China Merchants International Holdings Co., Ltd.

38th Floor East, China Merchants Tower
Shun Tak Centre
168-200 Connaught Road Central
Hong Kong
Telephone: (+852) 2850 8922
Fax: (+852) 2851 2173
Web site: http://www.cmhico.com

Public Company
Incorporated: 1872
Employees: 10,000
Sales: HK$1.21 billion (US$155 million)
Stock Exchanges: Hong Kong
Ticker Symbol: CMI
NAIC: 483111 Deep Sea Freight Transportation; 336611 Ship Building and Repairing; 483113 Coastal and Great Lakes Freight Transportation; 561510 Travel Agencies

China Merchants International Holdings Co., Ltd. (CMIH) is the publicly listed arm of Chinese government-backed China Merchants Holdings Group. CMIH is itself organized as a holding company for interests in shipping, the company’s historical activity, including one of the world’s largest fleets of Aframax tankers; port operation and related activities; toll road, tunnel, and related infrastructure construction and operation; industrial manufacturing, including container manufacture (the company’s China International Marine Containers subsidiary is the world’s leading container producer, with a 23 percent share of the global market); paints and paint products, including paints for ships and containers; as well as a vast real estate portfolio. These activities combine to provide more than HK$1.2 billion (US$155 million) in revenues per year. Parent company China Merchants Holdings Group, with approximately HK$50 billion (US$7 billion) in assets, ranks number 26 among Chinese government-owned companies and extends CMIH’s range with additional infrastructure, highway, and ports operations; financial holdings including China Merchants Bank, Ping An Insurance, and securities firm China Communications Securities; travel and tourism through China Merchants International Travel Corp.; and a range of manufacturing, engineering, and telecommunications business. China Merchants is also responsible for the Shekou free-trade mainland development zone across the channel from Hong Kong. Fu Yuning serves as chairman of the board of CMIH and as president of the larger China Merchants. Qin Xiao is chairman of the China Merchants parent company.

Chinese Shipping Pioneer in the 19th Century

China launched its “Westernization” movement under the Qing Dynasty ruled by Emperor Tong Zhi in the mid-19th century. The forced opening of China by the western powers earlier in the century had placed China’s shipping industry almost entirely in foreign hands. In 1872, however, then Viceroy Li Hongzhang received permission to set up the country’s own shipping company to compete for the shipping routes along the mainland coastline. The company, called China Merchants Bureau and headquartered in Shanghai, started shipping operations in 1873 with the launch of the Yidun along the Shanhai-Hong Kong route. By the end of that year, China Merchants had added a second line, this time providing oceangoing shipping between the mainland and the port cities of Kobe and Nagasaki in Japan, then extending its route to the Philippines.

China Merchants grew quickly and by the mid-1870s was able to enter into pricing agreements with the region’s dominant shippers, which included British-owned Swire and U.S.-owned Qichang. Then, in 1877, China Merchants took over Qichang, establishing itself as one of the major shippers in the Chinese market. The company then extended its freight pricing agreements to another major shipper, Jardines.

In 1902, China Merchants extended its operations inland, forming the China Merchants River Navigation Company. At the beginning of the next decade, the company linked up with the railroad industry, forming a number of land-sea transportation routes to link Chinese ports with the inland markets. The company also set up the Public School of China Merchants, dedicated to training ship’s captains, becoming one of the first bodies to send students to study overseas to gain experience in Western commercial practices. China Merchants also became responsible for drafting China’s first body of maritime laws and regulations.

The company continued to gain in prominence, not only in the shipping and transportation industry, but as an important motor for Chinese industrial growth. Indeed, China Merchants provided the financing for much of China’s early industrial and commercial development, funding activities such as the Commercial Bank of China, the country’s first bank; the Kai-Ping Mine, first machine-operated coal mine in China; the first insurance company, Bureau of China Merchants Insurance; and the country’s first steel production operation, Han Yie Ping Corporation. At the same time, China Merchants’ own activities diversified to include a wide range of businesses, from shipbuilding and machine manufacturing to animal husbandry and newspaper publishing.

