STRATEGY
China's East - The Dragon's Lair
March 1, 2007
Matthew Flynn, Principal, Flynn Consulting

The Yangtze Delta is greatly envied because of its dynamic economy, which is driven by good transport infrastructure, favourable policies from central government, a continuing huge influx of foreign direct investment and easy access to the outside world.

When looking at logistics in the east of the country, it is important to consider not only the coastal provinces of Shanghai, Zhejiang and Jiangsu, but also further inland up the Yangtze River to Anhui, Jiangxi, Hunan and Hubei, where port issues also matter greatly.

Pudong is the Main Pillar of the Yangtze Logistics Industry

The growth of logistics in the Yangtze Delta began with the development and opening up of Pudong in Shanghai. In 2005, logistics accounted for 13% of the region's gross domestic product, and Shanghai, known as the dragon's head, is constantly striving to ensure that the sector grows at over 10% annually in the coming five years.

Shanghai's Vice-Mayor, Hu Yanzhao, has set his sights on the city becoming the top logistics centre in the Asia-Pacific region by 2010. To this end, an internationally competitive logistics system is being established.

Logistics has become one of Shanghai's pillar industries. Total freight through the city was 678 million tonnes in 2005, which included 443 million tonnes passing through the port - a current world record. The throughput of containers in 2005 ranked Shanghai third among the world's container ports and gave it top billing in China (it is worth remembering that there are actually several terminals in Shanghai, but as ruled by the national law, one city shall only have one port, hence it is said that there is only one Shanghai Port - however Shanghai port statistics are an aggregate of all ports located in the city - including Yangshan).

2005 also saw the opening of the eagerly awaited Yangshan Deepwater Terminal. The first phase of the USD12 billion, 50-berth project is a five-berth container facility run by Shanghai International Port Group, in which China Merchants Holdings bought a 30% stake in 2005. The second phase of the terminal is to open at the end of 2006.

A recent report from management consultants McKinsey said that Shanghai, with its position at the mouth of the delta and the upper reaches of the Yangtze as a hinterland, had a very good opportunity to boost its logistics industry in three areas - as an international shipping hub, a manufacturing base and a regional distribution centre.

As it stands, Yangtze cargoes account for 65% of Shanghai port's throughput, a fraction that has not lessened even with greater transhipment volumes flowing through the port. In 2005, the Yangtze Delta accounted for 34.5% of China's total container liftings, a figure that is expected to rise to 36% by 2010.

Four Modern Logistics Parks

The powerhouse of the delta intends to build on its advantages by increasing investment in logistics, improving integrated transport networks, enhancing the application of information technology, attracting big international companies and training high-quality professionals. Shanghai has already built four large-scale modern logistics parks - Waigaoqiao, Northwest, Pudong Airport and Lingang Harbour City, all of which have attracted big names in the industry.

Shanghai Pudong International Airport Cargo Terminal Co Ltd (PACTL) is by far the leading air cargo hub in eastern China. In 2005, it handled more than 810,000 tonnes, up 33% on the previous year. The PACTL group forecasts a rise of over 25% on average growth of tonnage a year for the next five years. A third runway at the airport - 3.4 kilometres long - is to open this year.

The Yangshan Deepwater Port, based on the islands of Da Yangshan and Xiao Yangshan in Hangzhou Bay, offers a way for Shanghai to realise its dream of becoming a global logistics centre. Though the creation of the port followed a decision by central government, it comes under the jurisdiction of Zhejiang province, which will benefit from a closer relationship with its rich neighbour and the outside world. To this end, Zhejiang is building a 36-kilometre-long bridge over Hangzhou Bay to shorten the distance from Ningbo to Shanghai by 130 kilometres. The planned completion date is 2008. A 175-kilometre-long maglev (magnetic levitation) line is also to be built between Hangzhou and Shanghai, which should lessen travelling time to half an hour. It is hoped to be in operation before the opening of the World Expo to be held in Shanghai in 2010.

Neighbours Clamour for Cargo Share

The two deepwater ports of Ningbo and Zhoushan (situated on the coast of Zhejiang Province) with respective 2005 throughputs of 269 million tonnes and almost 100 million tonnes, were merged into one at the beginning of 2006. Bearing the name Ningbo-Zhoushan Port, it will both complement and compete with Shanghai. The joint port, backed by the processing industry and the Ningbo Bonded Logistics Park, has set itself a target of becoming one of the world's top three ports. Following the example of the Shanghai Yangshan Bonded Port, Ningbo is also applying to central government for permission to build a bonded port that integrates the functions of international transshipment, distribution, procurement and export processing.

