China - Water transport sector study

Report No. 6383-CHA China Water Transport Sector Study February 12,1987 Transportation Division Projects Department East Asia and Pacific Regional Office FOR OFFICIAL USE ONLY Li J~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ; A , ..... .. 7litsdcumeut hs a resticte4 distrbution and may be used. by recipients o~iIy . n herformance their official duties. 1ts contents may not otherwise b e d*hckse'd wilhout World B;ik authorization.  CURRENCY EQUIVALENTS Currency unit: Renminbi (RMB) = Yuan (Y) 1 Yuan (Y) = 100 Fen = US$0.27 Y 3.69 = US$1.00 (As of August 1986) FISCAL YEAR January 1-December 31 WEIGHTS AND MEASURES m2 = meter (= 3.281 feet) m' = square meter ( 10.764 square feet) m3 = cubic meter (= 35.315 cubic feet) km = kilometer (= 0.621 mile) tkm = ton-kilometer (= 0.621 ton-mile) pkm = passenger-kilometer (= 0.621 passenger-mile) mL = million tons nm = nautical miles (= 1.85 km) DWT = deadweight ton hp = horsepower (= 0.74 &ilowatt) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CHCs = uargo-Handling Corporations CNA = Changjiang Navigation Administration CSC = Changjiang Shipping Company GNP = Gross National Product GVIAO = Gross Value of Industrial and Agricultural Output HAB = Habor Administration Bureau HF/SSB = High-Frequency/Single Side Band ICBC = Industrial and Commercial Bank of China IMO = International Maritime Organization IWW = Inland Waterways MOC = Ministry of Communications MWREP = Ministry of Water Resources and Electric Power SPC = State Planning Commission VHF = Very High Frequency  FOR OMCIAL USE ONLY CHINA WATER TRANSPORT SECTOR STUDY Table of Contents Page Ne. EXECUTIVE SUMMARY...,............................................... iv I* INTRODUCTION ..... ... . .........**#*O.*** 00**0**0** 0** 0* 000*0***0*. 0 1 II. WATERBORNE TRAFFIC.. ..... . ......o ...o* o...o.............o 6 A. The Geographical Setting......*............................ 6 B. Aggregate Traffic Trends. ......... oo.......o .o......... 9 C. Traffic by Routes9......................... 9 D. Private Shipping.... ....... 0 . ......... .......*. *. .00 13 Eo Traffic ................................................. 14 Fo Future Possibilities............................... ...... 14 III* INLAND WATERWAYSo.oo....o..... o.oo.o......*.eoo*o.. *o...*..*o.. 15 A. Water Flow aiid Sedimentation............................. 15 Bo The Changjiang. o o o .................o*oo.o. o.o.eo.o.o o.O 19 C. The Grand Canal .........00........00.................... 23 D. The Pearl River System . .......................... Q. 24 E. Other Waterways .......................................... 25 F. Multipurpose Developments................................ 25 IV. INLAND PORTS............................................. 29 A. General Conditions. ..... .... . ... .. .... *o . o- . o ..... ....e 29 B. Changjiang Port..... ................................... 31 V. THE INLAND FLEET............................................. 33 A. General*...................................... ............ 33 B. The Changjiang Shipping Company .......................... . 34 C. Other Fleets ............................................. 36 VI. MANAGING THE INLAND WATERWAYS ................ . . . . . ......... 39 A. .............................................. ........ 39 B.oiacs................................ 41 This report is based on the findings of a mission in May/June 1986 consisting of J. Yenny (mission leader), I. Mobarek, L. Uy, and P. Crone, A. Hochstein, G. Houel, and R. Huenemann (consultants). This document has a restricted distribution and may be used by rtcipients only in the performance of their official dulies. Its contents may not otherwise be disclosed without World Bank authoriztion.  - ii - Page No. VII. I OASTAL SHIPPINGC............................................ 44 A. ................. ...................................... 44 B. The Fleet and Operations................................. 44 C. Tariffs and ........................ .................. 44 D. Major Problems ........................................... 47 VIII. SUA RESCUE AND SALVAGE .............................. 48 A* The Present System...... ......... CCCCC*C ......... 48 B. Upgrading to Meet International Standards ................ 49 C. Consideration of the Issueso...........................*. 50 TABLES IN TEXT 1.1 Inland Water Freight Traffic in 19 82 2 2.1 Characteristics of China's Major Rivers v e rs.................. 7 2.2 Parameters of Major Wat^rway Net works...e.............e...... 8 2.3 1984 Freight Traffic on Waterwayst e r w a ys.................... 11 2.4 CSC Traffic Voluue ......12 2.5 Traffic Densities on Major Waterways........................ 