Port governance in China: a review of policies in an era

of internationalizing port management practices

James J. Wanga,*, Adolf Koi-Yu Ngb, Daniel Oliviera

aDepartment of Geography, University of Hong Kong, Pokfulam Road, Hong Kong, ChinabTransport Studies Unit, School of Geography and the Environment, University of Oxford, Wellington Square, Oxford 0X1 2JD, UK

Received 31 January 2003; revised 21 November 2003; accepted 21 November 2003

Available online 20 January 2004

Abstract

China’s global ambitions are well reflected through the recent rise of its container ports and their ability to redirect global shipping

networks. Meanwhile, seaports provide a rich field of analysis for furthering our understanding of legal, institutional and operational

questions of industrial reform. This is particularly true after a decade of substantial foreign direct investment inflows on the part of terminal-

operating multinationals seeking to establish a presence in China’s striving port industry. Massive terminal-level corporate participation has

induced a rescaling effect in governance configurations. This paper adopts a governance approach to address recent institutional changes in

the country’s port industry in relation to an ongoing internationalization of port management. Particular attention is given to the role of port

authorities and specific corporatization practices under reform by contrasting the examples of its two largest ports: Shanghai and Shenzhen. It

concludes that China’s ports stakeholder communities, logistical capabilities as well as scalar politics are best explained through institutional

factors.

q 2003 Elsevier Ltd. All rights reserved.

Keywords: Governance; Port; China; Reforms

1. Introduction

Globalization demands new interfaces allowing smooth

interaction among economic and geographical units. If

seaports have always played a critical functional role in

global and regional trade systems, their institutional position

in relation to performance imperatives set by the global

economy still commands substantial research given ports

worldwide have decisively entered an unprecedented reform

period (Cass, 1998; Drewry, 1998, 2002; Peters, 2001). New

institutional requirements emphasize three key aspects.

First, they need to provide more standardized services to

accommodate multinationals outsourcing activities.

Reforming economies as China must render their transport

networks and infrastructural capabilities intelligible to the

outside world. Second, the emergence of terminal operating

multinational corporations (MNCs), in conjunction with

private participation reforms in the 1990s, is bringing

structural change to which container ports worldwide seek

to adapt. Third, facing capacity issues, seaports have sought

to reposition themselves in global logistics and vertical

supply chains as value adders rather than value subtractors

(Juhel, 2001).

Meanwhile, governance approaches have gained creden-

tials in approaching port systems of developing economies

as well as their ungoing port reforms (Baltazar and Brooks,

2001; Wang and Slack, 2002; Wang and Olivier, 2003).

China is not only the world’s first container traffic generator

but the staggering growth at its ports in the past decade is

likely to hold tremendous potential in the light of the fact

that only an estimated 20% of its national cargo is

containerized, compared to a 45–50% global average

(DKB, 1999). Their empirical importance may not be

overstated in (1) their capacity to redirect global container

shipping networks and (2) their strategic status in the pursuit

of China’s global ambitions. In spite of this, China’s ports

remain largely under-researched to this day. This paper

seeks to redress this gap and to shed light on the recent

developments in China’s port system by placing immediate

emphasis on institutional factors related to various reform

questions. Although valuable, we feel the current literature

0967-070X/$ - see front matter q 2003 Elsevier Ltd. All rights reserved.

doi:10.1016/j.tranpol.2003.11.003

Transport Policy 11 (2004) 237–250

www.elsevier.com/locate/tranpol

* Corresponding author. Tel.: þ852-2859-2111; fax: þ852-2858-2549.

E-mail address: jwang@hkucc.hku.hk (J.J. Wang).

on port reforms remains overly theoretical while lacking to

address the institutional embededness and idiosyncrasies of

particular national reform schemes and their outcomes. A

brief historical and topical profile of China’s port reforms

shall follow a critical overview of proposed port governance

models. The paper shall then analyse China’s port reforms

based on empirical evidence from Shenzhen and Shanghai

in particular. Implications for further research shall close the

arguments.

2. Port governance: some notional issues

Governance approaches to port systems may be justified

in several ways. First, stakeholder communities have

expanded and complexified tremendously out of reform

schemes from the traditional state monopolies (Notteboom

and Winkelmans, 2002). Second, governance approaches

seek to emphasize the informal character of institutional

arrangements, an essential element in the understanding of

China’s institutional culture in the port industry (Wang and

Olivier, 2003). Third, governance approaches are theoreti-

cally formulated in such a way to avoid the pitfalls of

universal reform discourses through stronger qualitative

understanding of the institutional embededness of industrial

change.

In many instances, the literature falls short of capturing

the idiosyncrasies of national reforms, let alone individual

ports, especially on the outcome side. Much of it remains

broad-brush universalistic efforts to theorize undergoing

reforms in developed and developing countries alike (Baird,

1999; World Bank, 1999; Cullinane and Song, 2001, 2002).

In recent years, World Bank (2001) has proven an

authoritative source of literature through publication of its

Port Reform Toolkit. Drawing on Michael Porter’s famous

diamond model, the package is intended at promoting

liberal reforms through various forms of development

strategies. More recently, a group of European economists

have also drawn on Porter’s framework to address change

and competition in the European port sector (Huybrechts

et al., 2002). Through a survey conducted among port users,

they have found that the roles of local, regional, even

national governments remain a significant factor affecting

port attractiveness, although the term governance is not

explicitly used. While valuable, such studies are perhaps

overly economistic in the sense that they neglect the

fundamental questions of cultural and institutional embed-

edness as well as issues of so-called path dependency

relating to reform efforts, the latter being of particular

relevance in the study of developing and/or reforming

economies (Stark, 1990). Path dependency commands a

more in-depth understanding of particular institutional

cultures, while avoiding a rather universalist tabula rasa

approach to reform capabilities. Moreover, a persisting

majority of theoretical output seeking to capture economic

development and reform of Asian economies remains to this

day overly Western-biased (Yeung and Lin, 2003).

