Research On Landlord Port Lease Finacing Contract Theory

In the port economy history, public service port that the public sector is responsible for port infrastructure financing dominates for a long time. However, landlord port financing based on port land leasing has been widely successful during the port reform and liberalization waves in the seventies and eighties of the20th century. Many western ports, especially large and medium-sized container ports chose landlord port to be the mainstream financing model. In the landlord port financing mode, the port authority or government concessioned public enterprises to be a landlord, leasing port land to the private operators and charging rents to be the port infrastructure revolving funds. Nowadays most of the world’s top100container ports are landlord ports, and many other ports are constantly transforming to the landlord ports. In China, many ports such as the Shanghai Port, Nantong Port, Guangxi Qinzhou Port, Jiaxing Port, Zhejiang Zhapu Port, North port area in Dalian Dayao and Qingdao Dongjiakou Port, have also explored landlord port to be the propective financing model.This raises many questions:Why the landlord port financing models eventually replaced the public service port and achieved broad applicability in practice? What is this worldwide port financing arrangements’mechanism? The landlord port financing model currently implemented in China is largely a variant of the international mainstream landlord port model, what about these Chinese characteristics? What about the landlord port financing mechanism in China? Exploring the landlord port financing mechanism and its economic theoretic basis, is not only of great significance to the marine finance and marine economic theory, but also to the practice of the port authority ("landlord") and its regulations in different market environment and conditions.The paper explains the financing mechanism of the landlord port from the contract theory. Firstly, this paper gives a review on theoretical debate of the port infrastructure financing and its historical development, by which to explore the evolution and origin of landlord port financing model. Secondly, we examine the forms and characteristics of landlord port financing contract and the contract choice, based on the international experience, the property rights of the contract and behaviors of the parties. Thirdly, we analyse the financing governance and optimal resource allocation of the landlord port lease contract from the contract incentive and restraint perspective. Finally, we give a further analysis on the quasi-landlord port financing model in China, not only its mechanism, but also the resource allocation.The paper is divided into seven chapters.Chapter one is the introduction, mainly about the basic concept, research content, research method, technology roadmap and innovations.Chapter two reviews the literature on port financing and landlord port model. There are many controversies on the port financing mode selection problem, due to the location characteristics, historical development, institutional environment difference of world port areas, as well as the complexity and limitations of port financing. After1970s, the landlord port model that makes government and private capital co-participation, gradually becomes a reference transformation model of the world’s major ports. However, academic research on the landlord port financing is insufficient. The detailed analysis on the internal mechanism of the landlord port financing and port land leasing as a new type of port financing methods is to be further explained.Chapter three explores the evolution of port infrastructure financing and the origin of landlord port financing mode. We try to find the theoretical and empirical evidence of port being controlled by public capital for a long time in the history, based on the port’s strategic importance of coastal defense and its social welfare function. Then we examine the wave of port reforms influenced by the neo-liberalism and the evolution logic of private capital participation, with the new environment of international port in the late20th century. Furthermore, we summarize the port infrastructure financing mode selection principles from the controversies on public and private capital participation in port infrastructure.Chapter four examines the relevant facts and characteristics of the port land leasing as a port financing mode, from the practical experience of international landlord port financing. This chapter first summarizes landlord port financing and port land leasing practices according to the world port geographic distribution. Then we study the characteristics of the landlord port financing contract signed by "landlord" and port operator in terms of rents, lease term, sublease, sublet and subcontracting and restricted conditions, so as to provide the empirical basis for the following research.Chapter five resolves the landlord port lease financing contract from the contract theory. The optimal contract criteria is analysed based on forms of the landlord port lease financing contract and different influencial factors, especially transaction costs and risk factors. This chapter also examines the role of transaction costs and risks in the contract period choice in landlord port lease financing contract.Chapter six explores the optimization and incentives of the landlord port lease financing contract by a more specific contract relationship model on the basis of the chapter five model. The impact of transaction costs and risk factors in different circumstances of the landlord port lease financing contract and the optimal conditions both maximize the interests of the landlord and the lessee are studied through the one-time and multi-phase contractual relationship models. Then we try to make a conclusion on that what incentive mechanisms should be the landlord (port authority) designed to promote the lessee’s port infrastructure investment and provide more funds for port development in the landlord port lease financing contract.Chapter seven studies the quasi-landlord port financing mode in China and its contract relationships on the basis of the above theoretical and empirical analysis on the mainstream landlord port financing model and the international comparison.The last part is the conclusion.The main conclusions in this paper are:(I) The landlord port is a kind of port infrastructure financing mode characterized by the land leasing as a medium to make public and private sector co-investment.(II) Transaction costs and risks have important influence on the optimization of landlord port lease financing contract and the best choice of different port financing contracts. In the presence of transaction costs, a risk aversion lessee will choose mixed rent landlord port lease financing contract, with the optimum result of the port authority and the lessee sharing gains and risks.The optimal sharing proportion that the port authority set in the incentive contract depends on the tenant’s operating ability, the effort cost, the degree of risk aversion and some exogenous risk factors the tenant facing. When the tenants operate well, the cost that the tenants need to pay for their effort is low, the degree of their risk aversion and the impact of exogenous risk factors is small, the port authority should give tenants higher sharing rate.(III) The term of port land leasing depends on the tradeoffs of risks and motivations. The choice of the contract duration is the comparation result under the transaction costs of different period contracts.(IV) The quasi-landlord port financing model implementing in China is largely a variant of the international mainstream landlord port financing mode. The contract is a tripartite body participating in the port investment, double principal-agent relationship and two-level distribution of profits, involved by the government land management department, port investment companies and terminal operators. However, it is essentially a kind of resource allocation which the local government monopolizes total port land income, relying on its port land ownership. So it is not an ideal port financing model and violates the original intention of landlord port financing which tries to attract private sector participation in port infrastructure construction.Compared with previous studies, the innovations of this paper are mainly the following points:Firstly, this paper examines a new landlord port land lease financing contract in the framework of contract theory, which different from farmland leasing but with combination characteristics of farmland tenancy and other land leasing.Secondly, this paper extendes the tenancy theory to a multi-contract framework that involves in public service port and variant forms of landlord port, and forms a theoretical framework of the optimal port financing contract choice, according to the characteristics and objectives of different port financing modes.Thirdly, the inner mechanism is explained theoretically by one-time and multi-phase landlord port lease financing relationship models. These models depend on the special financing characteristics as well as the behavior of contract parties and involve in both the incentive and constraint functions of the landlord port financing contract. They are of some reference value to the extension of equilibrium analysis of the quasi-landlord port financing with the characteristic of double profit distribution in China.