13 2.6 Commodity Composition of Waterway Traffic in China, Selected Sites ........14 3.1 Channel Parameters on the Changjiang gjiang..................o 20 5.1 Typical 1985 Line-Haul Tariffs on Changjiang in fen/ton-km... 36 5.2 Diesel Consumption of Various Modes of Transportoo......o.... 38 5.3 Sample Tariffs of Local Fee e t s 38 1.1 1984 Typical Tariffs on Coastal Shipping*******************#* 45 7.2 Alternative Routes for Moving Coal from Shanxi Province to Shanghai................................................ 46 FIGURES IN TEXT 2.1 Freight Traffic on Waterways................................. 10 2.2 Passenger Traffic on Waterways .............................. 10 3.1 Monthly Water Flow, Changjiang at Yichang.................... 17 3.2 Monthly Suspended Silt Load, Changjiang at Yichang.........es 18  - iii - STATISTICAL TABLES 1. Inland Waterway Freight Traffic, 1982 2. Western European Navigable Waterways Classification 3. Chinese Navigable Waterways Classification 4. Doimstic Freight Traffic on Waterways 5. Passenger Traffic on Waterways 6. US Coastal and Inland Waterways, Commodity Composition of Traffic, 1977 7. Commodity Composition of Waterborne Traffic, US and USSR, 1974 8. Commodity Composition of Traffic on the Rhine River, 1978 9. Inland Water Traffic in the World - 1932 (Revised), Showing Share of Push Towing 10. Productivity Measures of Inland and Coastal Fleets, Selected Countries 11. Productivity of Inland Water Fleets, 1984/85 12. Modal Share of Transport Investment and Operation Expenses in Selected European Countries, 1976-80 13. Coastal Shipping Traffic -M 1. Selected Documents and Data Available in Sector File CHARTS 1. Organization Chart of Changjiang Navigation Administration 2. Organization Chart of Ministries and Bureaus Involved in Water Transport in China MAP ITRD 19811  - iv - EXECUTIVE SUWMARY Introduction 1. Historically, China's numerous waterways provided the major means of transport in many regions. Inland waterways and coastal shipping continue to play an important role in the Chinese economy, but their modern potential is underutilized, due to several factors: (i) insufficient expenditure on main- tenance and new construction; (ii) the obstruction of navigation by dams built for other purposes; (iii) inefficient operating practices; (iv) pricing policies that encourage shippers to use other modes, especially railways; and (v) administrative shortconings such as interagency rivalry and red tape. In these circumstances, significant opportunities exist to enhance the waterways' contribution to an economy in which inadequate transportation is a major bottleneck. 2. Broadly speaking, China's navigable rivers are grouped into three distinct basins: the Heilongjiang (Amur River) system in the northeast, the Changjiang (Yangtze River) system in central and east China, and the Zhujiang (Pearl River) system in the south. The Huanghe (Yellow River), which drains the north China plan, is plagued by heavy silting, and its navigational use is quite limited. The 1,747-km Grand Canal, which was completed in A.D. 1293, still provides an important north-south corridor between Hangzhou and Beijing. 3. The inland and coastal waterways of China are administered partly by the Central Government and partly by the provinces. Within the central government, the Ministry of Communications (MOC) has primary authority for the transportation aspects of the waterways, but many other agencies also have partial responsibility for the management of water resources, leading to the problem that the Chinese refer to metaphorically as "nine dragons ruling the waters." 4. Following several decades of turmoil, the founding of the People's Republic in 1949 ushered in a period of rebuilding and new development. The length of navigable inland waterways (defined as those with a depth of at least 0.3 m) increased from 73,600 km to a peak of about 170,000 km in 1960. By 1979, however, the network had been reduced to about 107,000 km, due in part to a lack of maintenance and also to the building of dams for irrigation, flood control, and power generation. 5. As of 1984, the network of navigable inland waterways stof1 at about 109,300 km. Of these, however, only about 20,000 km are regularly maintained to a depth of 1.0 m or more year-round, and fewer than 5,000 km can accommodate vessels of 1,000 tons or more. Although water transport is very important in China, carrying 17.3X of the ton-km and 4.3% of the passenger-km in 1984, the average density of traffic on the waterways is quite low: 1.54 million ton-km per route-km and 0.12 million passenger-km per route-km, respectively. These figures highlight one of the unique features of China's waterways--the naviga- tional use of a vast network of small rivers, carrying traffic that in most other countries would move by truck and bus, while at the bame time the major waterways seem underutilized for long distance transport of bulk commodites.  