Yefang Huang

The growth of global hub port cities under globalisation The case of Shanghai international shipping centre

Yefang Huang is a Senior Instructor in the Department of Geography and Resource Management, The Chinese University of Hong Kong, Shatin, NT, Hong Kong; e-mail: [email protected]

Paper submitted June 2008; revised paper received and accepted September 2009

This article takes the Shanghai international shipping centre as a detailed case study of the relations between port and city. The relationship between port growth, economic development and foreign trade is examined in detail. The article argues that the success of urban development in Shanghai results from both the favourable market opportunities and the rational urban development strategies pursued by the city government of Shanghai. Massive foreign direct investment in Shanghai has resulted in large-scale outward-processing activity and explosive growth in imports and exports. The article shows that the Asian hub port-city consolidation model has ignored the differences between port cities in the region. Three models of global hub port-city are proposed to describe the different cases of Hong Kong, Singapore and Shanghai. Shanghai fits the model of a city-serving global hub port-city, which is different from Hong Kong and Singapore. This reflects the particular stage of hub port-city development of Shanghai and its particular economic relationship with the hinterland.

Rapid urban development in Shanghai has caught the attention of many scholars. In the context of socialist transitional economies, central and local states are considered important driving forces in the rapid rise of Shanghai (Zhang, 2002; Wu, 2000). The importance of geographical conditions and external forces such as FDI (foreign direct investment) in the rapid development of Shanghai have also been recognised (see, for example, Wei and Leung, 2005; Wei et al., 2006; Yusuf and Wu, 2002).

Since international trade relies predominantly on shipping, port cities play a crucial role in the development of regional economies. The ten largest cities in the US in 1920 were developed as port cities, and most of them remain important even though their ports have become less important relative to other economic activities (Fujita and Mori, 1996; Ducruet and Lee, 2006).

The explosive growth in world trade associated with the spatial dispersion of production and consumption during the past 40 years has resulted in the emergence of several giant ports in Asia, including Singapore, Hong Kong, Shanghai and Shenzhen (Airriess, 2001a; 2001b; Loo and Hook, 2002; Chu, 1994; Shen, 2008a; Lee et al., 2008). The global production network is shaping and being shaped by a global port system (Airriess, 1993; Hesse and Rodrigue, 2006; Lee and Rodrigue, 2006). Global manufacturing capacities have been relocated dramatically from developed countries to developing countries through large-scale FDI, necessitating the large-

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scale intercontinental shipping of raw materials, components and consumer goods. Due to keen competition, there is a global trend towards the concentration of liner services at hub ports (Cullinane et al., 2004).

Propelled by China’s WTO (World Trade Organization) entry, the Chinese economy is rapidly integrating with the world economy. The most rapid economic development and export growth has taken place in three coastal regions, including the Pearl River Delta (PRD), the Yangtze River Delta (YRD) and the Bohai Ring region, creating great demand for international shipping services (Shen, 2008a; Yeung and Shen, 2008a; 2008b; Luo and Shen, 2009). There is a good opportunity for developing a few large container ports in coastal China. Various cities are keen to compete for such hub ports (Cullinane et al., 2004; Shen, 2007; Luo and Shen, 2009).

Many studies have examined the changing relations between port and city (Hoyle, 1989; Lee et al., 2008; Notteboomm and Rodrigue, 2005; Ducruet and Lee, 2006). Lee et al. (2008) provided a comprehensive review of the changing relations between port and city in developed and developing countries. In contrast to a Western port- city model, they proposed an Asian hub port-city consolidation model. But very few studies have focused on Shanghai port, although Wang and Slack (2004) analysed port governance in China using Shanghai port as a case study. They found that the central and local governments are still playing key roles in reforming ports and other components of the transport logistics system.

This article argues that the success of city and port development in Shanghai results from favourable market opportunities and the rational development strategies pursued by the city government of Shanghai. It will examine the relationship between port and city development in Shanghai. Different from mega-hub ports such as Singa- pore and Hong Kong, throughput in Shanghai port mainly relies on its own cargo with little trans-shipment (Fremont and Ducruet, 2005). Lee et al.’s (2008) Asian hub port-city consolidation model has ignored the differences between Asian port cities. Three models of global hub port-city will be proposed in this article to describe the different cases of Hong Kong, Singapore and Shanghai. The article will contribute to a better understanding of port and city development in developing countries, especially China.

The rest of article is organised as follows. The next section will discuss globali- sation, the transport revolution and changing port–city relations. The article then describes the opening and development of Shanghai in the reform period to provide a background. The following two sections examine the development of Shanghai’s international shipping centre and analyse the relationship among port growth, economic development and foreign trade. This is followed by a discussion on the models of global hub port-cities. Some conclusions are reached in the final section.

