China’s Factories Turn to Yangtze River to Escape Higher Wages

The manufacturing boom spreading through central China echoes through the night on the wharfs of the Yangtze River in Shanghai as workers unload car parts, canned food and building materials.

“There are too many ships and we can hardly secure a place,” said Cui Ming, a local manager for Chongqing JHJ Shipping Co., after a company vessel was unloaded at the Jungong Road Dock. “The business is growing so massively, we sometimes need to get up at midnight and rush to the dock to assist our ships to get a berth.”

China’s manufacturers are moving factories inland to benefit from lower wages than coastal regions and government incentives to spur economic development. That is creating traffic jams on Asia’s longest river, prompting the nation’s biggest container terminal operators, Cosco Pacific Ltd. (1199) and China Merchants Holdings International Co. (144), to invest in ports along the 6,300 kilometer-long (3,915 mile-long) Yangtze, which reaches Tibet.

China Merchants affiliate Shanghai International Port Group Co. (600018), operator of the world’s busiest harbor, plans to spend 4.79 billion yuan ($720.9 million) building five wharfs to handle containers and vehicles, according to its semi-annual report.

Cosco Pacific

Ningbo Port Co. (601018), operator of the second-busiest, raised 7.4 billion yuan in an initial public offering last month and plans to use the proceeds to build coal and container berths.

“There is a grand plan to go west,” said Johnson Leung, an analyst at Tufton Oceanic Far East Ltd. in Hong Kong. “It will be good business for port operators.”

The Yangtze, the third-longest river in the world after the Amazon and Nile, handles 80 percent of China’s river freight. The waterway ferried 1.34 billion tons of cargo in 2009, more than triple the 400 million tons it carried in 2000, according to government data.

Cosco Pacific, controlled by China’s largest shipping group, holds stakes in terminal-operating ventures in Yangtze delta feeder ports, including Yangzhou and Zhangjiagang.

“There’s vast potential to grow the operations at China’s river ports,” said Xu Minjie, vice chairman and managing director of the China Cosco Holdings Co. affiliate.

China Merchants

China Merchants said in July it plans to acquire 20 percent of Chu Kong River Trade Terminal Co., owned by Chu Kong Shipping Development Co. (560), the biggest shipping agent by fleet size in the Pearl River Delta in southern China.

“There are many opportunities that will arise as factories relocate to inland China from the coastal cities,” said Nelson Liu, deputy managing director of Hong Kong-based China Merchants, which owns stakes in ports moving a third of China’s containers.

“We’re putting the infrastructure in place to tap the rising demand.”

Lee & Man Paper Manufacturing Ltd. (2314) is spending HK$1.4 billion to build a new plant in Jiangxi province that will start operating in 2012, said Clement Chan, group vice president of the Hong Kong-based containerboard maker.

Companies moving cargo via the nation’s rivers may generate savings of 20-30 percent compared with highways because of lower tolls and tariffs, said Raymond Yu, China Merchants’ executive director.

Seventeen container ships dock up the Yangtze in Wuhan every day, compared with three a decade ago, said Wang Yongwei, general manager of central China for JHJ International Transportation Co., based in Wuhan. When dry-bulk ships and tankers are counted, the number tops 100 from about 30.

‘Go West’ Policy

“In the old days, there wasn’t much cargo to be moved,” Wang said. “Now, with manufacturing moving to central and western China, the river is flourishing with ships.”

Urban fixed asset investment in the west rose 27 percent to 3.4 trillion yuan in the first eight months of this year, according to the National Development and Reform Commission, the top economic planning agency.

About 200,000 enterprises from coastal areas have invested more than 2.2 trillion yuan there in recent years, Premier Wen Jiabao said in October 2009.

The State Council, or cabinet, last month announced incentives including waiving customs duties, pushing financial organizations to provide lines of credit to relocating companies and encouraging foreign banks to open branches in the interior.

43 Billion Yuan

“We have been moving some factories to cheaper regions,” said Cliff Sun, chairman of the Federation of Hong Kong Industries, which has more than 2,000 corporate members. “Manufacturers can’t raise prices too much. The only choice for them is to move to regions where manufacturing costs, wages are cheaper.”

China’s urban per capita disposable income in the first half of this year rose 10.2 percent from a year earlier in nominal terms to 9,757 yuan, the national statistics bureau said July 15.

In rural areas, per capita cash income in the first half rose 12.6 percent from a year earlier in nominal terms to 3,078 yuan, the bureau said.

China will spend 43 billion yuan between now and 2020, compared with 6.2 billion yuan during the past 61 years, to build and upgrade berthing facilities along the Yangtze and to deepen the riverbed, according to the Changjiang River Administration of Navigational Affairs, a unit of the transport ministry.

China wants to expand the amount of waterways able to accommodate vessels weighing more than 500 tons to 19,000 kilometers from 16,000 kilometers last year. River freight may triple to 6 billion tons by 2020, according to the city-backed Shanghai International Shipping Institute.

Cui’s vessel, the Jiangjiyun 1201, will be loaded with aluminum rolls and scrap steel before making a 12-day journey back to Chongqing. The rusting, faded vessel travels non-stop between the city and Shanghai with a crew of 15.

“Ships always need to queue here for loading and uploading these days,” Cui said. “In the past, we didn’t need to queue at all.”

--Winnie Zhu. With assistance from Helen Sun in Shanghai and Kyunghee Park in Singapore. Editors: Michael Tighe, Bret Okeson.

To contact the reporters on this story: Wing-Gar Cheng in Hong Kong at wgcheng@bloomberg.net; Winnie Zhu in Shanghai at wzhu4@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.