v 6. In tonnage terms, waterway traffic is heavily concentrated on four key routesS the Changjiang system (531 of tons carried), coastal shipping (201), the Grand Canal (141), and the Zhujiang system (131). Traffic densi- ties on these routes are much heavier than national averages, and can be estimated as follows: Million ton-km/km Changjiang main stem 17.1 Coastal shipping 6.6 Grand Canal 3.4 Zhujiang main stem 8.7 Compared to other major waterways of the world, however, these traffic densi- ties are still rather low. For example, the Rhine has a density of about 24 million ton-km/kim, the St. Lawrence Seaway about 54 million, and the Lower Mississippi about 76 million. 7. Waterway traffic has passed through three distinct phases since 1949: rapid growth in the 1950s a sharp downturn and slow recovery during the "three difficult years" and the Cultural Revolution, and then steady growth again in recent years. Since 1976, ton-km carried by the waterways have exhibited average growth of 11X p.a., just matching the growth rate of the gross value of industrial and agricultural output (GVIAO). By 1984, traffic carried by state and collective shipping companies reached 196.1 bil- lion ton-km (413.5 million tons) and 15.4 billion passenger-km (259.7 million passengers). If China's economy grows at the rates projected by the Government, and if waterborne traffic continues the pattern exhibited since 1976 (with a growth elaeticity of about 1.0 for freight and 0.5 for passen- gers), the traffic carried by state and collective shipping companies in the year 2000 will be about 600 billion ton-km and 25 billion pacsenger-km. 8. For many years, developments in China's transportation sector emphasixed the railways, while the waterways had a relatively low priority. Between 1949 and 1979, the sums spent on inland waterways constituted only about 12 of total national investment, and cumulative investment in China's most important river, the Changjiang, was only one-fourth of the amount spent to build the single rail line between Chongqing and Xiangyang. Because of the preeminence given to rai. transport, industrial development has concentrated along railway lines rather than along waterways, despite the fact that water transport can often be the least cost mode for large bulk movements of coal and ores required by heavy industry. Such rail dependence is found also in the USSR because the waterways cannot be used year-round. In the USA and Europe however, much of the heavy industry is located on waterways and in Japan along the coast to take advantage of low cost water transport. As a result, water transport accounts for over 301 of total tkm in the USA, over 501 in the Netherlands, 201 in Germany and over 501 in Japan versus 18X in China. 9. There is certainly a great potential for increasid traffic on China's waterways. With the exception of the Grand Canal and the coastal  - vi . routes most of the major water routes in China run from west to east. Given the government policy to have development expand gradually from the eastern coastal provinces to the west, the inland waterways are well poised to serve such development. In particular, the Changjiang basin offers an alternative tc the already highly developed and congested northeast which is short of energy, water and transport capacity. All these elements are plentiful along the Changjiang and should be considered when planning new industrial loca- tions. Further potential exists also for coastal shipping between major industrial centers such as Dalian, Tianjin, Shanghai and Guangzhou all located on the sea coast. Areas for Development 10. As mentioned, further development of water transport in China is warranted. However, such development should be based on careful economic analysis of water transport projects in coordination with other modes (see also paras. 24-26) rather than on the basis of administrative decisions seeking to maximize navigable waterway length. One problem facing the devel- opment of water transport projects is that while their economic return may be high, they, like roads, generate very little revenue. China is now introduc- ing some user charges that would nearly cover maintenance and operating costs of the waterways, but capital investment would continue to rely on general government revenues. In addition, fleets need to be modernized to achieve the low transport costs exhibited in other countries. In the USA for instance, water transport cost per tkm range from 10 to 30X of rail tkm costs. In China, water transport costs are only marginally lower than rail costs and therefore customers have little incentive to use this slower mode unless costs can be further reduced. Below are some areas where further development would appear justified. 