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Project Name China-Container
Transport Project
Region East
Asia and Pacific
Sector Transport
Project ID CNPE3653
Borrower People's
Republic of China
Implementing agencies:
Inner Mongolia Province, Hebei Province,
Tianjin Municipality, and Zhejiang
Provinces under the coordination of the
State Economic and Trade Commission (SETC)
Contact: Prof. Wang Derong and Ms. Wang
Huimin, deputy team leaders, Central
Project Management Office; No. 2 Railway
Middle School, 9, Shanlihe,East Road,
Xicheng District, Beijing; Phone and
fax no. 86-10-6853-3272
Date this PID prepared July
7, 1998
Tentative Appraisal date July
15, 1998
Tentative Board Date November
15, 1998
Available
Project Documents
Sector Background
Introduction: China's foreign trade has more than doubled in the
last five years from US$109 billion in 1991 to US$274 billion
in 1996 with associated changes in commodity mix from low value
to high value cargo. However, this growth has been
regionally unbalanced. Coastal regions have grown rapidly,
while those in the interior have fallen progressively behind in
export and import activities. Interior provinces account for 63
percent of population, but they account for only 17 percent of
foreign trade. This inequality in foreign trade between interior
and coastal regions has aggravated existing regional income disparities.
Unless transport links connecting inland regions to coastal regions
are improved, regional disparities are likely to grow further
in the future.
Containers offer a fast, safe and cost effective means of transportation
in exporting and importing commodities; they are easily transferred
from one mode of transport to another; they enable operators to
offer door-to-door, land-sea through services, with predictable
delivery times; and they reduce pilferage en route. For these
reasons, world-wide, 80 percent of general cargo, measured in
terms of value, and 50 percent in terms of weight, now move by
containers. Thus, they effectively shrink economic
distances between coastal ports and inland production centers,
and can stimulate import and export industries in the hinterland. Many
companies in developed countries are now unwilling to place orders
with factories located in areas where there are no container services..
Over the last decade, China's international container shipping
has grown rapidly with port throughput rising from 2.2 million
TEUs in 1991 to 8.1 million in 1996 (See Annex 22 for overall
container traffic in China). Still, most of the growth
has been confined to the coastal provinces; only 24 percent of
seaborne containers (which are mostly owned and handled
by Cosco and Sinotrans) travel beyond port cities). Indeed,
most are stripped in ports and their cargoes are carried in break-bulk
to inland destinations. As a result, the benefits of
container transport, as a means for door-to door or
dock-to-dock transport, have yet to be realized in these localities.
Recognizing the critical importance of developing an inland distribution
system for seaborne containers, the Chinese Government and the
Bank jointly undertook a sector study of transport logistics in
1994. This joint effort resulted in the production
of the sector study, "Container Transport Services and Trade"
(Gray Cover Report No. 15303-CHA, October 1996). This project
responds to the study's principal recommendation to initiate a
pilot project to develop intermodal container links along selected
corridors between gateway ports and inland destinations.
Main sector issues: A sector study carried out jointly by the
State Economic and Trade Commission (SETC) and the Bank identified
six major impediments to the efficient inland distribution of
seaborne containers.
(a) Uncoordinated Government responsibilities. Government agencies
are structured along modal lines. Many deal with intermodal
issues solely from their own perspective, passing laws and regulations
without coordinating with the others. The result is an array of overlapping
jurisdictions and fragmented legal structures. Compounding
this problem is the government agencies' involvement in intermodal
operations either in their own right or through their affiliate
enterprises. Although efforts have been made to separate
the regulatory and operational functions, quasi-collusive relationships
between the state and enterprises still persist.