Governance approaches acknowledge this to varying

degrees. Baltazar and Brooks (2001) have early recognized

the adaptability of governance frameworks to port systems

in Asian developing economies. Since reforms involve

increasing corporatization of ports, the authors have later

suggested a corporate governance approach to stakeholder

structures of ports:

the system by which business corporations are directed

and controlled. The corporate governance structure

specifies the distribution of rights and responsibilities

among the different participants in the corporation, such

as the board, managers, shareholders, and stakeholders,

and spells out the rules and procedures for making

decisions on corporate affairs. (OECD, quoted in Brooks

and Baltazar, 2002: n.a.)

This approach is further shared by Sternberg who sees

governance as: “…ways of ensuring that corporate actions,

assets and agents are directed at achieving corporate

objectives established by the corporation’s shareholders”

(Sternberg, 1998 quoted in Brooks and Baltazar, 2002: n.a.).

This type of approach tends to define the port as a

corporation, and the strategies to achieve corporate

objectives, the stakeholder community structure, and a

triangular framework of ‘environment–strategy–structure’

become the core that forms the content of corporate port

governance.

Two efforts to broaden this approach have come from

Notteboom and Winkelmans (2002) and Wang and Slack

(2002). The former group of authors introduce the term

stakeholder relation management to broaden the scope of

participants and objectives of the port community. The

authors rightly emphasize the procedural aspects of

attaining consensus in macro as well as micro-objectives.

While holding true, unfortunately such approaches have

tended to underplay the importance of local business and

political cultures. In approaching the case of Shanghai,

Wang and Slack (2002) have pledged for a broader

governance concept drawing from the social sciences that

would allow for greater weight of social and cultural

variables. Governance is seen by Stoker (1998) and other

social scientists as to recognize both market and government

failures and ever-increasing influence and power of non-

government bodies and their role in steering future

development. It emphasizes the networked interdependence

of different actors and sectors in a given society. From

Stoker’s (1998) ‘five propositions’, governance may be

better regarded as (1) a set of institutions and actors that are

drawn from but also beyond government, (2) the blurring of

boundaries and responsibilities for tackling social and

economic issues, (3) power dependence involved in the

relationships between institutions involved in collective

action, (4) autonomous self-governing networks of actors

J.J. Wang et al. / Transport Policy 11 (2004) 237–250238

and (5) the capacity to get things done which does not

necessarily rest on the power of governments to command

or use their authority. A point to stress is the issue of power

and how it may be expressed both formally and informally

in steering reform, development, and even supply chains, an

issue the Porter framework only weakly addresses (Cox,

2001). As Wang and Slack (2002) have formulated it, power

relations are played out both internally and externally to the

port as an operational and political unit. Institutional

specificity is highlighted by greater considering of local

legal frameworks (or lack of it), for instance.

The major limitation of the model lies in its implicit

assumption that the port is the favoured platform where all

actions of governance take place. The emergence of port

operating MNCs as well as the fact that the overwhelming

majority of private entry is taking place at the terminal level

has questioned the adequacy of treating the port as

the preferred analytical unit. Indeed, the devolution of

commercial activities of ports at the terminal level suggests

the port is no longer the only and/or most important entity in

approaching the port’s logistical capabilities (Heaver,

1995). Thus, massive terminal-level private entry having

occurred in the 1990s requires a rescaling of governance

configurations in understanding power distribution among

scalar lines. Accordingly, we propose an adapted framework

(Fig. 1). In the diagram, two axes complement the scalar

axis. The first one considers this rescaling effect and seeks to

express power distribution along themes of spatial-jurisdic-

tional scales. The second one relates to the stakeholder

community. This may include issues of ownership, the

various participants and relevant business networks, but also

questions of cultural interfaces when expanding the

community towards foreign participation. We shall illus-

trate how this becomes relevant in the case of China. The

third (also horizontal) axis refers to logistical capabilities.

In the past, ports supplied very basic services (i.e. loading/

unloading) but increasingly are diversifying their functional

basis into value-added logistics (VAL). While the range of

VAL still varies considerably among ports worldwide, our

argument is that the capacity of ports to provide such

services remains highly contingent on institutional arrange-

ments (e.g. state-provided free trade zones and logistics

Fig. 1. A three-dimensional model of port governance.

J.J. Wang et al. / Transport Policy 11 (2004) 237–250 239

parks). Finally, it is important to underline the spectral

nature of the axes for two main reasons. First, to emphasize

the global, and even regional, diversity of individual ports,

which may be positioned along the spectrums accordingly to

form varying governance sub-models. Second, since

logistics is blurring traditional division between supply

and demand of port services,1 a spectrum is methodologi-

cally better suited to capture such subtleties than conven-

tional di/trichotomistic classifications. We shall now

substantiate the conceptual framework based on empirical

evidence from China using two sub-variants: Shenzhen and

Shanghai. But before, the reader may consider useful a

propaedeutic overview of China’s port reforms in under-

standing where Chinese port reforms come from and where

they are headed.

3. The container port industry and its reforms

in China: some background

Institutional reforms may be warranted at a global level

as far as their rationale are concerned, but inevitably the

processes, dynamics and particularistic features involved

are best approached at more local levels. Further, reform

processes and their unfolding must be ascribed to particular

socio-cultural, historical and institutional environments.

China’s port sector provides such a singular environment,

which hardly lends itself to overly universalistic approaches

(Wang and Olivier, 2003). As the largest developing

country with the fastest growing container port industry in

the world today, China surely fits as a case for detailed

investigation. In this section, we seek to articulate precisely

how its Open-Door Policy has exerted pressure to reform its

port industry by investigating the details of institutional and

legal reforms through five key topics. This section provides

a background for a further examination of individual port

governance systems at local levels.

Since the Open-Door Policy in 1979, China has enjoyed

two decades of rapid economic development and social

change. FDI and foreign loans have since poured into the

country following spectacular rates. Since 2002, China has

surpassed the US as the world’s first recipient of FDI (in

nominal values). Its staggering growth in manufacturing

output translated into double digit growth rates in its key

coastal ports, especially those belonging to the Pearl River

Delta (PRD), the Yangtze River Delta and, increasingly, the

Bohai Rim. Updating its coastal infrastructure and addres-

sing capacity issues at its major ports has accordingly been

one of China’s development priorities on the government’s

agenda. Since physical upgrades stem from institutional

processes and reforms, the lag between capacity upgrades

and the country’s economic growth has resulted in severe

bottlenecks among strategic distribution nodes. As a result,

China’s container services are still operating significantly

below world standards (World Bank, 1996). Generally

speaking, several major problems can be identified:

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 environ-

ment in port and shipping industries.

