Tensions Rise as Shipping Firms Exit Hong Kong Amid US-China Concerns

HONG KONG, March 6 (Reuters) – Several shipping companies are quietly relocating operations out of Hong Kong and deregistering their vessels as concerns grow over potential U.S. sanctions and the possibility of Chinese authorities commandeering their ships amid escalating geopolitical tensions. Anonymity was granted to six shipping executives who revealed these developments have arisen from fears surrounding ongoing conflicts between Beijing and Washington.

Hong Kong, a major maritime hub for over a century, has seen a significant shift as shipowners, brokers, underwriters, and legal experts express increasing worries about national security implications as China consolidates its shipping fleet with military objectives. According to recent Reuters interviews with around two dozen industry professionals, the apprehensions have notably intensified in light of a proposed crackdown on Chinese shipping activities by the U.S. Trade Representative’s office.

The maritime sector’s contribution to Hong Kong’s GDP stood at 4.2% in 2022, with the city’s flag ranking as the eighth most prominent worldwide, according to VesselsValue data. However, the number of oceangoing vessels flagged in Hong Kong has dropped by more than 8% since 2020, illustrating a departure from its once-thriving registry, which grew 400% over the previous two decades.

As of January, the Hong Kong shipping registry had fallen to 2,366 vessels from 2,580 four years ago, amid reports that 74 ships have re-flagged to alternative registries, primarily Singapore and the Marshall Islands, since 2023. The executive leadership at shipping firms indicates significant operational changes in response to Hong Kong’s tightening security measures and the ongoing escalation with the U.S.

“We don’t want to be in a position where China comes knocking, wanting our ships, and the U.S. is targeting us on the other side,” stated one anonymous executive, encapsulating the pervasive fears within the industry.

The Hong Kong government, responding to inquiries, emphasized that review of operations is expected in light of changing geopolitical dynamics, boasting incentives aimed at retaining shipowners. However, officials avoided addressing the specific concerns raised by industry insiders regarding how unauthorized commandeering powers could potentially be enacted during emergencies.

Industry experts like Basil Karatzas from Karatzas Marine Advisors & Co. point out that Singapore is becoming a preferred destination for shipping companies due to its favorable legal environment and reduced exposure to Chinese risks. The Maritime and Port Authority of Singapore acknowledged that decisions regarding ship flagging are based on commercial rather than geopolitical considerations.

Despite concerns about its political climate and maritime security implications, Hong Kong remains a critical base for many shipowners. Yet, some firms, including Taylor Maritime founded in 2014, have strategically shifted to maintain their ships under flags from jurisdictions perceived as less risky.

As highlighted by Angad Banga, chairman of the Hong Kong Shipowners Association, while some firms have reassessed operational strategies, there is no widespread decline in confidence for doing business in Hong Kong. Yet, growing unease about potential commandeering of vessels still permeates discussions.

Three maritime lawyers discussed how contract terms have evolved in response to recent geopolitical instability; agreements that previously mandated Hong Kong flags now often include contingencies for alternative flags. Reflecting on Hong Kong’s role in trade, one lawyer remarked that it is better to avoid potential crises, even as historical ties with Chinese maritime operations become increasingly complicated.

Amid the shifting landscape, significant strategic ramifications underscore the importance of maintaining flexibility in flagging and operational decisions for shipping companies headquartered in Hong Kong.