In 1948, China Merchants, which now had head offices in Hong Kong, incorporated as China Merchants Steam Navigation Co. Ltd. By then the company had built up a fleet of more than 490 vessels, including 95 large-scale oceangoing vessels, with total capacity of more than 400,000 tons. The company also had extended its multimodal operations to include air freight, in cooperation with the Central Airline Company. Yet the revolution of 1949 and the Maoist takeover was to change the company.

Mainland Link in the 1950s

During the upheaval surrounding the Communist takeover, China Merchants split in two. A large portion of the company—including 80 of its 95 oceangoing vessels, which represented some 90 percent of the company’s total tonnage capacity—fled to Taiwan. Much of China Merchants’ top management, however, stayed in Hong Kong and remained loyal to the mainland. In 1950, China Merchants was reopened as a Hong Kong-based company wholly owned by the Chinese government and charged with acting as a commercial and shipping interface between Beijing and the rest of the world.

China Merchants began rebuilding its fleet and resumed its shipping operations in 1956, quickly raising its capacity to more than 180,000 tons by the end of that year. The company also began investing in port operations, rebuilding the Kennedy Town wharf. Other port operation projects included rebuilding new warehousing operations in 1959. Until the beginning of the 1960s, however, China Merchants’ shipping operations remained limited to the mainland-Hong Kong trade route. In 1960, the company formed a new shipping company, Yifeng Shipping Enterprise Co., and the following year began rebuilding its oceangoing fleet, launching a second new shipping company, Ocean Tramping. In support of its reinvigorated shipping business, China Merchants launched a new ship repair business, opening the Youlian Shipyard in 1965.

Over the following decade, however, China Merchants’ oceangoing business was transferred to the Chinese government’s mainland shipping operation, China Ocean Shipping Co. (COSCO). China Merchants, meanwhile, was steering into other directions. In the late 1970s, the Chinese government began initiating new policies that were to open up the country to the outside world. In 1979, China Merchants was given the task of developing and managing the Shekou free trade zone, in Shenzhen, located just across the channel from Hong Kong. That operation, which became China Merchants’ single largest operation, was eventually incorporated as China Merchants Shekou Industrial Zone Co. Ltd.

China Merchants had not abandoned shipping, however. In 1980, the company relaunched its oceangoing shipping activities, establishing a new subsidiary, Hong Kong Ming Wah Shipping Co., which started operations with just two 10,000-ton tankers. By the end of the 1990s, Ming Wah’s fleet totaled 41 vessels with a total tonnage of 3.8 million tons.

Later in 1980, the company launched subsidiary China Merchants Lighterage Transportation Co., which grew into the Hong Kong region’s largest lightering operation with a fleet of 76 vessels. Then, in 1981, China Merchants inaugurated a new shipping line, when it entered a joint venture agreement with Hong Kong Yaumatei Ferry Co. to launch an express passenger ferry service between Hong Kong and Shekou. Meanwhile, China Merchants had become an active participant in the construction and management of a variety of mainland infrastructure projects, including toll roads and tunnels, which led the group into developing its own engineering and construction services.

Public Arm of a Multifaceted Holding Company in the 21st Century

During the 1980s, China Merchants continued expanding its port and port services operations, building the China Merchants Wharf in Hong Kong’s Kennedy Town in 1984, and forming shipping services subsidiary China Merchants Shipping and Enterprises Co. that same year. In 1985, the company opened a new port services operation, China Merchants Godown Wharf & Transportation Co. Then, in 1988, the Ming Wah shipping business expanded through the acquisition of the tanker fleet of the Tung Group; the two companies formed a 50-50 joint venture to operate the fleet, which was bought out by Ming Wah in 1997. That acquisition marked the beginning of Ming Wah’s growth into China’s largest tanker fleet operator.

