Moving Into China
Moving Into China

Moving Into China

June 11th, 2013 - The Chinese interior offers attractive prospects despite the logistical challenges

China’s coastal cities have thrived thanks to massive foreign and local investment. The country’s inland provinces, however, have been largely left behind. Today, they represent less than 15 percent of the country’s gross domestic product.

​The Chinese government hopes to narrow this wealth gap by boosting investment in the country’s interior. Its latest five-year plan includes ambitious projects to open up remote regions with massive investment in rail, road, river and air infrastructure.

China has earmarked more than §30 billon to build and restore 19,000 kilometers of waterways over the next decade, for example.

It also plans to build or upgrade 45 airports in areas including the provinces of Xinjiang, Inner Mongolia, Ningxia, Qinghai, Gangsu, Shaanxi and Tibet. Traffic is expected to rise more than 20 percent every year in these regions.

In another measure of its ambitions, the government aims for 20 percent of fruits and 30 percent of vegetables to be transported in refrigerated lorries by the end of 2015. That compares to around ten per cent today with significant variations between provinces, estimates Frederic Houdoyer, SDV’s general manager for sales and development in East & Central China.

« The targets are dizzyingly impressive, » says Shanghai-based Houdoyer. SDV transports goods to over 150 towns in China and is about to open a new office in Chongqing, a city in the southwest. Its clients include Swiss group Nestlé’s Nespresso brand, French cosmetics group L’Occitane and French car parts manufacturer Valeo.

International companies looking to move deeper into the world’s second-largest economy still face considerable logistical challenges, however. These include high transport costs and potentially long journeys that challenge supply-chain models, warns Houdoyer.

« Companies must carefully weigh the costs, supply and delivery times, » he says. « They also face a highly fragmented market. » It takes at least five separate road carriers to cover China’s industrialized regions, he adds, an area roughly the size of Europe.

As for expenses, transporting fast-moving goods such as foodstuffs to China’s interior can cost up to 60 percent of the value of the goods. That compares to just ten percent in western countries, he adds.

Freight road transport times, meanwhile, vary. It takes between one to four days to move goods from Shanghai to another main city and between nine and 12 days to reach remote locations such as the Sichuan mountains, Houdoyer says.

Slow-moving traffic, access restrictions in cities and frequent unloading mean it can take 48 hours to transport goods one thousand kilometers inside China compared to just 12 hours in western countries, he adds.

Alternatives include air transport, which takes between 24 and 48 hours, and express train transport that takes between 48 and 72 hours, Houdoyer estimates. He notes that these imply weight and size restrictions and that goods transported by train typically also lose half a day sitting on the platform before departure.

The lack of legislation, meanwhile, increases the risks of road transport. Road transport is not subject to maximum legal liability protection and trucking companies are not required to have cargo insurance.

« If clients do not have insurance they have no legal claim to damages from the transporter,” notes Houdoyer. Claims have to be negotiated, he adds, and sometimes companies prefer not to negotiate with their customers when the sums exceed the transport bill. SDV, therefore, advises clients to insure their own goods or require proof of insurance from the transporter.

Despite the challenges, Houdoyer still thinks it makes business sense for international companies to set their sights beyond China’s coastal provinces.

«China’s plans to develop its infrastructure and logistics hubs are way ahead of economic growth in these regions, » he says. « But companies that seize the opportunities will have the best access to the market, the chance to develop a local presence and the support of the local authorities.»

Key Figures
  • 20%

    More fuel-efficient for the Boeing 787 and the Airbus A350

  • 70%

    of Urbanisation is expected by 2050

  • 27

    mega-cities are expected by 2050, with at least 10 million people, compared to 1...

  • +18,4%

    of growth for E-commerce retail market in Europe in 2015

  • 82%

    of goods are moved by road

  • 1 billion

    Population in Africa

  • 60%

    of Africa’s population will be urbanized by 2050

  • 7,5%

    of growth for Indian GDP in 2014

  • 4,9%

    of growth for African GDP in 2016

  • 6,1%

    of growth for East Asian GDP in 2015, the world’s fastest-growing region

  • 19 224 teus

    transported by the MSC Oscar, the largest container ship in the world

  • 396 m

    is the size of the MSC Oscar ship

  • 120 h

    is the Non-Stop Flight Record done by Solar Impulse

  • 4,5%

    of growth in 2015 for Global Airfreight demand