China: The Sesame Door of Ali Baba

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China The Sesame Door of Ali Baba

• Laura Yang
• Shanghai Institute of Foreign Trade
• 29th. March, 2007

2
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 UKs deficit in trade
  with China)
  
• After 1949, Chinas 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

3
WTO Entry

• The History

4
Chinese Foreign Trade System

• Centralized control system
• Vertically unitized system
• (MONOPOLY of state owned foreign trade
  companies)
  
• MOFTEC (MOFCOM)
• Import Export Companies
  (Foodstuffcerealoil, Textile, Mineral Products,
  Medical Health Care, etc.)
  

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Foreign Trade System-from1979

• De-regulation in Foreign Trade Management
• 19791987 Pilot Period
• In Guang Dong / Fu Jian / Bei Jing / Tian Jin /
  Shang Hai
  
• Allow Local Authority in Foreign Trade Operation
• 19881990 Operation by contract
• (total export income, the ratio of turning in,
  export/import balance) target by contract
  
• Local Authority in Operation of Local Companies

7
Foreign Trade System-from1979

• 19911993 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

8
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.net7001/wto
  /english/english_wtoxw.jsp
  

9
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

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Bilateral Multilateral Trade Relationships
Bogor Goals November, 1994
Osaka Action Agenda November, 1995
APEC
Shanghai Meeting, 2001
Trade without discrimination    
WTO
Freer trade
Mainland Taiwan HK Macao
Predictability
ASEAN Nov. 2002 Free Trade
CEPA
Promoting fair competition
Encouraging development and economic reform
11
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/c
  ontent1p.aspx?id710codeIHK2-ADV-CEPA-GOODlang
  1

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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.
  

13
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.

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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.

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 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.
  

16
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 1990s 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.
  

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Chinese Logistics Industry-History and Structure

• History (continued)
• Mid 1990s-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.

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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

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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

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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.

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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)
  

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Chinese Logistics Industry-Policies

• Central Policies
• Current Policies
• Transport Related Policies
• Distribution Related Policies
• Foreign Investment Policies
• Taxation Policies
• Import Export Policies
• Customs Regulations
• Inspection Regulations, etc.
• 
  
  

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Chinese Logistics Industry-Policies

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

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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

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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.  

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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

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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
  

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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.
  

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Chinese Logistics Industry- Market Open
30
Multinational Logistics Companies Investment in
China

• They came to China in the 20 80s
• DHL(??) 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 its transportation
  capacity in Shanghai, Beijing, Guangzhou,
  Shenzhen, etc. Its going to open 50 rep.
  offices, 3 logistics centers and 16 consignment
  centers.

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Multinational Logistics Companies Investment in
China

•  
• FedEx(????)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.

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Multinational Logistics Companies Investment in
China

• UPS (????????????) entered China in 1988 by
  establishing a joint venture with SINOTRANS.  
    UPS FedEx DHL TNT80 market share in
  express delivery service in China
• TNT(????)has planned to increase its branches in
  China from current 25 to 100 by 2010
  

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New Trend in Investment from 2005

• Move from joint investment to sole investment.
• TNT terminated its joint venture with SINOTRANS
  in 2003
  
• UPS started its 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.
  

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Chinese Logistics Industry-The Olympic Games

• Direct Logistics Cost (in RMB)

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Chinese Logistics Industry-The Olympic Games

• Total Distribution Volume

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Chinese Logistics Industry-The Olympic Games

• Olympic Logistics Center in Beijing
• http//en.beijing2008.cn/83/40/article214024083.sh
  tml
  

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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