Sunday, April 02, 2006

China - Logistics Opportunities Abound!

China’s loosening of restrictions on foreign investment in logistics has allowed the industry to grow 30 percent in the last year! The opening of China’s logistics and transportation sector will be a turning point in China’s economic development over the short, and long term.

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 and 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 is jumping on CEPA faster than almost any other industry. Meanwhile, logistics costs are still noticeably higher in China than in the West, which means there is still a huge upside.

So, if you’re doing business in China, your logistics costs are a higher percentage of your total spend than in the’s around 23 percent in China versus eight percent here. Reducing that gap, and shrinking that number has to be a priority for the Chinese government.

Just think...a one percent in savings in logistics costs would be worth $15 billion to the Chinese economy! So, all it takes is two or three percent improvement in logistics costs to influence the total Chinese GDP by one percent!

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