Chapter 4.10: Developments in Chinese Logistics


Li Yong, Deputy Secretary General, China Association of International Trade

The 'dark continent ' is still dark

As early as the 1960s, logistics was described by the American management guru Peter Drucker as 'the economy's dark continent' and 'the last frontier for competitive advantage'. Over the 40 years since then, logistics has been seen in the developed world as an effective means of optimizing corporate resources to reduce costs and achieve profit objectives. In the context of economic globalization, the 'last frontier' is exploited on a global basis.

In China, however, the concept was not introduced until the 1970s, when logistics was discussed only within the domain of material management and mostly at an academic level. It was not until the early 1990s that logistics was brought into standard practice. It has now become a buzzword in China; it is 'cool' for the managers to talk about logistics, particularly among those companies that have traditionally been in the transportation, warehousing and distribution businesses. The concept of logistics has also attracted the attention of the Chinese government, who have become convinced that logistics is a modern tool of supply chain management that will help turn around state assets and add impetus to reform efforts. As State Councilor Wu Yi commented in her letter to a symposium on logistics and e-commerce in 2000, '(logistics) will help realize the two fundamental transformations in China's economic structure and economic growth, and promote the sustainable and healthy growth of the Chinese economy', and 'Central government has decided that logistics and distribution will be a priority in the service industry for the country's tenth five year plan period between 2001 and 2005'.

Logistics has clearly been given significant strategic weight in the national plans as well as at the corporate level. But what is logistics all about? What standards will apply when delimiting the content and scope of logistics as an industry? While these questions, and many others, need to be answered , logistics has been seen as the holy grail that every business searches for, as a result of which thousands of companies “ who may well be nothing more than transportation or warehousing companies “ have registered themselves as logistics firms. In Beijing, there were more than 120 company registrations under 'logistics' in 2001. The number of logistics companies had exceeded 1000 in Shanghai by the end of 2001. In the past two years or so, over 70,000 companies have registered as logistics providers. Yet two years ago, the Chinese term for logistics wasn't even recognized by business registration authorities. Large enterprise groups, typically consumer electronics giants like TCL and Haier, who have painstakingly developed their distribution networks through years of marketing effort, have also announced plans to cash in on the logistics opportunities, taking advantage of their existing networks.

At a seminar on 'Challenges to the modernization of logistics in China' in September 2001, the attendees, consisting of government and association officials, reviewed the development of China's logistics and conclusion that logistics is not clearly enough defined in China. Logistics is translated in Chinese as wu liu , which literally means 'material flow', suggesting that logistics is related to movement of physical goods or physical distribution. Interestingly, however, the term wu liu was borrowed from the Japanese, who still use some Chinese characters . The convenience of importing the term from Japan has caused debate over whether this Chinese term can properly reflect the dimension of modern logistics. Academics who have learned more about the concept from western practices and theories , argued that wu liu had limitations in conveying logistics as a modern concept of management. Some suggested that wu liu should be changed in order to differentiate the term from conventional understandings of material management or physical distribution.

Since the term has been in use for nearly three decades, it was decided to retain it as it is, although it may sound misleading. The problem is not really how logistics should be translated or theoretically defined as a concept but more in the definition of what should go into the ' basket ' of logistics and what policies should be implemented in relation to logistics as a burgeoning sector. In addition, there was an argument at the seminar that the WTO's General Agreement on Trade in Services has not singled out logistics as a separate sector, and China has not made commitments to logistics in its WTO concession arrangements. This argument does not really challenge China's commitments to the WTO in terms of opening up its service sector as logistics should fall into the scope of services. It is important, however, that logistics should be defined and recognized both legally and administratively, with a series of workable qualification standards and policy measures to support its development, as well as avoiding possible arbitrariness or conflicting rules and regulations in the administration of logistics businesses at both central government and local level.

Indeed, a multitude of government bodies are involved in decision-making on the development of logistics and there needs to be coordinated policy- making among them. On 1 March 2001, six central government departments “ the State Economic and Trade Commission, the Ministry of Railways, Ministry of Communications, Ministry of the Information Industry, Ministry of Foreign Trade and Economic Cooperation and the General Administration of Civil Aviation of China “ jointly issued a circular entitled 'Several Opinions on Expediting the Development of Modern Logistics in China'.

This is the first policy guidance related to and with explicit reference to logistics. It assessed the situation in logistics development and recognized it as a value- creating tool for economic development in China. Modern logistics is described by the circular as a new growth point for the Chinese economy. It calls for the provision of guarantees by government departments at all levels in terms of policies and laws/regulations in order to promote the marketability of logistics. State Economic and Trade Commission will coordinate the policy-making and legislation of laws and regulations on logistics. Regarding the opening up of the logistics sector to foreign participation, the circular recommends synchronisation with the opening up of transport services and distribution and that the entry of foreign logistics providers into the Chinese market should be actively sought.

In fact, foreign-invested logistics providers are already operating in China. According to the 2002 White Paper on American Businesses in China, published by the American Chamber of Commerce-PRC, there are only four solely foreign-owned companies in China offering logistics outside the special economic zones. Licensing options include forming joint ventures with local agents or operating within special zones. In this context, the circular advocated that governments at all levels should speed up the pace of opening up the logistics sector and encourage hands-on cooperation with foreign logistics providers. With the quickening of economic globalization, increased participation by foreign logistics providers is inevitable.




Doing Business with China
Doing Business with China
ISBN: 1905050089
EAN: 2147483647
Year: 2003
Pages: 648
Authors: Lord Brittan

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