2.4 Port construction fees

BOX 2.4

Port construction fees

Port construction fees were introduced in October 1985 (Measures for the Collection of Port Construction Fees) and implemented in 1986 (State Council 1985b). The fees were levied on goods entering and leaving 26 Chinese ports,a including all imports and exports as well as domestic trade between the ports. The fees were charged only once per voyage. For instance, imported goods from other countries were generally subject to port construction fees at their destination port, not other ports of transit. These fees were paid by the goods’ consignor or consignee, collected by the local port authorities, and transferred to the Ministry of Transport (MoT) (Ministry of Communications 1985).

Port construction fees became an important funding source for the MoT, with ¥ 2 billion (approximately US$580 million) collected in 1986. Their level has been changed and updated several times to meet the funding needs of port construction projects. In 1993, the central government and other ministries issued a notice on expanding the range of the fees, raising rates, and levying surcharges for waterborne passengers and freight (State Council, Ministry of Finance, Ministry of Transport, and Price Bureau 1993). The policy stated that the collection of fees would be extended to all ports involved in international trade; the fees collected would be used specifically for container infrastructure construction. Additional rules and measures for the collection of fees, including collection methods, were issued in the same year.

Although the addition of rules and changes in pricing were meant to ensure the accurate and standardized collection of fees across all ports, the total amount of port construction fees collected in 2000 was about the same as it had been in 1986, even though port throughput had tripled.

In addition, the rationale behind fee collection became difficult to justify as terminal ownership and use changed over time. Specifically, the port facilities built and financed by cargo owners and inland provinces, as explained previously, had received no investment from the MoT. The users of these terminals saw it as unfair that they were charged in the same manner as those who used MoT-funded terminals. In 2011, the MoT established new rates, lowering fees for every category by 20 percent as compared with 1993 rates. In 2016, regulations on port charges were promulgated by the MoT and the National Development and Reform Commission (Ministry of Transport and National Development and Reform Commission 2015). The regulation covered the assessment of cargo port charges, security fees for port facilities, port operation fees for passenger ships, pilotage fees, and berthing fees, among others. Its purpose was to clarify and standardize port import and export charges, promote market-oriented port service charges, and simplify previous fee structures. The regulation also explicitly states which prices are to be set by the government and which by the market.

a. These were the ports of Basuo, Beihai, Dalian, Fangcheng, Fuzhou, Guangzhou, Haikou, Huangpu, Lianyungang, Nanjing, Nantong, Ningbo, Qingdao, Qinhuangdao, Sanya, Shanghai, Shantou, Shijiu, Tianjin, Wenzhou, Xiamen, Yantai, Yingkou, Zhangjiagang, Zhanjiang, and Zhenjiang.

Foreign investment and joint ventures

The use of foreign investment to finance greenfield port projects in China has undergone several reforms. In 1985, recognizing that port construction projects were capital intensive, time consuming, and likely to yield a low rate of return, the State Council (1985a) issued interim regulations on preferential treatment for Sino-foreign joint ventures in harbor and wharf construction.

This milestone marked a turnaround in the central government’s attitude toward foreign investment in the port industry. An initial ban on foreign investment was replaced by active encouragement of the involvement of foreign

companies in joint ventures. Such joint ventures would not only provide the funds needed to finance the construction of port projects, but would also introduce technology and management know-how to the industry (Roehrig 1994). The provisions stated that foreign companies could jointly invest in the construction of terminals with contract lengths of more than 30 years. Moreover, foreign companies could be exempted from customs duties and commercial and industrial taxes, as well as income taxes, for five years once the terminals became profitable. For the following five years, taxes would be reduced by half. These preferential terms could also be extended in certain cases, and programs with relatively low investment returns could also be supplemented with profits from programs with higher yields.

After these provisions were issued, the Nanjing Port Authority and the American Encinal Terminals formed the first Sino-foreign joint venture in China’s port sector, the Nanjing International Container Terminal Handling Co. Ltd.

Despite these changes, restrictions remained on foreign companies. Joint ventures with a domestic company were at that time the only mechanism by which foreign entities could enter the Chinese maritime market, and their main operational bases had to be in China. Moreover, foreign investors could hold no more than a 49 percent stake in any Chinese terminal (Cullinane and Wang 2006; National Bureau of Statistics of China 2004–19).

In 1992, measures were taken to increase foreign investment in different parts of China’s port sector. The MoT released regulations on expanding and accelerating transportation development through deeper reforms (Ministry of Transport 1992). One purpose was to allow foreign investors to build dedicated docks and waterways for cargo owners. In addition, joint ventures were allowed to undertake cargo operations and domestic freight transportation, own infrastructure for terminal operations, and lease wharves.

The measures taken in 1992 opened more opportunities. The Port of Shanghai and the Hutchison Whampoa group (Hong Kong SAR, China) launched a joint venture; in south China, the Port of Shenzhen also formed a joint venture with Hutchison Whampoa for the development of the Yantian port area. Eventually, other transnational operators, such as Singapore’s PSA and Denmark’s AP Møller, formed joint ventures with Chinese firms.

The advantages of joint ventures, particularly at this point in the reform process, were fourfold. First, these world-leading transnational operators brought with them advanced equipment and management skills that Chinese seaports needed to close the gap with modern maritime transport systems. Their operations became showcases advancing the learning of their Chinese counterparts.

Second, these operators were either self-financed or had loans from the international capital market, which helped to ease the problem of inadequate funding. Third, they brought with them shipping clients, allowing Chinese ports to establish shipping services to major market destinations earlier than might otherwise have been the case. Some shipping lines became shareholders in container terminals themselves, showing confidence in the future of China’s port industry. Finally, as business entities, the joint ventures challenged the Chinese port authorities, eventually impelling them to transform ports into marketplaces governed by international standards.

Starting in 1995, the “Catalogue for the Guidance of Foreign Investment Industries,” compiled and updated by various departments of the central