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278400V140china0lagging0prov.Pdf Public Disclosure Authorized Public Disclosure Authorized WORLD BANK-FUNDED PROJECT IN CHINA - TRADE AND LOGISTICS DEVELOPMENT IN 8 INLAND LAGGING PROVINCES Public Disclosure Authorized Public Disclosure Authorized WORLD BANK-FUNDED PROJECT IN CHINA - TRADE AND LOGISTICS DEVELOPMENT IN 8 INLAND LAGGING PROVINCES Page EXECUTIVE SUMMARY ABBREVIATIONS USED IN THE REPORT CHAPTER 1 - INTRODUCTION 1 1.1 Terms of Reference 1.2 Scope of Study 1.3 Methodology CHAPTER 2 - CURRENT ECONOMIC AND TRADE SITUATION IN 4 THE 8 INLAND PROVINCES 2.1 Economic Structure of the 8 Provinces 2.2 Existing Exports of the 8 Provinces 2.3 Impact of International Trade Development CHAPTER 3 - OVERVIEW OF PHYSICAL LOGISTICS 17 INFRASTRUCTURES AND SERVICES 3.1 Overview of Physical Logistics Infrastructure (Hardware) 3.2 Overview of Logistics Services Sectors (Software) CHAPTER 4 - PROVINCIAL ANALYSIS 4.1 Chongqing 39 4.2 Gansu 58 4.3 Guangxi 74 4.4 Guizhou 89 4.5 Hunan 107 4.6 Inner Mongolia 125 4.7 Shaanxi 141 4.8 Yunnan 159 CHAPTER 5 - RECOMMENDATIONS 176 CHAPTER 6 - POVERTY REDUCTION AND TRADE DEVELOPMENT 185 ANNEXES © Copyright by the International Trade Institute of Singapore All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form without the permission of the International Trade Institute of Singapore INTERNATIONAL TRADE INSTITUTE OF SINGAPORE (ITIS) EXECUTIVE SUMMARY The objective of this study is to examine the trade logistics impediments that will affect the growth of exports from 8 inland provinces in China namely Inner Mongolia, Gansu, Shaanxi, Hunan, Chongqing, Guizhou, Yunnan and Guangxi. This study will support the broader regional effort of the East Asia Poverty Reduction and Economic Management Division (PREM) of the World Bank in its current review of the East Asia Region’s trade and services competitiveness and its impact on poverty reduction. The key findings and summarized recommendations are outlined in the sections that follow. Key Findings – Trade Development • As a consequence of accession to the WTO, China will be compelled to reduce tariffs and trade barriers over a wide range of products. Therefore there will be an influx of foreign imports resulting in increased competition for local producers. The consequential issue is how the existing producers in the 8 inland provinces will be able to face this competition, especially with the domestic market accounting for a sizeable share of their exports. • Although there may be some impact on the existing industry structure, it is expected that over the medium and long term, some of these local producers would be able to develop sustainable industrial competencies based on their access to nearby resources and critical industry mass. In addition, face with such competition, these local enterprises, especially those in consumer goods like motorcycles, automobile, consumer electronics, cigarettes and liquor products, may need to develop more creative marketing strategies to preserve their share of the national market. • On the other hand, the accession into the WTO offers the 8 inland provinces improved market access to other WTO member countries. For instance, quotas for textiles and garments will be abolished as per the Agreement on Textiles and Clothing (ATC). Therefore, joining the WTO offers export opportunities. • It is expected that the joining of WTO, will make China an attractive location for foreign direct investment (FDI). The 8 inland provinces should similarly benefit from this FDI trend as local investment would be a boost to these provinces, particularly in the development of downstream and value-adding activities. • Most of the 8 inland provinces are well endowed with agricultural and mineral resources. Therefore, developing value-adding secondary activities is important in improving the economic foundations of the provinces. In provinces such as Inner Mongolia, Hunan, Guangxi and Shaanxi, primary agricultural activities would progress towards more value- added processing activities in order for the provinces to maximize the economic benefits retained. Other provinces such as Gansu, Inner Mongolia, Guizhou and Guangxi, have also embarked on value-adding existing resources such as capitalising on their coal and water resources to generate electricity for transmission to the Eastern province. i INTERNATIONAL TRADE INSTITUTE OF SINGAPORE (ITIS) • For international exports, producers in the 8 inland provinces would have to overcome the disadvantage arising from the additional costs required for transportation of their goods to the coastal export seaports. Such additional cost for transportation of containerised cargoes from Guiyang, Guizhou to seaports in Guangzhou can be as high as USD818 per TEU and USD1,532 