11. Ongoing projects on the inland waterways appear to be well selected and should provide significant transport benefits as they are completed. In the Zhujiang basin, major improvement works were initiated in 1985. When com- pleted in about 4 years, these works will permit l,OOO-ton vessels to travel through the estuary and up the Xijiang as far as Nanning (784 km), thereby encouraging development of the mineral resources of the southwest. On the Grand Canal, extensive modernization of the 404-km reach between Xuzhou and Yangzhou is nearing completion and will accomodate vessels of 2,000 tons, thereby significantly easing the shipment of northern coal to the industries in the Shanghai area. 12. On the Changjiang, the lower reach (from Wuhan to the delta) has excellent navigation conditions, quite similar to those of the Lower Mississippi. Oceangoing vessels of 10,000 DWT can sail to Nanjing, and smaller ships (up to 5,000 DWT) can reach Wuhan. The channel depth has been increased from 2.3 m to 4.0 m since 1950, and the economic feasibility of increased dredging on this reach is questionable. The Middle Changjiang (between Yichang and Wuhan) is more restricted, with a meandering and unstable channel. Depth has already beet increased from the natural 2.1 m to a tar- geted 2.9 m by extensive dredging and other works, though this depth is not available year-round. Further improvements of the channel on this reach would be helpful to navigation, but can probably only be achieved by a well-designed  - vii = and expensive river training program. Alternatively, substantial improvement of this reach may result from the construction of multi-purpose dams (particu- larly the proposed Three Gorges hydropower station) in the upper reaches of the Changjiang, though there is a potential conflict between the desire to generate most of the hydropower during peak demand hours and the need to provide steady water flow in the channel for navigation. 13. On the Upper Changjiang (above Yichang) navigation is still quite difficult, although conditions have been improved significantly by rock blast- ing and excavation of numerous rapids over the past 25 years and by construc- tion of the Geshouba Dam. If the Three Gorges project is built, it will lead to radical improvement of navigation on this reach, opening the entire length of the Changjiang below Chongqing to year-round navigation by large tows of up to 15 barges (22,000 tons). However, the Three Gorges project also poses two difficult problems for shipping. First, unless an expensive shiplift is built, navigation will be blocked during high water flow each year for about a decade during the construction of the dam, which might cause irreversible diversion of traffic to other modes of transportation. The costs and benefits of this shiplift need to be evaluated carefully. Second, as plans staid at present, the maximum elevation of the reservoir surface will be about 170 m above sea level, which will leave Chongqing port just upstream of the reser- voir, in the area of greatest sediment deposition. Again, the various alternatives (including low water augmentation by additional dams built upstream, or perhaps a change of location for the port) need to be weighed carefully. 14. On China's vast network of other waterways (80,000-90,000 km with a regular depth of less then 1.0 m), a variety of feasible improvements might be identified, more likely by provincial than by central authorities. Some uf these projects might involve conventional dredging and river training, basi- cally to provide access to certain mines and factories. In general, however, the future of such waterways depends on the policy direction adopted for multipurpose use of water resources. The costs of hydropower, flood control, water supply, irrigation and other works will often far exceed investments in water transportation; however, navigation can be a beneficiary if it is included as one component of multiuse projects. 15. It is often argued that serious damage has been inflicted on these waterways as a result of the construction of small dams in the past 25 years, although some skeptics have noted that the disrupted traffic was sometimes quite modest. In recent years serious efforts have been made to re-establieh transit navigation on some of these waterways by retrofitting the dams with locks or other devices, but it is estimated that about 60,000 km of the network are still closed. Reopening all or even part of this large network would require substantial financial commitment and should be preceded by careful feasibility studies. In any case, the decision should be based on economic grounds rather than on a policy decision to maximize navigable length. 