(b) Lack of effective competition in intermodal markets. Intermodal
service in China has been dominated by two state owned enterprises
(SOEs), Sinotrans and Cosco groups. Although
this dominance has been declining in the coastal areas, these
two giant operators still enjoy more than three fourths of the
market share in inland market, largely due to their nation-wide
service network. For instance, Sinotrans has 56 subsidiaries,
covering capital cities of all provinces and major port/air port
cities, and 45 domestic joint ventures based in major load centers
in China. In addition, these two operators have door-to-door
service capability by offering combined services of freight forwarding,
shipping agency and trucking services, allowing them to continually
dominate the inland distribution markets. This dominance
has, however, resulted in costly and less user oriented service
provision.
(c) lack of container handling facilities and equipment at inland
locations. The lack of inland container
handling facilities has made container transport to and from inland
points costly. This does not allow containers to be
kept at inland locations. In addition, the limited
availability of customs clearance function does not permit container
cargoes to be carried in bond, thus necessitating containers to
be inspected again at seaports. Compounding this problem
is the limited availability of empty containers and container
trucks. Thus, shippers in these cities have to wait
for empty containers and container trucks to be relocated from
the coast to the interior, which adds to the time and cost.
(d) Inadequate transport links leading to inland cities to ports.
The shortage of transport capacity is a long-standing problem
in China's transport sector. The lack of rail capacity
has limited shippers' access to cost-effective long-distance service,
the most critical element for moving cargo to inland destinations. Trucking
service is also poor due to underdeveloped truck manufacturing
technologies and the limited highway network system.
(e) Lack of user orientation of port container terminals: Container
terminals in Chinese ports have been traditionally operated by
port authorities or their affiliate state-owned enterprises (SOEs),
but recently an increasing number of ports have decided to get
the private sector participate in terminal development and operation. These
cases are found in Shanghai, Yantian, Xiamen and Shekou, but a
common problem is that this has created another monopoly by the
private sector operator, bringing little benefit to shippers (e.g.
a sharp hike in container handling charges). The container
operations at Tianjin Port are currently carried out by two SOE
terminal operators. However, no genuine competition
exists among them since both are 100% owned by Tianjin Port Authority
(TPA), which has resulted in lack of user orientation. In
addition, a recent Bank team's review of TPA's container operations
has revealed relative low productivity of its container handling
companies. This is due to several factors including
the aged container handling equipment and the lack of practices
of setting a cut-off time in accepting containers at port container
yard
(f) Onerous cross-border inspections. Although cross-border
inspections have improved since the mid-1980s, they still delay
containers at points of entry. Repeated inspections
by different agencies often cause frustration to exporters and
importers. The inconsistent application of regulations
have confused foreign shippers and delays the process. Cumbersome
customs procedures for bonded transit to inland destinations discourage
importers to clear their cargo at inland locations, perpetuating
the practice of opening containers for customs clearance both
at port areas and again at inland destinations for discharging
containers.
Sector issues to be addressed by the project: The project addresses
the above sector issues in such a manner as described below.
(a) Closer coordination among relevant agencies and the establishment
of arm's length relationships between the Government and intermodal
operators: Responding to the recommendation of the
sector study, the Chinese Government has established a vice-ministerial
level group in January 1996 to improve coordination among different
agencies with regard to policy issues associated with container
transport and trade facilitation. In addition, the
project would establish a users' group in which shipping lines,
freight forwarders and
government officials would meet to regularly discuss issues associated
with intermodal operations. This would help resolve
problems encountered. The project also requires the
conversion of state- or collectively- owned enterprises into limited
liability or stock companies so as to establish an arm's length
relationship between regulatory agencies and inland container
depot (ICD) operators.
(b) Introduction of effective competition: The project
will address this issue by enabling project ICDs to offer alternative
service options to inland exporters or importers in inland distribution
markets that has been dominated by Sinotrans and its affiliate
enterprises. The project is also designed to bring
in intra-port competition between SOE and joint venture (JV) terminal
operators in Tianjin Port so as to let them provide more cost-effective
services to users (see Annex 13 for the policy framework diagram
for the port component).
