With China's ports opened up to foreign investors, several operators are eyeing opportunities in the sector. In the vanguard is PSA of Singapore.
Recent investments show that China is opening up its ports sector to foreigners, following new investment guidelines that were introduced in April this year. Foreign investors, in accordance with China's World Trade Organisation commitments, are now allowed to take majority stakes in port projects.
This change in policy is generally welcomed in the industry and will further intensify competition among foreign port operators. PSA, the Singapore government-owned company that recently delayed an IPO because of unfavourable market conditions, is one of the foreign operators with heavy investments in China. With its Singapore throughput tumbling by 8.9 per cent last year, the group is anxious to develop its international expansion programme.
Following its first overseas port project, a container terminal in Dalian in northeastern Liaoning province in 1996, PSA acquired two more container terminals, one in Fuzhou in Fujian province and one in Guangzhou in Guangdong. These three terminals are operated as joint ventures with local port authorities, with PSA holding a 49 per cent stake in each – which was the ceiling for foreign investors prior to the change in policy. Last year, the terminals handled a combined container throughput of 1.9m teu, accounting for more than half of PSA's total overseas container volume.
There is little doubt about PSA's interest in growing its operations in China. Its fourth and latest joint venture terminal is due to begin operation by the end of 2002. Called Fuzhou-Jiangyin International Container Terminal (FICT), the new facility will initially have one berth with a handling capacity of 350,000 teu a year. Plans for another two berths are under consideration.
FICT is just 80km from PSA's second venture, Fuzhou Qingzhou Container Terminal (FQCT), which it acquired in 1998. The growing volume of container traffic passing through Fujian was a major reason for PSA wanting to build a second terminal in the province. Higher cargo volume is expected particularly at Fuzhou, which is one of the two ports designated to serve Taiwan if direct shipping with the mainland is re-established.
Natural restrictions at the original Fuzhou terminal were also a factor in PSA's latest venture. "Because of draught restrictions, FQCT does not allow ships deeper than seven metres to call on its port freely," says Wong Seng Chee, senior vice-president (Asia Pacific) of PSA's international business division and the company's chief representative for China. "FICT's throughput is intended to overtake that of FQCT over the longer term, especially when the new berths come into operation."
As PSA continues to expand in China, direct competition with rival port operators seems unavoidable. Main competitor Hutchison Port Holdings (HPH), a subsidiary of the Hong Kong-based Hutchison Whampoa, has the advantage of an early entry into the market and has established itself as the market leader, operating nine ports in China. PSA's late entry may have caused it to miss out on some of the best opportunities. On the other hand, some have suggested that the key reason behind the local authorities' decision to offer it the Guangzhou deal was their concern over HPH's dominance.
Nevertheless, PSA is optimistic about China's growth potential and the opportuni- ties presented by accession to the WTO. "A country's economy is a good indicator of the port business," Wong says. He expects PSA to benefit from growing container traffic and to record double-digit growth in throughput to 2.8m teu this year.
The company is seriously considering two additional investment projects, one in Huizhou, Guangdong province, and the other at Yangshan, near Shanghai. According to Wong, Huizhou is favoured because of its strategic location in the Pearl River Delta, one of the world's largest manufacturing bases with a high volume of cargo and containers. Huizhou itself is also becoming an important industrial centre – for example, Royal Dutch/Shell is setting up a US$4bn petrochemical complex there.
A market study is being conducted into the viability of establishing a container terminal in Huizhou. "When a new investment opportunity comes, we will always look first at its viability: whether there is enough cargo to support the terminal when it is in operation," says Wong. "It is very much a business strategy driven by demand. Once the market study suggests that it is commercially viable, we will go ahead with the Huizhou project." A memorandum of understanding has already been signed with the local authorities.
PSA is attracted to Yangshan mainly because it is a natural deepwater seaport with a depth of 15 metres that will allow fifth- and sixth-generation vessels to berth. Once in operation,Yangshan is expected to resolve the problem of draught restrictions for large ships and to ease the heavy traffic at the neighbouring Shanghai port.
The whole Yangshan project aims to have 52 berths with an annual handling capacity of more than 15m teu. The Chinese authorities have started construction work and phase one of the project is due to be completed in 2005, when a 1,600-metre-long quay and five deepwater berths with an annual capacity of about 2m teu will be ready for operation. This first phase involves an investment of Yn12bn.
With such a massive project under way in close proximity to China's busiest port, PSA is keen to get a slice of the cake. "We will explore opportunities with the local authorities when they are ready to form a joint venture with foreign investors," says Wong.