16. On the Grand Canal south of the Changjiang, some limited improve- ments have been undertaken, but the prevailing dimensions will only accomodate vessels of 60 to 100 tons. Traffic is extremely congested, and modernization  - viii - to permit vessels of 500 tons on this reach, and on connecting canals to Shanghai and the new port at Zhangjiagang, is a plausible planning goal, for which a detailed feasibility study should be carried out. 17. At present there are more than 1,000 inland ports in China, but only 400 handle more than 100,000 tons of cargo annually. In the past the level of investment in inland ports has been relatively low, and typically these facil- ities are underequipped, their throughput is low, and their operating cost is high, with manual labor still used extensively. The bacswardness of loading/ unloading technology is a major cause of port congestion, lesding to under- utilization of expensive capital plant (both wharves and ships). Many bulk shipments are handled essentially as breakbulk, in sacks and bags. Containers are little used, and even where used they Are often packed and unpacked at dockside. Most important, perhaps, is that unitization and palletization of cargoes are virtually unknown. Pallets are widely used to move cargoes within the ports but are seldom loaded aboard ship, which again means that consign- ments must be handled as breakbulk, thus forcing the cargo owner to spend more on protective packaging and forcing vessels to waste time in port. 18. The busiest inland port in China is Nanjing, with a throughput of 36 million tons a year. At present, crudt oil and petroleum products accnunt for 611 of this traffic, much of it simply to ferry oil across the river trom the terminus of the Shengli pipeline on the north shore to the refinery on the south shore. Due to technical difficulties and the shortage of funds, the pipeline has not vet been extended across the river, but this project is under discussion and would probably have a high rate of return. The recent opening o,' Nanjing to foreign vessels should lead to an increase in the volume of ge.ieral cargo handled, and Nanjing may also serve (along with the nearby ports of Nantong and Zhangjiagang) as an economic alternative for some of the traffic now transiting through the congested port *.f Shanghai. To handle probable traffic increases, Nanjing will need substantial inveitments, even beyond the Y 360 million budgeted in the Seventh Five-tear Plan (1986-90). The Eighth Five-Year Plan tentatively includ-as Y 800 million for additional port facilities at Nanjing, concentrated in a new area about 35 km from the clty but close to the largest railroad marshalling yard in East China. 19. The total capacity of the inland fleet is 7.6 million tons. The largest inland snipping company by far is the Changjiang Shipping Company (CSC), a unit of MOC, which operates more than 2,200 freight vessels and 130 passenger ships totalling 2.2 million DWT. CSC's freight traffic in 1984 was 32 billion ton-km (55 million tons). CSC operates almost entirely under the pushing system. However, except for the large 6,000-hp tugs and integrated barges purchased from the US in the early 1980s, the typical tow is made up of traditional barges lashed together in varying formations, with the tug often positioned off center, which makes tows more difficult to handle and reduces fuel efficiency. As equipment is increased or replaced, a shift to integrated tows would appear rational. The fleets that compete with CSC are generally province based, although they are now free to operate interprovincially. In addition to state-run companies, there are many collectives, some own-account shipping by large factories, and recently many private owners. Operations of the local fleets are a mixture of towing and pushing, with a predominance of towing in the smaller and more congested waterways. There is probably scope  - ix - this would require improvements of the channels. Feasibility studies would be needed to determine at what levels of traffic different levels of investment would become justified. A prime candidate for such a study is the Grand Canal south of the Changjiang. 