Airfreight in China is predicted to grow considerably over the long term, but current air cargo activities are fraught with problems. Alternatives are limited: domestic air routes are circuitous and flights to some areas infrequent; prices are high; routes are fragmented; information exchange between airlines and forwarders is limited. As most major Chinese airlines focus on building their passenger business, cargo capacity is often inadequate. Moreover, domestic freight forwarders rarely provide the kind of basic, value-added services that are the norm in the United States and Europe. Some do not even provide support services, such as local pickup and delivery. Despite these limitations, foreign service-providers have been restricted from expanding. With China’s entry to WTO, the picture of freight forwarding industry will change dramatically. International freight forwarders will join the competition and raise the service standards. After two years’ operation in joint ventures, they will be permitted to expand and after four years to operate wholly owned subsidiaries in China. Furthermore, China’s Civil Air industry is undergoing a reform, merging into three big air transportation corporations, which will strengthen their competency and help regulate the industry.
Figure 6 Container Port Ranking by Throughput in China (2002)
Figure 7 Container Port Ranking by Throughput in China (2002), from www.bbsland.com Air Express, the most profitable segment, has been a challenge in China. For domestic parcel and express services particularly, short hours and unexpected closures of relevant departments at cargo terminals interrupt normal operations. Same-day outbound services often are problematic unless goods are picked up from customers early in the morning. The segment's tax burden is also higher than the rest of the transportation industry. A single overstretched supplier, China Post, dominates the market.37 Now, with the accession into WTO, foreign companies are allowed to compete in the market for certain express products.
UPS was granted permission for direct flights to China in 1997 and since then, the number of daily flights has tripled. Fedex, allied with the Tianjin-based company DaTian, developed their national network in order to compete with EMS. DHL has been in the Chinese Express industry for over 10 years. They already own a wide spread national network and enjoy a long established friendship with Sinotrans, an important domestic partner. China post commands a 40% market share in Air Express in China and maintain exclusive control of some post services in China.
Airports and Airlines
Decentralization of the China Administration of Civil Aviation (CAAC), previously the sole national carrier, has spawned a dramatic increase in the number of airlines—from one to 35 in the past five years. Nevertheless, the air network is fairly sophisticated with CAAC managing long haul and the regional carriers operating domestic flights.38 Passenger airlines mainly cover the emerging airfreight and air express services. While the air freight industry is still in its infancy, demand is expected to exceed supply in the coming decade.
Rapid growth in air cargo volume has strained the capacity of China’s airports. Several airports are under construction or expansion nationwide, most notably in the south, where new airport capacity in Zhuhai, Shenzhen and Guangzhou will challenge Hong Kong's new Chep Lak Kok airport for air cargo handling. Over the next 10 to 15 years, China plans to spend billions of dollars on airport construction, including an air cargo super-hub at Guangzhou that will rival Hong Kong's airport. One billion dollars has been invested in applying Mag-Lev express train service between Shanghai’s Pudong international airport and its business center area, the first civil application of Mag-Lev trains which can reach speeds of over 400 km/hr.
Currently, however, door- to-door delivery times are the same as those for express road freight, and the international mail service takes more than 10 days from the US to China.
By 2010, China's total airfreight volume is expected reach 30 billion ton-kilometers. It is also estimated that 140 million passengers and 4.7 million tons of cargo and mail will be carried annually. Air transport's share in the country's overall transport system would be considerably boosted, as would the proportion of China's air traffic in the world civil aviation industry.
Table 1 China Soft Environment and Infrastructure DataSource: The World Bank Country Profile. Source: World Development Indicators database, April 2002
3 Logistics Policy & Organization
Policy Restrictions are the main challenge for foreign companies providing logistics services in China. The Chinese term for logistics is wu liu -"flow of goods," is new and unfamiliar to many government officials, etc. In many ways, wu liu is still being defined in China. Naturally, it is difficult to issue a license for a service that is not well defined.
3.1 Governmental Organization
T he logistics industry in China is regulated by many government ministries and departments including: China Customs, Ministry of Foreign Trade and Economic Cooperation (MOFTEC), Ministry of Communications, Ministry of Railways, Civil Aviation Administration of China (CAAC) and Ministry of Internal Trade. Figure 1 shows the structure of these government organizations.
Figure 3.1 Chinese Central Government Organizations involved in Logistics
In addition, local authorities promulgate regulations controlling the flow of goods within their jurisdictions. Figure 2 shows the organization of provincial government departments regulating the logistics sector.
F igure 3.2 Chinese Provincial Government Organization involved in Logistics
The diverse and several governmental bodies regulating the industry lead to complex regulations that vary widely across jurisdictions. Consequently, government officials regulating in logistics sector can appear arbitrary and guanxi or social connections involving business associates, families, and acquaintances in complex networks of social support and sentiment can be invaluable. For example, a truck licensed in Beijing must obtain a license from the local Shanghai Traffic Bureau to make deliveries in that city. Often local government officials are motivated to protect local companies transforming a small nuisance into a major barrier.
Regulatory Framework for Sub-sectors with Foreign Participation
Figure 3.3 Regulatory Constraints in China Logistics Service: Source Hong Kong Trade Development Council (HKTDC) There are several related industrial associations in China, including the China Transport and Communications Association, China Storage Association and China Logistics and Purchasing Association. The influence of these organizations is less immediate and direct.