First-step analysis: port operations in China - Lexology

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Port operations

Approval

What government approvals are required in your jurisdiction for a port operator to commence operations following construction? How long does it typically take to obtain approvals?

Once the construction works have been completed, inspected and accepted, the main government approvals and registrations required for a port operator to commence operation at a relevant port are:

• filing with the Ministry of Commerce or its local branch (for any foreign investment in the project);
• approval from the State-owned Asset Supervision and Administration Bureau or its local branch (for transactions involving state-owned assets);
• foreign exchange approval;
• filing with State Administration for Market Regulation (or its local branch);
• filing with the tax bureau; and
• issuance of the port-operating permit.

The time that it takes to obtain these approvals and registrations varies, depending on the speed of negotiations between the local port corporation and the joint venture partners, government policies, and the demand and supply for port capacity at the time. With the record-filing regime replacing the examination and approval regime for foreign investments in 2016, the governmental approval process has been significantly reduced. It is now possible to complete all government filings within two months if a project has support from the local port authority.

Typical services

What services does a port operator and what services does the port authority typically provide in your jurisdiction? Do the port authorities typically charge the port operator for any services?

A joint venture port-operating company typically provides loading and unloading, storage, transhipment and warehousing services.

The local port administration bureau generally provides pilotage, towage, berthing, vessel shifting and other relevant administrative services through the relevant subsidiaries, and charges for such services based on statutory rates set out in the relevant port charge regulations.

Access to hinterland

Does the government or relevant port authority typically give any commitments in relation to access to the hinterland? To what extent does it require the operator to finance development of access routes or interconnections?

Local port corporations are generally reluctant to make any commitments in relation to access to the hinterland. In situations where a local port corporation leases or transfers the completed port facilities to a joint venture company for operation, the local port corporation may sometimes agree to guarantee that the port is connected to paved and well-maintained roads and railways at the time of the lease or transfer.

However, in October 2019, the National Development and Reform Commission, the Ministry of Transport and the National Railway Administration issued the Guiding Opinions on the Construction of Special Railway Lines with a target for access ratios of major coastal ports to railways to increase to 80 per cent by 2020. All major ports on the Yangtze River will achieve railway access by 2025.

Suspension

How do port authorities in your jurisdiction oversee terminal operations and in what circumstances may a port authority require the operator to suspend them?

The requirements on port operations are set out in the Administration Regulations for Port Operation and other relevant Chinese laws and regulations. A port operator is required to apply for a port-operating permit by submitting an application together with relevant supporting documents to the local port administration bureau. The port administration bureau will only issue the port-operating permit if it is satisfied that the port operator meets all of the requirements.

The local port administration bureau also conducts inspections from time to time, including interviewing employees, and inspecting and photocopying relevant information.

A port-operating permit may be suspended or revoked if a port operator ceases to satisfy any of the conditions set out in the regulations or the permit conditions, including refusal to give priority to emergency response or failure to comply with safety requirements.

Port access and control

In what circumstances may the port authorities in your jurisdiction access the port area or take over port operations?

The local port administration bureaus may access the port area to conduct an inspection of port operations from time to time and may suspend or revoke a port-operating permit if the operations fail to satisfy the conditions set out in the relevant regulations or permit conditions. The local port administration bureau does not usually take over port operations. If there is any concern, it is likely to raise the issues and discuss them with the relevant local port corporation, which is also a shareholder of the joint venture operating company.

Failure to operate and maintain

What remedies are available to the port authority or government against a port operator that fails to operate and maintain the port as agreed?

The local port administration bureaus may access the port area to conduct an inspection of port operations. A port-operating permit may be suspended or revoked if a port operator ceases to satisfy any of the conditions set out in the regulations or the permit conditions, including refusal to give priority to emergency response or failure to comply with safety requirements.

Transferrable assets

What assets must port operators transfer to the relevant port authority on termination of a concession? Must port authorities pay any compensation for transferred assets?

All land in China is owned by the state. A port operator only has the right to use the land for the duration of the land use right certificate. At the end of the joint venture term (which often coincides with the expiration of the land use right certificate), the land and all improvements and fixtures on the land will be returned to the government free of charge. All remaining movable assets will be distributed between the shareholders of the joint venture company in proportion to their shareholding ratios after settling outstanding liabilities.

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