20. CSC's operating cost is 0.76 fen per ton-km, while tariffs on the lower Changjiang, which are set by the state, are now about 0.84 fen per ton-km for long-haul, low-value shipments (the bulk of CSC's traffic). While tariffs still cover operating costs, they leave little margin for investments in fleet modernization or capacity increases. Formerly, CSC received its capital for investment as a grant from the state, but since 1984 has had to finance new purchases from its own resources or by borrowing from the banks. Increased tariffs are needed to put the company on a sound financial basis, but such increases will only tend to divert more traffic to railways unless rail tariffs are also adjusted at the same time. 21. At present, few vessels move between the inland and coastal water- ways, thus necessitating a substantial amount of otherwise unnecessary trans- shipment, often in congested ports. The introduction of seagoing barges or shallow-draft vessels capable of navigating on both rivers and ocean, as well as the further development of direct ship-to-ship transfer of cargoes in mid-channel, could alleviate some of this problem. Development of RO-RO ("roll-on/roll-off") service on selected coastal and river routes, especially those connecting the industrial regions around Dalian, Ti4njin, Shanghai, Wuhan, and Guangzhou, could also make a significant contribution to shippers' needs. 22. Maritime rescue and salvage operations in China, which are the responuibility of MOC, are unsatisfactory in caveral respects. Vessels, equipment, and communications facilities all require some upgrading, and an airborne search and rescue capability needs to be developed. Institutional and Policy Reforms 23. Some reforms in the management of waterways have been undertaken in recent years. For example, the main stem of the Changjiang has been opened to all vessels, thus ending CSC's previous monopoly of the shipping on this route. Furthermore, some traffic is now allocated through market mechanisms, private shipping companies are encouraged, and investments are financed with retained earnings and bank loans, rather than state grants. Taken together, these reforms will have a significant impact on the water transport sector. However, the areas for development discussed above imply substantial new investments in infrastructure and equipment, and such investments will not be fully producti ' without further reforms in waterway management. Two poten- tial areas or aform are particularly important: planning and evaluation of multipurpose projects, and pricing. 24. Planning and Project Evaluation: The complexities inherent in the multipurpose development of waterways are of two sorts, one organizational and the other analytical. On the organizational side, it is not easy for the various "dragons" to achieve coordinated and coherent policies. MOC has responsibility for water transport, but the Ministry of Water Resources and  responsibility for water transport, but the Ministry of Water Resources and Electric Power (MWREP), the Ministry of Agriculture, Animal Husbandry and Fisheries, the Ministry of Urban and Rural Construction and Environmental Protection and the China Travel and Tourism Bureau all have responsibilities for other facets of water resource managent, while provincial and lower government units also have a part to play. On the analytical zide, incre- mental costs and benefits must be calculated, which frequently leaves some room for disagreement among analysts. These conflicting pressures have char- acterized multipurpose water projects throughout the world, and it is hardly surprising that similar tensions can be observed in China. 25. Under these circumstances, two majoi. undertakings are desirable. First, a comprehensive plan of waterways developzent should be developed, This will require the participation of bc.h central and provincial authori- ties. MOC, acting in concert with the provincial transport bureaus, should identify waterways with good potential for transport and prepare traffic forec.sts to estimate the level of investment that can be justified from a transport point of view. In other cases, where a warirway is primarily useful for irrigation, hydropower, or other purposes, the primary planning should be done by the appropriate agencies but MOC and the provincial transport bureaus should be consulted at an early stage to ensure that consideration is given to transport potential. Second, an agreed methodology should be developed to assess, allocate and optimize the costs and benefits of multipurpose projects. In most countries there are separate agencies controlling naviga- tion and water resouices. Existence of such dual administration in many countries has led to the development of elaborate planning and research programs, to provide objective criteria to resolve situations of conflict. In China, however, such programs have yet to be developed. Both MOC and HWREP have extensive systems of design and research institutes, mostly specialized in the engineering disciplines. Serious efforts must be made, however, to develop sufficient capabilities in the areas of water resource economics and planning. The recently established Water Resources Coordination Steeri.ig Group, which includes representatives from the State Planning Commission, MOC, MWREP, the Academy of Science, and other relevant organizations, and which is under the direct leadership of the State Council, seems the logical agency to be given the task of developing an agreed methodology for multipurpose projects. 