(c) Development of common-user ICDs at inland locations. The
project would assist qualified enterprises to develop ICDs with
custom clearance functions and to accept containers of all shipping
lines. This would enable inland shippers to get their cargo transported
to and from seaports in a safer and more cost effective manner.
(d) Capacity expansion of transport infrastructure. Since
this capacity issue has been and is being addressed by the other
Bank projects in the transport sector, this project would not
directly deal with this issue. It would, however, address
the institutional issue by eliminating policy restrictions which
impede smooth movement of cargoes along the existing infrastructure
(such as elimination of miscellaneous charges often levied en
route).
(e) Enhancement of berth productivity: In order to
increase berth productivity, the project would provide
THCC with funds for upgrading the container handling facilities.
The project would also address this issue by initiating a port
efficiency enhancement study with the aim of reforming the current
operational practices which lower productivity.
(f) Streamlining of cross-border inspections: The
project will help streamline cross-border inspections by initiating
pilot programs to: (i)
reduce the percentage of sample checking for customs clearance;
and (ii) simplify customs procedures for bonded transit of seaborne
containers to and from inland destinations.
Project Objectives
The project is aimed at facilitating inland penetration of seaborne
containers from gateway ports to inland cities, thus contributing
to arresting increasing economic disparities between coastal and
inland areas.
Its developmental impact would be measured by four performance
monitoring indicators: (i) the value of imports and exports to
and from project cities; (ii) the number of containers handled
at project inland container depots (ICDs) located at the ends
of the pilot corridors; (iii) the number of containers handled
at Tianjin Harbor Container Company (THCC); and (iv) average container
cycle time between gateway ports and selected ICDs.
Project Description
A pilot project: Developing an efficient inland distribution system
requires broad based policy reforms of the existing intermodal
arrangements, together with the establishment of new operational
systems. Many of these reforms and system development
should be tested before the changes are adopted on a nation-wide
basis. In this context, the Chinese Government and
the Bank have agreed to launch a pilot project to experiment with
the principal reform elements. Two pilot corridors
were selected based on several selection criteria. The
major consideration in selecting pilot corridors were: (i) the
pilot corridors should not be chosen from those which could arouse
a strong interest among the private sectors investors (such as
the Yangzhe River corridor and the Hong Kong-Wuhan-Zhengzhou-Beijing
corridor), but at the same time: (ii) the pilot corridors should
be financially and economically viable so as to demonstrate the
commercial viability of intermodal operations in inland markets,
and thus trigger the future investments by the private sector.
There were not many corridors which met these two conflicting
requirements, but two corridors, one extending from Tianjin Port
through Hebei Provinces to
Inner Mongolia Province, and the other, from Shanghai Port through
Zhejiang Province to Jiangxi Province (Jiangxi Province later
decided to withdraw its application for borrowing from the Bank,
but still remain as a beneficiary of the technical assistance
program ), meet these criteria.
Policy framework: Critical to the success of the project would
be the creation of a policy framework conducive to the development
of an efficient and user oriented inland container distribution
system. To this end, specific policy actions would
be discussed with SETC and other relevant agencies. Those
include actions designed to: (i) improving line-haul services;
(ii) facilitating the provision of a more competitive and user
oriented intermodal services at the both ends of the line haul
services; and (iii) streamlining cross border inspections.
Project components: Within the above policy framework, the project
is structured to include two investment components and a capacity
building component.
Components |
Bank-financing
(US$M) |
% of Bank financing |
| A. Develop common-user ICDs with customs
clearance function along two pilot corridors. Funds
will be channeled through provincial governments to 10 ICD
operators for their purchase of container handling equipment,
container trucks, civil works and EDI/MIS. |
45.3 |
50.2 |
| B. Upgrade container handling capacity at
Tianjin Port. Investment would be directed to upgrading
container handling equipment at container berths. Funds
would be provided to the TPA for its purchase of gantry cranes
and other container handling equipment. |
44.3 |
49.0 |
C. Strengthen the operational capability
of project ICDs and Tianjin Port so as to ensure the success
of two investment components. Fund would be provided
to: (i) strengthen managerial and operational capability of
ICDs; (ii) develop model financial statements for ICDs; (iii)
develop EDI/MIS systems for ICDs; and (iv) study measures
to enhance berth productivity at Tianjin
Port.
|
0.7 |
0.8 |
|
90.2 |
100.0 |
Project Implementation
SETC is the coordinating agency, and four provincial governments
(Hebei, Zhejiang, Inner Mongolia and Tianjin) are sub-borrowers.