6. Strong political culture of localism (danwei) as resisting

change.

In light of such difficulties, just how the Chinese

government may balance domestic interest with its firm

ambition to become a global economic player remains an

intriguing while ungoing phenomenon. The following

topical discussion addresses the main features of Chinese

port reforms, past and present.

(1) Preferential Port Development Policies. Since the

late 1970s, the Chinese government has proposed several

policy packages in favour of port reforms. A first strategic

document was the Interim Regulations of the State Council

of the PRC on Preferential Treatment to Sino-Foreign Joint

Ventures on Harbour and Wharf Construction promulgated

and implemented by the State Council in 1985. Recognizing

that port development was necessary for ‘socialist moderni-

zation’ of China (Article 1) while understanding the fact that

port projects were usually ‘capital intensive, time consum-

ing and low return rate’ (Article 2), joint ventures (JV) in

port projects and operations were given preferential

treatments in terms of both treatment period and financial

arrangements. Consistent with these first steps towards

reforms, the Eighth (1991–1995), Ninth (1996–2000) and

Tenth Five-Year Plans (2001–2005) have placed port

development among top priorities in the Chinese agenda

of development.

In 1984, the Central Government designated 14 coastal

cities as ‘open cities’.2 Although initially the policy was not

intended as a port development initiative, it indirectly

affected ports in a positive way through soaring FDI and

related international trade from these cities. In 1991, there

were already more than 50 ports in the country (excluding

Hong Kong and Taiwan) with container handling facilities.

Towards the end of the decade, there were 235 ports

established by the Chinese government, of which 184 (78%)

were set up since 1980 (Bajpai and Shastri, 1999). The

past two decades have therefore witnessed exceptional

1 For example, operational entry of ocean carriers into the port sector

through ‘dedicated terminals’ and other means shipping lines now embody

both supply and demand of port services. On this topic, see Olivier (2003).

2 The 14 cities are Behai, Dalian, Fuzhou, Guangzhou, Lianyunguan,

Natong, Ningbo, Qingdao, Qinhuangdao, Shanghai, Tianjin, Wenzhou,

Yantai and Zhangjiang.

J.J. Wang et al. / Transport Policy 11 (2004) 237–250240

growths not only in overall container throughput volumes

nationwide but also in absolute number of facilities

introduced. This sudden surge has also at times been

criticized for a great deal of operational redundancy among

neighbouring ports. Nevertheless, Shanghai and Shenzhen

have come a long way to become the world’s third and

fourth largest container ports in 2003, handling 11 and 10

million TEU, respectively, surpassed only by Hong Kong

(first) and Singapore (second).

(2) Foreign participation. First foreign participation in

China’s ports appeared in the early 1990s when Hong

Kong-based Hutchison Port Holdings (HPH) started

operations under JV agreement in Shanghai and Zhuhai

in 1993. Internal and external pressures justified openings

to foreign participation. Internally, the public sector

lacked sufficient funds to finance the construction and

improvement of capital-intensive port projects following

a pace able to match requirements from its manufactur-

ing outputs. The JV formula was perceived as achieving

a critical trade-off between domestic interests and the

need to introduce foreign capital, technology transfers,

new labour skills and management know-how (Roehrig,

1994). Externally, through foreign investments the

government hoped to operationalize its global ambitions

and access international markets as well as taking

symbolic actions displaying a true volition for reform.

As such, construction and operation of port facilities for

public wharves was classified as one of the industries in

which foreign investments were encouraged.3 By 2001,

there were 25 container terminals being jointly owned,

managed, or operated by foreign enterprises (Cheng,

2002).

The geographical distribution of foreign participation is

given in Fig. 2. It is interesting to note here, in relation to the

socio-cultural embedeness of institutional reform, that a

majority of entering foreign firms are of ethnic Chinese

background. Indeed, firms as HPH and the Port of Singapore

Authority (PSA Corp.) have outperformed their foreign

rivals in entering the Chinese market. Large Hong Kong-

based conglomerates as New World (Pacific Ports Co.) and

Wharf Holdings (MTL) have also been favoured in equity

participation throughout China’s ports. Such cultural

embededness of corporate entry strategies and reforms

strongly points to the importance of understanding business

networks in the study of Asian institutional reforms and

development (Airriess, 2001; Hamilton, 1996; Yeung and

Olds, 2000).

(3) Reforms in public enterprises management. A

significant break exists in policy formulation between the

1980s and 1990s. During the 1980s, emphasis lies on

physical construction (hardware), while only subsequently

during the 1990s could efforts be channelled in reforming

managerial and institutional aspects (software).

Understanding reforms on the software side

requires understanding of concurring changes in China’s

state-owned enterprises (SOE) and legal framework.

Regarding SOEs, policies sought to separate adminis-

tration from operation. During China’s two decades of

economic reform, this colossal undertaking necessitated

four gradual waves of reforms (i.e. 1982, 1988, 1993 and

1998), while still actively pursued to this day. In order to

alter the ruling ideology from multifacet government to

government with limitations (Xia, 2001), clearer allo-

cation of responsibilities between government and

enterprises were established. Responsibilities of the

government towards SOEs include (1) tax levies (2)

regulation of SOEs’ financial and operational activities

(3) appointment of officials. Meanwhile, responsibilities

and/or benefits of enterprises include (1) managerial

sustainability of the enterprise in terms of profit-making

ability and tax payments and (2) assuring the stability or

growth of public asset values while defending ownership

rights.

Since 1992, foreign firms were given the right to

participate in port operations under Sino-foreign equity

JVs. Many of the coastal ports like Shanghai, Shenzhen and

Dalian are currently running under such arrangements, with

operation rights leased to a designated entering firm,

including ocean carriers and terminal operators. In balan-

cing domestic with foreign interests, a number of port

authorities have incorporated part of their activities or

created entirely separate local companies to be involved in

the port’s equity shareholding. Typical examples include

Shanghai Port Group Holdings Ltd (Shanghai), Yantian Port

Holdings (Shenzhen) and Chiwan Port Holdings (Shenz-

hen), all public corporations created out of reform

necessities.