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Globalisation, transport revolutions and changing port– city relations The world economy is driven by trade, which is facilitated by transportation and logistics services. ‘Shipping’ is the physical process of transporting goods and cargo by land, air and sea. Shipping by sea is the most important and economical form of cargo transportation, especially over long distances. In this article, only shipping by sea is considered, and thus ‘shipping’ generally refers to shipping by sea. Ports are terminals that receive ships and transfer cargos. The ‘shipping industry’ refers to the whole business of shipping, which generally develops in port cities. Cities get access to shipping services via ports, so the location of ports has major implications for trans- portation and trading. As a result, ports and cities have close relations.

Globalisation and technology improvements are important forces of change in the spatial patterns of the world’s port system. The world economy has been shaped by economic globalisation, with increasing flows of capital, trade and information assisted by deregulation and technological innovation (Airriess, 2001a; Li and Gray, 2002). Global and regional production and trade networks have been formed, and require more sophisticated cargo transportation.

Transportation revolutions such as containerisation, expanding the size of ships and intermodalism,1 as well as shipping alliances, result in competition and coopera- tion in the port industry. To increase efficiency, shipping lines seek to concentrate their services in a few hub ports. As ships can move easily, shipping lines have great freedom to choose ports. Thus ports are forced to build deep-water terminals and expand back-up areas to enhance competitiveness. As a result, there is greater traffic concentration in several hub ports (Lee et al., 2008).

Generally, the port industry has become less important in Western cities, which are increasingly based on services rather than manufacturing. For example, the port area of New York was stagnant after the growth period of 1900–50. Its total trans- shipment of goods declined from 115 million tons in 1979 to 41 million tons in 1995 (Meyer, 1999). As containers can be moved from one port to many destinations via the seamless intermodal system using various modes of transportation, port activities tend to be concentrated, resulting in strong competition. For example, port authorities have initiated and supported the competition between Baltimore and Hampton Road for the position of mid-Atlantic load centre (Starr, 1994).

In developing countries, ports originated from fishing and naval harbours. Colonial ports were established in existing cities with deep water, large spaces and good connec- tions between the foreland and the hinterland. Previous studies have shown increasing levels of port concentration, but port cities in developing countries are less negatively

1 Intermodalism refers to the movement of international shipments via containers using sequential transportation modes such as water, air and land.

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affected by globalisation (Lee et al., 2008; Notteboomm and Rodrigue, 2005). Historically, there has been a close relationship between the growth in demand

for freight and passenger traffic, and economic growth (Airriess, 1993; Hesse and Rodrigue, 2006; Lee and Rodrigue, 2006; Banister and Berechman, 2001; Fujita and Mori, 1996). Port growth is driven by economic growth in the city and its hinterland. In city-regions, such as the Hong Kong-PRD region, rapid expansion in industrial production and international trade has stimulated the growth of leading container ports, including Hong Kong and Shenzhen. The growth of ports, shipping and trade services in turn stimulated the growth of service sectors such as logistics and financial services (Shen, 2008a; Yeung and Shen, 2008a). Thus port cities are well placed to act as growth centres and as centres of innovation and modernisation (Gleave, 1997). Consequently, the shipping industry is a very important sector in some major cities in the world, including Hong Kong, Singapore and Shanghai in Asia. As in Singapore, Shanghai’s government considers the development of the port as an integral process of urban development and takes a leading role in the development of port infrastruc- ture (Airriess, 2001a).

Generally, ports can be categorised into hub ports, non-hub ports and feeder ports according to their role in regional or international shipping services (Wang and Slack, 2004). A hub port is an international shipping centre that offers cross-ocean interna- tional shipping services with connections to feeder ports for trans-shipment. Feeder ports do not have cross-ocean services but are connected with hub ports by river and coastal vessels. Non-hub ports may have limited cross-ocean services and connections with feeder ports.

The term ‘international shipping centre’ is used in China and refers to an impor- tant hub port-city that is equipped with a container hub port and has a strong shipping industry (DWTMC, 1999, 75). The container hub port is the most important hardware in an international shipping centre.

There is an inherent connection between a shipping centre, a trade centre and a financial centre. The history of urban development shows that an international financial centre is developed on the basis of advanced trade business (Reed, 1981). Thus becoming a strong international trade centre is a precondition to becoming an international financial centre. This is because financial services are induced by the trading of goods and services in the modern economy. But an international trade centre, especially those – such as Hong Kong – based on tangible goods, relies on an international shipping centre for logistics services. As location and site selection of an international shipping centre is much more stringent than that of an international trade centre, the international trade centre often follows the location of an inter- national shipping centre rather than vice versa.

According to the neoclassical port-city model, economic activities are often concentrated in port cities which will become dominant national cites (Hoyle, 1989;

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Fujita and Mori, 1996). Most world-class economic, financial and trade centres serve concurrently as international shipping centres today. For example, four well-known international trade and financial centres, New York, Tokyo, Singapore and Hong Kong, are also international shipping centres, although the shipping industry in New York has passed its peak (DWTMC, 1999). Thus port development and urban devel- opment depend on each other as ports support the essential logistics and shipping services of large urban centres.

