Hong Kong v. Shanghai

HONG KONG – For hundreds of years now, Hong Kong has been China’s trade gateway to the world. But when it comes to air cargo, will this China satellite city continue to enjoy that role?

On the surface, this question might seem preposterous. More air cargo flows in and out of Hong Kong than any other location in the world. Indeed, despite some slips in FTKs in March and April, Hong Kong as air cargo capital appears to be as dynamic as ever. A new cargo terminal for Cathay Pacific is in the works at Hong Kong International Airport, while the airport itself is working on adding a third runway. And more than one local airline is adding or will add freighters in the coming years, and that list includes Cathay, Hong Kong Express, and Air Hongkong.

So what’s the issue? Where’s the threat to Hong Kong’s cargo traffic volumes?

As in so many aspects of Hong Kong’s existence, much depends on China. To put it another way, Hong Kong is Mercury to China’s sun. As China burns; so too does Hong Kong. This is unlike some other nations in Asia, which are less intertwined with China. Presumably spooked by recent labor unrest, logistical challenges and just plain wage inflation in the Pearl River Delta, China has made it a priority to build up manufacturing in other parts of the Mainland, most notably in the West and North. The Pearl River Delta has been Hong Kong’s umbilical cord to cargo for the last 20 years. But with manufacturing moving to the Yangtze River Delta, that umbilical cord will likely deliver less cargo to Hong Kong. The expected beneficiary of the greater traffic: Shanghai.

The question: how much less cargo? When I sat with officials from the Hong Kong International Airport, they downplayed this shift away from Hong Kong. To wit, the plans to add a third runway. While the runway would not only benefit cargo, cargo amounts to about a third of HKIA’s aircraft movements, so cargo remains an important factor in any HKIA decision. But when scratching the surface, you see signs among the air cargo companies toward Shanghai. DHL, for example, is building an express hub there. A major rationale behind the recent Cathay-Air China joint venture to create Air China Cargo is to give Cathay more capacity out of Shanghai. Others are expected to follow. It simply doesn’t make sense to fly overseas goods made in the Yangtze delta – think iPads and the like – via Hong Kong.

To be fair, this will be a slow process over several years, albeit buoyed by the rapid expansion in air cargo capacity expected at China shippers, such as Yangtze River Express and China Postal, and to a lesser degree SF Express, all of which appear to approach air cargo with a buy-capacity-now/fill-the-capacity-later approach to aircraft acquisitions. Arguably, the shift to Shanghai might have taken place quicker had Hong Kong remained a British colony. But the fact that Hong Kong remains China’s special administrative region (SAR) in some way guarantees Hong Kong’s relevance. For Hong Kong goes as China chooses, and while China has effectively chosen to move some shipping volume to Shanghai from Hong Kong, Hong Kong remains China’s crucial trade link to the world. And that means soaring towers of glass and steel will continue to be built in Hong Kong as the China economic story remains on track as one of history’s greatest financial achievements.