Yangtze river and ports development will give China's economy a major boost

Opening the new frontier

14 April 2008 00:00  [Source: ICB]

China hopes development of the Yangtze will boost the economy as the river opens up access to its central and western regions

Elaine Burridge/London

China's plans to open up its central and western regions to foreign investment will have a profound effect on the country's economic activity.

Tingting Zhang, managing director of UK-headquartered business information company Yangtze Business Services, says: "Few economic developments will have a bigger global impact than the opening of China's interior. China's economic landscape will change completely over the next 15-20 years."

Zhang says there are compelling reasons to invest in central and western China. Severe labor shortages and rocketing prices for land along the coast have caused operational difficulties for companies in the past five years, and things are coming to a head. "People are going to Cambodia and Vietnam now," she says.

SPURRING DEVELOPMENT

The Yangtze, the world's largest cargo-carrying river, has a pivotal part to play in the government's plans. Multinational chemical companies such as BP Chemicals in the UK, Germany's BASF, and US-based Celanese have invested in huge manufacturing complexes on the river at Chongqing and Nanjing.

The Yangtze, which runs for some 6,300km (3,900 miles) from its source in Qinghai province, on the Tibetan plateau, to Shanghai at its mouth, carries some 80% of all cargo shipped on China's waterways, but is still vastly underutilized.

The river runs through mountainous terrain, where it is difficult to build roads and railways. Dredging has been going on for some years, taking water depth to 10.5m (86.6ft). It is hoped that a depth of 12.5m as far as Nanjing will be achieved by 2012.

This means that vessels up to 100,000 deadweight tonnes (dwt) could access Nanjing directly on the tide. At present, most ships sailing to Nanjing are a maximum 30,000-50,000 dwt.

STANDARDIZED SHIPS

The government has initiated a vessel standardization program to maximize throughput on the river. At the moment, vessels old and new of various sizes travel along the Yangtze, and this causes particular problems at the five ship locks adjacent to the Three Gorges dam.

The construction of the dam, which opened in June 2003 and will be completely finished by summer 2009, means that the many rapids and shoals along the river's upper reaches will disappear, creating a year-round shipping channel from the East China Sea up to Chongqing, some 2,600km inland.

In 2005, the government plowed yuan (CNY) 1bn ($143m) into the standardization program, which is expected to be completed by 2020. Zhang says that this is an ambitious target compared to the West. "It took 50 years on the Rhine, and China wants to do it in 20 years," she comments. All container barges have been standardized and old vessels have been withdrawn.

IF YOU BUILD IT, THEY WILL COME

The program has also triggered a shipbuilding spree. Several major shipyards along the Yangtze that have typically built river barges in the past are now building vessels of up to 50,000 dwt, including specialized oil and chemical tankers.

Zhang says that the development of a supporting road and rail network running parallel to the river is proceeding on a scale and pace not seen before in the country. A riverside expressway, a highway and a railway are being built from Chongqing to Shanghai. The rail and road projects are due to be completed by 2010.

For over 20 years, the development of coastal regions has lured millions of poverty-stricken workers away from the central and western provinces to better-paid jobs.

This exodus has created a gulf between the coastal provinces and the rest of the country. "China is concerned that the disparity between East and West is threatening its social network and creating resentment between the regions," says Zhang.

To address the growing divide and close the economic gap, the central government launched its "go west" campaign in 2000. Zhang says: "Opening up the interior is also about China's sustained economic growth and improving living standards for the next 50 years."

A key part of "go west" is the development of Chongqing as the capital of western China, and the town has been upgraded to a municipality on a par with Beijing, Shanghai and Tianjin. "Over the next 10-20 years, Chongqing will rise as a very important powerhouse, like Shanghai," says Zhang.

The town, which has a population of 32m, has seen much industrial development over the years, particularly in the automotive and chemical sectors.

BP operates its Yangtze River Acetyls (Yaraco) acetic acid joint venture (JV) there, and it will also be the location for BP's third Chinese acetic acid plant.

Together with partner Sinopec, BP Acetyls will invest around $200m (€140m) in a 650,000 tonne/year plant using BP's Cativa technology. The plant should be ready by the end of 2010.

Japan's Mitsubishi Gas is investing in an 850,000 tonne/year methanol facility in a JV with Chongqing Chemical and Pharmaceutical Holding. The plant, China's largest, is due to start production by 2010.

BASF is also proposing to build a 400,000 tonne/year crude methyl di-p-phenylene isocyanate (MDI) plant in Chongqing.

Dutch storage provider Vopak is also considering investing in a new chemical park at Chongqing. Chairman John Paul Broeders commented last year that the city on the Yangtze River could be a very good supply point for western China.

Container shipping giant Maersk is interested in Chongqing, too. It has signed a framework agreement with the Chongqing authorities to build and operate a 420,000 20-foot equivalent unit (TEU) container terminal, the second phase in the port's development. The local government operates the first phase, a 280,000 TEU terminal that opened in 2006.

The government is in a hurry to modernize ports along the Yangtze. The river has 220 ports in total, of which 24 are major ones. Perhaps the most strategically important project in eastern China is the construction of a new deepwater port at Yangshan, near Shanghai.

Although Shanghai is now the world's largest cargo port, it is essentially a river port. It was originally built on a tributary to the Yangtze river and was later expanded into the estuary.

With a natural water depth of nearly 20m, Yangshan is a seaport, allowing Shanghai to receive mega container ships.

Zhang says that when it is completed in 2020, the Yangshan terminal will be able to handle a container capacity larger than that of Hong Kong and Singapore combined.

Two phases have already been completed: the Shengdong International Container Terminal with a 3m TEU capacity, and the 2.8m TEU Xiangdong International Container Terminal.

Phase 3, to be implemented in stages, will see 3m TEU go into operation this year, with a further 2.5m TEU in 2009 and 12.5m TEU phased in from 2011-2015, according to Isabelle Griffith, senior consultant for Ocean Shipping Consultants.

Griffith believes that China's huge program of port development may not be enough to cope with its massive demand growth. She cautions that with 101% utilization in 2007, capacity is barely meeting requirements.

Even with the most positive economic scenario in place, she forecasts that there will not be enough capacity from 2010-2011. If China's GDP growth slows to 7-8%/year, she says, the situation will become unsustainable from 2013.

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