China is undertaking a massive expansion of the capacity of ports to accommodate its increasing imports of raw materials such as iron ore and crude oil.

Coastal cities, including Dalian, Tianjin, Qingdao, Shanghai, Ningbo, Guangzhou and Shenzhen, are racing to build new berths as they see the business as a new cash cow to boost local coffers.

Experts said the stable profits of the ports have also lured foreign investment, which is further fuelling the expansion drive.

Tianjin, the fourth-largest container port in China, has announced that it plans to invest about 12 billion yuan (US$1.5 billion) by 2010 to increase its handling capacity to 10 million 20-foot equivalent units (TEUs) annually.

Shanghai, now the world's third-largest container port and fourth-largest port overall, aims to double its current capacity to handle 25 million TEUs by 2010.

Booming cities in South China's Guangdong Province, China's foreign trade hub, are also catching up with the national expansion trend in an effort to grab a share of the business from neighboring Hong Kong.

A source with the Shenzhen Harbour Bureau said the cargo handling capacity of Shenzhen port is expected to reach 125 million tons this year, up 12 percent year-on-year.

Guangzhou, the third largest port in terms of cargo handling capacity in China, will also complete four new berths in the Nansha development zone this year.

Guangzhou port handled 172 million tons of cargo last year.

Neighboring Shantou plans to start operation of a new 50,000-ton port by the end of this year.

It also plans to construct 100,000-ton and 300,000-ton cargo-handling facilities this year, said Huang Zhiguang, mayor of Shantou.

What is backing the massive expansion is China's robust increase in foreign trade which rose by 37 percent year-on-year last year.

The growth of imports and exports, especially imports of raw materials, have overstretched the capacity of some ports.

At Beilun port near Shanghai, one of China's major iron ore import terminals, ships must wait for up to a month to berth.

Other big iron ore ports in Qingdao and Yantai regularly have 15 or 16 ships waiting to unload cargoes,

"The ports are running at full capacity," said Li Lei, a transportation analyst with China Securities. "The growth of foreign trade is boosting the port business, which, in turn, is attracting investment into port construction."

China is expected to import 180 million tons of iron ore this year, up about 21 percent from last year, to support the growth of its steel, car and other industries.

More than 10 million tons of crude oil is expected to be transported through the Chinese ports to feed refineries this year.

Although the reduction of the tax rebate on exports will cast a shadow on the port business, industry analysts predict that China's port traffic will increase 15 percent this year, and that container throughput will rise by over 20 percent year-on-year.

China's overall port traffic rose 18 percent last year.

China decided to reduce tax rebates on exports by an average 3 percentage points starting from this year which may discourage exports to some extent.

Li said the effect on port business of the reduction on tax rebates would be quite limited because the country still relies on foreign trade to boost the economy.

"In the short-term, port business will slow down due to the reduction of tax rebates.... But the competitiveness of Chinese products will not be affected too much. So the port business will still remain bullish," said Li.

A report from Shenyin & Wanguo Securities said the growth of port throughput is expected to slow down in the first half, but pick up in the second half.

"The impact of the tax rebate cut has been exaggerated, as companies have put some of this year's exports in the fourth quarter.

"Port business will gradually increase in the second half."

The growth of port business has attracted foreign companies to participate in the port expansion.

China has attracted over US$4.3 billion in overseas capital for port development and construction, according to statistics from the Ministry of Commerce.

Overseas investment shot up after the government allowed foreign investors to take controlling stakes last year.

"Although it requires huge investment, port business is attractive with its stable cash flow and high profits," said China Securities' Li.

(China Daily March 4, 2004)