(4) Decentralization of power. Before 1980, the port

industry typically fell under highly centralized control. The

Ministry of Communications (MOC) organized nearly all

activities in ports while port authorities and departments in

local governments were only subordinates. Gradually, the

Central government recognized the disadvantages of such

bureaucratic distance separating decision-making from

operational units (Ta Kung Pao, 2002): (1) inconsistency

between port and city development, (2) little or no

consideration of local authorities in port development, (3)

poor knowledge level of bureaucrats in relation to port

operations.

Major decentralization efforts began in 1984 when the

central management system was gradually adjusted to better

incorporate local managerial systems. The 1980s ‘dual

leadership mainly led by the MOC’ had gradually shifted to

a ‘dual leadership mainly led by local authorities’ by the late

1990s. Change in port status accompanied power devolution

along the scalar axis, resulting in a number of ‘national

ports’ becoming ‘provincial ports’. The MOCs dominating

3 See ‘Catalogue for the Guidance of Industries for Foreign Investment’,

Section One, Part IV, Article 6 (approved by the State Council, PRC at 29th

Dec 1997).

J.J. Wang et al. / Transport Policy 11 (2004) 237–250 241

influence in port affairs became, in theory at least,

streamlined as today it is only one of several stakeholders

in local port governance. Meanwhile, this implied that local

municipal governments were expected to act as both

landlord and regulator, thereby enhancing local govern-

ments’ intervention in port affairs. Port authorities were

either created or transferred to municipal authorities as well

as endowed with financial autonomy in the routine

administration and operation of ports.

(5) Legal system. China’s legal framework in maritime

affairs dates back to 1949. However, due to problems

mainly of political nature, the legal structure of the

maritime sector was not laid down until the early 1990s

when the Maritime Code was adopted. This historical

contingency perhaps may have revealed advantageous

since by the time the Central Government formulated its

legal policies, major reforms had taken place within

the port industry. Two points deserve particular attention

in the Maritime Code. First, land (except rail) as well as

maritime spaces were conferred to a single authority, the

MOC, who is responsible for policy formulation in

maritime strategy. Concerning ports, the granting of

berthing rights to foreign ships falls under the Ministry’s

powers, while it is also responsible for comprehensive

national port planning and national policy formulation.

Second, the Maritime Code has levied the ban on foreign

companies engaging in construction and operation of

Chinese ports. Consistent with prior reforms, the Maritime

Fig. 2. Major foreign participation projects in China’s container ports.

J.J. Wang et al. / Transport Policy 11 (2004) 237–250242

Code further clarified the terms of entry along the

principles that (1) non-domestic companies could only

enter if in JV with domestic companies, (2) the principal

operational base of the JV is located within China and

(3) registered capital inputs by domestic investors is no

less than 50%.

Minor amendments were introduced since the Maritime

Code. The most significant legal progress is the first Port

Law of People’s Republic of China, passed in June 2003 by

the National Congress and to become effective in 2004.

However, as this law is not yet implemented at the time of

writing, the detailed analysis of reforms to follow can not

fully capture its outcome.

4. Port governance and scalar politics in China: from

the national to the local

The above introduction to the port reforms in China

indicates that in general, the entire port sector has followed a

national trend towards the gradual insertion of market

principles in selected industries. However, port-level

idiosyncrasies reveal great degrees of complexity and little

anticipated uniformity in implementation processes,

particularly on the software side. Differentials occur out of

individual ports and their associative regions facing varying

sets of difficulties and problems, against which local

resources and capabilities may be assessed. The areas of

difficulties may be classified into five categories.

(1) Variable ownership structures and their implications.

Table 1 lists major JV projects in container terminal

operations among selected ports. The data indicates that the

JVs do not share the same ownership structure. In the largest

ports where governance has reached a high level of

complexity, shareholding structures may vary following

development phases within a given port (e.g. Yantian,

Shanghai, Ningbo), as shall be elaborated later.

While the JV formula appears a priori advantageous for

all parties involved, areas of tension remain among

stakeholders. Three such areas are worth emphasizing.

First, given the nationalistic nature of the Chinese govern-

ment and the strategic importance of ports, the central

government was unwilling to see any domination of

individual port operators in China. For this reason, the

MOC modified its policy in 1994 by setting the maximum

shareholding by non-domestic firms to 49% or less of

Table 1

Shareholding structures among selected ports and terminals as of June 2002

Region Port Container terminal Shareholding structure

Pearl River Delta (PRD) Guangzhou Guangzhou Container Terminal (GCT) PSA 49%, Guangzhou Harbour Bureau 51%

Shenzhen Yantian International Container Terminals (YICT) HPH 58%, Maersk 10%, Yantian Port Holdings 27%,

COSCO Pacific 5%

Shekou Container Terminals (SCTCN) P&O Ports 25%, Swire 25%, China Merchants 32.5%,

COSCO Pacific 17.5%

Chiwan Container Terminals (CCT) MTL þ China Merchants 25%, Kerry Logistics 25%,

Chiwan Port Holdings 50%

Taiwan Strait Fuzhou Fuzhou Container Terminals (FCT) PSA Corporation 49%, Fuzhou Port Authority 51%

Fuzhou Aofeng Container Service Co. Ltd (FACS) PSA Corporation 49%, Fuzhou Port Authority 51%

Shantou Shantou International Container Terminals (SICT) HDP 70%, Shantou Port Authority 30%

Xiamen Xiamen International Container Terminals (XICT) HDP 49%, Xiamen Haicang Ports Co. 51%

Xiamen Xianyu Quay Co. Ltd (XXQ) Pacific Ports 92%, Xiamen Xianyu Group Corporation

8%

Xiamen Xianyu Free Trade Zone Quay Co. Ltd (FTZQ) Pacific Ports 60%, Xiamen Xianyu Group Corporation

40%

Xiamen Xianyu Free Port Development Co. Ltd (FPDQ) Xiamen Xianyu Group Corporation 100%

Yangtze River

(Chiangjiang) Delta (YRD)

