China: The Sesame Door of Ali Baba: China: The Sesame Door of Ali Baba Laura Yang Shanghai Institute of Foreign Trade 29th. March, 2007


Foreign Trade History: Foreign Trade History Foreign trade started from as early as the “Spring & Autumn Period” in China The silk road in the Tang Dynasty The Opium War ( Caused by UK’s deficit in trade with China) After 1949, China’s main trade was with socialist countries, the Soviet Union took 50% of total Economic reform & opening up to the outside world started from 1978 From Dec. 2001 China became a formal member of WTO


WTO Entry: WTO Entry The History


Chinese Foreign Trade System: Chinese Foreign Trade System Centralized control system Vertically unitized system (MONOPOLY of state owned foreign trade companies) MOFTEC (MOFCOM) Import & Export Companies (Foodstuff&cereal&oil, Textile, Mineral Products, Medical & Health Care, etc.)


Foreign Trade System-from1979: Foreign Trade System-from1979 De-regulation in Foreign Trade Management 1979~1987 Pilot Period In Guang Dong / Fu Jian / Bei Jing / Tian Jin / Shang Hai Allow Local Authority in Foreign Trade Operation 1988~1990 Operation by contract (total export income, the ratio of turning in, export/import balance) target by contract Local Authority in Operation of Local Companies


Foreign Trade System-from1979: Foreign Trade System-from1979 1991~1993 Terminate export subsidy foreign trade companies are responsible for their own profits/losses 1994~ New Reform single exchange rate legal framework Foreign Trade Law, Import Products Management Regulations, Export Products Management Regulations, Anti-dumping Regulations, Anti-subsidy Regulations, etc. Advisory Plans as for foreign trade volume, export income and import expenses Increase business license for foreign trade operations


Foreign Trade System-from1979: Foreign Trade System-from1979 After WTO Entry MOFCOM: WTO Bureau, WTO resource center, Fair Trade Bureau, Office for Handling Foreign Company Complaints Local government and different industries---taking methods to promote WTO Rules and adapt former ways of thinking & operations to the new rules. http://www.sccwto.net:7001/wto/english/english_wtoxw.jsp


Post-WTO transition and market opening : Post-WTO transition and market opening Product trade--Tariff reduction From 15.3% at the time of accession to 9.9% in 2005 in general (manufactured products from 14.8% reduced to 9%, agriculture products from 23.2% to 15.3%). global level-39% Product trade- Non tariff reduction Import quota, import license, import tendering eliminated on schedule by Jan. 1 2005. Service Industry– Market Open Foreign banks: no regional restrictions (2006) Foreign insurance companies: market open (2005-2006) Joint venture travel agency and WOFIE (2005-2007) Other areas of opening: foreign trade(2004), retail business, transportation(2005-2007), telecommunications(2004-2007) Of the 160 service sectors and sub-sectors under the WTO classification, China has opened more than 100, accounting for 62.5%, close to the level of commitments made by developed members


Bilateral & Multilateral Trade Relationships : Bilateral & Multilateral Trade Relationships Mainland Taiwan HK Macao ASEAN Nov. 2002 Free Trade APEC Bogor Goals November, 1994 Osaka Action Agenda November, 1995 Shanghai Meeting, 2001 WTO Trade without discrimination     Freer trade Predictability Promoting fair competition Encouraging development and economic reform CEPA


CEPA with Hong Kong: CEPA with Hong Kong CEPA was signed in 2003 and came into full effect from 1 January 2004. It provides preferential access to the Mainland market and reduced tariffs for the export of certain finished goods and services by certain enterprises and individuals in Hong Kong, whether locally or foreign-owned. On 27 August 2004, CEPAII, was announced. With effect from 1 January 2005, more goods and services will fall under CEPA and the benefits for many of the existing CEPA services will broaden. On 18 October 2005, CEPA III was signed. With effect from 1 January 2006, all finished goods* of Hong Kong origin may be exported tariff free to the Mainland upon the CEPA rules of origin being met. And further liberalization measures in 10 service sectors are effective from 1 January 2006. For more information: http://www.investhk.gov.hk/content1p.aspx?id=710&code=IHK2-ADV-CEPA-GOOD&lang=1


