Hong Kong: Transport Trackers founder Charles De Trenck has written about Beijing’s decision to push for more free trade zones in the country.
“China needs to handle more trade,” De Trenck noted. “Now that export growth has slowed – after 15-20 years of high growth, China is turning to parts of the supply chain where historically it has had less control.”
He said that it was not just about Shanghai announcing a new trade zone expansion push.
“It is about a long term process,” he maintained, “where Shanghai and Shenzhen create new ‘mini-HKs’ on their way to getting more respect as full service trade centres.”
The Shanghai free trade zone push will offer zero tariffs on imports into the free port of Shanghai.
More details will be needed to distinguish between all the free trade zones, including Pudong and Yangshan, and the new benefits of a Shanghai free port, De Trenck maintained.
“Ultimately it is a logical extension of all the free trade zone alphabet soup areas already in the Shanghai region and across China,” De Trenck maintained, adding: “But, even without a fully convertible RMB and without an open capital account, Shanghai is seeking to take back from Hong Kong a little more of what it had before 1949 – status as Asia’s number 1 trade and finance centre.”
Shanghai still has a long way to go. According to De Trenck, it needs, just as China needs, to not only control its own exports growth, but also to control its imports and value added trade.
China used to grow at a 15+% rate on its containerized trade. “This recently was about halved, and this has no doubt led to some hard thinking by leaders, even if everyone knew trade was going to slow. Actually seeing low single digit port growth can be painful,” the well respected Hong Kong-based analyst wrote in a report today.
De Trenck founded Transport Trackers, a boutique consultancy with Gavekal four years ago. Previously he was best known as an analyst with Citigroup in Hong Kong.
Hong Kong, for its part, is also getting more competition from Shenzhen and South China in general.
Shenzhen in a sense has to follow the same steps as Shanghai in continuing to expand and in reenergizing growth.
“China’s trade industry can no longer live on exports alone,” wrote De Trenck, noting how transhipment has been give the green light for the first time in certain ports in China.
Hong Kong still dominates trade finance and it still dominates, on a relative basis, on the import side in the sense that China customs have been less efficient moving goods efficiently on the import side compared to the export side, De Trenck reported. Hong Kong also dominates, on a relative basis, value added goods storage.
“The challenge for Shenzhen, as it builds out its support for the new Qianhaiwan area in Shekou, is also aimed at offering an experiment for more liberalization of the RMB, and happens to be a new area with significant spare land, warehouses, distribution centers, etc. It also happens to be the stomping ground for China Merchants Group, as it falls into Western Shenzhen. More importantly though it offers a crossroads function similar to Hong Kong given its good access to Hong Kong, Shenzhen, as well as sea and air ports for both cities,” De Trenck concluded.
SinoShip’s economist, Paul French, commented on the report: “When the volumes reduce it's the efficiencies that need to improve to retain margins and competitiveness.”
Shanghai-based French observed: “Taking this enforced 'breather’ in the last hectic 30 years to smooth the chain is a good idea and will ensure China both better capitalises on domestic market growth and is better positioned for any future exports bounce back.” [29/01/13]