Ningbo Ningbo Beilun Container Terminals Phase I (NBCT I) Ningbo Port Authority 100%

Ningbo Beilun Container Terminals Phase II (NBCT II) HPH 49%, Ningbo Port Authority 51%

Shanghai Shanghai Container Terminals (SCT) HPH 37%, Shanghai Port Container Co. Ltd 63%

Shanghai Wai Gao Qiao Phase I (WGQ) HPH 40%, Shanghai Port Authority 30%, COSCO

Pacific 20%, Shanghai Shiye 10%

Northern China Dalian Dalian Container Terminals (DCT) PSA þ Maersk 49%, Port of Dalian Authority 51%

Qingdao Qingdao Qianwan Container Terminals (QQCT) P&O Ports 49%, Qingdao Port Authority 51%

Tianjin Tianjin Sinor Terminals (TST) Conaust (P&O Ports subsidiary) 22.5%, Gearbulk

Shipping 22.5%, Port of Tianjin Authority 55%

CSX Orient (Tianjin) Container Terminals (CSXOT) Pacific Ports 24.5%, CSX World Terminals 24.5%,

Port of Tianjin Authority 51%

Source. Translated from Cheng (2002).

J.J. Wang et al. / Transport Policy 11 (2004) 237–250 243

project capital. Such concerns mostly stemmed from Hong

Kong’s HPH aggressive entry into some eight Mainland

ports within a relatively short period, some as majority

shareholder.4 This policy later was to be reverted back to its

initial formulation in 2003 and abolish ceilings on foreign

ownership at the terminal level (though regulatory ceilings

applying to HPH were informally upheld, cf. Chadha,

2001).

The second friction area relates to the different objectives

set by the private investors/operators and the state-owned

firms, following principles set by local port authorities. As

mentioned earlier, profit-oriented international operators

were initially welcomed on the basis of their financial

resources and operational efficiency contributions. How-

ever, accommodating these goals has proven difficult as

public bodies have allocational equity objectives to account

for on behalf of the local shippers community and the health

of the local economy as a whole. As such, it has proven

difficult to align such goals even among corporate

subsidiaries of public bodies, since most were created

simply out of pragmatic necessities. Here, the hindrance is

more a matter of political and managerial culture. Although

not exclusive to Chinese ports, routine decisions as price

fixing/adjustments thus become deeply embedded in what

appears as deep-rooted political localism (danwei) from

which interests collide. In that sense, by allowing various

port users to hold increasing shares the government seeks to

alleviate non-domestic users’ concerns over potential biases

in regulatory processes, while protecting domestic partners

stakes outside the port itself (i.e. local shippers).

A third concern is the choice of JV partnership. Rapid

growth among key coastal ports has exerted accompanying

pressures on delineating a partner selection process. Past

and anticipated growth potential at Chinese ports make

them also attractive to foreign investments and various

container shipping firms having stakes in the global port

industry. The Shanghai Port Administration Bureau (SPAB)

is among the few public bodies nationwide to have formal

(albeit strategically ambiguous) guidelines for partner

selection. Its stated guiding principles are: (1) the financial

situation of the firm, (2) its performance record as terminal

operator, (3) its ability to attract more shipping lines and to

set up more routes, and (4) its relationship with Shanghai.5

Some ambiguity may be noted. The first, second and third

principles may imply that large port-operating MNCs may

be advantaged over smaller local ones who lack global

networking capabilities and bargaining power. The third

principle may imply advantage of large shipping lines over

‘pure’ terminal operators in their capacity to establish global

routes and connections. The record shows however that

a majority of entrants in China’s ports are of the second

kind, so-called carrier ‘dedicated terminals’ remain the

exception among China’s container ports (Table 1). Perhaps

the most ambiguous principle is the fourth one: what may be

defined as a ‘good relationship’ with the city is really up to

the Bureau’s own judgment. As 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.

Such ambiguity in policy formulation brought us to

verify selection guidelines against actual development of

container terminals at Shanghai port, revealing a four-stage

process: (1) stage one: setting up of Shanghai Container

Terminals as a 50–50 JV between Shanghai Port Authority

and foreign partner HPH, a pure terminal operator; (2) stage

two: new terminal built at Waigaoqiao special economic

zone with a 40% stake held by Shanghai Port Group

Holdings Ltd (SPGH), 30% by HPH, 20% by COSCO (a

Hong-Kong-listed Chinese state-owned shipping line) and

10% by Shanghai Enterprise (a subsidiary of the Shanghai

Municipal Government also listed on the Hong Kong stock

market); (3) stage three: phases two and three of

Waigaoqiao facilities involving creation and entry of a

third terminal operator, Shanghai Pudong International

Container Terminal Ltd a second purposely established

SOE, 100% held by SPAB and partly managed by foreign

AP Moller Group; and (4) stage four (upcoming) memor-

andum of agreement involving an unknown stake going to

Maersk in Waigaoqiao. This pattern in Shanghai reveals (1)

a complexifying terminal ownership structure and stake-

holder community under a single port administration, and

(2) despite a continuing presence of the Port Authority at

every stage of terminal developments, partnerships have

reformed in several waves that reveal an interesting pattern:

a gradual shift from a pure terminal operator dominated

structure to gradual entry of major shipping lines as the port

geographically migrates from river towards deep-water

coastal sites and as local authorities familiarize themselves

with the global business environment.

However, restrictions exist as to the applicability of

the Shanghai sub-model to other Chinese ports, despite

great similarities found at Qingdao, Tianjin, Dalian and

Guangzhou, where such ports display similar past

institutional trajectories. In contrast, Shenzhen, PRC’s

second largest container port, is of a quite different

development path and ownership structure than Shanghai.

Both Shanghai and Shenzhen, however, share common

features of geographical complexity in that the single

port may be divided into three distinct sub-port terminal

areas (i.e. Shenzhen: Yantian, Shekou, Chiwan; Shang-

hai: Huangpu, Waigaoqiao and Yangshan). A first

distinction lies at the shareholding structure level

where, unlike in Shanghai, a foreign operator holds a

majority stake: while Chiwan and Shekou are apparently

50–50 JVs between domestic and non-domestic opera-

tors, the major shareholder in Yantian (Phase I) was

4 The famous case is Shantou where HPH had a 70% controlling stake,

the home town of Hutchison Whampoa’s (HPH’s parent firm) chairman.5 Through our field interview dated October 22nd 2003 with Shanghai

Port Administration Bureau. The guidelines are made semi-explicit on their

promotional brochure.

