The impacts of production base relocation on port cluster competition: The case of the Pearl River Delta region

Abstract

Due to increases in labor and operational costs within the Pearl River Delta (PRD) region, many manufacturing firms are relocating their plants to inland provinces in China. The existence of significant intra- and inter-port cluster competition means that this ongoing relocation process will not only affect the ports of Shenzhen and Hong Kong, but will also have an impact on ports in other clusters such as Shanghai in the Yangtze River Delta (YRD). Furthermore, since Hong Kong and Shenzhen share the same transportation corridor to inland China, the hinterland access condition is another concern to be examined. This paper employs an analytical economic model to investigate the implications of this process. With the model allowing for substitutable but differentiated services among the three competing ports, the finding in all cases shows that the process will harm the performance of the ports in PRD region, but will benefit the port YRD region. With respect to the impact of a change in hinterland access condition, the implications for Hong Kong are clear, but more complex for Shenzhen. This is because although it shares the same transport corridor to inland China with Hong Kong, it is also one of Hong Kong’s competitors. Since Hong Kong also benefits from the hinterland access and/or negative externality improvement, such effect may either benefit or lower performance of Shenzhen port. The analytical results suggest that a more competitive port of Hong Kong will be in a better position to cooperate with the neighboring port of Shenzhen, and that it is important for Hong Kong to improve its cross-border cargo flows.