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Guangxi's logistics sector: opportunities and challenges for Hong Kong companies

Photo: Liujing Operation Area, Nanning.
Liujing Operation Area, Nanning.

HKTDC’s Guangzhou Office recently made visits to the border ports of Guangxi, including Pingxiang and Dongxing, to study the local port facilities and other logistic infrastructures of their bonded zones, land ports and railway ports as well as the inland port of Nanning. This article analyses the findings of the study for reference by industry players. The first part is an overview of Guangxi’s logistics industry. The second part looks at the development opportunities and challenges faced by Hong Kong companies tapping into the local logistics industry. The third part contains our recommendations to Hong Kong businesses.

I. Guangxi’s logistics industry: an overview

1. Surge in logistics demand thanks to CAFTA effect

According to the 2012 statistics compiled by the department concerned, the total  freight ton-kilometres of cargo transported with various means of transport, namely rail, highway, sea and air, reached 411 billion tons (+18.3% year-on-year) in Guangxi whereas the freight turnover by these transport means was 1.61 billion tons (+18.8%). The volume of freight handled by all ports of the region was 349 million tons (+49.1%). The value-added of the logistics industry (mainly refers to transportation, warehousing and postal services) was Rmb66.76 billion with a year-on-year growth of 9%, accounting for 5% of the GDP.

For Guangxi and southwestern regions as well as their surrounding areas, logistics demand mainly comes from raw materials and semi-finished goods. The minerals, coal, oil products and fruits involved constitute more than 70% both of Guangxi’s total import and export volume and the total freight volume handled by its ports.

2. Transport infrastructure improving despite underdeveloped overall network

According to Guangxi Investment Promotion Agency, Guangxi has a total of 65 berths for vessels of 10,000 dwt (deadweight tonnage), 3,580 kilometres of railways, six airports with 179 air routes as well as 3,197 kilometres of highways as at the end of 2012.

In terms of land transport, China and Vietnam launched cargo transportation routes from Shenzhen to Hanoi and from Nanning to Hanoi in 2012. Two more routes, from Chongzuo to Ha Long and from Biase to Cao Bang, came into operation in 2013. Through these direct land transport routes, vehicles of China can reach Vietnam destinations directly without the need for transfer, and vice versa. It thus eliminates the problems of transfer and spoilage, and saves the time and cost involved.

As for inland ports, the throughput of Xijiang port in Guangxi reached 107 million tons in 2013, representing a growth of 12% year-on-year. All the sea channels catered for vessels of 1,000 dwt from Nanning to Guangzhou have been upgraded to accommodate vessels of 2,000 dwt, providing a shipping capacity equivalent to 12 single-lane railways. In fact, both the freight volume and ton-kilometres of Guangxi’s inland channels have exceeded those of railways. Guangxi’s Class II channel has extended from Guigang to Nanning, with its length increased from 280 kilometres to 553 kilometres. According to the estimation of the department concerned, upon the channel’s upgrade to Class II, the yearly transportation costs can be reduced by about Rmb130 million for the section from Guigang to Wuzhou and about Rmb45 million for the section from Nanning to Guigang.

Although the logistics infrastructure of Guangxi is improving, its overall transport network remains underdeveloped. For example, its lack of navigable inland waterways has made cargo transportation between inland ports and large seaports rely on railway and land transport only while dedicated rail lines linking inland ports with seaports are lagging behind, and berths at inland ports are scattered without proper planning.

3. Rapid growth of bonded logistics and specialised logistics; increasing concentration of resources

Photo: Cold storage facility at the Centre.
Cold storage facility at the Centre.

Guangxi has set up a bonded logistics system for its Beibu Gulf Economic Zone with Qinzhou Bonded Port Zone, Pingxiang Comprehensive Bonded Zone, Nanning Bonded Logistics Centre and Beihai Processing Zone as the core. In recent years, a number of sizable indigenous transport enterprises have emerged, such as Guangxi Chaoda Transportation Co Ltd. Chaoda is a privately-run transport enterprise formed by the merger of two Nanning-based transportation companies (of which one has a history of more than 50 years) in October 2000. There are also integrated logistics enterprises that offer a full complement of services including port operation, warehousing, transportation, packaging, processing, distribution and information provision. For example, Guangxi Beibu Gulf International Port Group is a large-scale state-owned enterprise directly under the autonomous region government formed by the reorganisation of the state-owned assets of the three coastal ports of Fangchenggang, Qinzhou and Beihai. The group’s five major business activities are: port operation, harbour industries, integrated logistics systems, trade and real estate development.

So far, the bonded zones have not yet fully performed their role. Enterprises operating in the zones are few and their product mix is limited, focusing on a small number of bulky raw materials only. Many of the port and railway facilities are worn out and logistics resources are concentrated at a handful of industry players. Overall, the sector is characterised by a lack of openness and cooperation.

