Four helicopters and more than 20 ships from China and Hong Kong were deploying to the waters near Po Toi, an island lying at the edge of Hong Kong's territory where the ship sank in the early hours of the morning, officials said.
"Two cargo ships collided and one of them sank," a police spokeswoman told AFP.
Aerial footage of the scene shown on Hong Kong television showed an oil slick on the surface of the sea where the ship is believed to have gone down.
The survivor, who was plucked from the sea by a passing fishing boat, suffered minor injuries to his hands and feet, she said.
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China said it was sending three helicopters and more than a dozen ships to the scene, according to the official Xinhua news agency, while Hong Kong sent a helicopter and eight rescue vessels.
A fire department spokesman said the collision took place three miles (nearly five kilometres) south of Po Toi, just outside Hong Kong maritime territory.
It collided with a 300-metre long container ship, the Marshall Islands-registered MOL Motivator, whose crew members are all safe, the department said.
"The rescue work is carried out and coordinated by the Guangdong rescue coordination centre," a Marine Department spokeswoman said.
Hong Kong's waters are notoriously crowded. Hundreds of vessels, from wooden sampans to enormous container ships, ply the shipping routes that criss-cross the territory, one of the world's busiest ports, every day.
The tragedy shocked the Asian financial hub, which prides itself on its good safety record.