Company Perspectives:

Corporate Culture: China Merchants has stridden across two centuries of development and set up many precedents in modern economic history of China. The corporate culture of China Merchants is characterized by “profoundness and innovation,” which is unique compared with other enterprises. This culture has enabled China Merchants to survive various major historical changes in modern China, and to seek the opportunities for sustained development. The employees of China Merchants always believe that: vitality lies in innovation.

China Merchants began a drive to diversify its business in the mid-1980s, forming the vehicle China Merchants Holdings Co., Ltd. In 1986, the company bought up Hong Kong-based Union Bank of Hong Kong in a move that marked the first acquisition by a Chinese company of a publicly listed Hong Kong business. The following year, China Merchants set up its own commercial bank on the mainland, China Merchants Bank—the first to be created since the formation of the People’s Republic of China in 1949.

Through China Merchants Bank, the company entered the insurance market, launching subsidiary Ping An Insurance Company of China in 1988. The company also acquired existing insurance businesses in London and Hong Kong. A further extension of China Merchants’ financial arm came in 1991, when it set up the securities trade group China Communications Securities. Meanwhile, China Merchants had begun acquiring shareholdings in a number of other businesses and markets, such as a 31 percent stake in a container manufacturer.

In 1992, China Merchants bundled a number of its holdings, including much of its shipping, port, and wharf operations, its ship repair business, various manufacturing operations including container manufacturing and ship and container paint production, into a new business—China Merchants International Holdings Co., Ltd., or CMIH. This company was then listed on the Hong Kong stock exchange, becoming the first Chinese company to seek a public listing in Hong Kong. The offering was an immediate success—rising by 200 percent after its first day of trading, before entering the Hang Sheng China-Affiliated Corporations Index as one of the leading “red chip” stocks of the 21st century.

In a 1995 review of 500 Chinese government-owned businesses, China Merchants was ranked as number 26, with assets ranging upward to HK$50 billion (US$6 billion). CMIH, with just HK$3 billion (US$400 billion), remained a tiny, yet vital part of the entire group, enabling private investment capital to enter the government-owned group. In 1997, China Merchants moved to boost CMIH, transferring a chunk of its toll road and other infrastructure operations into the public subsidiary. The following year, China Merchants restructured its entire operations—which spanned more than 500 subsidiaries—into 12 primary companies, including CMIH, which was then focused on infrastructure, shipping, port transportation, and container terminals.

CMIH began expanding its port operations at the turn of the century, beginning in 1998 with the acquisition of Hong Kong’s Modern Terminals Ltd. and Shenzen’s Nanshan Development Co. In 1999, CMIH extended its Shekou-based port operations with acquisitions of stakes in Shekou Container Terminal and Asian Aircraft Terminal, both held by China Merchants. Then, in 2000 with the purchase of a 49 percent share of a bulk cargo and container handling terminal in Zhangzhou, in the Fujian province, the company began a push into other mainland port markets beyond Shekou. In 2001, CMIH acquired a 33 percent share of another Shenzen port from China Everbright Group.

Key Dates:

1872:

The China Merchants Bureau is founded in order to break the Western monopoly on Chinese shipping routes.

1873:

China Merchants launches its first vessel, the Yidun, on the Shanghai-Hong Kong route, then starts up oceangoing shipping to Japan and the Philippines.

1877:

China Merchants takes over U.S.-owned Qichang shipping company.

1902:

China Merchants begins inland shipping with the establishment of China Merchants River Navigation Company.

1949:

China Merchants is split as most of the fleet flees to Taiwan during the Maoist revolution.

1950:

China Merchants reestablishes itself as a Hong Kong-based company owned by the Chinese government.

1956:

After rebuilding its fleet, China Merchants resumes shipping operations.

1961:

China Merchants returns to oceangoing shipping as it begins to rebuild its fleet, which is later transferred to COSCO.

1979:

China Merchants launches the development and management of Shekou, in the newly established Shenzhen free-trade zone.

1980:

The subsidiary Ming Wah is formed as China Merchants begins rebuilding its shipping fleet.

1985:

The holding company, China Merchants Holdings, is formed.