Many studies have examined the changing relations between port and city (Hoyle, 1989; Lee et al., 2008; Notteboomm and Rodrigue, 2005; Ducruet and Lee, 2006). Lee et al. (2008) provided a comprehensive review of the changing relations between port and city in developed and developing countries. The Western port city model proposed by Hoyle (1989) has five stages. In the first stage of primitive port-city, there is close spatial and functional association between city and port. In the second stage of expanding port-city, rapid commercial and industrial growth forces the port to develop beyond the city confines, with linear quays and break-bulk industries. In the third stage of the modern industrial port-city, industrial growth – such as oil refining and introduction of containers and ro-ro (roll-on, roll-off) – requires space and the separation of city and port. In the fourth stage of retreat from the waterfront, changes in maritime technology induce the growth of separate maritime industrial develop- ment areas and the port no longer uses the waterfront in the city. In the fifth stage of redevelopment of the waterfront, urban renewal takes place in the waterfront of the old port. Large-scale modern ports consume large areas of land/water space and develop separately. Lee et al. (2008) added the sixth stage of a general port-city, where there is rising environmental concern for intermodal transport and the city economy develops like non-port cities.

Lee et al. (2008) proposed an Asian hub port-city consolidation model, arguing that the Western model is not appropriate. The first stage is a fishing coastal village with self-sufficient local trade. The second stage is the colonial city-port developed by dominant external interests for raw product exploration and geopolitical control. The third stage is the entrepôt city-port. With trade expansion and entrepôt function, the modern port develops through land reclamation. The fourth stage is the free trade port-city. Export-led policy attracts industries using port facilities through tax-free procedures and low labour costs. The fifth stage is hub port-city. Port productivity increases due to hub functions and the need to grow within a limited port area due to territorial pressure close to the urban core. The sixth stage is the global hub port-city. The old port maintains its activity and a new port is built due to rising costs in the hub and possible hinterland expansion.

According to Lee et al. (2008), a common aspect of all Asian ports is the formation of new ports, but a major difference from Western port cities is that there is increasing port activity in the original port areas close to the city centre in Asian port cities. This

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is because the centres of Asian cities remain the most active and important economic centres. In Western countries, the volume of local cargo and port functions have declined due to de-industrialisation. Ports have been encouraged to move from the inner city to outer areas to leave waterfronts free for leisure and service functions for urban residents (Lee et al., 2008).

Although Asian port-city models show the difference between Western and Asian ports clearly, the differences between the Asian port-cities are ignored. Singapore, Hong Kong and Shanghai are three giant hub ports in Asia. Lee et al. (2008) examined Hong Kong and Singapore as global hub ports with high intermediacy (connection between different scales of a transport system) and centrality. Shanghai has more recently been acknowledged as a significant hub port and is located within the YRD. It is an emerging world city with a significant manufacturing sector. Due to the different positions of Hong Kong, Singapore and Shanghai in the world economy and inter- national shipping, this article will use Shanghai to demonstrate that Shanghai’s global hub port-city model differs from that of Hong Kong and Singapore. The article now turns to the context and the development of Shanghai international shipping centre.

Opening and development of Shanghai in the reform period Shanghai was the biggest financial, trade and industrial centre in China and the Far East before the foundation of the People’s Republic of China (PRC). It has also been the most important port-city since the end of the nineteenth century. After the foundation of the PRC in 1949, Shanghai was turned into an industrial and economic powerhouse. It dominated the national economy in manufacturing, commerce and international trade between 1949 and 1978. Its fiscal revenue accounted for one-sixth of the total revenue of the Chinese government up to the beginning of the reform (Yeung and Sung, 1996). Shanghai was also famous for its economic efficiency and quality products. Its economic and technological achievements are attributed to its superior endowments, including an experienced labour force, superior managerial and technical skills, an established industrial foundation, higher productivity, social infrastructure and good supporting facilities (Yeung and Sung, 1996; Tian, 1996; Hyslop, 1990). However, China had little foreign trade and the Shanghai port mainly served domestic transportation between 1949 and 1978. International shipping services increased only after 1978.

Shanghai experienced relative stagnation and even setbacks during the 1980s (Yeung and Sung, 1996). The central government was very cautious about granting SEZ (Special Economic Zone) autonomy to Shanghai (White III and Cheng, 1998). Only after 1990, when Shanghai was granted a status similar to Guangdong through the Pudong New Area policy, did it start to achieve fast urban development.

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The development of the Pudong New Area is central to Shanghai’s ambition to become the leading industrial, financial and trading centre in China and the world (Wu, 1999). ‘Infrastructure goes first’ has been a government strategy since the early 1990s. A package of major projects has been completed. The core projects include ‘three ports’ (a deep-water port, an airport and an infoport); ‘three networks’ (a rail network, an urban highway network and a cross-river transportation network); and ‘three systems’ (a power supply system, a natural gas supply system and a central heating system). The traditional commercial areas have also undergone massive redevelopment.

