88
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Developing China’s Ports
Ensuring that local government had incentives to support port development was a critical step in the evolution of policy. It widened access to finance by contributing to the development of financing companies set up by local governments. It made possible awards of tax relief and subsidies to ports. And it encouraged the building of supporting facilities such as land-transport infrastructure. Inland provinces could invest in transportation systems through partnerships with coastal ports, which helped to grow China’s ports and in turn revitalized inland industries, boosting China’s economy. China’s experience also shows that funding sources can be diversified over time. In addition, the share of state funding can be reduced, and the share of commercial funding increased. China has also demonstrated that profitable port companies can finance a substantial part of their own investment needs. Good operating results allow port companies to reinvest their available cash flow (earnings before interest, taxes, depreciation, and amortization [EBITDA]) as well as attract more equity through foreign direct investment, domestic private equity partners, or stock offerings. In the early stages of port-linked economic development, high levels of uncertainty about demand will make state support and investment necessary, including for connected infrastructure. In the early period of China’s opening, capacity shortages in ports were overcome through large, sustained investments from the central government. Without these investments, bottlenecks would have emerged as a constraint to growth. That early investments were funded chiefly by the central government is partly explained by the institutional context, but also by the relatively high uncertainty about demand. However, state support for port development was not limited to the initial phase of economic opening. In the decades since, port development has been supported by all levels of government in China. The central government has given port cities SEZ status, provided state funding for port infrastructure, invested in hinterland infrastructure, improved the quality of customs procedures by enabling the development of dry ports and bonded zones, and invested in innovation and education. Regional and local governments have developed attractive tax schemes for port development, invested in hinterland infrastructure, and provided incentives for the relocation of industries to new port areas. State-owned banks have provided funding to port enterprises.
BOX 3.8
Lesson 8: Test the waters before scaling up Chinese port reforms have not been devoid of false starts, but there has been a willingness to change course when individual policy changes have failed to produce the desired results. Pilot projects have played an important role in developing Chinese thinking, and the authorities have encouraged the replication of successful innovations elsewhere, particularly in port finance. However, there is a need for leadership, both to drive the reform process and to monitor and
evaluate the results. Although the most visible initiatives appear to have occurred at the local level, deeper probing suggests that softer interventions by the central government have been the main guiding force. China adopted an unusually holistic approach to export-led economic development in which the central government is the only body with the authority to coordinate the many other players involved.