J.J. Wang et al. / Transport Policy 11 (2004) 237–250244

Hutchison Delta Ports (a subsidiary of HPH, held 73% in

1994), which later sold 10% of its shares to Maersk but

still holds a dominant 48% controlling position. Second,

the role of local port authorities may also be contrasted.

The port authority of Shenzhen is neither directly

involved in ownership nor operations. The local JV

partners are purposely established Shenzhen-listed SOEs

with major shares held by the municipal government.

Ports displaying similar structures include Xiamen,

Zhuhai and Shantou. Fig. 3 diagrammatically illustrates

the different structures of Shanghai and Shenzhen ports.

(2) Defining the port authority’s status. The definition of

port authorities’ roles in China remains a somewhat grey

area. Theoretically at least, and as stated in the new Port

Law, the idea of separating the port administration from port

operation in redefining the role of the port authority has

been long discussed and accepted. In practice, however, the

implementation of such a separation remains difficult, as our

discussion of the Shanghai model has sought to underline.

The first and foremost obstacle lies in how to achieve

financial sustainability of state-owned operations. As earlier

alluded, in achieving ‘separation’, it is a common practice

among Chinese ports to establish a ‘Port Group Co. Ltd’

registered and listed as the independent entity to replace the

operating role previously carried out by the port authority

itself or its subsidiary firm (of which it controlled majority

shares), and at the same time set up a new ‘port

administration bureau’ to carry out regulatory responsibil-

ities on behalf of the municipal government.

As indicated in Table 2, Shenzhen is one of only two port

where its port authority is not an equity shareholder within

the JV structure. In fact, it appears the role of port

authorities of container ports located in special economic

zones may be more limited: Shenzhen, Xiamen and

Shantou, represent ports where port authorities hold 0%

equity presence in the port JVs. The reason for this is still

unclear and does not follow a clear logic. All the port

authorities in older port-cities such as Dalian, Qingdao,

Fig. 3. Comparative port governance sub-models for Shanghai and Shenzhen following institutional reforms 1990–2002.

J.J. Wang et al. / Transport Policy 11 (2004) 237–250 245

Shanghai, Guangzhou and Tianjin tend to retain large stakes

in their respective port JVs (Table 2). Our interviews with

various stakeholders at Shanghai port suggest a fundamental

reason for the slower pace of the ‘role separation’ process

relates to their large number of employees working under

port authorities. Shanghai, for example, had more than

50,000 staff under its port authority, who are now working

for the new SPGH, following the abolition of the Shanghai

Port Authority into the SPAB and the SPGH in early 2003.

Consequently, such labour recycling practices may hinder

the new corporate entity’s competitiveness as changes in

mentality are most likely to lag behind mere structural

change. Another reason relates to how lucrative services

carried out by traditional port authorities may be. Some of

their activities fall into a grey zone between commercial and

non-commercial categories. A case in point being pilotage,

perceived as a very lucrative activity in Shanghai and thus

the SPAB is reluctant to give it up. Activities carried out at

the port level thus still display arguably less conformity with

market principles than those at the terminal level. Also, the

SPAB still retains a so-called ‘berth-allocation right’, where

berth allocation of ships to individual terminals for the

whole port remains centrally controlled under its powers.

This is a considerably powerful, yet controversial, tool since

it carries potential sources of operational biases. Existence

of a central rational allocation system is justified in terms of

efficiency and productivity optimization of the entire port.

Under such an arrangement, the shipping lines must have a

‘pan-terminal’ agreement with the SPAB, rather than with

discrete terminal operators, despite varying terminal

charges among operators.

(3) Entry barriers to foreign logistics operators. Ocean

carrier-operated terminals and berths have become a

standard practice among the world’s leading ports (Olivier,

2003). Mega-carriers have vertically integrated transport

terminals in an effort to create global logistics networks as

well as a strategy to erect barriers to entry (Musso et al.,

2001; Notteboom, 2002). However, in China this has yet to

become standard practice. Foreign entry records in the port

industry of the past decade show two sources of bias. First,

the Chinese authorities have preferred to contract with pure

terminal-operating MNCs over shipping lines. Shipping

lines still hold minor positions in terms of equity JV

participation (Table 4), state-owned COSCO being the

forerunner. Policy-related rationale behind this was given

earlier. As documented by Wang (2002), although Maersk

and other major intermodal service providers have had

branch offices in many Chinese cities for some time and

started to collect their cargo inland, this sector of the

logistics industry has been considerably slower to open up to

foreign operators than the port industry. The inland

transport of containerized trade remains a relatively weakly

regulated market with a handful of powerful SOEs

dominating individual sub-markets (Jiang and Prater,

2002), such as SinoTrans controlling the freight forwarding

market while a very large number of small firms compete

with each other for the rest of the pie. Progress at marine

terminals may be hindered by poor developments in the rest

of the inland logistics chain. In light of this, defining a clear

strategic role for the port authority becomes the more crucial

since they must understand and respond to corporate

strategies of vertical expansion of networks into China,

which may start at the port itself.

