Diversity of Hong Kong’s maritime industry relies on strengthening its traditional pillars

Edward Lui joins Hill Dickinson

Edward Liu, senior associate at Hong Kong law firm, Reed Smith Richards Butler, and vice president of The Hong Kong and Mainland Legal Profession Association, argues that a government-industry blue print for the bolstering of the territory’s “super connector” status is urgently need.

In the first Policy Address in her term of office, Chief Executive Carrie Lam Cheng Yuet-ngor explicitly stated that the Government is working actively “to entrench Hong Kong’s position as a diversified international maritime centre” by “formulating a comprehensive strategy to bolster and promote the development of Hong Kong’s maritime industry and high value-added maritime services”. Ms Lam has long been holding this view when she was assuming the office of Chief Secretary for Administration. She believed that the maritime industry, as one of Hong Kong’s four traditional economic pillars, should transform its traditional focus on container throughput to high value-added services for further development. The HKSAR Government is clearly striving for ‘diversity’ in strengthening Hong Kong’s position of international maritime centre with regard to marine insurance, maritime legal and arbitration services, ship finance, ship management and ship registration.

The Government’s goal and governance directions have been proved accurate. The Port of London remains the first in rankings of several international maritime centres, notwithstanding its place below 70th in ranking in Lloyd’s List Top 100 Container Ports. Container throughput as the primary standard in assessing cities’ positions as maritime centres has now become history. The advanced maritime industry today is a combination of ship registration, ship management, ship agency services, ship finance, marine insurance and maritime legal and arbitration services, while container throughput is only part of the picture. London’s standing role as the world’s leading international maritime centre speaks for the mainstream maxim of quality over quantity in the industry.

Drawing from the exceptional case of London consequently the conclusion that traditional port and maritime transport development is declining in importance, however, would be naïve. All other international maritime centres (like Singapore, Shanghai, Hamburg, Rotterdam, etc.) rely heavily on the agglomeration effect of port and traditional maritime transport in developing an advanced maritime industry, with the support of their own characteristics as metropolises. Port, ship owners and cargo owners have always offered the most crucial business opportunities in the maritime industry, given their significance in maritime industry agglomeration. If these stakeholders decide to leave the market due to lack of attention, the agglomeration would not be realized.

Both the HKSAR Government and the industry take pride in the fact that gross registered tonnes of the Hong Kong Shipping Register ranks the 4th in the world, merchant ships owned or managed by Hong Kong ship owners take up 9.6% globally, and 12 out of 13 P&I clubs have offices in Hong Kong. If one looks closer, however, we would find that most companies that run or manage these Hong Kong-registered ships are located in Singapore or Shanghai. Some of the Hong Kong offices of the P&I clubs have only few staff taking care of administrative matters and settlement of claims, with substantial managing and decision making powers granted to their Singapore or Shanghai offices. Also, the number of Hong Kong solicitors specializing in maritime disputes and financing is decreasing compared to that of Singapore and Shanghai. The number of Hong Kong barristers specializing in maritime disputes and arbitration is even smaller. All of the above are attributable to Singaporean and Shanghai governments’ active work in building international shipping centres. The efforts of both governments have attracted major maritime and trading corporations to set up regional office there.

In fact, the agglomeration of Hong Kong’s maritime industry has been falling over the past decade. According to the Hong Kong Trade Development Council, there were 253 offices of ship agency services and overseas shipping corporations in Hong Kong in 2015, 10% less than in 2014, with the number of employees dropping to 7,959. The number of employees of ocean-going vessel companies has also decreased by 10% to 4,650. With the main body of the industry relocating to other cities and regions, supporting services like ship insurance, maritime legal services and ship management and agency services will naturally follow.

The HKSAR Government has introduced the two-tier profits tax system to provide further tax relief to small and medium-sized enterprises, in the wake of a global tax cut wave. This will most certainly trigger a return of shipping corporations. Hong Kong also enjoys the benefit of being the gateway city of Mainland China and a geographic advantage in connecting Mainland China and ASEAN and south pacific countries under the “Belt and Road” Initiative. To maximize its role of “super-connector”, Hong Kong should call for an all-round plan detailing the cooperation between Hong Kong Maritime and Port Board and the local maritime industry. More active policies together with a well-established legal system and a reliable financial system will surely attract more Mainland and overseas maritime-related corporations to establish or expand their business in Hong Kong.

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