STRATEGY
China’s North – Into the Modern Supply Chain Arena
March 1, 2007
Matthew Flynn, Principal, Flynn Consulting

When talking about China’s north, in terms of logistics, the Bohai Bay region is the gateway not only to Beijing as the political and cultural hub of China but also to the areas including Inner Mongolia, Shaanxi, Shanxi, Hebei, Henan, Tianjin and, in the north-east, to the three provinces of Heilongjiang, Jilin and Liaoning.

Compared with the east or the south, which are more open to the outside world and are more developed, the north has been slower in reacting to a market economy, which means that the development of logistics is lagging behind the pace of the east and the south.

The central government, determined to invigorate the zone, successfully bid in 2001 for Beijing to host the 2008 Olympics and, in 2003, launched a strategy to rejuvenate the country’s north-east. Since 2002, major provinces and cities in the region have launched policies on land acquisition, taxation, capital and administration to encourage and improve the development of logistics.

Tianjin Bullish as Bohai Gateway

Tianjin, which has always boasted of its ambition to become the leader in logistics in the north of China and even north-east Asia, has listed logistics as one of the city’s five pillar industries and is striving to upgrade its infrastructure and management systems to an international standard.

Six logistics parks were built in Tianjin in 2005. Combined with the city’s airport and its harbour, it is estimated that the value of logistics in Tianjin is now CNY30.7 billion – accounting for 12% of the city’s gross domestic product (GDP). In 1999, the figure was CNY13.5 billion, or 9.3% of its GDP.

Beijing has the country’s largest rail hub, with more than 30 lines leading to other parts of the country, plus an expanding international airport. But the capital city is not content to be only a political or cultural centre – it also wants to develop its logistics infrastructure, which it must do if the Olympic Games are to be successful.

By 2010, Beijing plans to build three large logistics bases (each covering an area of three square kilometres) and 17 distribution zones. By 2010, it aims to reduce the ratio of logistics costs in GDP to 12% (from 27% in 2000) while raising the ratio of third-party logistics participation to 15% (from 5% in 1999).

Beijing has announced that from 2006 to 2010, the five-year plan period, it will spend more than CNY150 billion on transport infrastructure – in particular, the length of expressways in Beijing is to exceed 900 kilometres.

Tianjin is to spend CNY110 billion on infrastructure in the same period. For example, by 2010, it wants throughput at Tianjin port to reach 330 million tonnes, while the city’s airport will extend its remit further into cargo, potentially handing 500,000 tonnes a year.

Hebei, which has spent CNY87.5 billion on transport infrastructure in the past five years, is to invest CNY191.8 billion by 2010 on building roads, railroads and harbours.

China’s Landlocked Provinces Lack Logistics

Henan will also use improved logistics as the focus of its industrial restructuring during the five-year plan period. The province is to build links to the national network of highways, while the capital city of Zhengzhou has ambitions to be an important logistics centre of the country.

Shanxi province, a powerhouse producer of energy and raw materials, has a vigorous logistics strategy for the five-year plan, with the government working on setting up four logistics parks at Taiyuan, Datong, Yuncheng and Houma. There is already a solid infrastructure in Shanxi with more than 60,000 kilometres of roads, including 1,686 kilometres of highways, 2,512 kilometres of railways and more than 40 airlines serving airports at Taiyuan, Changzhi, Yuncheng and Datong.

Shaanxi, the province at the oriental start of the ancient Silk Road, also aims to build three logistics parks and forge a modern logistics system. To help in the development, the province is to spend more than CNY120 billion constructing highways and other transport infrastructure.

Inner Mongolia has built logistics bases at Hohhot, Baotou, Tongliao and Manzhouli-Hailaer. About 100 professional enterprises are active in this industry, which has been growing rapidly in the past few years.

According to the transport plan for north-east China issued in 2005, the economic growth of the region should remain at about 8.4% on average from 2004 to 2010. It is estimated that by 2020, GDP per head will reach USD4,770, which means there will be huge demand for logistics as well as the construction of infrastructure.

Liaoning province is to spend CNY16.6 billion on highways, roads and ports. Thirteen highways are to be built with a total length of 2,090 kilometres, while 13,000 roads connecting counties will be upgraded. Jilin province is to invest CNY93 billion on transport infrastructure while Heilongjiang plans to spend at least CNY75 billion, including CNY55.3 billion on railways.

Four major cities in north-east China – Changchun, Dalian, Harbin and Shenyang – signed a strategic co-operation agreement in July 2005, vowing to forge a logistics network in the area by integrating transport, promoting improved customs clearance and developing supporting facilities.

North-east Links to Yangtze and the South

North-east China has made steady progress by boosting links between ports, railroads and roads. The region saw an increase in 2005 of 42.2% for the landside shipment of containers.

Following Dalian’s lead, the customs of Shenyang, Changchun, Harbin and Manzhouli have streamlined their clearance procedures.

Work is due to begin in July 2006 on a 900-kilometre-long railroad dedicated to passenger transport from Harbin to Dalian via Changchun and Shenyang. At an estimated cost of CNY82 billion, it is expected to be in operation in 2010. The link will also ease pressure on freight lines.

The Yantai-Dalian Ferry Railroad, which is under construction, will cut the distance between Dalian and Yantai by 1,600 kilometres. It will join the rail network of north-east China and the country’s coastal railway in the south. This means that, in the long run, north-east China, as the country’s base for heavy industry, food and timber, will be connected to the Bohai Bay region, the Yangtze Delta and the Pearl River Delta.

According to the national plan for shipping development in the Bohai Bay region, where there are more than 60 ports, a capacity of 740 million tonnes a year will be needed by 2010 to accommodate imports including 70 million tonnes of iron ore, 30 million tonnes of crude oil and 233 million tonnes of coal.

Qingdao, Tianjin and Dalian, three bonded zones with a total area of 10.85 square kilometres, have become the main forces behind economic improvement in the region since 2004.

Logistics is a central platform of the government’s strategy for the development of the north.

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