Regional Transformation and Port Cluster Competition: The Case of the Pearl River Delta in South China

Abstract

AbstractWith substantial increases in labor and operational costs in the Pearl River Delta (PRD), many firms in China have started to relocate their production plants to inland provinces. This change will not only affect the PRD ports, including Hong Kong and Shenzhen, but also ports in other regions, such as Shanghai in the Yangtze River Delta. However, systematic studies on regional transformation and port cluster competition have been found wanting. This paper undertakes an economic analysis on the implications of such a relocation process. Important features such as demand differentiation among ports and port clusters, hinterland access costs, intra‐ and inter‐port cluster competition are considered in the economic model, and this allows us to identify market equilibrium and the effects of possible market dynamics related to the relocation process. Our analysis suggests that relocation of production plants away from the PRD would pose negative effects on ports within the region, and may favor other ports with more convenient hinterland access. Improvements in hinterland access would likely to benefit the port of Hong Kong, but it would be a mixed blessing to Shenzhen due to inter‐port competition. A more competitive port of Hong Kong would certainly be in a better position to cooperate with port of Shenzhen.