1986:

Union Bank of Hong Kong is purchased.

1987:

The company establishes China Merchants Bank, then extends into insurance and securities.

1992:

China Merchants International Holdings (CMIH) is launched on the Hong Kong stock exchange, the first Chinese company to seek a public listing.

1998:

China Merchants restructures into 12 primary companies and transfers its infrastructure holdings to CMIH; the company acquires Modern Terminals Ltd. (Hong Kong) and Nanshan Development Co. (Shenzhen).

1999:

CMIH acquires stakes in Shekou Container Terminal and Asian Aircraft Terminal, both held by China Merchants.

2000:

CMIH purchases a 49 percent share of a bulk cargo and container handling terminal in Zhangzhou, in the Fujian province.

2001:

CMIH acquires a 33 percent share of another Shen-zen port from China Everbright Group.

2002:

CMIH announces plan to spend up to HK$9.4 billion on new port acquisitions as it seeks to extend its port operations into other mainland cities.

At the beginning of 2002, CMIH announced its intention to spend up to HK$2 billion to upgrade its existing port operations, including plans to expand its Shekou and Chi wan container terminals in Shenzhen. The company also began a drive to extend further into the mainland ports and ports services market by acquiring additional port operations outside of Shenzhen, with plans to spend nearly HK$9.4 billion (US$1.2 billion). In October 2002, the company announced that it was in the process of finalizing the acquisition of ports in Ningbo, in the Zheijang province; Shanghai; Quindao, in the Shandong province; and in Tianjin, which would give the company a presence near Beijing. CMIH expected to remain a major player in the growing Hong Kong and Chinese shipping and ports sector in the new century.

Principal Subsidiaries

Asia Airfreight Terminal Company Limited; China International Marine Containers (Group) Ltd; CMHI Caymans Inc. (Cayman Islands); Cotter International Limited; Fair Oaks Limited; Finstead Shipping Limited (Liberia); Fully Profit Property Limited; Hai Hong Industry (Shenzhen) Co. Ltd.; Hempel-Hai Hong Coatings Company Limited; New Alliance Shipping Inc. (Liberia); New Amity Shipping Inc. (Liberia); Ningbo Changzhen Highway Co. Ltd (People’s Republic of China; 60%); Ningbo Zhenluo Highway Co. Ltd (People’s Republic of China; 60%); Reed Overseas Development Co. Ltd.; Shenzhen Chiwan Wharf Holdings Ltd; Shenzhen Haixing Harbour Development Co. Ltd.; Universal Sheen Investment Limited; Wharton Overseas Limited; Zhangzhou China Merchants Port Co. Ltd.

Principal Competitors

Sumitomo Corporation; TUI AG; A.P. Moller A/S; FedEx Corporation; Canadian Pacific Ltd.; ThyssenKrupp Materials und Services AG; Tank- og Ruteskibe I/S; Nippon Express Company Ltd.; Exel pic; Danzas Group; Kuhne und Nagel AG und Co; Koninklijke Vopak NV; SCHENKER AG; Kawasaki Kisen Kaisha Ltd; Hyundai Merchant Marine Company Ltd; Dr. August Oetker KG; Hapag-Lloyd AG; John Swire and Sons Ltd.; Transnet Ltd.; Atlantic Container Line Inc.; Bidvest Group Ltd.; Stolt-Nielsen S.A.; Maersk Inc.

Further Reading

“China Merchants to Acquire Ningbo and Tianjin Ports,” Standard, October 22, 2002.

Flynn, Matthew, “China Ship: Merchants’ Class Forges On,” Lloyds List, December 14, 1998.

Lee, Teresa, “Shake-up at China Merchants,” Hong Kong Standard, November 10, 1998.

Lin, Ang Bee, “China Merchants to Invest HK$2 Bin on Ports, Logistics,” Reuters, April 22, 2002.

Zhu, Charlie, “China Merchants Net Up 25 Pet on Ports, Production,” Reuters, April 19, 2001.

—M.L. Cohen