26. A specific example of a multipurpose water project that is of immediate concern to the transport sector is the Three Gorges power project. As indicated in paras. 12 and 13, this project will affect navigation on both the middle and upper reaches of the Changjiang (below and above the dam). While completion of the Three Gorges project is 15 to 20 years in the futurte, project evaluation for navigation works contemplated in the interim will nevertheless need to take account of the likelihood that, within a few years, the Three Gorges reservoir will flood the area, thereby truncating the benefit stream for the interim investments. In some instances this may mear that the interim projects are economically unjustified, even though they would other- wise be very attractive. An important first step in assessing the appropriate level of transport investment in the middle and upper reaches of the Changjiang would be to narrow the range of traffic forecasts, which currently vary by a ratio of ten to one.  - xi - 27. Pricing. Another major issue in water transport is the structure and level of tariffs, both within the water subsector and vis-a-vis rail tariffs. As more reliance is placed on market forces, tariffs and user charges will need to be modified to reflect costs more closely, and thus guide managers to more efficient decisions. Tariffs have remained unchanged for many years and are n... generally too low. As indicated in para. 20, current tariff levels for water transport leave only a small margin over operating costs, thus hampering investment in modernization. However, increasing water transport tariffs without changing rail tariffs would not give the proper signals for economically efficient modal choice. Rail tariffs, particularly for coal, should also be increased to reflect long-run marginal costs in congested corridors. This would then encourage traffic to use the least cost mode.. As part of this adjustment of tariffs to reflect costs, it is also necessary to correct prices for inputs, particularly fuel, since at present it appears that the railways benefit more than water transport from subsidized fuel prices. 28. Just as important as the general level of tariffs is the structure of tariffs. At present, there is too little differentiation in prices to reflect differences in costs and encourage efficiency. For example, shipping companies earn a fixed price per ton shipped, and ports also charge a fixed fee per ton handled, irrespective of the size and form of the shipment, with the result that no one has an incentive to implement cost-saving modernization in cargo handling, with the adverse consequences referred to in para. 17. As a first step on the tariff front, private boats should be permitted to set their own tariffs, and for administered tariffs the range of flexibility around posted prices (currently 201) should be increased to give shipping com- panies and port authorities greater leeway to reflect cost differences in their fee schedules. In particular, breakbulk shipments should be charged for the extra costs they create, as compared to bulk shipments and unitized car- goes. On inland waterways, different tariffs should be introduced for upstream and downstream movement to reflect the radical cost differences in the two directions (upstream shipments use seven or eight times as much fuel per ton and twice the equipment and labor time). Where channels are congested, a channel user fee would help both to ration the limited facility and to finance its expansion.  CHINA WATER TRANSPORT SECTOR STUDY I* INTRODUCTION 1.01 Historically# waterways provided the major means of transport in many regions of China. Rivers and coastal routes were used intensively. The construction of the Grand Canal was begun in 486 B.C. and completed in A.D. 1293, providing a 1,747-km link between the economic resources (rice, silk, and tea) of the Hangzhou region and the political power of the capital of Beijing._ From the late nineteenth century onward, railways began to capture some of the traditional waterway traffic, and during the twentieth century military disruptions adversely affected all modes of transport. The founding of the People's Republic in 1949 ushered in a period of rebuilding and new construction, during which the length of navigable inland waterways rose from 73,600 km in 1949 to a peak of about 170,000 km in 1960. By 1979, however, the network had been reduced to about 107,800 km, a decline of nearly 37X, due in part to the lack of investment to maintain navigable channels but also to the building of dams and other works for irrigation and power. 