The investment environment in Shanghai has been improved greatly. It has become a prime destination for foreign investment and a major commercial and business centre. Significant amounts of domestic and foreign capital have been invested in Shanghai, especially since 1992. Its foreign trade has risen rapidly since 1979. The annual growth rate of the total value of imports and exports was 19.71 per cent in 1985–2006 (Table 1).

Economic indicators 1985 1990 1995 2000 2004 2006

GDP (RMB billion) 46.7 75.6 246.3 455.1 745.0 1036.6

GDP per capita (RMB) 3764 5891 17323 19786 46298 57052

Investment in fixed capital (RMB billion) 11.9 22.7 160.2 187.0 308.5 392.5

Foreign capital actually utilised (US$million) 1.15 7.80 52.98 53.91 65.41 71.07

Total value of import and export (US$billion) 5.2 7.4 19.0 54.7 160.0 227.5

Table 1 Main economic indicators in Shanghai

Source: SMSB (2005; 2007). GDP per capita is calculated on the basis of usual residents, including temporary population

Table 1 also shows dramatic economic growth in Shanghai. Its GDP reached RMB1,036.6 billion and its GDP per capita reached RMB57,052 in 2006.2 With only 1 per cent of China’s population, Shanghai accounted for 5.5 per cent of its GDP, 4.4 per cent of investment in fixed capital, 9.5 per cent of cargo throughput, 10.8 per cent of foreign capital actually utilised and 24.5 per cent of the total value of imports and exports in 2004. Indeed, it has become an emerging world city (Wu, 1999; 2000; Shi and Hamnett, 2002; Huang et al., 2007).

At the very beginning of Shanghai’s take-off in the 1990s, the central govern- ment endorsed a grand strategy to develop international economic, trade, financial services and shipping centres in Shanghai. These four centres are mutually supportive and make Shanghai stronger than any single centre would. The city made significant

2 US$1 =RMB7.9718 in 2006 (National Bureau of Statistics, 2007).

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progress in the development of four centres during the tenth and eleventh five-year plan periods (2001–10). The next section will examine the development of Shanghai international shipping centre and its relationship with urban development.

Development of Shanghai international shipping centre Opportunities for port development

Developing an international shipping centre is a key part of urban development strategy in Shanghai. The rationale behind this strategy can be understood from the relationship between hub port development and urban development, which was discussed earlier in the article. Figure 1 summarises the major factors contributing to the growth of the international shipping centre in Shanghai.

As shown in Figure 1, the open door policy and Pudong New Area development have stimulated FDI, manufacturing and international trade in Shanghai, providing significant opportunities for the development of an international shipping centre in the city (Airriess, 1993; Yeung and Shen, 2008b).

Figure 1 Formation factors of Shanghai international shipping centre Source: SMSB, 2007

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Furthermore, the YRD is one of the most advanced economic regions in China. There is also rapid economic and export growth in these cities. Much of the trade and export income in the YRD relies on the port of Shanghai. The total exports from Shanghai and the YRD, respectively, reached US$64.3 billion and US$201.7 billion in the first half of 2007 (Shanghai Statistics, 2007). Thus, as Shanghai and the YRD are major exporters of manufactured products, there is a great need to develop a leading international shipping centre in or near Shanghai. As discussed before, the world port system shows a strong tendency towards concentration in some global hub ports due to changes in shipping technology and organisation (Lee et al., 2008). Port competition has also emerged in the YRD for the status of leading global hub port. Shanghai and Ningbo have the natural conditions to develop large seaports (Wang and Slack, 2004).

Various factors and considerations give Shanghai an advantage in developing the most important international shipping centre in the YRD. First, it has an advantageous geographical environment. Located in the mouth of Yangtze River (6,300 kilometres long) and the middle of the coastal area in eastern China (with a 1,800-kilometre coastline), Shanghai has a vast hinterland and is a centre for business and cargo distribution by land, river and sea. Second, Shanghai has a long history of being the national economic centre and was a treaty port (colonial city port) in the period 1845–1949. Many investors have great confidence in investing in Shanghai, which further reinforces its urban development potential.

Development of port infrastructure led by the government Due to these favourable conditions, the Shanghai government has adopted an ambitious strategy of port development with heavy investment. Thus Shanghai port has experienced significant growth both in port infrastructure and container throughput. It is now the largest multipurpose port in mainland China and one of the leading ports in the world, consisting of port facilities at the mouth of the Yangtze River, the Huangpu River and the northern part of Hangzhou Bay.

As early as the 1930s, Shanghai was a world-renowned shipping centre in the Far East. Shanghai was the largest port in mainland China during the Maoist period between the 1950s and 1970s, but its international status gradually declined in that period. Since the introduction of reform and open door policies in China in 1978, port development in Shanghai has sped up. More significantly, the Chinese government approved the overall urban planning of Shanghai in the early 1990s with the clear strategic goal of developing international economic, financial, trade and shipping centres there. Soon afterwards, a grand blueprint for the Shanghai international shipping centre was drawn up by the government. The policy position of the central government helps Shanghai overcome potential competitors from nearby cities. For

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example, the central government endorsed the development and administration of the Yangshan container port by Shanghai, although the port is located in Zhejiang province.