Free and Open Trade and Investment  --Bogor Goals November, 1994   : Free and Open Trade and Investment --Bogor Goals November, 1994 APEC ECONOMIC LEADERS' DECLARATION OF COMMON RESOLVE : “We further agree to announce our commitment to complete the achievement of our goal of free and open trade and investment in the Asia-Pacific no later than the year 2020. The pace of implementation will take into account differing levels of economic development among APEC economies, with the industrialized economies achieving the goal of free and open trade and investment no later than the year 2010 and developing economies no later than the year 2020. ”


Free and Open Trade and Investment  --Osaka Action Agenda November, 1995   : Free and Open Trade and Investment --Osaka Action Agenda November, 1995 APEC ECONOMIC LEADERS' DECLARATION FOR ACTION The Osaka Action Agenda provides a framework for meeting the 'Bogor Goals' through trade and investment liberalisation, business facilitation and sectoral activities, underpinned by policy dialogues and economic and technical cooperation. As part of this framework, General Principles have been defined for Member Economies as they proceed through the APEC liberalisation and facilitation process.


Trade Facilitation Action Plan (TFAP) : Trade Facilitation Action Plan (TFAP) In 2001, APEC leaders meeting in Shanghai announced a goal to reduce transaction costs across the region by 5% over 5 years. In 2002, officials developed TFAP, operating under the auspices of the Committee for Trade and Investment.


 Principles of the WTO trading system:   Principles of the WTO trading system Trade without discrimination 1. Most-favoured-nation (MFN): treating other people equally 2. National treatment: Treating foreigners and locals equally    Freer trade: gradually, through negotiation Predictability: through binding and transparency foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are “bound” in the WTO; discouraging “unfair” practices such as export subsidies and dumping products at below cost to gain market share; Encouraging development and economic reform more beneficial for less developed countries — giving them more time to adjust, greater flexibility, and special privileges.


Chinese Logistics Industry-History and Structure: Chinese Logistics Industry -History and Structure History 1949-1979 Planned Economy Period Transport and warehousing were mainly done by wholesalers and merchant transport & warehousing companies, among which wholesalers totaled 80% of market share. 1980-Mid 1990’s Innovation Period Manufacturers and retailers started to build their own warehouses and fleets. Transport & warehousing companies began to provide services directly to manufacturers. Government started trail of logistics parks. But changes were not so obvious.


Chinese Logistics Industry-History and Structure: Chinese Logistics Industry -History and Structure History (continued) Mid 1990’s-present Modern Logistics With foreign investment coming into China who also brought in modern logistics principles and network systems and increased market competition, more and more manufacturing companies realized the importance of logistics. At the same time, when more and more joint venture 3PL companies and private logistics companies appeared in the market, some manufacturing and merchant enterprises started to turn towards logistics outsourcing. This has implied the start of modern logistics industry in China.


Chinese Logistics Industry-History and Structure: Chinese Logistics Industry -History and Structure Structure Governors Ministry of Commerce Ministry of Railway Ministry of Communication Civil Aviation Administration Customs General Administration State Administration of Taxation The Ministry of Public Security State Administration for Industry and Commerce


Chinese Logistics Industry-History and Structure: Chinese Logistics Industry -History and Structure Structure (continued) Companies in it Third-party Logistics Companies In-house Logistics Division in Manufacturing or Merchant Companies Logistics Education and Research Organizations Logistics Equipment and Facility Companies Logistics Information Service and Consulting Companies Logistics Real Estate Investors


Types of 3PLs in China: Types of 3PLs in China Large SOEs (such as Sinotrans, COSCO and China Post) with extensive transport and warehousing assets, broad national networks, and strong relationships with central and provincial governments. Medium-sized domestic logistics providers (generally privately owned), which focus on one or two key industries. Logistics divisions of manufacturers and processors, primarily providing services to internal customers, but sometimes offering 3PL services to outside companies. Foreign logistics providers, including multinational firms, new Wholly Foreign Owned Entities (WFOEs) and smaller firms working in niche markets.


Scale of 3PL Market : Scale of 3PL Market According to Morgan-Stanley “Asia-pacific Investment Research Group”: Annual logistics expenditure is over $200 billion in China, in which 3PL only accounts for 2%, namely $4 billion (2003)


Chinese Logistics Industry-Policies: Chinese Logistics Industry -Policies Central Policies Current Policies Transport Related Policies Distribution Related Policies Foreign Investment Policies Taxation Policies Import & Export Policies Custom’s Regulations Inspection Regulations, etc.