A second source of bias in entry data relates to country of

origin of FDI in the port industry. Structural features of

inbound FDI in the port industry displays an atypical profile

compared to that of the country as a whole (Table 3). This

relates back to choice of partnerships in light of geopolitical

considerations over its ports resources. In contrast to the rest

of China where US FDI ranked second in 2001, the port

industry has received as yet no substantial capital input from

American firms.6 Meanwhile, foreign ethnic Chinese

terminal-operating MNCs have decisively outperformed

their foreign rivals in entering the China market (Tables 1

and 4). This has resulted in a stakeholder community at the

main ports aligned along linguistic and cultural lines. On

Table 2

Port authorities and shareholding structures at China’s major ports

Container terminal Category Container terminal Category

Shenzhen (YICT) U Xiamen (XICT) U

Shenzhen (SCT Shekou) U Xiamen (Xianyu Quay) U

Shenzhen (CCT) U Xiamen (Xianyu FTZ Quay) U

Guangzhou (GCT) UUU Xiamen (Xianyu FPD) U

Fuzhou (FQCT) UUUU Ningbo (NBCT Phase I) UUUUU

Fuzhou (FACS) UUUU Ningbo (NBCT Phase II) UUUU

Shantou (SICT) UU Dalian (DCT) UUUU

Shanghai (SCT) UUU Qingdao (QQCT) UUUU

Shanghai (Wai Gao Qiao) UUUU Tianjin (TST) UUUU

Tianjin (CSXOT) UUUU

Keys. UUUUU: port authority owns 100% share of port JV; UUUU: port authority owns majority shares of port JV; UUU: port authority owns 50%

shares of port JV; UU: port authority owns minority shares of port JV; U: port authority has no share of port JV. Source. Compiled from authors’ own

estimates.

6 The exception is CSX World Terminals, a subsidiary of American

railway CSX but also co-owned by Pacific Ports, a Hong Kong firm.

J.J. Wang et al. / Transport Policy 11 (2004) 237–250246

linking socio-cultural ties with market entry competencies,

the role of personal ties (guanxi) may not be overstated

(Kao, 1993; Davies et al., 1995). The port industry is no

exception as the connection of the chairman of HPH’s

parent firm, Hutchison Whampoa, to the Beijing govern-

ment are now well known (Polin, 2000).

(4) Diversification of financing channels. This leads us to

the more specific issue of fund raising mechanisms available

to the government for port projects. Since port construction

and management are capital intensive in nature, success and

sustainability of the project first lies in sound financial

abilities. In China, there are six major ways to raise funds

for port projects. They include:

1. Central government investments

2. Port construction fees

3. Domestic investments

4. Foreign Investments

5. International capital (e.g. international stock markets)

6. Foreign aids (e.g. fund agencies, NGOs)

The financing channels for selected key ports are

summarized in Table 4.

Table 4 clearly shows a retreat on the part of the Central

Government from port financing, while foreign aid capital

was limited both in terms of number of projects and nominal

values. As a consequence, the main financing channels for

major Chinese coastal ports are threefold: (1) port

construction fees, (2) non-governmental domestic invest-

ments and (3) foreign investments. The port industry has

thus represented considerable opportunities for both foreign

and domestic capital inflows, albeit in a selective manner

applying to FDI as mentioned previously. Indeed, a net

majority of foreign entrant firms remain Hong Kong or

Singapore-based. P&O Ports (Australia/UK) and Maersk

Table 3

China’s inbound FDI by Country of Origin, 2001

1 Nominal value ($US million) Rank YOY growth vs. 1999 (%) Rank Share of total (%) Rank

Hong Kong 167.17 1 7.9 5 35.7 1

US 44.33 2 1.1 6 9.5 2

Japan 43.48 3 49.1 1 9.3 3

Taiwan 29.80 4 14.7 4 6.4 4

Singapore 21.44 6 218.9 8 4.6 5

South Korea 21.52 5 44.4 2 4.6 5

Germany 12.13 7 16.5 3 2.6 6

UK 10.52 8 29.6 7 2.2 7

Total 468.78 – Mean ¼ 13.15 – 75.1 –

Source. China’s economic indicators (zhongguo jingji tongji kuaibu) vol. 14, 2002.

Table 4

Financing channels of selected Chinese coastal ports as of July 2002

Ports Central govt Port

construction

feesa

Domestic companies Foreign investments International capital Foreign Aids

Shenzhen – No China Merchants, COSCO,

Yantian Port Holdings,

Chiwan Port Holdings

HPH, PSA, P&O Ports,

Swire, MTL, Kerry,

Maersk

CCT, SCT Shenzhen

(Shenzen Stock

Exchange Share B)

–

Guangzhou – U – PSA – –

Fuzhou – U – PSA – –

Shantou – U – HDP – –

Xiamen – U Xiamen, Haicang,

Xiamen Xianyu

HDP, Pacific Ports – ADB

Shanghai – U Shanghai Port Container,

Shanghai Shiye,

COSCO

HPH SCT (Shanghai Stock

Exchange Share A)

–

Ningbo – U – HPH – –

Dalian – U – PSA, Maersk – –

Qingdao – U – P&O Ports – –

Tianjin – U – Pacific Ports, CSX, Gearbulk, P&O Ports – World Bank

Source. compiled by authors from various sources.a According to ‘Measures for the collection of Port Construction Fees’, promulgated by the PRC State Council with effective date at 1st January 1986.

J.J. Wang et al. / Transport Policy 11 (2004) 237–250 247

(Denmark) constitute the main exceptions but their presence

for the time being remains limited.

(5) Legal Aspect and Regulatory Environment. After

more than six years of discussion and revision, China’s first

Port Law was passed through the National People’s

Congress in June 2003, to be effective January 1, 2004. In

his recent address to the Congress, Chunxian Zhang,

Minister of Communications, emphasized that the Law

deliberately seeks to clarify three major areas of port

development governance (Zhang, 2003):

1. Port planning and construction. Two levels of port

planning shall be in place: at the national level, the Port

Allocation Plan, to be carried out by the MOC, shall

determine the overall nationwide distribution of port

development and set roles for each port. At the local

level, the Port Master Plans, to be prepared by defined

local authorities and subject to approval by the MOC,

shall assess and determine the jurisdictional borders and

natural conditions of each port, the assessment of current

and future role of each port, and the scale and phasing of

future developments.

2. Port operation and management. The law sets the

regulations for the entrants to the port operation market,

and specifies the responsibilities of port operators. The

ultimate goal is to set up a regulated market in the port

sector.

3. The responsibilities of port administration body. The

existing port authorities are no longer to be responsible

for administration. Port administration shall fall under

the local governments who are to purposely set up new

regulatory entities in the like of port administration

bureaus (e.g. Shanghai). These new bureaus shall be in

charge of regulating the market to ensure fair compe-

tition among the operators, monitoring the implemen-

tation of all port-related regulations and laws, and

maintaining safety and security within ports.