In the next five years, Zhejiang is to spend CNY400 billion on transport infrastructure, including CNY137 billion on 3,700 kilometres of expressways - four of which will connect with Shanghai, four with Jiangsu, three with Anhui, two with Jiangxi and three with Fujian.

The export-oriented manufacturing industry in Jiangsu is also fairly well developed, but a large part of its logistics still falls into the hands of its neighbours, including Shanghai. In 2005, the province delivered 1.12 billion tonnes of cargo, a yearly increase of 13.3%, with 93.8% completed by roads and waterways. Other ports, such as Nanjing, Changzhou, Suzhou, Jiangyin and Lianyugang, handled a total of 730 million tonnes of cargo, an annual increase of 15.1%. In the coming five years, Nanjing, Suzhou, Nantong, Zhenjiang and Lianyungang are expected to increase their throughput by over 100 million tonnes. Taitang and Lianyungang are also planning to build oceangoing container terminals.

Despite this development, logistics in the province lags far behind the development of the economy. Although the opportunity to boom in the coming five years is high as the continued dredging of the Yangtze will allow larger boats to go upriver to Jiangsu port and beyond. A bridge is also to be built between Shanghai's Chongming Island and Qidong at the southern tip of Jiangsu. Changzhou, Zhenjiang, Wuxi, Suzhou, Lianyungang and Yancheng have also laid down plans for either constructing logistics parks or enhancing the capacity of their terminals.

Cities Upstream of Shanghai

Anhui province, renowned as China's major source of migrant workers, saw construction start in February 2006 on its largest logistics park, in the capital Hefei, covering an area just under 30 hectares at a cost of CNY160 million. Aiming to grow into one of the strongest provinces in the country in five years, Anhui intends to build 1,000 kilometres of railroads, 2,000 kilometres of expressways, and increase port capacity by 130 million tonnes. The dream of having access to modern logistics should be gradually realised in the poorest eastern province.

Jiangxi province, usually considered the birthplace of China's revolution, is in the underdeveloped western part of the country. But it still has nearly 62,000 kilometres of roads, about 2,300 kilometres of railroads, 62 navigable rivers, four ports each with a yearly throughput above a million tonnes, and four airports with 36 routes. The province has also launched favourable policies to boost logistics. Jiujiang, the only port on the Yangtze in the province, also has an ambitious plan for a container terminal at Hukou that can handle 30 million tonnes of freight by 2010.

Vigorously boosting logistics is seen as a major breakthrough for the development of Hubei province, which is reliant on an improvement in transport infrastructure, the expansion of Tianhe airport, restoration work on the "golden waterway" of the Yangtze, and information technology. The province plans to have 7,500 kilometres of roads completed by 2020, connecting by expressways with Henan, Anhui, Jiangxi, Hunan, Chongqing and Shaanxi. Wuhan, in co-operation with Shanghai, will become the largest feeder port on the Yangtze. After completion of the Tianxingzhou Yangtze Bridge, Wuhan is set to become the nation's sixth largest railway hub, following Beijing, Guangzhou, Shanghai, Xi'an and Chongqing.

Hopes for an Inland Waterways Hub

An improving transport layout is accelerating economic growth. By the end of 2004, more than 10,000 foreign investors had built up a presence in Wuhan - 60 of the largest companies in the world are to be found there. Leading retailer Carrefour has four outlets in the city and is planning another four.

The logistics market in Hunan is expected to grow by 20% a year, though experts agree that modern logistics is still at an elementary stage in the province. Hunan has seen a yearly increase of 9.6% in freight moved via railroads, roads, waterways and air traffic. Transport infrastructure needs to be further improved and an information platform built to speed up the transfer of logistics from traditional to more modern methods. The government is being called on to offer more guidance in the development of a logistics industry and the construction of large-scale facilities.

In the coming five years, Hunan will invest CNY169.3 billion in the construction of roads and waterways. By 2010, roads in the province will reach 95,000 kilometres, including 3,500 kilometres of expressways. The capacity of Chenglingji, a natural logistics base and the only port leading from the province to the ocean, is limited, but no information related to its expansion is available in the province's most recent five-year plan.

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