The Government's Role in Promoting Logistics Services in China


by Yu Sun - Date: 2007-08-09 - Word Count: 409 Share This!

China has joined the World Trade Organization (WTO) and become the world's third largest trading nation, behind the United States and Germany. Multinationals now consider using China sourcing in international trade to be essential, if they are to remain competitive, and companies like Wal-Mart have adopted China sourcing in a big way.

Rapid economic progress and booming internal and international trade in China have been putting pressure on the country's fragmented transportation networks and logistics systems.


China's Traditional Logistics Problems

Transportation costs are almost three times as high in China as compared to the United States. The country spent 21.3 percent of GDP on logistics in 2004, compared to 8 to 9 percent for most countries.

China has an unfriendly geography that includes major mountain ranges, extreme altitudes, permafrost, deserts and seasonal flooding, which hamper the development of an integrated, countrywide logistics industry, and so hamper international trade.

In addition, local governments in China erect regulatory barriers, including fees, inspections and licensing requirements, to protect local transportation companies. Toll charges are very high, and very few licenses have been issued for countrywide transportation operations, which makes China sourcing difficult.

Due to this, multinational companies that are keen on China sourcing, and want to move goods across the country, prefer to rely on third party logistics providers.

China has a history of state ownership in the logistics sector, and this has resulted in management and infrastructure ill-suited to international trade and sourcing. In addition, the infrastructure has been designed to move bulk commodities, rather than sensitive or perishable goods.

Luckily, the government expects that high levels of foreign competition, and demand for China sourcing, will raise standards in the industry, and promote international trade.


A New Dawn for China Sourcing: Improved Logistics for International Trade

Due to the boom in international trade, the demand for rail transportation is much higher than supply. The government has planned heavy investments to extend the railway network and to build freeways.

The government has realized that the overall health of the economy is dependant on the country's logistics capabilities, and it has given a high priority to this sector in its current Five Year Plan.

Massive investments are being made to develop the country's logistics capabilities rapidly, to keep pace with the boom in international trade.


The future is looking brighter for businesses wishing to source from China as the country's logistics network transform from that of an insular state into a WTO nation focused on international trade.

Related Tags: words, international trade, logistics, china sourcing

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