Posted: November 28th, 2023

Port Development and Investment in China: A Comparative Study of Public-Private Partnerships and State-Owned Enterprises

Port Development and Investment in China: A Comparative Study of Public-Private Partnerships and State-Owned Enterprises

Port development is a crucial factor for the economic growth and competitiveness of a country, especially for a maritime nation like China. Ports facilitate international trade, provide access to global markets, and support various industries and sectors. However, port development also requires substantial capital investment, efficient management, and effective regulation. In China, port development has been traditionally dominated by state-owned enterprises (SOEs), which have enjoyed preferential policies, subsidies, and monopolistic positions. However, since the late 1990s, China has gradually introduced public-private partnerships (PPPs) in the port sector, aiming to attract private capital, improve operational efficiency, and enhance service quality. PPPs are long-term contractual arrangements between public and private entities for the provision of public services or infrastructure, where risks and responsibilities are shared according to the agreed terms and conditions.

The purpose of this paper is to compare and analyze the performance and impact of PPPs and SOEs in the port sector in China, using both quantitative and qualitative methods. The paper will address the following research questions:

– What are the main drivers and barriers for PPPs in the port sector in China?
– How do PPPs and SOEs differ in terms of financial viability, operational efficiency, service quality, and social and environmental impact?
– What are the best practices and lessons learned from PPPs and SOEs in the port sector in China?

The paper is organized as follows. The next section provides a literature review on PPPs and SOEs in the port sector, both globally and in China. The third section presents the research methodology, including data sources, indicators, and analytical framework. The fourth section reports the empirical results and discusses the findings. The final section concludes with some policy implications and recommendations.

Literature Review

PPPs and SOEs in the Port Sector: Global Trends

PPPs have become a popular mode of infrastructure delivery in many countries around the world, especially in developing and emerging economies. According to the World Bank’s Private Participation in Infrastructure (PPI) Database, there were 6,020 PPP projects in 139 low- and middle-income countries between 1990 and 2019, with a total investment of $2.6 trillion (in 2019 US dollars). The transport sector accounted for 43% of the total number of projects and 36% of the total investment. Within the transport sector, ports represented 7% of the total number of projects and 5% of the total investment.

The main advantages of PPPs are that they can mobilize private capital, reduce public debt, improve operational efficiency, enhance service quality, foster innovation, and allocate risks more optimally between public and private parties. However, PPPs also face many challenges and risks, such as high transaction costs, complex contractual arrangements, asymmetric information, opportunistic behavior, regulatory uncertainty, political interference, social opposition, environmental impact, and contingent liabilities.

SOEs are still prevalent in many countries’ port sectors, especially in developing regions such as Africa, Latin America, and South Asia. SOEs are entities that are owned or controlled by the state or other public authorities. They can operate as monopolies or compete with private firms in the market. The main advantages of SOEs are that they can pursue social objectives, ensure public accountability, maintain strategic control, and avoid market failures. However, SOEs also suffer from many drawbacks,
such as low efficiency, poor governance, corruption, political capture,
subsidization, crowding out effect,
and fiscal burden.

There is no consensus on whether PPPs or SOEs are superior in terms of port development and performance. The empirical evidence is mixed and context-dependent. Some studies have found that PPPs outperform SOEs in terms of financial viability (e.g., return on assets), operational efficiency (e.g., container throughput per berth), service quality (e.g., ship turnaround time), and social impact (e.g., employment generation) (see e.g., Cheon et al., 2010; Estache et al., 2002; Liu et al., 2018; Trujillo et al., 2002). Other studies have found that SOEs perform better than PPPs in terms of financial sustainability (e.g., debt ratio), operational reliability (e.g., cargo handling rate), service diversity (e.g., multi-purpose terminals), and environmental impact (e.g., carbon emissions) (see e.g., Chang et al., 2014; Cullinane et al., 2004; Notteboom et al., 2013; Wang et al., 2012).