Shanghai started as a fishing village. The initial river port was located in the Suzhou and Huangpu rivers. It grew along with the city, and additional port terminals have extended along the Huangpu towards the mouth of the Yangtze in the twentieth century. In the 1980s, a special river port for the transportation of raw materials was built on the south bank of the Yangtze for the largest steel project, Baosteel, in China. A sea port was built at Xiaoyangshan Island in 2005. Thus the current Shanghai port consists of both a sea port and an inland river port (see Figure 2).

The old river port of Shanghai was constrained by water depth. The water in

Figure 2 Ports in Shanghai Source: SMSB, 2007

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the Yangtze estuary is only seven metres deep, and the third and fourth generation container ships could come in and out freely only at high tide. The depth of the water on the Huangpu is only seven to eight metres. The river is too narrow and container ships cannot turn around freely. Even with dredging in the 1990s, the access of large-scale container ships (1,400 twenty-foot equivalent units [TEUs]) to the port was restricted by its limited depth. Several attempts have been made to improve the capacity of Shanghai port since the 1990s, including the deepening of the Yangtze’s mouth, the Waigaoqiao deepwater port project in Pudong New Area, and the Yangshan deepwater port project. In the period 2001–05, over RMB10 billion was invested in port construction.

The Phase I channel renovation project at the Yangtze River mouth was officially started in January 1998. Its aim is to facilitate the construction of container terminals at the river mouth, so as to accommodate ultra-large container ships in the future. In accordance with the plan, the river mouth channel has been deepened from 7 metres to 12.5 metres in the past 10 years.

The Waigaoqiao deepwater project at the mouth of Yangtze River was started in 1993. Its aim was to develop a port area of 1.63 square kilometres with a water depth of 13 metres, capable of accommodating four ships (4,000 TEUs each) at the same time. Waigaoqiao Free Trade Zone was established to make use of the port facility. However, there were concerns regarding the feasibility of maintaining a 13-metre depth due to the silting of the river.

Due to the difficulty of maintaining water depth in the Huangpu and the Yangtze, and the rapid growth of container volume, the Yangshan deep water port project was finally chosen as a long-term solution to fulfil the ultimate goal of developing Shanghai as an international shipping centre. The project was approved by the State Council in May 2001 based on three feasibility reports submitted by Shanghai, Zhejiang and Jiangsu on possible deep water ports in their territories (Wang and Slack, 2004). Without this project, the growth of Shanghai port could have been constrained in the near future; Shanghai could have been replaced by Ningbo port, which has a superb water depth of 12.5 metres in its existing terminals, and 22 metres just 500 metres offshore. All the shipping lines are enthusiastic about the Yangshan port, indicating in a consultancy study that they would use it. This commercial support is critical in the development of container hubs such as Singapore (Airriess, 2001a; Slack, 1993). On the other hand, the Yangshan project was heavily subsidised by the Shanghai govern- ment, which funded the toll-free, 32.5-kilometre Donghai Bridge to make the port attractive. The cross-sea bridge will connect Shanghai’s Luchao port and Yangshan port in the East China Sea.

Shanghai government and its SOEs (state-owned enterprises) led the investment in Yangshan port. The central government did not provide any financial commit- ment to the project, and it gave approval to the 36-kilometre Hangzhou Bay Bridge,

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the longest trans-oceanic bridge in the world, to link Ningbo port with the YRD to compete for cargos with Yangshan port. The bridge opened on 1 May 2008. The total investment in the bridge is RMB11.8 billion, with 28.64 per cent of the registered capital raised from private companies (Lai, 2008). The container operators in Ningbo port reimburse the bridge toll to container trucks to attract cargo.

Yangshan is the largest port ever built in China. It is also completely separated from the urban centre of Shanghai, which may reduce the negative impact of a busy container port on an urban neighbourhood. It seems that the need to find a suitable port site, rather than environmental considerations, drove the changes of port location in Shanghai, while both factors may have contributed to port relocation in the developed and developing countries (Lee et al., 2008). The building of express- ways has also reduced the necessity to locate container ports in city centres, although some old river ports in Huangpu River are still in use.

The Yangshan project includes three main parts: the Yangshan deep water port, Donghai Bridge and Luchao New Harbour City.

Yangshan deep water port Yangshan deep water port is located at Xiaoyangshan Island at the mouth of Hangzhou Bay in Zhejiang Province, 27.5 kilometres away from Luchao Port in Shanghai’s Nanhui district. The whole project consists of four phases of construc- tion. Phase I, designed to handle the world’s largest container ships (with 8,500 TEUs each), was completed and opened in mid-December 2005. Phase II construction was completed in September 2007. Phases I and II have a total of 9 container berths on a 3-kilometre dock with water depth of 16 metres, and an annual handling capacity of over 5 million TEUs. Phase III has 7 berths on a 2-kilometre dock, with a total invest- ment of RMB15.6 billion. Phases IIIA and IIIB were completed by the end of 2007 and 2008 respectively. The whole project will be completed by 2020. It is expected that more than 50 container berths, capable of handling fifth and sixth generation container ships, will be built in total. The annual handling capacity of the deep water port will increase to around 25 million TEUs.

