China Port Sector:FTZs implication for China ports

Preferential policies from Shanghai’s Free Trade Zone (FTZ)

    The State Council published the general plan for Shanghai FTZ on 27 Septemberand the FTZ was officially set up on 29 September. Preferential policies that maybenefit China ports include partial loosening of the cabotage (i.e. non PRC-flaggedships owned by Chinese liners can ship foreign trade containers between Shanghaiand other domestic ports) and expand the Shanghai port’s tax rebate benefit tocover more origin ports, more carriers and different transportation modes.

    Shanghai port will attract more transshipment volume

    The preferential policies will help Shanghai port to take more market share ininternational transshipment at the expense of Busan (8.14m TEU transshipment in2012, 48% of total), whose transshipment volume surged from 1.23m TEU in 2000to 2.94m TEU in 2001 after setting up the FTZ. We do not rule out possibilitiesthat other international transshipment hubs (e.g. HK, Singapore and Kaohsiung)will also lose market share to Shanghai.

    Hidden value in land remains uncertain at this stage

    Although a 15% corporate tax rate seems unlikely to be applied in the FTZ, we stillbelieve that SIPG will benefit from value appreciation of lands it holds in the FTZ.

    It remains uncertain at this stage how much land SIPG holds now, as most land hasthe prior purpose of storage and is hard to gather exact information.

    Stock: Remain positive on CMHI; SIPG looks fully priced in

    We remain positive on CMHI. However, we believe SIPG’s share price alreadypriced in all the potential positives and valuation is stretched.