China logistics market blossoming, say trade experts
China's loosening of restrictions on foreign investment in logistics has allowed the industry to grow 30 percent in the last year, according to panelists at a conference on China held in Oakland on Monday and Tuesday.
'The opening of China's logistics and transportation sector will be a turning point in China's economic development,' said Clarence Kwan, managing partner of the China Services Group for Deloitte and Touche.
Nearly every major name in the logistics industry has set up shop in Hong Kong in the last two years hoping to tap into the seemingly limitless potential of Chinese logistics, but the market is very fragmented, with no company controlling more than 2 percent of the market.
'The logistics industry has had to fight to keep pace with trade growth,' said Simon Galpin, associate director general for InvestHK. 'The Chinese government spent $18 billion on logistics the last five years. Another similar amount, if not more, will be spent in the next five years.'
Hong Kong, and its advantageous regulatory climate, banking system and rule of law, has seen a boom in the number of logistics firms setting up headquarters there. Chief among the incentives in Hong Kong is the Closer Economic Partnership Arrangement, or CEPA, which gives tariff breaks to trade between Hong Kong and the Chinese mainland.
'The logistics industry jumped on CEPA faster than almost any other industry,' Galpin said.
Meanwhile, logistics costs are still noticeably higher in China than in the West, said John Chorley, vice president of supply chain execution for Oracle.
'If you're doing business in China, your logistics costs are a higher percentage of your total spend than in the U.S.,' Chorley said. 'It's 23 percent in China and 8 percent here.'
But shrinking that number is a priority for the Chinese government, he said.
'Each 1 percent in savings in logistics costs would be worth $15 billion to the Chinese economy,' Chorley said. 'It takes 2 percent to 3 percent improvement in logistics costs to influence GDP by 1 percent.'