Donghai Bridge Donghai Bridge opened to traffic on 15 December 2005. Luchao Harbour City is intended to be a world-class modern harbour city, providing offices, housing, and commercial and recreational facilities for people working in Yangshan port.

Yangshan Port Shanghai International Port (Group) was founded on 8 July 2005 on the basis of the Shanghai Port Authority. It absorbed the Shanghai Port Container company on 26 October 2006. The company is owned jointly by the state (including several SOEs) (70 per cent), and China Merchants Holdings (30 per cent). It controls all the container

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ports in Shanghai, including a few joint ventures. It owns 40 per cent of Shanghai Waigaoqiao Free Trade Zone Port Company, and 50 per cent of Shanghai Container Terminals (the other 50 per cent being owned by Hutchison Ports Shanghai). The company handled 60.42 per cent of cargo throughput and 100 per cent of container throughput in Shanghai in 2005 (Board of Governors of Shanghai International Port and Board of Governors of Shanghai Port Container Company, 2006).

Shanghai port has developed and extended from a port along the Huangpu River to Waigaoqiao port on the southern bank of the Yangtze and then to Yangshan deep water port. These port projects, together with the existing Pudong International Airport and the highway and railway, signify the formation of an advanced logis- tics centre in Shanghai, as planned by the government. Clearly, the development of Shanghai port is the result of great opportunities and government strategies in port development.

The relationship between port growth, and economic development and foreign trade This section examines the growth of throughput and the relationship between port growth, and economic development and foreign trade. Figure 3 shows the cargo throughput of Shanghai port between 1978 and 2006. The throughput was only 79.55 million tons in 1978, well behind other international ports. The period of 1984–98 saw stable growth, followed by rapid growth after 1998 due to dramatic economic growth. By 2005, Shanghai had eclipsed Singapore as the largest port in the world. In 2006, its cargo throughput reached 537 million tons.

Figure 3 Cargo throughput in Shanghai port between 1978 and 2006 Source: SMSB, 2007

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In line with developments in the global port industry, Shanghai has sped up its devel- opment of container transportation (DWTMC, 1999, 57). The container throughput was only 8,000 TEUs in 1978. It surged to over 1 million TEUs in 1994, over 5 million in 2000 and over 21 million in 2006 (Figure 4). The container throughput of Shanghai has increased more than 40-fold since 1990. The average growth rate of the container throughput was 24.30 per cent per year in 2003–06. Shanghai became the largest container port in China, and in the world rankings rose significantly from seventh in 1999 to third in 2003 and second in 2007 and 2008, with container throughput of 28 million TEUs. The gap in container throughput between Shanghai and Singapore was only 1 million TEUs in 2008.

The rapid growth of container throughput is also propelled by containerisation. The rate of containerisation is defined as container cargo as a proportion of total cargo throughput. It was as low as 1.63 per cent in 1985, but increased dramatically to 36.7 per cent in 2005. In fact, of the RMB10 billion investment in port construction in the period 2001–05, over 80 per cent was used to build new container ports or expand existing ones. A container-based global hub port-city has emerged in Shanghai.

Figure 4 Container throughput in Shanghai port between 1978 and 2006 Source: SMSB, 2007

Indicator GDP GDP in secondary sector Total value of import and export

Cargo throughput 0.91 0.92 0.98

Container throughput 0.95 0.95 0.99

Table 2 Correlation coefficients between port throughput and economic indicators

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Now we will examine the relationship between the growth of container throughput, the urban economy and the hinterland in the case of Shanghai. Three economic indicators – GDP, GDP in the secondary sector, and the total value of imports and exports – are used to represent the urban economy, manufacturing and foreign trade, respectively. Table 2 shows their Pearson correlation coefficients in the period of 1985–2005. All correlation coefficients are highly significant at 0.05 level. The results show clearly that the growth of Shanghai port is closely related to the development of Shanghai’s economy, manufacturing and foreign trade.

Figure 5 shows the proportion of foreign trade in total cargo throughput. The period 1978–2005 can be divided into two periods. Between 1978 and 1993, the share of foreign trade in total cargo throughput was around 20 per cent, indicating that Shanghai port mainly served the needs of domestic goods transport. In the second period of 1994–2005, the share of foreign trade in total cargo throughput increased rapidly. It is in this period that Shanghai emerged rapidly as a global hub port. This change was induced by rapid expansion in international trade, especially outward processing driven by foreign investment.

