Several shipping companies are quietly relocating operations away from Hong Kong and deregistering vessels from its flag. Other companies are also developing contingency plans to do the same, reports Reuters.
Targeted Dominance
Behind these low-profile moves, six shipping executives said, lie concerns that their ships could be commandeered by Chinese authorities or hit with U.S. sanctions in a conflict between Beijing and Washington.
Beijing’s emphasis on the role of Hong Kong in serving Chinese security interests and growing U.S. scrutiny of the importance of China’s commercial fleet in a possible military clash, such as over Taiwan, are causing unease across the industry, the people told Reuters. The U.S. Trade Representative’s office last month proposed levying steep U.S. port fees on Chinese shipping companies and others that operate Chinese-built vessels, to counter China’s “targeted dominance” of shipbuilding and maritime logistics.
Washington in September warned American businesses about growing risks of operating in Hong Kong, where the U.S. already applies sanctions against officials involved in a security crackdown.
Hong Kong for more than a century has been a hub for shipowners and the brokers, financiers, underwriters and lawyers supporting them. Its maritime and port industry accounted for 4.2% of GDP in 2022, official data show.
Changing Geopolitics
Hong Kong’s ship registry has seen a decline of over 8% in oceangoing vessels since 2021, despite an increase in Chinese-operated ships. As of January, 2,366 vessels were flagged in Hong Kong, down from 2,580 four years prior. Many ships, primarily dry-bulk carriers, have re-flagged to Singapore and the Marshall Islands.
The Hong Kong government attributed this fluctuation to changing geopolitical and trade conditions and emphasized its commitment to being a leading shipping center. They highlighted incentives for shipowners, including tax breaks and subsidies. The government also clarified that neither registry laws nor emergency provisions allow the city’s leader to commandeer ships for a Chinese merchant fleet.
However, the government declined to comment on industry concerns regarding the potential use of colonial-era emergency powers, which grant broad authority, including vessel and property control, during a US-China conflict. Chinese ministries and US agencies also declined to comment on the role of a merchant fleet, potential sanctions, and the concerns of commercial shipowners regarding Hong Kong-registered vessels.
High Safety Standards
Hong Kong’s shipping registry is recognized for its high safety and regulatory standards, facilitating easy passage for its ships through foreign ports. Many of China’s state-owned international vessels fly the Hong Kong flag.
Security analysts and PLA studies suggest these vessels (tankers, bulk carriers, and large container ships) would form the core of a merchant fleet serving the PLA in a conflict, supplying China’s essential needs. The US, in contrast, has a smaller commercial shipbuilding industry and fewer flagged ships.
While China’s state-owned fleet is expanding, it would likely be a US target in a military conflict. Analysts believe China would need additional vessels to ensure supplies, given its vast needs and reliance on international sea lanes.
President Trump has shown interest in strategic maritime operations, notably mentioning the Panama Canal. His focus on two Panama ports operated by a Hong Kong conglomerate (CK Hutchison Holdings) led to the sale of a majority stake to a US-led consortium. Trump also announced plans to create a White House shipbuilding office and offer tax incentives for the sector.
A 2023 US congressional study highlighted that cargo ships typically transport 90% of military equipment for overseas wars, noting the disparity in shipbuilding capacity between China (1,794 large oceangoing ships on order in 2022) and the US (five).
Merchant vessels played a crucial role in the Falklands War for Britain. Declassified CIA documents also reveal that UK-flagged commercial ships operating from Hong Kong, many locally owned but influenced by China, supplied North Vietnam during the Vietnam War, hindering US efforts.
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Source: Reuters
