Moving goods around has been one of the great challenges for domestic and foreign business in China since the beginning of the country’s reform and opening up in 1979. Getting your product inland, down to consumers in lower tiers, into the countryside, to the far west or the south has been a process that had to begin virtually from scratch. Refrigerated trucks, air and rail freight, and just-in-time delivery are challenges for everyone from milk producers to steel companies.
While great strides have been made in recent years, it seems there’s still a long way to go, and China’s central government is not all that impressed with the sector. So argue Paul G. Clifford and Christopher Logan in their new book China Logistics: From Laggard to Innovator (Routledge). So Paul French sat down with Paul Clifford to chat logistics …
In 2022, the Chinese government criticised the nation’s logistics industry as ‘large but not strong’ (da er buqiang). But China’s logistics sector, from haulage to refrigeration, shipping and warehousing, has obviously made great strides since the 80s and 90s – so where are the main weaknesses still to be found?
Since the economic reforms began in the 1980s, China’s logistics have made enormous progress, but still struggle to meet the needs of industry and commerce. The key issues remain the fragmentation of the sector (logistics firms without scale), the slow pace of logistics outsourcing to 3PLs (third-party logistics), cut-throat competition resulting in poor service quality and low profitability, the high asset intensity of logistics firms, and weaknesses in key areas such as multi-modal (truck-to-train) and chilled-chain logistics.
You note that the government (national and local) plays a big role in the development and improvement of China’s logistics network, far bigger than we have seen in Europe or North America. Can you elaborate on how central and local governments work with the industry?
China’s central government has played a vital role in two respects. Firstly, in setting the bold planning goals for the sector, which in turn guides capital allocation. And secondly, through investing heavily in upgrading China’s transportation infrastructure, over which the logistics run. Meanwhile, local (mainly city-level) governments, in competing with each other for investors, jobs and fiscal revenues, have been instrumental in creating logistics hubs across the nation, whether through gateways for the railway land-bridge to Europe (as part of the Belt and Road initiative), highly automated ports, robotised e-commerce centres or cold-chain storage.
You also talk of the ‘headwinds’ China’s logistics sector faces – international tension and massive disruptions. It looks likely we’re about to go into a significant ‘headwind’ with both a new administration in Washington DC and a raft of China-related policies from the EU. How do you think these will affect the sector?
You are correct. The critical uncertainties and headwinds are to be found internationally. But despite the geopolitical tensions and the new US administration, it will likely prove harder than many think to dismantle the global supply chain that has been built up so carefully over four decades. That said, China’s growing exports are bound to face increased pushback from nations with a large trade deficit with China. China may be expected to respond, for instance by investing in manufacturing in the countries to which it currently exports. The logistics industry will in turn inevitably need to adjust to these changes.
Do you think China has been a genuine innovator in logistics in any way, or simply thrown money and man power at the issue?
The Chinese government has invested heavily in its roads, ports and rail (and is now beginning in high speed freight rail). However, the big investment in China’s e-commerce logistics has come from private firms. This investment ranges from air cargo hubs to integrated IT platforms, AI for transportation management and robots for all kinds of package sorting and storage. In these respects, there is no doubt that China is truly innovating and leapfrogging the likes of UPS. The return on all this investment needs to be seen in relation to its social as well as economic and commercial impact and over the long term. History will be the ultimate judge of this. Did the Victorian UK rail system propel our industry and commerce (and society) forward?
In the book, you seem to suggest China’s logistics sector also has a role to play in China’s climate change and environmental initiatives – EV delivery vehicles etc. Is this happening or just hopeful rhetoric?
The logistics sector is a major producer of greenhouse gas emissions. Addressing this issue in China is certainly not rhetoric but a central part of China’s green transition. These efforts range from new propulsion systems for container liner shipping and shifting goods onto the railways from the roads and from air cargo, to the introduction of new autonomously-driven hydrogen truck corridors plus EVs for the last mile. It also includes the use of advanced technology to drive efficiency in goods delivery and to provide matching loads to avoid the dreaded “empty back haul”. This is highly transformative and, in some areas, a “low-hanging fruit”.
China’s logistics sector seemed to rise to the challenge of Covid-19 and the government’s zero-Covid policy successfully. Am I right in thinking this? And what are the longer-term lessons for the industry (in China and globally) from that sudden, unexpected headwind?
You are perfectly correct. While China’s overall response to Covid-19 may have fallen short in some respects, when it came to logistics, the Chinese government developed some smart workarounds with the result being that the delays at Chinese ports were nowhere near as severe as in the USA. I think a longer-term lesson is that logistics should not be an afterthought, but closely integrated into government emergency action so as to permit a coordinated and speedy response to unexpected events.
Taking this a step further, it is worth noting the degree to which China’s well-defined and well-delivered industrial policy towards logistics is yielding vital results, which are then passed on to the broader economy.