Shanghai has attracted a great deal of foreign direct investment (FDI). By 2006, it had received a total FDI of US$66.76 billion. In 2006, foreign-funded enterprises accounted for 40 per cent of industrial output. In addition, Hong Kong, Macao and Taiwan-funded enterprises contributed 15.2 per cent of industrial output (SMSB, 2007). Given that a lot of FDI is engaged in outward processing and assembling by large-scale import and export, its share in export has also increased greatly. In the period 1991–2006, exports grew by 23.9 per cent per year, while FDI grew by 26 per cent per year. In 2006, foreign-funded enterprises contributed 66.86 per cent of the

Figure 5 Share of foreign trade in total cargo throughput at Shanghai port between 1978 and 2005 Source: SMSB, 2007

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total export from Shanghai. The share of exports due to outward processing also reached 56.15 per cent in that year (SMSB, 2007). The growing economy of Shanghai provides great impetus to the development of the port industry.

The cargo throughput at Shanghai port comes from Shanghai and its hinterland, the YRD. By comparing the total value of imports and exports of Shanghai port and the total value of imports and exports by Shanghai firms, the position of Shanghai port as a regional hub port can be revealed. These two indicators are different, as firms in Shanghai’s hinterland may also use Shanghai port for import and export.

As shown in Table 3, Shanghai firms accounted for less than half of the total value of imports and exports in Shanghai port in the period 1985–98. Thus Shanghai was mainly a hinterland-serving hub port-city in that period. Shanghai firms accounted for more than half of the total value of imports and exports in Shanghai port in the period 1999–2005. Shanghai became mainly a city-serving hub port-city in this period. The significant increase in exports by Shanghai firms is due to the rapid

Year 1985 1990 1992 1994 1996 1998 1999 2000 2002 2004 2005

Total imports and exports of Shanghai firms

5,174 7,431 9,757 15,867 22,263 31,344 38,604 54,710 72,664 160,026 186,365

Total imports and exports in Shanghai port

14,873 17,289 25,145 36,242 5,287 63,638 76,151 109,311 142,501 282,575 350,377

Share of Shanghai firms (%)

34.79 42.98 38.80 43.78 42.11 49.25 50.69 50.05 50.99 56.63 53.19

Table 3 Comparison of total import and export of Shanghai firms and total import and export in Shanghai port (US$ million)

Source: SMSB, 2007

Source 1st quarter of 2006 2005 2004 2003

Total 4,594 18,084 14,554 11,282

Trans-shipment of Yangtze River 410 1,418 1,111 798

Share (%) 8.92 7.84 7.63 7.07

Coastal trans-shipment 112 605 449 283

Share (%) 2.44 3.35 3.09 2.51

International trans-shipment 104 403 282 134

Share (%) 2.26 2.23 1.94 1.19

Table 4 Source of containers in Shanghai Port (1000 TEUs)

Source: Board of Governors of Shanghai International Port and Board of Governors of Shanghai Port Container Company, 2006

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growth of advanced manufacturing in Shanghai in the twenty-first century, making it significantly different from Hong Kong and Singapore, which rely on hinterland and trans-shipment respectively. In contrast to Singapore, Table 4 shows that trans- shipment accounted for only 13.62 per cent of total containers in Shanghai port in the first quarter of 2006.

Discussion: three models of the global hub port-city The spatial evolution of port and city relations in both developed and developing countries, and how the importance of ports and the shipping industry has declined in some Western cities due to globalisation and de-industrialisation, have been outlined earlier in the paper. In Asia, many ports continue to expand, and some have become global hub ports according to the Asian hub port-city consolidation model (Lee et al., 2008). The emergence of global hub ports in Asia has much to do with export- oriented industrialisation driven by large scale foreign investment and international trade.

Thus if cities adopt an export-oriented strategy, as Shanghai has done, inter- national shipping centres become even more important to their development and growth. Indeed, developing a container hub port and an international shipping centre has become an essential urban development strategy to attract foreign investment, promote economic development and expand international trade. Many cities in China and Asia more widely are keen to make investments in container ports, leading to strong competition (Shen, 2008b). With a growing manufacturing industry, finan- cial and trade centres could then emerge in such cities. Thus for cities in developing countries such as China, the formation of financial and trade centres will be facilitated by a strong international shipping centre (Frankel, 1998; Wang, 1998; Sung, 1999; Airriess, 2001a).

The Asian hub port-city consolidation model developed by Lee et al. (2008) describes the main characteristics of hub port-cities in Asia, especially Hong Kong

Table 5 Three models of global hub port-city in Asia

Global hub port-city Port function Urban function Representative city currently

City-serving hub port-city City-serving international shipping centre

Manufacturing base; trading centre; financial centre

Shanghai

Hinterland-serving hub port-city

Hinterland-serving inter- national shipping centre

Trading centre; financial centre

Hong Kong

Trans-shipment hub port-city Trans-shipment inter- national shipping centre

Singapore

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and Singapore. Based on the analysis of Shanghai port in previous sections, it is clear that Shanghai’s global hub port-city model is different from Hong Kong and Singapore’s. Indeed, three models of global hub port-city in Asia can be identified according to the relations between ports and their hinterlands (see Table 5).