II. Development opportunities

The future development opportunities facing Guangxi’s logistics industry hinges on the two major factors, external and internal. In terms of the external environment, trade and economic ties between China and ASEAN are expected to maintain strong growth momentum in the days to come due to the complementariness of the two economies. On the border between Guangxi and Vietnam, the China-Vietnam cross-border economic cooperation zone under development will further facilitate and add fuel to the local border trades. The infrastructure of the zone will be further optimised, providing better conditions and more extensive platforms to the development of the local logistics industry.

From the internal perspective, Guangxi is the only region among the 12 provinces, municipality and regions in western China that enjoys access to the sea in the southwestern region. Following the upgrade and transformation of Xijiang River, the main inland waterway in Guangxi, and the building of the Xijiang “golden waterway” and the economic belt alongside by the governments of Guangdong and Guangxi, Guangxi will be playing a more prominent role in providing transit logistics to the southwestern region and surrounding areas.  In the days to come, it should be able to capitalise on the advantages of its bonded logistics zones and seaports and vigorously develop bonded processing activities and bonded logistics industries. Business prospects are promising.

1. Immense opportunities in border trade and logistics, thanks to positive outlook of ASEAN economies, Guangxi-Vietnam  cross-border cooperation and improving infrastructure facilities

Photo: Fruit market in Puzhai.
Fruit market in Puzhai.

According to customs statistics, Guangxi’s total imports and exports with ASEAN hit a record high of US$12.05 billion in 2012 with a growth of 26% over that of the previous year, surpassing the overall growth rate of 15.8% in the bilateral trade between China and ASEAN over the same period, and topping the import-export league of the 12 provinces, municipality and regions of western China. In particular, Guangxi’s imports and exports with ASEAN in the form of small-scale border trade reached US$8.35 billion with a growth of 33.5%, constituting 69.3% of Guangxi’s total imports and exports with ASEAN over the same period.

The rapid growth in the import and export trade between Guangxi and ASEAN countries, Vietnam in particular, is not only attributed to the development of CAFTA, but China’s policy in opening up the trade along the border areas as well as the related cross-border cooperation have also played a significant role. As early as in 2008, the Chinese government has already approved the setting up of Pingxiang Integrated Bonded Zone in Guangxi, which has become the first integrated bonded zone in China that directly links up with a neighbouring country involving cross-border cooperation. The zone is tasked with the functions of border-checkpoint operations, bonded processing, bonded logistics and international trade.

At present, China and Vietnam are actively constructing the Pingxiang-Dong Dang Cross-border Economic Cooperation Zone, which is planned to adopt the management model of “two countries operating in the enclosed area of one zone with free trade conducted both within and outside the border”, with the support of a series of preferential policies.

 2. Greatly enhanced shipping capacity spurs growth of freight logistics, thanks to accelerated development of Xijiang “golden waterway” by Guangdong and Guangxi

Xijiang River is a navigable channel linking the southwestern region (comprising Guangxi, Yunnan and Guizhou) with Guangdong, Hong Kong and Macau. With its reputation as the “golden waterway”, the Xijiang waterway refers to the channel from Nanning to Guangzhou and is regarded as one of the “two major east-west channels” in China’s shipping network alongside with the Yangtze waterway. It forms an important part of the estuary access of China’s southwestern sea transport system, and 90% of the inland shipping volume of Guangxi has to go through this section. In recent years, the development of Xijiang has been highly regarded by the two provincial governments of Guangdong and Guangxi, which are actively improving the Xijiang “golden waterway” and the Pearl River-Xijiang economic belt.

According to the Development Plan of Guangxi’s Xijiang Golden Waterway devised by the autonomous region authorities in 2010, a 100 million-ton-class waterway should initially take shape by 2012. Later in 2020, the main inland sea transport route of 1,480 kilometres linking up the cities of Nanning, Guigang, Wuzhou, Baise, Laibin, Liuzhou and Chongzuo will all be upgraded to the 1,000-ton class. In addition, the section downstream from Guigang will be able to accommodate 3,000-ton-class vessels, the Hongshui channel which links up with Hechi should become a 500-ton-class waterway; and the channel linking up the three cities of Guilin, Hezhou and Yulin should also complete its construction of a major 300-ton-class channel in the region.

At present, Nanning is actively transforming its port by closing down the original terminal with rather scattered facilities and constructing 10 berths for 3,000-ton-class vessels at the Liujing Operation Area, which came into operation at Nanning port in March 2013. Supporting logistics and warehousing facilities are being vigorously developed by capitalising on highways, railways and industrial areas in the vicinity. It is expected that the development prospect of these facilities is very promising.

