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K. Venugopal

A container vessel belonging to Wan Hai Lines pulls into the port of Hong Kong, the world's busiest container port. Despite being super efficient in handling, the port is beginning to lose traffic to ports elsewhere in China.

Recently in Hong Kong

FROM the 26th floor office of the Indian Consulate in Hong Kong that overlooks the Kwai Chung harbour one can feel the pulse of this erstwhile British colony. Why, one can even count it.

For if one gazes right through the day, one might see over 500 ocean-going vessels besides hundreds of other smaller ferries pulling in and out of the port, making it one of the world's busiest.

Ever since merchants, including some prominent Indians, zeroed in on this fishing harbour after the British won the territory over 160 years ago and traded opium for China's tea and porcelain, the island has lived and prospered off the ocean trade. Principally it has served as a gateway to China, both for merchandise and finance, and in recent years has helped evacuate the flood of globally competitive goods manufactured in southern China.

In 2000, the Kwai Chung harbour handled 18.1 million containers of cargo, six times what all of India's 11 ports put together did, and more than any other port in the world. It has remained the world's busiest container port for nine of the last 10 years. With the port contributing 20 per cent of Hong Kong's GDP, the rewards for its economy were staggering: The per capita income swelled to over 24,000 US dollars.

Two years on, the pulse no longer beats as strongly. The port, though still the busiest and one of the most efficient in the world, is finding its business flagging. It handled fewer containers in 2001 (17.9 million) and is not expected to do any better in the current year.

In what looks like a sympathetic response, Hong Kong's GDP has fallen over three of the last four quarters. Unemployment that was only 2.6 per cent in 1996 is well over 8 per cent. Property prices and rents that ruled high and made it one of the most expensive cities to live in are also on a downward spiral.

On Stubbs Road, an upmarket residential area, multi-storied buildings with apartments renting for over $16,000 a month lie vacant for months; four years ago they might have been easily snapped up.

Last week saw the opening of the new horse-racing season at Sha Tin to one of the most subdued wagering in years. Attendance was up — with unemployment up, more people had little else to do — but the betting turnover that day was the lowest on an opening day in years. Money is clearly running thin.

Many in Hong Kong's officialdom would like to believe that this is only the effect of the global slowdown, and as such, will be a temporary setback. But the companies running the container terminals at the port are acutely aware of the structural change that is undermining their business here. And that has to do with developments in mainland China.

They know China is still growing at over 7 per cent a year and trades even more vigorously with the world. It ought to have meant increased cargoes for Hong Kong. But that has not materialised. Simply put, China has found gateways other than Hong Kong to trade. Indeed it has consciously stepped up capacities at many ports on its eastern seaboard. Just a half an hour's drive beyond the border is Shenzhen province, whose three container ports registered a 50 per cent increase in throughput in the first six months of 2002 over the same period the previous year, even as Hong Kong struggled to retain its customers.

The figures of India's trade exemplify the diversion of trade perfectly. Exports to China in April-September 2001 grew 18 per cent, but those to Hong Kong were down 10 per cent. Imports from China were up 27 per cent but those from Hong Kong were down 24 per cent.

For decades China retained Hong Kong as its principal gateway even though it was a British colony. Now six years after the handover, China seems hell-bent to create competition for it, so that the mainland's low-cost manufacturing base can ship goods to the world through low-cost ports. The strategy is beginning to unfold, much to Hong Kong's discomfiture. Besides the ports in nearby Shenzhen, those in Shanghai and Ningbo to the North are equipping themselves with newer and more effective equipment to take on increased traffic; and, with the benefit of lower costs, are offering facilities at very competitive rates. Shippers are loving that: In 1996, half of China's trade passed through Hong Kong. Last year it was down to one-third.

Hong Kong is already feeling the heat and is marking container-handling charges down in a bid to dissuade customers sneaking over to other Chinese ports. But price-cutting is difficult for these private companies which have paid over $1.3 billion to the Hong Kong Government for the privilege of operating berths at the port, as against a pittance they need to pay for rights elsewhere in China. The odds seem stacked against them.

Yet, in a city where betting is a passion, hedging does have a place. Hong Kong's principal container terminal operator, Hutchison Port Holdings, has in recent years set up container terminals in ports elsewhere in China. The company, whose promoter, Mr Li Ka-shing, has also invested in India's telecom sector, has opened container terminals in Shanghai, Yantian and Ningbo among others. A company official told a delegation from India, "We shall go where business does."

The question is what will Hong Kong do if its port loses its eminence. Will its community find another trick in the bag?

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