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

of internationalizing port management practices

James J. Wang
a,
*
, Adolf Koi-Yu Ng
b
, Daniel Olivier
a
a
Department of Geography, University of Hong Kong, Pokfulam Road, Hong Kong, China
b
Transport 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
Chinas global ambitions are well reected through the recent rise of its container ports and their ability to redirect global shipping
networks. Meanwhile, seaports provide a rich eld 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 inows on the part of terminal-
operating multinationals seeking to establish a presence in Chinas striving port industry. Massive terminal-level corporate participation has
induced a rescaling effect in governance congurations. This paper adopts a governance approach to address recent institutional changes in
the countrys port industry in relation to an ongoing internationalization of port management. Particular attention is given to the role of port
authorities and specic corporatization practices under reform by contrasting the examples of its two largest ports: Shanghai and Shenzhen. It
concludes that Chinas 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 worlds rst container trafc 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 4550% 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 Chinas global ambitions. In spite of this, Chinas ports
remain largely under-researched to this day. This paper
seeks to redress this gap and to shed light on the recent
developments in Chinas 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) 237250
www.elsevier.com/locate/tranpol
* Corresponding author. Tel.: 852-2859-2111; fax: 852-2858-2549.
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 prole of Chinas port reforms
shall follow a critical overview of proposed port governance
models. The paper shall then analyse Chinas 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 justied
in several ways. First, stakeholder communities have
expanded and complexied 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
Chinas 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 Porters 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 Porters 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 signicant 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
species 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 corporations shareholders
(Sternberg, 1998 quoted in Brooks and Baltazar, 2002: n.a.).
This type of approach tends to dene the port as a
corporation, and the strategies to achieve corporate
objectives, the stakeholder community structure, and a
triangular framework of environment strategystructure
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 inuence 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
Stokers (1998) ve 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) 237250 238
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
specicity 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 ports logistical capabilities (Heaver,
1995). Thus, massive terminal-level private entry having
occurred in the 1990s requires a rescaling of governance
congurations 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 rst 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) 237250 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 classications. 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 Chinas 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.
Chinas 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 ts 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 ve 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 worlds rst 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 Chinas development priorities on the governments
agenda. Since physical upgrades stem from institutional
processes and reforms, the lag between capacity upgrades
and the countrys economic growth has resulted in severe
bottlenecks among strategic distribution nodes. As a result,
Chinas container services are still operating signicantly
below world standards (World Bank, 1996). Generally
speaking, several major problems can be identied:
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 difculties, just how the Chinese
government may balance domestic interest with its rm
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 rst 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 nancial
arrangements. Consistent with these rst steps towards
reforms, the Eighth (19911995), Ninth (19962000) and
Tenth Five-Year Plans (20012005) 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) 237250 240
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 worlds third and
fourth largest container ports in 2003, handling 11 and 10
million TEU, respectively, surpassed only by Hong Kong
(rst) and Singapore (second).
(2) Foreign participation. First foreign participation in
Chinas 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 justied openings
to foreign participation. Internally, the public sector
lacked sufcient funds to nance 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 classied 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 rms are of ethnic Chinese
background. Indeed, rms 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 (Pacic Ports Co.) and
Wharf Holdings (MTL) have also been favoured in equity
participation throughout Chinas 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
signicant 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 Chinas
state-owned enterprises (SOE) and legal framework.
Regarding SOEs, policies sought to separate adminis-
tration from operation. During Chinas 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 nancial and operational activities
(3) appointment of ofcials. Meanwhile, responsibilities
and/or benets of enterprises include (1) managerial
sustainability of the enterprise in terms of prot-making
ability and tax payments and (2) assuring the stability or
growth of public asset values while defending ownership
rights.
Since 1992, foreign rms 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 rm,
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 ports 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) 237250 241
inuence 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 nancial autonomy in the routine
administration and operation of ports.
(5) Legal system. Chinas 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 Ministrys
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 Chinas container ports.
J.J. Wang et al. / Transport Policy 11 (2004) 237250 242
Code further claried 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 signicant legal progress is the rst Port
Law of Peoples 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 difculties and problems, against which local
resources and capabilities may be assessed. The areas of
difculties may be classied into ve 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 modied its policy in 1994 by setting the maximum
shareholding by non-domestic rms 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 Pacic 5%
Shekou Container Terminals (SCTCN) P&O Ports 25%, Swire 25%, China Merchants 32.5%,
COSCO Pacic 17.5%
Chiwan Container Terminals (CCT) MTL 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) Pacic Ports 92%, Xiamen Xianyu Group Corporation
8%
Xiamen Xianyu Free Trade Zone Quay Co. Ltd (FTZQ) Pacic 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
Pacic 20%, Shanghai Shiye 10%
Northern China Dalian Dalian Container Terminals (DCT) PSA 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) Pacic 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) 237250 243
project capital. Such concerns mostly stemmed from Hong
Kongs 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
rms, following principles set by local port authorities. As
mentioned earlier, prot-oriented international operators
were initially welcomed on the basis of their nancial
resources and operational efciency contributions. How-
ever, accommodating these goals has proven difcult 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
difcult 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
xing/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 rms 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 nancial
situation of the rm, (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 rst, 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 Chinas ports are of the second
kind, so-called carrier dedicated terminals remain the
exception among Chinas container ports (Table 1). Perhaps
the most ambiguous principle is the fourth one: what may be
dened as a good relationship with the city is really up to
the Bureaus 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 exibility 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 5050 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, PRCs
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 rst
distinction lies at the shareholding structure level
where, unlike in Shanghai, a foreign operator holds a
majority stake: while Chiwan and Shekou are apparently
5050 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 Whampoas (HPHs parent rm) chairman.
5
Through our eld 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) 237250 244
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) Dening the port authoritys status. The denition 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 redening the role of the port authority has
been long discussed and accepted. In practice, however, the
implementation of such a separation remains difcult, as our
discussion of the Shanghai model has sought to underline.
The rst and foremost obstacle lies in how to achieve
nancial 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 rm (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 19902002.
J.J. Wang et al. / Transport Policy 11 (2004) 237250 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 entitys 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 justied in terms of
efciency 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 worlds 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 ofces 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 rms 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, dening 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 prole
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 rms.
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 Chinas 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 Pacic Ports, a Hong Kong rm.
J.J. Wang et al. / Transport Policy 11 (2004) 237250 246
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 HPHs
parent rm, Hutchison Whampoa, to the Beijing govern-
ment are now well known (Polin, 2000).
(4) Diversication of nancing channels. This leads us to
the more specic 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 rst lies in sound nancial
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 nancing 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 nancing, while foreign aid capital
was limited both in terms of number of projects and nominal
values. As a consequence, the main nancing 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 inows, albeit in a selective manner
applying to FDI as mentioned previously. Indeed, a net
majority of foreign entrant rms remain Hong Kong or
Singapore-based. P&O Ports (Australia/UK) and Maersk
Table 3
Chinas 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 13.15 75.1
Source. Chinas 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
fees
a
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, Pacic 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 Pacic 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) 237250 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, Chinas rst
Port Law was passed through the National Peoples
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 dened
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 species 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 dening 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: Chinas 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
justied 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 conrm the
cultural and institutional embededness of developmental
change and reforms, while hinting towards similar features
of corporate entry opportunities in Chinas port industry.
Such features of Chinas 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 Chinas 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) 237250 248
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 Chinas main ports was
given in support of theoretical claims, identifying two
sub-models of port governance. Both models mainly
differ in how the port authoritys role may be dened,
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,
HPHs 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
identied 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, Shenzhens 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 Chinas 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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