The first model is called the city-serving hub port-city. The city has a city-serving international shipping centre. It has a strong manufacturing base with a trade-oriented economy. Goods produced by mass production need to be exported to other areas, and a large amount of raw materials and intermediate inputs need to be imported to the city. Thus the international shipping centre will provide essential transporta- tion services for cargos mainly produced by the strong manufacturing base in the city. Cargos from the hinterland are less important than cargos from the city. In the meantime, to deal with domestic and international trade, a trade centre and a finan- cial centre will also emerge in the city. The city-serving international shipping centre helps the city to become an international financial centre. At the same time, the finan- cial and trade centres, in turn, require and also support the city to become an inter- national shipping centre. Currently, Shanghai can be considered as a city-serving global hub port-city. With the further expansion of trading and shipping services to its hinterland, especially the YRD, Shanghai may move closer to the second model in future.

The second model is the hinterland-oriented hub port-city. The city’s shipping centre mainly serves the logistics needs of the hinterland through land and sea trans- portation and trans-shipment. The city also acts as the trade centre for the hinter- land. The hinterland engages in mass production, mainly for export to international markets. Currently, Hong Kong is a typical example of the hinterland-oriented hub port-city. It has the vast hinterland of the PRD, which has become the world’s factory. Many commodities produced in the PRD are traded and exported via Hong Kong (Shen, 2008a). Hong Kong acts as an international financial centre, trade centre and shipping centre, but Hong Kong itself is not currently a major manufacturing base. Indeed, Hong Kong was a city-serving hub port in the 1960s and 1970s when it was a major manufacturing base and its shipping centre mainly served its own cargo. Massive industrial relocation and cross-boundary investment in the PRD since the 1980s have changed Hong Kong’s status from a city-serving hub port-city to a hinter- land-serving hub port-city.

The third model is a trans-shipment hub port-city. The main function of its shipping centre is trans-shipment. In contrast to the second model, transactions are not conducted in the city; commodities are transferred at its port to other places. Singapore is an example. Many products produced in Southeast Asia are exported to worldwide destinations via Singapore, but the trade is not conducted in the city. Singapore’s financial centre status is related to other economic activities in the city. It has a weak link with its trans-shipment services (Airriess, 1993; 2001).

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The first two models show that an international financial centre will follow the growth of an international trade centre in the city. However, the experience of urban development in Western countries shows that the link between the international finan- cial centre and the international shipping centre may be weakened when the urban economy becomes more sophisticated.

New York and London, with the assistance and support of international shipping centres, have gradually become the world’s most important international financial and trade centres. London overtook Rotterdam to become the largest port in the world in the late eighteenth century, while New York became the largest port in USA in the nineteenth century (Xu, 2006). Currently, London’s Tilbury port is the third largest port in UK and serves London together with nearby Felixstowe and South- ampton ports. The port of Felixstowe ranked twenty-ninth in the world in 2005. New York/New Jersey port ranked seventeenth in the world in 2005. The ports became slightly less important as services and offshore trade largely replaced goods trade. The current relationship between the international financial centre and the international shipping centre is weaker. But these cities will continue to prosper because of the ‘lock-in effect’ of agglomeration economies (Fujita and Mori, 1996). These cities were international shipping centres and trading centres before becoming more focused on financial services.

Conclusion Previous studies have outlined the importance of the state as a driving force in the rapid rise of Shanghai (Zhang, 2002; Wu, 2000). Using Shanghai international shipping centre as a case study, this article shows that the success of city and port development in Shanghai results from both favourable market opportunities and rational urban development strategies pursued by Shanghai government.

The article has examined the symbiotic relationship between the port and urban economic development in Shanghai. A strong city economy has played a vital role in the rise of this port. It is clear that the strategy of developing an international shipping centre is based on the opportunities provided by the dramatic growth of manufacturing and export in Shanghai and its hinterland. In Shanghai, massive FDI has resulted in large-scale outward-processing and explosive growth in imports and exports. Statistical analysis shows that the growth of Shanghai port is closely related to the development of Shanghai’s economy, manufacturing and foreign trade.

While Asian port cities are different from port cities in Western countries, there are also significant differences between Asian global hub port-cities. The Asian hub port- city consolidation model ignores these differences (Lee et al., 2008). Three models of global hub port-city are proposed to describe the different cases of Hong Kong, Singapore and Shanghai. These differences are caused by different stages of urban

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development and different relationships between the cities and their hinterlands. Hong Kong and Singapore are well developed cities; their ports mainly serve their hinterlands, with limited manufacturing and cargo generated within the city. Shanghai is an emerging world city with a significant manufacturing sector; it fits the model of a city-serving global hub port-city. With the development of international economic, financial, trade and shipping centres in Shanghai, the city will emphasise the devel- opment of the tertiary sector. With more cargos from its hinterland, Shanghai may become a hinterland-serving hub port-city similar to Hong Kong. Thus a hub port- city can move from one type to another.

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Acknowledgements This article is based on research fully supported by a direct grant from the Chinese University of Hong Kong, project code 2020920. Constructive comments from the editor, Dr Katie Willis, and two anonymous referees are gratefully acknowledged.

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