Logistics Overview:
If You Want To Export to China.

The development of an integrated, nationwide logistics industry is hampered by three barriers:

1. China’s unfriendly geography.  In addition to its extreme size, China is criss-crossed by major mountain ranges that cover over half of its territory, and is host to a range of special problems such as extreme altitudes and permafrost (Tibet), deserts of shifting sand (Xinjiang, Gansu and Inner Mongolia) and seasonal flooding (the Yangtze River valley).   

2. Transportation networks are heavily fragmented, with regulatory barriers that prevent consolidation.  The Chinese national government is working to integrate the country in one vast rail network but that will take time to build out (next 20 years). Local governments frequently protect local transportation companies by erecting barriers to outside companies, including licensing requirements, fees and inspections.  In addition, the current licensing system for logistics companies is complicated and costly.  Various governmental bodies require licenses to run logistical operations, including the Ministry of Communications (MOC), Ministry of Foreign Trade and Economic Cooperation (MOFTEC), the Civil Aviation Administration of China (CAAC) and the State Postal Bureau.  After obtaining licenses, foreign companies must form a patchwork of partnerships with local logistics and transportation operators to build some kind of distribution network.  Few licenses have been granted for nationwide operations, and even holders of those are subject to protectionist measures on the part of local governments.  As a result, third-party logistics providers (3PLs) have emerged as a popular choice for multinational companies seeking to move product across the country.

Third, logistics capabilities are limited and continue to lag behind more developed nations.  Key problems include inferior equipment and poorly trained workers.  China’s history of state ownership in this sector has left a legacy of poor management and an infrastructure geared toward the movement of bulk commodities.  As a result, the system is poorly equipped to handle perishable or sensitive goods, track shipments or handle containerized shipments over land.

In short, China’s logistics industry faces major operational obstacles.  Government planners are now playing ‘catch-up,’ and the government has given logistics a high priority in its current investment plan (the ‘Five-Year Plan’).  Increased foreign participation is also likely to help, as China is scheduled to ease many of the barriers to foreign entry in this sector over the next few years. 

Dan H.

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