Raw materials or semi-manufactures are exported to 3.1. Seaborne container cargo traffic China for further processing. The Chinese mainland entities engaged can be local enterprises, joint ventures, The port of Hong Kong has been the world’s busiest or some other form of business involving foreign in- container port for the last decade, with remarkable TEU vestment (Hong Kong Government, 1994). About four- throughputs as shown in Fig. 1. An exception was the fifths of Hong Kong manufacturers have transferred year 1998, when the number one position was taken over production to China, and 25,000 factories in the Pearl by the port of Singapore (Lloyd’s List Maritime Asia, River Delta (PRD) region of Guangdong are engaged in 1999). This was due partly to Singapore’s major efforts outward processing for Hong Kong companies (Hong to become a hub port in the region, and partly to the Kong Government, 1995). Table 2 shows the extent of southern Chinese ports’ successful efforts to compete domestic exports and imports associated with Hong directly with Hong Kong.