Long Guoqiang

International pivotal ports are of great significance to the advance of the international competitiveness of a country’s economy. China’s Shanghai and Shenzhen Ports have already become two of the world’s leading container ports. But they are still not international pivotal ports due to backward management system. In order to better participate in global economic competition, China should accelerate the reform of customs clearance system and develop its own international pivotal ports.

I. Developing International Pivotal Ports is a Prerequisite for China to Participate in Economic Globalization.

With the deepening of economic globalization and the rapid growth of international trade, international freight and especially container shipping have increased drastically. As a result, the development of international pivotal ports has attracted worldwide attention. From 1985 to 2000, the volume of freight handled by the world’s 20 largest container ports rose from 27.62 million standard containers to 110.16 million standard containers. The average annual growth rate was 9.66 percent. In particular, the freight handled by the world’s largest ports (Rotterdam, the Netherlands in 1985 and Hong Kong in 2000) rose from 2.65 million standard containers to 18.1 million standard containers.

International pivotal ports refer to those major ports that are located on major international shipping routes and are noted for high efficiency, low cost and large freight-handling capacities. One important feature of such ports is that the volumes of international transit freight they handle are large and account for a high proportion of all the freight they handle. At a time when economic globalization is constantly deepening, international pivotal ports are playing an increasingly important role in enhancing the international competitiveness of a regional economy. Therefore, the governments of some countries and regions have taken effective measures to develop their international pivotal ports. In East Asia, Hong Kong, Singapore, Pusan and Kaohsiung have become the world’s four largest container ports. Besides, competition is also very intense among other major ports in East Asia.

In the past two decades of reform and opening up, China has become the sixth largest trade country in the world. Accordingly, its ports also scored tangible development. As the development of China’s ports is mainly attributed to the development of its own trade, they have not become international pivotal ports. One striking feature is that international transit freight still accounts for a very low proportion of the freight handled by Chinese ports. International transit freight through Hong Kong, Singapore and Kaohsiung respectively accounts for 40 percent, 70 percent and 70 percent of the total volumes of freight they handle. On the other hand, international transit business accounts for only 0.65 percent of the Yantian Port in Shenzhen. Therefore, in face of an increasingly intense international competition, developing international pivotal ports is of strategic importance to China.

First, developing international pivotal ports is a requirement of increasing China’s export competitiveness. China has become the world’s sixth largest export country, and the competitive advantage in cost and price will continue to be the main competitiveness of China’s export for a considerably long period of time to come. And higher efficiency of port handling constitutes an important part of the lower cost of export products. Investigations indicate that Yantian Port was mainly selected as the port of exit for the containers in the region of the Pearl River delta, with the cost for each container lowering more than 200 U.S. dollars than selecting Hong Kong as the port of exit. Therefore, it helps increase the competitiveness of China’s export products. However, as the efficiency of domestic ports in customs clearance is not high, many enterprises still choose to export directly through Hong Kong. In addition, as most of this region’s export is in the form of processing trade, the cost of import has a direct impact on the competitiveness of export. When 85-90 percent of Guangdong’s import is through Hong Kong, higher import cost also weakens the competitiveness of the region’s export. In addition, the imbalance in import and export has led to a serious imbalance in the ratio of light and heavy containers. Besides, because of the small amount of international transit business, the cargos exported through these ports have to wait longer and thus bear higher costs. This is also unfavorable for increasing the competitiveness of China’s export. So if China can develop two international pivotal ports respectively in the two regions of the Yangtze River delta and the Pearl River delta, the competitiveness of its export will be further increased.

Second, developing international pivotal ports is a requirement for improving the attraction of foreign investment. China has been selected by international investors as an important manufacturing base for export products. The export of foreign-invested enterprises is already accounting for about half of China’s total export. At present, the efficiency of customs clearance has become an important aspect when foreign businessmen evaluate China’s investment environment. Many foreign-invested enterprises are unhappy about the existing efficiency of China’s customs clearance. Recently, Shanghai carried out a experiment reform called "great customs clearance". As a result of the experiment, the efficiency of customs clearance for air freight improved greatly. Many large transnational corporations, such as Intel, indicated that they would not only expand their production investment in Shanghai, but also move their research and development activities to Shanghai. If China can reform its customs clearance system and establish international pivotal ports, such measures will definitely improve the country’s appeal to foreign investors.

Third, developing international pivotal ports is a requirement for increasing the added value of China’s processing trade. The export of the processing trade has already accounted for more than half of China’s total export, and increasing the added value of the processing trade is an important way to further increase the contribution of the processing trade to the national economy. In recent years, thanks to the mass transfer of the IT and other manufacturing industries to China, electromechanical products manufacturing has become the fast-growing and largest sector in the export of China’s processing trade. Unlike the traditional labor-intensive products, the processing trade of electromechanical products has some unique features, such as "zero inventory for production, globalization of procurement and networking ordering". These have put forward higher requirements for the efficiency and cost of customs clearance and transport. At present, the low efficiency of China’s customs clearance has affected the processing enterprises to produce high-end products. Therefore, reforming the customs clearance system and developing international pivotal ports will help increase the added value of China’s processing trade.

Fourth, developing international pivotal ports is a requirement for developing modern distribution and strengthening China’s status as the world’s manufacturing base. As China’s status in the international manufacturing division of labor has drastically elevated, the industrial chain of the country’s foreign trade has been extending not only to the upper stream but also to the downstream services. To further reduce costs, some well-known international retail enterprises are planning to establish goods distribution centers at the ports close to China’s main export bases. For example, Val-Mart plans to establish a procurement and distribution center in Shenzhen for procurement, classified packaging, container grouping and delivery. Its annual procurement is expected to reach 2 billion U.S. dollars. This will not only promote the development of China’s modern distribution, but also further spur export and strengthen China’s status as the world’s manufacturing base. However, the existing customs clearance system is inconsistent with the requirement for developing international distribution centers.

II. The Customs Clearance System is the Main Factor Restraining the Development of International Pivotal Ports.

After more than two decades of reform and opening up, China has already had the basic conditions for the development of international pivotal ports. First, the coastal cities in east China are all on the major international shipping routes in western Pacific and have an enormous amount of goods for international distribution. Statistics indicated that in 2000, the containers handled in East Asia accounted for 50 percent of the world’s total. Therefore, there is a great potential for the ports in east and southeast China to develop international transit business. Second, China’s ports handle a tremendous amount of international trade. China is already the world’s sixth largest international trade entity. As its export products are mostly low-priced products, the amount of goods could be even higher in international rankings. Besides, China’s international trade is mainly concentrated in the regions of the Yangtze River delta and the Pearl River delta. Third, China has come a long way in improving its port infrastructure and management. Thanks to government investment and foreign investment, China’s port infrastructure has improved drastically. The ports of Shanghai and Shenzhen can not only meet the demand of the country’s own foreign trade, but also has capacities to develop international transit business. Port management has also drastically improved. For example, the Yantian Port in Shenzhen is invested and managed by the Hehuang Group, and its port management has reached the international standard. In 2001, China’s Shanghai Port and Shenzhen Port respectively ranked the fifth and eighth among the world’s largest container ports.

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