Executing agencies of the project are project enterprises (Tianjin
Port Authority and 10 ICD operators).
Project Sustainability
Project Sustainability would be secured by the implementation of
a policy framework designed to remove major impediments to efficient
intermodal transport system along two pilot corridors. Viability
of ICDs are enhanced by developing their facilities in two stages,
starting with a smaller scale and expanding later when demands guarantee
the expansion. It was made conditional to obtain assurance
from relevant agencies for permitting customs officers to be stationed
in the ICDs and for according freight forwarding license to them. It
was also agreed to provide training and technical assistance to
enhance managerial, operational and marketing capability of these
ICDs before their
operations start.
Lessons learned from past operations in the country/sector
- In the past the Bank has undertaken several initiatives in the
areas of intermodalism and logistics management, though few of these
have been fully implemented to date. A major problem
in preparing an intermodal transportation project is finding appropriate
implementing agencies that can effectively deal with multi-sectoral
projects. Where capable implementing agencies are identified,
they often number more than two. Multiple implementing agencies
often result in serious coordination problems, and require an effective
coordinating agency. Learning from this experience, the
Bank decided to select SETC as the coordinating agency because it
has a coordinating mandate over activities of line agencies and
provincial governments.
- Experience in China operations shows that the reform elements
are often delayed in implementation due to the time taken in developing
a consensus within the beneficiary agency and/or among relevant
government agencies. The OED report on railway projects
(September 1993) recommended that "loan covenants should
be used only if there is a realistic expectation that the borrowers
will comply with them". In view of this experience,
the team has encouraged the Chinese government to implement reforms
in an early stage of the project preparation, thus enabling the
Bank to rely less on the legal convenants.
- An OED report on the port sector (November 1996) urged some caution
regarding port privatization. It stated that "there is
no necessary relation between ownership and competition .. privatization
of port assets may lead to monopolies that are difficult to control
and likely to cause political dispute." This, in fact,
has happened in the joint venture operations in Shanghai's container
terminals. A sudden and sharp increase of port charges
by the joint venture operator has triggered controversies on the
need for private sector involvement in the transport sector, and
since then, the Chinese Government has become more cautious about
joint venture operations. Learning from this experience,
this project emphasizes the introduction of intra-port competition. In
extending financial assistance to Tianjin Port Authority as part
of the physical component, the Bank has insisted on not only the
introduction of the private sector in port operations, but also
that of
intra-port competition for container terminal operations.
Environmental aspects
This project is classified as Category B. The reason
is that site specific environmental impacts are minor. Environmental
impacts are mostly related to noise, dust, and hazardous/dangerous
cargo handling.
Contact Point:
The InfoShop
The World Bank
1818 H Street, N.W.
Washington, D.C. 20433
Telephone No. (202)458 5454
Fax No. (202) 522 1500
Note: This is information on an evolving project. Certain activities
and/or components may not be included in the final project.
Processed by the InfoShop week ending August 21, 1998.
Annex
Because this is a Category B project, it may be required that the
borrower prepare a separate EA report. If a separate
EA report is required, once it is prepared and submitted to the
Bank, in accordance with OP 4.01, Environmental Assessment, it will
be filed as an annex to the Public Information Document (PID) .
If no separate EA report is required, the PID will not contain an
EA annex; the findings and recommendations of the EA will be reflected
in the body of the PID.
Jiangxi Province would participate in TA activities without borrowing
the money from the Bank.
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