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

With substantial increases in labor and operational costs in the P earl R iver D elta ( PRD ), many firms in C hina have started to relocate their production plants to inland provinces. This change will not only affect the PRD ports, including H ong K ong and S henzhen, but also ports in other regions, such as S hanghai in the Y angtze R iver D elta. 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 H ong K ong, but it would be a mixed blessing to S henzhen due to inter‐port competition. A more competitive port of H ong K ong would certainly be in a better position to cooperate with port of S henzhen.