For such a comprehensive law seeking to oversee some

1000 coastal and riverside ports in the country, it is

understandably a macro tool which primarily lays out a

general framework for expected port governance. One may

challenge the effectiveness of the new Law by saying that in

the current social and legal environment, China still suffers

problems in transiting to rule of law from rule by law

(Zheng, 1999). However, while some may argue about the

contents included in the Law, some may equally be

concerned about what has been excluded. An area of

fuzziness, which lies outside the maritime industry, pertains

to appropriate and fair ways of defining the port market, or

the very implementation process of market forces in

general. Despite numerous waves of reforms, deeper

objectives lie in a shift of managerial culture, beyond

questions of simply re-forming institutional structures in

overly complicated ways. The re-shaping process has been

made clear throughout: port authorities simply shed their

skin as corporate entities while still carrying previous ills. In

turn, such corporate entities become well poised to enter

equity JVs at the port or terminal level. At the port level, it is

still unclear which kinds of services are regarded as public

and where their revenues should go. As long as this area

remains a grey market, the relationship between the new

port administration bureaus and the ad hoc corporate port

groups is likely to remain problematic, while fair play

between independent terminal operators (or JVs) and port-

level operators may be legitimately put into question.

5. Conclusions: China’s policies for a new port

environment

This paper has attempted to provide an adaptable

framework of port governance in addressing port develop-

ments proper to China. The governance approach has been

justified on grounds of a necessity to insert social, historical

and cultural components to institutional change in China. A

brief historical account has been given to show the path

dependency of reform trajectories unique to China: where

reforms have come from may be necessary to understand

where they are headed. Also, in-depth analysis of key ports’

stakeholder communities show a staged pattern of gradual

sophistication, structured along linguistic and cultural lines

since the most successful foreign entrants remain of ethnic

Chinese origin. This, at least in part, seems to confirm the

cultural and institutional embededness of developmental

change and reforms, while hinting towards similar features

of corporate entry opportunities in China’s port industry.

Such features of China’s port stakeholder communities have

here only been partially addressed and therefore suggest

further research is necessary into cultural and relational

issues in Asian business networks and national port

industries.

The suggested theoretical framework also introduced

themes of scalar governance, in showing precisely how the

status of coastal ports have changed following policy

directions. Power may thus be distributed along three

structural lines in understanding port development: bargain-

ing power asymmetries exist within the (1) logistics chain

where shipping lines have exerted tremendous pressures on

port development through various consolidation schemes

(e.g. strategic alliances). However, pure terminal operators

still occupy a leading role within the (2) ports’ stakeholders

communities as central authorities have been slower to allow

entry of shipping lines in equity and operational partici-

pation of its port industry in comparison to other countries.

The leading role of Hong Kong in the globalization of this

industry may not be dismissed in relation to its ties with

Beijing. An implication of the above discussion is that due

to China’s lack of democratic principles, the stakeholder

community remains fairly closed and narrow, at times little

more than shareholders and regulatory bodies. In that sense,

decisional powers remain relatively concentrated.

J.J. Wang et al. / Transport Policy 11 (2004) 237–250248

Finally, decision-making powers have also been succes-

sively devolved along (3) jurisdictional scales through

comprehensive reform packages since the Open Door

Policies took effect in a general national-to-local decen-

tralization trend.

Empirical evidence from China’s main ports was

given in support of theoretical claims, identifying two

sub-models of port governance. Both models mainly

differ in how the port authority’s role may be defined,

allowing for strategically ambiguous ‘grey’ areas. The

Shenzhen sub-model leans more towards a ‘hands-off’

system, as the port authority has managed to better

subtract itself from commercial operations and holds no

equity presence. The Shanghai sub-model is widely

found among older major ports while newly established

ports may better be poised to implement a model closer

to Shenzhen, where historical residuals and institutional

problems from the planned economy (e.g. over-manning)

do not exist. In general, the younger ports differ also

from the old ports through their capacity to allocate

brand new facilities to containerized cargo, where the

greatest potential gains in VAL exist.

This leads us to address the third residual theoretical

element from the model which has remained implicit

throughout: variations in functional capabilities of ports.

Traditionally, ports’ competitive advantage was reduced to

little more than locational advantages. But with increasing

level of competition, ports have sought to increase their

range of activities and service levels in order to satisfy port

users (Ha, 2003) in creating what is now referred to as

product differentiation. This strategy has mainly relied on

logistical capabilities of ports, which in turn, as goes our

argument, in China still heavily relies on institutional

resources. Wang and Olivier (2003) have shown how

municipal governments have attempted in recent years to

establish functional links between their ports and special

Economic and Technological Development Zones or

kaifaqu. Another example is the case of the PRD ports.

Drawing on relevant examples provided throughout this

paper, the port of Shenzhen has been able to promote port

service differentiation between its western and eastern

facilities through institutional arrangements described

above. Indeed, while the Shekou and Chiwan facilities are

still perceived by shippers as a low cost budget option,

HPH’s Yantian seeks to provide more value-added services.

Governance at the port of Shenzen has more successfully

rendered intraport competition closer to market principles

than in Shanghai. This raises interesting questions for

research and we believe it necessary to further explore the

linkages between institutional arrangements and logistical

capacities of ports, especially in such places as China and

Taiwan where Free Trade Zones act as leveraging tools to

lure FDI. It is hoped that this paper may lead further enquiry

into such linkages.

Such questions appear essential to address not only in the

eyes of the Chinese authorities but also those of potential

foreign investors. In this regard, our analysis of the two

identified port governance sub-models imply that entrance

within the older established ports, through terminal-level

JV, may for the time being encounter thicker internal

governance problems. This is due largely to ad hoc

corporatization practices of the government which has

proven a hindrance to fair market practices among its ports.

International players are still not placed on a par with locally

protected players. Perhaps this type of governance may

open the door to opportunities arising in younger striving

ports. As such, Shenzhen’s phenomenal success may also

surely be explained in institutional terms.

Acknowledgements

The authors wish to thank Dr S.X. Zhao for kindly

sharing data on China’s FDI as well as two anonymous

reviewers for their comments. This research was supported

by Hui Oi Chow Fund (No. 21369500/1004/04500/420/01),

the University of Hong Kong.

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