1.02 Rivers with a drainage area of at least 100 km2 number about 5,800 and have a total length of about 430,000 km. Broadly speaking, the navigable rivers comprise three distinct inland basins: the Heilongjiang (Amur River) system in the northeast, the Changjiang (Yangtze River) system in central and east China, and the Zhujiang (Pearl River) system in the south. The Huanghe (Yellow River), which drains the north China plain, is omitted from this list- ing because it is plagued by sedimentation and low water and its navigation use is quite limited. The Heilongjiang and its tributaries are frozen for several months each winter, but the Changjiang and Zhujiang systems are navi- gable at all seasons and carry significant traffic throughout the year. The major rivers of China flow transversely from west to east, with their main tributaries generally flowing north or south. The Grand Canal cuts across this fluvial system from north to south, linking five large rivers: the Haijiang, Huanghe, Huaihe, Changjiang, and Qiantangjiang (Map IBRD 19811). 1.03 The inland and coastal waterways of China are under a dual adminis- tration, partially by the central government and partially by the provinces. The Ministry of Communications (MOC) is the highest central authority for administration and management of inland and coastal navigation. As a part of the Ministry there are separate Bureaus of Inland River Transport Management and of Coastal Shipping. Also, the following regional organizations are directly under MOC administration: 1/ Ma Xide, "The Development of Water Transportation in the People's Republic of China," speech to the International Inland Waterways Conference, Louisville, Kentucky, August 1983.  - 2 - (a) Changliang Navigation Administration (CNA), which is responsible for ports, navigation channels, in.pection, salvage, and traffic manage- ment on the main stem of the Changjiang (tributaries excluded)l (b) Changjiang Shipping Company (CSC), which is the largest state ship- ping company in China and operates cargo and passenger vessels on the main stem of the Changjiang (tributaries again excluded); (c) Heilongjiang Navigation Administration, which manages water trans- port operations (both waterways and fleet) in northeast China; and (d) Zhujiing Navigation Administration, which was established only recently to manage planning and construction on the Zhujiang. The separation of the Shipping Company from the Navigation Administration on the Changjiang occurred only recently; a similar division of responsibilities may be instituted on the Heilongjiang in the future. Apart from these three specific Administrations, the rest of the vast inland waterway network is under provincial jurisdiction, and each province has a transportation bureau which includes a navigation management unit. 1.04 A country's use of water transport is a function of many factors: geography, climate, size of GNP, competition from other modes, and so on. Not surprisingly, then, waterway traffic varies greatly from one country to another. If all of Europe is treated as a single entity, however, it is pos- sible to make the following summary comparison of four major "countries": Table 1.1: INLAND WATER FREIGHT TRAFFIC IN 1982 Tons ALH Ton-km (mln) (km) (bln) Europe 736.6 156 114.7 USSR 604.5 434 262.4 Us 518.1 615 318.5 China 320.0 203 65.1 For details, see Table 1. ALH is average length of haul. This summary confirms that China is one of the world's major users of water transportation. From another perspective, the importance of water transport to China is also confirmed by noting that in 1984 the coastal routes and inland waterways together carried 17.3% of the ton-km and 4.3% of the passenger-km in the total domestic transportation output for the year. By comparison, the share of waterborne freight in total domestic ton-km was 4% in the USSR, 31% in the US, and 51% in Japan.  -3 1.05 If we divide the 1984 data on China's domestic waterborne ton-km (196.1 billion) and passenger-ku (15.4 billion) by the total route length of China's coastline and navigable inland waterways (18,000 and 109,000 km, for a total of 127,000 kh), we can derive the annual traffic density on a represen- tative kilometer of waterway -- 1.54 million tons and 0.12 million passengers, respectively. Although these traffic densities are similar to the national averages of waterways in France (1.67 million tons) and in the USSR (1.85 mil- lion tons), at least on the freight side of the picture, they are substan- tially le,z than the densities in the Fedeill Republic of Germany (11.42 mil lion tons) or the US (38.52 million tons).-' They also seem quite low when compared to the potential capacity of a waterway of even modest width and depth. Furthermore, a typical single-track railway in China carries tra