PPPs and SOEs in the Port Sector: The Case of China

China has experienced rapid port development since its economic reform
and opening up in 1978. According to the World Bank’s World Development Indicators, China’s total port cargo throughput increased from 595 million tons in 1978 to 14.7 billion tons in 2019, making it the largest port country in the world. China’s container port throughput also increased from 0.4 million TEUs (twenty-foot equivalent units) in 1980 to 249 million TEUs in 2019, accounting for 30% of the global total. China has 10 ports among the top 20 container ports in the world, with Shanghai being the busiest port since 2010.

China’s port sector has been dominated by SOEs, which are mainly owned or controlled by the central or local governments. According to the China Port Association, there were 1,065 port enterprises in China in 2018, of which 74% were SOEs, 16% were private enterprises, and 10% were foreign or joint ventures. The SOEs accounted for 86% of the total port assets, 84% of the total port revenues, and 83% of the total port profits. The SOEs also enjoyed preferential policies, such as land allocation, tax exemption, low-interest loans, and monopoly rights.

However, since the late 1990s, China has gradually introduced PPPs in the port sector, aiming to attract private capital, improve operational efficiency, and enhance service quality. According to the PPI Database, there were 67 PPP projects in China’s port sector between 1990 and 2019, with a total investment of $18.6 billion (in 2019 US dollars). The PPP projects mainly involved greenfield or brownfield development of container terminals, bulk terminals, or multi-purpose terminals. The PPP projects also involved various types of contractual arrangements, such as build-operate-transfer (BOT), build-own-operate-transfer (BOOT), or joint venture (JV).

The main drivers for PPPs in China’s port sector are the following:

– The growing demand for port infrastructure and services due to the rapid growth of international trade and domestic consumption.
– The fiscal constraints and debt pressures faced by the central and local governments due to the large-scale public investment in infrastructure and social welfare.
– The policy support and guidance from the central government, which has issued several regulations and documents to promote PPPs in various sectors, including ports.
– The market-oriented reform and opening up of the port sector, which has encouraged competition, innovation, and diversification of port services and operators.
– The learning and demonstration effect from the successful PPP projects in other countries or regions, such as Singapore, Hong Kong, or Europe.

The main barriers for PPPs in China’s port sector are the following:

– The lack of a clear and consistent legal and regulatory framework for PPPs,
which creates uncertainty and inconsistency for both public and private parties.
– The weak institutional capacity and governance of the public authorities,
which affects their ability to plan, procure, negotiate, monitor,
and enforce PPP contracts.
– The high transaction costs and risks associated with PPPs,
such as feasibility studies,
bidding processes,
contract design,
financing arrangements,
performance measurement,
and dispute resolution.
– The resistance and opposition from some SOEs,
which fear losing their market share,
subsidies,
or privileges due to the entry of private or foreign competitors.
– The social and environmental concerns related to PPPs,
such as labor rights,
public participation,
transparency,
accountability,
and environmental impact.

Research Methodology

Data Sources

The paper uses both quantitative and qualitative data sources to compare
and analyze the performance and impact of PPPs and SOEs in China’s port sector. The quantitative data sources include:

– The PPI Database from the World Bank,
which provides information on PPP projects in low- and middle-income countries,
including China.
The database covers project characteristics,
such as type,
sector,
subsector,
status,
investment amount,
contract duration,
and private partners.
The database also covers project performance indicators,
such as operational data (e.g., cargo throughput),
financial data (e.g., revenues),
and social data (e.g., employment).
The database is updated annually
and is available online at https://ppi.worldbank.org/.
– The China Port Yearbook from the China Port Association,
which provides information on port enterprises in China,
including SOEs and non-SOEs.
The yearbook covers enterprise characteristics,
such as ownership type,
location,
scale,
and business scope.
The yearbook also covers enterprise performance indicators,
such as operational data (e.g., cargo throughput),
financial data (e.g., assets),
and social data (e.g., employment).
The yearbook is published annually
and is available online at http://www.chinaports.org/.
– The Containerisation International Yearbook from Informa Markets,
which provides information on container terminals in China
and other countries around the world.
The yearbook covers terminal characteristics,
such as location,
operator type,
capacity,
and equipment.
The yearbook also covers terminal performance indicators,
such as operational