China opens its cabotage market to international capital for the first time after the government gave the green light to a trial allowing qualified foreign companies to transport containers of foreign trade cargo between certain domestic ports.

The Council of State, the Chinese cabinet, announcement (link in Chinese) Thursday that he had approved a proposal to launch a three-year pilot program for the Lingang District Pilot Free Trade Zone in China (Shanghai).

The move would mark the first time that the People’s Republic of China has granted foreign capital access to cabotage between national ports. Companies outside of mainland China have long been prohibited from shipping goods between mainland ports and chartering Chinese ships or slots.

Under the pilot program, qualified companies from overseas, as well as Hong Kong and Macao, will be allowed to ship foreign trade containers between Yangshan Port in Shanghai and Dalian, Tianjin and Qingdao Ports via the foreign flag vessels they own. Yangshan Port will be the international transfer port for the program.

The inherent national security implications of cabotage have led many countries around the world to grant exclusive operations to national vessels for the transport of goods between national ports. In the United States, the Jones Act, which regulates marine transportation, requires that ships that ship goods between domestic ports be built, owned, and operated by U.S. citizens or permanent residents.

South Korea, Japan, Brazil, Russia, Australia and Canada are among other countries that ban the shipment of goods domestically by foreign operators, according to the OECD.

Foreign companies have called on China to open up its cabotage business since joining the WTO in 2001. China is the world’s largest exporter of goods, and all of the world’s major container transport companies are engaged in trade transport activities. outside off the Chinese coast.

But as local businesses brace for competition, industry insiders fear the opening could come as a shock to their businesses. The move will inevitably have an impact on local shipping companies, said an executive at a Chinese shipping company.

The executive, who asked not to be named, said the principle of reciprocity should apply and that Chinese authorities should only give access to companies from countries or regions that open coastal cabotage trade to companies. Chinese. “Neither Japan nor South Korea is granting access to their cabotage to China, and a hasty opening will result in losses for us, so I hope the government will weigh the benefits and costs. “

Zhang Wenguang, a researcher at the Chinese Academy of Social Sciences, a state-backed think tank, said a benefit of the program is that many container shipping operations at foreign ports such as Singapore would likely return. in Shanghai, thus increasing the port’s revenue. For property owners, openness will give them more choice, he said.

But Zhang warned that many domestic shipping companies could be at risk of drastic change, as they tend to be smaller than their international counterparts. He said that since the program only allows access to “qualified” foreign companies, the Ministry of Transportation and the Shanghai municipal government should clarify the rules and qualifications.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com)

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