objectives

BOX 3.6

Lesson 6: Government plays a role in creating the right environment for port financing while balancing economic, social, and environmental objectives

State-owned enterprises (SOEs) have combined an increasingly commercial approach to port development with a simultaneous focus on socioeconomic development, within a framework of strong central planning. This model has supported rapid port development while simultaneously addressing other policy goals, such as urban redevelopment, economic integration of the hinterlands, and prevention of overcapacity. Initially, the SOEs helped upgrade the commercial and technological capabilities of ports through joint ventures; later, they played an important role in integrating the hinterland and coastal economies through investments in dry ports. The SOE model also enabled China to address overcapacity by establishing regional port clusters, an outcome that would be extremely challenging in a private sector–led model of port development.

The commercialization of seaports has been one of the main features of port policy worldwide over the past 40 years and has led to large efficiency gains and improvements in performance. In China, the commercial orientation of SOEs has been guided by a mixture of clear policy objectives, performance incentives, and central planning. The decentralized partnership model may also have helped improve SOE governance.

However, commercialization may have overstepped the mark in several instances, putting financial performance ahead of the economic, social, and environmental concerns of the local or regional community. In addition, experience with SOEs has not been as positive in other countries, where a landlord port model may be more appropriate in some contexts.

There are other ways to combine financial and social objectives, in addition to the system of local SOEs developed in China, including the following:

• Municipal ownership of ports or a direct local government role in overall port planning • Broadening the board of directors of autonomous ports to widen stakeholder representation, which should include levels of government responsible for transportation and logistics functions • Regulation of port development through approvals and permits to ensure appropriate mitigation or compensation for adverse consequences • Closer monitoring and supervision of port operations by independent bodies, with higher reporting standards and wider dissemination of results • More involvement of port managers in economic development initiatives and planning for land use and transportation • Empowerment of local communities through engagement with nongovernmental organizations and by tying port development to community benefits agreements that recognize and address externalities and support local economic opportunities.

Although priorities can be balanced in different ways, the Chinese experience offers important lessons for ports around the world. However, that experience may not be easily replicable. Few other countries can use competition between local government SOEs to promote good performance as readily as China can. In many countries, governance weaknesses within the public sector have turned SOEs into rent-seeking monopolies, with a high risk of underperformance.

benefited from implicit government guarantees when seeking financing, enabling them to fund their rapid expansion at relatively low cost. At the same time, strong human-resource and management practices have ensured that port SOEs remained performance oriented and were provided incentives to adopt new technologies and business practices.

China’s experience shows that it is possible to assemble a diverse set of funding options for port development. After initial reliance on state funding, funding sources were diversified. Foreign investment was promoted via joint ventures,