3. Enormous scope for cooperation: Hong Kong’s advantages in technology, talent and international experience a perfect match for Guangxi’s demand for modernised integrated logistics

Currently in Guangxi, logistics companies are relatively small in scale, backward in technology and management. As well, the level of specialisation, modernisation and responsiveness to the needs of society is rather low. Most of the local manufacturing enterprises are now taking care of their own logistics because there is a lack of third-party logistics service providers and integrated logistics systems. In particular, cold-chain logistics/transportation systems are still inadequate and there are no long-distance cold-chain logistics services. These are exactly the areas where Hong Kong companies enjoy clear advantages and can contribute to future development of Guangxi’s logistics sector to the mutual benefit of the two places.

4. Logistics training and education opportunities set to emerge for Hong Kong companies, thanks to large numbers of logistics projects in the pipeline in Guangxi

As logistics companies in Guangxi are mostly reinvented from traditional warehousing and transportation enterprises, the majority of their managers and staff are lacking in professional logistics knowledge and advanced management and service concepts. This is going to generate opportunities for Hong Kong’s logistics personnel training and education institutions.

III. Difficulties facing Hong Kong companies

Photo: Dongxing border inhabitant trade zone.
Dongxing border inhabitant trade zone.

With Guangxi elevated to a new level of strategic importance by the central government in the opening-up and development of the southwestern and central-southern regions, and as construction of the China-Vietnam border economic cooperation zone is stepped up, there will certainly be a new round of major development awaiting Guangxi’s logistics sector. Yet, despite numerous emerging opportunities, obstacles also abound for interested Hong Kong companies:

1. Lack of logistics professionals. There is a general lack of professionals and management staff with international experience in Guangxi’s logistics sector. Only a handful of multinational logistics companies are operating in the autonomous region. The domestic logistics sector is characterised by a lack of integrated logistics systems and a dearth of professional personnel with international expertise. It will not be easy for Hong Kong companies to recruit professional practitioners locally, particular for mid-to-top level management with international logistics experience.

2. Current cargo mix is quite homogeneous. Data available from a local source indicate that bulk cargoes in or around Guangxi and the southwestern region are mainly raw materials and semi-finished goods. Among these cargoes, mineral ores, coal, oils and fruits account for over 70% of the goods entering or leaving Guangxi, representing three-quarters of the throughput of the coastal ports of Guangxi. Adding the fact that domination by a small number of industry players is quite common in the local market, there are not many opportunities for participating in processing activities. Such low value-added in shipping products has therefore limited the development prospect of the local logistics industry.

IV. Recommendations

Based on the findings of our market visits, the following recommendations are offered to Hong Kong logistics companies wishing to expand into Guangxi’s logistics market:

Keep abreast of policies to seize business opportunities. Keeping oneself abreast of current mainland policies is vital to Hong Kong companies’ investment decision making. Guangxi is an autonomous region that enjoys multiple preferential policies, namely for West China development, opening up coastal areas, ethnic minorities autonomous regions and opening up border areas. In recent years, Guangxi has won central government approval for the setting up of a number of special customs supervision areas including Nanning Bonded Logistics Centre, Pingxiang Integrated Bonded Zone, Qinzhou Bonded Port Zone as well as the newly approved Dongxing National Key Pilot Zone. All these special customs supervision areas and the pilot zone are respectively enjoying preferential policies that, coupled with local port and border checkpoint facilities, provide enterprises with convenience in the carrying out of border checkpoint operations, bonded logistics, bonded processing and international trade. Hong Kong companies need to familiarise themselves with and make use of local policies. With due consideration given to their own strengths, they should be able to seize business opportunities by leveraging on the policies.

Leverage on advantages and seek win-win cooperation. Guangxi’s logistics sector is currently at an early stage of development, its marketisation level and degree of openness to the outside world have yet to be raised and its logistics resources such as port terminals are characterised by domination by a handful of players. In entering the local logistics market, Hong Kong companies should make the most of their own competitive advantages. It is recommended that, at the initial stage, they should collaborate with strong local enterprises to make use of the latter’s resource advantages and connections for business development.

Join local business community and put individual strengths to use. In a business environment in which marketisation level is still relatively low, it is important in business development to cultivate political and business relationships to a certain extent. But for an individual company it makes little sense going it alone; joining the local business community is a much better option. For example, Hong Kong companies can cultivate local political and business connections together in the name of a trade organisation or an association and it would be much easier to win local contracts on the collective strength and individual resource advantages of all members of a group.

Edison Lian & Wing Feng, Guangzhou office

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Hong Kong companies tapping into Guangxi's logistics sector: International train services in Pingxiang

Hong Kong companies tapping into Guangxi's logistics sector: Puzhai border trade zone, Pingxiang

Hong Kong companies tapping into Guangxi's logistics sector: China-Vietnam border inhabitant trade zone at Dongxing, Fangchenggang

Hong Kong companies tapping into Guangxi's logistics sector: Liujing Operation Area at Nanning port

Content provided by Picture: HKTDC Research
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