per TEU by trucking and railway respectively. • Some of the provinces, particularly Guangxi and Yunnan, may see their export sectors like sugar, textiles, tobacco & garments decline in significance. The provinces are aware of these changes in their economic structures and have already embarked on diversifying into newer export sectors such as traditional Chinese medicine, cut flowers and higher-value food processing clusters. • The border trade with neighbouring countries has seen dramatic increase in recent years. In light of the improving economic situation especially in Russia and Southeast Asia, border trade will form an important component of overall trade for Inner Mongolia, Yunnan and Guangxi. • The tourism sector will continue to expand for all the provinces, especially for those provinces with unique tourist attractions and are easily accessible. The domestic tourist market (i.e. tourist traffic from other provinces) has tremendous growth potential given China’s increasing affluent population. We also anticipate an increase in the international tourist traffic into China, due to the prominence of China’s tourist attractions as well as its recent publicity in hosting of major events like the 2008 Olympics in Beijing. Key Findings – Logistics Development • All the major cities in the 8 inland provinces are well served by a fairly comprehensive railways and/or highways network that connect almost all the major cities in the 8 inland provinces with key cities and seaports in other provinces. • The key challenge that many provinces face, particularly those with vast outlying rural regions such as Hunan and Yunnan, is the connection of their key outlying villages and counties to the main cities and transportation links, so as to facilitate their economic and social developments. Such connectivity is important as it allows for the effective collection and distribution of their local products to other local markets. • Local producers/exporters seem not to have a full grasp of the shortcomings in their current logistics management. There is a limited level of awareness on the benefits of how a more holistic and integrated logistics management system will serve to assist them lower transaction costs and hence sharpen their cost competitiveness. Currently, most producers are contented to use one mode of transportation for delivery of their products to other domestic provincial markets or export seaports. Their requirement of a warehouse is just for storing their products. ii INTERNATIONAL TRADE INSTITUTE OF SINGAPORE (ITIS) In most cases, the producer is engaged in separate transactions with different logistics service providers for different types of services. The demand for better logistics services like multi-modal transportation or inventory management services is lacking. In other more developed markets overseas, the trend is for such producers to outsource such activities i.e. transportation, warehousing and inventory management to 3PL service providers, while they concentrate on their core business activities. • Logistics service providers offer limited scope of services, normally only one specialized service. Full-fledge 3PL service providers, on the other hand, lack the adequate knowledge and experience to harness the strengths of the full scope of services to assist clients in more integrated logistics planning and management. • However, China’s accession to the WTO will liberalise practically all logistics services sectors, with the exception of the airfreight service sector. This will lead to more foreign logistics players entering the market and introducing better industry practices and technology to the local market. The resulting competitive forces will shift the logistics industry towards a more market-oriented one. This will lead to an overall improvement in the standard of logistics services offered by both foreign and local logistics service providers. The recommendations proposed by the consulting team are broad-based but center on building up the foundations for long-term development of the trade logistics in the inland provinces to support and facilitate export trade growth. These recommendations are, • Focus on selected transportation routes as the main export corridors for the development of transportation and trade logistics infrastructures. • Identify and develop regional logistics centers in strategic province(s) on the export corridors identified, in order to serve as a catalyst for effective logistics development to support trade growth in whole inland region. • Focus on selected provinces to expand and upgrade existing highways network to link key outlying villages and counties to the main cities to promote social and economic developments. • Establish a national agency
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