Zhang Li, a Chinese postgraduate, is conducting research in the UK. This summer, she decided to change her major to logistics. “The job market is tight right now. Logistics has developed fast in a short time in China, but there is still a lack of logistics professionals in the country,” she said, “So, I made the choice to study logistics, because on one hand, I want to reduce the competitive pressure that I will face in the job market; and on the other, I’m confident about the prospect of logistics in China.”
China is in dire need of logistics professionals, with some saying the shortage stands at over 600,000.
The lightning development of the country’s infrastructure is the main cause for the shortage of professionals. As of 2003, China’s logistics market has been as large as 240 billion yuan ($29 billion), after just two years of expansion. It is predicted to grow at a rate of 30 percent in the next few years. According to Gao Jun, an official with China Communication and Transportation Association, logistics is still a new industry that has a long way to go before its development plateaus.
The Struggle to the Foundations
Following the torrid economic development of the past two and a half decades, the scope of what logistics is in China has gradually extended from the simple transportation of people or goods to the modern sense of the word, which includes the entire supply chain. Logistics are the gears of an economy. This encompasses those tools that get raw materials to producers, retailers and finally consumers. The process includes packaging, transportation, storage, distribution and sometimes delivery. Roads, land vehicles, air and seaports, ships, aircraft, railroads, warehouses, personnel, etc. as well as communications, which play a part in product circulation, are the nuts and bolts of logistics for a modern economy. These are the veins through which goods, people and ideas are pumped.
Naturally, as an economy expands, so does the need to have the tools in place to make it run smoothly. It really was not until 2000 that logistics, as an industry, took off in China. While necessary, it is also a potentially lucrative business. In the 10th Five-Year Plan (2001-05) that China drafted, logistics was defined as a pillar industry. In coastal provinces, especially cities, modern logistics became an economic growth point among others.
With increasing competition in the logistics market, coastal cities are battling it out for the distinction of being a center for the distribution and flow of goods. Tianjin, the north’s biggest port, has already achieved this in that region.
Shanghai, a bustling port city at the mouth of the Yangtze River, has a logistics industry averaging 22 percent in output growth a year. Already the economic and transportation center of the eastern seaboard, Shanghai has the great potential to evolve into a logistics center for the region and beyond.
The Pearl Delta lies in east China’s mainland coast, accessible to both the Southeast Asian hubs of Hong Kong and Macao and its neighbors in East Asia.
Guangzhou and Shenzhen, in Guangdong Province, are two cities that have exploded since national economic reform. Spurred by its access to the Pearl River Delta, Guangzhou has a port with the capacity to handle over a hundred million tons of goods annually. Guangzhou has a labyrinth of highways and railways as well as a new airport. Shenzhen, which mushroomed from a fishing town to a metropolis in a decade and right next to Hong Kong, also aims to be on the list of international logistics centers.
Statistics show that China will have over 30 modern logistics centers within the next five years. These cities will be the main arteries of flow of resources and goods within their respective regions, which will bolster economy efficiency.
Chinese authorities are playing up Beijing’s successful bid to host the 2008 Olympic Games as a chance for the country to finally concentrate on developing its logistics industry. The influx of people into the capital four summers from now and the demand for Olympic facilities both require extensive logistical support to transport, house, feed and sell things to the human wave that is expected to arrive. Demand and expectation are massive regarding equipment, city infrastructure, organization and management. Hosting the world’s premier sporting event and truly opening its doors to athletes, spectators, tourists, personnel and media from all over the globe is a big challenge for China’s logistics industry. But at the same time, it provides an abundance of chances.
Knocking Down Barriers
The year 2005 should prove to be an extraordinary year for the logistics industry. According to its WTO agreements, China will completely open its logistics market next year. “This will be a turning point for the industry. China’s logistics industry will be kicked into high gear,” said Dai Dingyi, Vice Chairman of the Chinese Federation of Logistics and Purchasing.
Dai believes the logistics industry in China still has a long way to go but the market is set to open anyway. Next year, China will grant international companies equal footing in its domestic logistics market. Dai also mentioned that China is a signatory to CEPA (Closer Economic Partnership Arrangement), along with Hong Kong and Macao, and has opened the services market to the two regions.
According to WTO agreements, during the current transitional period, foreign-owned logistics enterprises are not allowed to enter China, while joint ventures can enter the market in limited numbers. They cannot hold shares and still have to go through an approval process. This policy will discontinue in 2005, when logistics businessmen as well as the manufacturers and distributors they support will pour into the country from all over.
The Ministry of Commerce officially issued Provisions on the Establishment of Investment Companies by Foreign Investors on June 27. According to the provisions, as a prelude to the complete opening of the logistics industry in 2005, foreign investors will be able to establish investment companies and invest in outsourcing of services, purchasing and logistics in China. Meanwhile, the provisions also say that these investment companies can hold non-tradable corporate shares of domestic enterprises.
Multinationals are keen on the opening of China’s logistics market. Some 214 logistics companies from 27 countries and regions exhibited their wares at the 2004 China International Trade Fair for Logistics, Telematics and Transport, which was recently held in Shanghai. Non-Chinese companies accounted for 65 percent of the participants. Exhibitors included Deutsche Post World Net, Kerry Logistics and British Airlines, to name but a few.
According to statistics, the throughput in China’s ports amounted to near 50 million standard containers in 2003, 32 percent more than the previous year, supplanting the United States as the most in the world. It is estimated that by 2010, the volume of goods transported by sea will be nearly 7 billion tons, of which Chinese ports will handle about 4 billion tons of this freight and 110 million in standard-container throughput. There are currently approximately 510,000 logistics companies in China, 680 of which are partly foreign, accounting for 0.13 percent of the total number and 8 percent of the market share.
“Globalization is the most powerful driving force of the logistics industry,” said Detthold Aden, Chairman of the Advisory Board of the Munich International Trade Fair for Logistics, Telematics and Transport. He said global supply, production and sales have increased the demand for logistics services. Indeed, without solid logistics services, the 2008 Olympic Games and 2010 Shanghai World Expo would be impossible to hold.
Foreign logistics companies competing for the Chinese market pose a great challenge to China’s logistics industry. Li Baomin, Vice Director of the Research Center of the State Asset Management Commission, pointed out that China’s logistics industry has institutional “defects.”
The pressing matter seems to be a slack in innovation. One remedy is to bring about the prevalence of property rights, which will especially attract those in the non-public sector who have vested interest in developing and selling technological breakthroughs.
Wang Xinkui, head of Shanghai Institute of Foreign Trade, believes that the pressing matter for the logistics industry is to set up a modern industrial system during the transitional period after China’s entry into WTO. He hopes this will lay a foundation on which technology, talent, resources and assets can grow.
(Beijing Review July 28, 2004)