Chinese Logistics Industry-Policies: Chinese Logistics Industry -Policies Central Policies New Changes Nine ministries jointly announced . National Development & Reform Commission, 13 government ministries, 2 associations: Ministerial Associate Meeting System


Chinese Logistics Industry-Policies: Chinese Logistics Industry -Policies Municipal Policies Shang Hai: Tenth 5-year Plan Logistics being one of the four strategic industries Three areas of logistics development: Port Logistics (airport, deep seaport) Distribution Logistics E-commerce Logistics Three Logistics Parks Pu Tuo Logistics Park Pu Dong Airport Logistics Park Waigaoqiao Bonded Zone


Shanghai and the port: Shanghai and the port China has ten ports whose freight volumes exceed 100 million tons a year. The ports of Shanghai, Shenzhen, Qingdao, Tianjin, Guangzhou, Xiamen, Ningbo and Dalian are listed among the worlds top 50 container ports. Shanghai Port was the largest port in the world, as its freight volume in 2005 reached 443 million tons, exceeding Singapore Port for the first time.  


Shanghai and the port: Shanghai and the port A 20-year, US $14.5 billion project that aims to build 52 berths along a 13-km waterfront with a draught of at least 15 meters at the Yangshan Deepwater Port


Shanghai and the port : Shanghai and the port Shang Hai: Deep Seaport 1.6-km total length along seashore 5 container berths Total investment 6 billion RMB 32.2 km sea bridge with 4 driveways Future of the port At the end of 2007, annual turnover will be 2.20 m TEUs with 50% transshipment. By 2015, annual turnover will be around 15 m to 17 m TEUs


Chinese Logistics Industry- Market Open: Chinese Logistics Industry - Market Open From 2005, areas include road freight transport, leasing, wholesaling and retailing of general products and their distribution, import & export truck transportation, etc. have been opened to overseas investors. Restrictions regarding geographical coverage and shareholding percentage will be eliminated.


Chinese Logistics Industry- Market Open: Chinese Logistics Industry - Market Open


Multinational Logistics Companies’ Investment in China : Multinational Logistics Companies’ Investment in China They came to China in the 20’ 80s DHL(敦豪) was the first pioneer. It established DHL-SINOTRANS in 1986 jointly with SINOTRANS. It has planned to invest 215 million EURO in the next 5 years to upgrade it’s transportation capacity in Shanghai, Beijing, Guangzhou, Shenzhen, etc. It’s going to open 50 rep. offices, 3 logistics centers and 16 consignment centers.


Multinational Logistics Companies’ Investment in China: Multinational Logistics Companies’ Investment in China   FedEx（联邦快递）entered China in 1984. It has now business in 220 cities in China. In Oct. 2001, it opened the largest logistics center in China in Shanghai Pudong Airport. In Dec. 2004，it announced its Shanghai Head office in China.


Multinational Logistics Companies’ Investment in China : Multinational Logistics Companies’ Investment in China UPS (美国联合包裹运送服务公司) entered China in 1988 by establishing a joint venture with SINOTRANS.     UPS + FedEx + DHL + TNT=80% market share in express delivery service in China TNT（天地快运）has planned to increase it’s branches in China from current 25 to 100 by 2010


New Trend in Investment from 2005: New Trend in Investment from 2005 Move from joint investment to sole investment. TNT terminated it’s joint venture with SINOTRANS in 2003 UPS started it’s way of sole operation on 2nd. 12, 2004. Seeking new market by extending services to Chinese domestic companies. Geographically expand to Northeast China and Central & Western China.


Chinese Logistics Industry-The Olympic Games: Chinese Logistics Industry -The Olympic Games Direct Logistics Cost (in RMB)


Chinese Logistics Industry-The Olympic Games: Chinese Logistics Industry -The Olympic Games Total Distribution Volume


Chinese Logistics Industry-The Olympic Games: Chinese Logistics Industry -The Olympic Games Olympic Logistics Center in Beijing http://en.beijing2008.cn/83/40/article214024083.shtml


Chinese Logistics Industry-Future Development : Chinese Logistics Industry -Future Development Economic growth brings about huge demand for logistics services Currently every 10,000 GDP produces 9,200 ton mile transportation Total logistics expenditure accounts for 15%-20% of national GDP In the next 3-5 years, logistics will grow by 15%-20% annually