China's chrysalis

22 Mar 2013
The depiction of China as ‘the world’s factory’ is looking increasingly tired. Credit - Wolfgang Staudt

The depiction of China as ‘the world’s factory’ is looking increasingly tired. Credit - Wolfgang Staudt

China’s trade flows with the world and the rest of Asia are rapidly changing. Michael King reports

Be it fluctuations in iron ore, copper and coal imports, or new patterns of containerised cargo flows, small changes in the Chinese economy tend to have significant regional and global ramifications. And what is becoming increasingly clear is that as the Chinese economy evolves, trading relationships with other countries in Asia and further afield are also rapidly changing.

Last year China’s economic growth slowed significantly, with most analysts estimating real GDP expansion of around 7.7%, compared with the 9.2% achieved in 2011. This was mirrored in trade data, with exports increasing 7.9%, a far slower rate than the government target of 10%.

Container traffic volume growth was also bearish and appears to be rapidly coming into line with both global and Chinese trade growth rates. Bonnie Chan, a senior analyst of the Asia shipping industry at Macquarie Securities, says China’s container throughput grew by 8% year-on-year in 2012, down from the 11.4% increase posted in 2011.

As the Chinese economy evolves, clear trends are emerging which are having a profound impact on cargo flows to and from ports. For example, output of products traditionally manufactured for Europe and the US in southern China is now migrating to cheaper production sites further north or in South East Asia. The deployment of larger container ships on key lanes is encouraging more coastal and transhipment traffic. And, driven by the millions who join China’s middle class each year, domestic demand is also growing, boosting imports in the process.

Indeed, the days of double-digit year-on-year export growth are being consigned to the past as the mono-dimensional depiction of China as ‘the world’s factory’ looks increasingly tired. Analysis from Nomura, for example, predicts that the value of China’s imports will grow 8.3% this year and 10% in 2014, more than halving China’s $200+ billion 2012 trade surplus in just two years.

 

Look inside

Henry Schmidl, director of Ocean Freight for Hong Kong and South China at Schenker International, says intra-Asia trade continues to flourish and is now a major driver of Chinese imports and exports.

“Worldwide imports to China are increasing year-by-year thanks to the rapid development of China’s provinces in the West, as well as the appreciation of the Chinese Yuan,” he adds.

“All this has helped boost the purchasing power of the Chinese."

Growth at the three major port regions of China – the Bohai Bay, Yangtze River Delta and Pearl River Delta – again experienced diverging growth trends during 2012. “Northern China ports located at Bohai Bay still saw 12% year-on-year growth on average, supported by strong growth in domestic cargoes,” said Ms Chan. “In contrast, the export-orientated port regions of Yangtze River Delta and Pearl River Delta grew at just 4.5% and 1.8%, respectively.”

Last year throughput growth was also more focused on low-margin cargoes in terms of terminal operator and port revenues. According to the China Port Association, domestic cargo increased 18.3% year-on-year in the first eleven months of 2012, while international cargo grew only 5.9% over the same time frame.

 

Through flow

Transhipment has now become a much larger part of throughput in both the Yangtze River Delta and Pearl River Delta as larger ships are used on intercontinental trades. “With exports slowing, we see companies that traditionally concentrate on high-margin origin and destination cargoes, such as Yantian, now actively courting transhipment cargoes to improve utilisation,” says Ms Chan. “In 2012, transhipment volume rose by 17% and 29% in YRD and PRD, respectively.

“With more ultra large container ships due to be delivered over the next 12-18 months, transhipment will become an increasingly important part of Chinese port throughput.”

Ms Chan’s analysis is confirmed by terminal operators contacted by Port Strategy. Peter Wong, senior vice president and managing director, Asia Pacific, at international port operator DP World, says the company’s container facilities in northern China located at Tianjin, Yantai and Qingdao saw higher growth rates than its two terminals at Hong Kong, which compete with PRD facilities for cargo from traditional export areas on the southern Mainland.

“The shift is related to lower labour costs and improved infrastructure in Northern China to support the transfer of production from Southern China and the increasing domestic market,” he explains.

“We are also seeing higher growth of domestic and transhipment traffic in Northern China due to changes in supply/demand and trade patterns, as well as special promotion programs for transhipment.”

 

Sluggish growth

China is expected to see GDP growth of around 8% this year. However, despite a pre-Chinese New Year rush, the export environment looks uncertain with demand fundamentals weak. Nomura, for example, expects China’s exports to grow 4.8% this year and 6% in 2014.

Volumes and container ship slot utilisation rates at Chinese load terminals were picking up at the start of 2013, although this was largely linked to the run-up to Chinese New Year on February 10 which sees factories close for one to three weeks. For the container industry this prompts a peak in demand followed by a drought, before the market evens out again in the second quarter.

“Looking to 2013, we see some pick-up in US import demand, as the housing market improves,” said Ms Chan. “However, this is offset by weakness in Europe, which saw a decline in container import volume in 2012 and is expected to remain subdued in 2013.

“We therefore forecast China’s port throughput to grow at 6.3% year-on-year in 2013 and 6.5% in 2014, in line with our forecast for global trade volume growth.”

 

Imports up

Claus Schensema, managing director of GAC Forwarding & Shipping (Shanghai), predicts a major increase in import volumes, driven by industrial machinery and automotives, while Henriette Hallberg Thygesen, chief executive of Damco North Asia, says accelerated approvals of infrastructure projects and a commitment to further urbanisation would also boost import traffic by helping consumption growth remain resilient. “We see great potential for China’s retail markets where imports definitely play a key role,” she adds.

Looking forward, DP World plans to boost organic growth at all of its Chinese facilities and invest substantially in expanding the capacity in Qingdao and Tianjin in line with market demand. “As a publicly listed company, we cannot give forecasts, but most economists project higher growth on imports than exports and moderate growth for domestic trade to Northern China terminals in 2013,” said Mr Wong.

Henrik Pedersen, chief executive of APM Terminals’ Asia Pacific, adds that the general trend in China will see transhipment traffic continue to be targeted by port’s located in the North as terminals seek to maintain port volume rankings in a tough market.

“Korea’s transhipment market segment has been targeted and aggressive incentives programmes, in addition to the already rather low tariff scheme, have been offered,” he says. “On the domestic front, North China ports have always been the major ports of origin, with South China being the ports of destination, and Beijing’s drive to stimulate domestic consumption and the expected housing market revival have helped increase volumes.”

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