FDI in Inland Provinces

1
FDI in Inland Provinces

• Robert L.Wallack,
• World Bank Consultant
• and
• Robin C. Carruthers,
• Lead Transport Economist

2
China Regional Comparison

3
Chinas Westward Policy

• Western Region Economic Development Strategy of
  PR China began in 1999
• Managed by the Office of Leading Group for
  Western Region Development of the State Council
• The Region Comprises 12 Provinces (autonomous
• regions and municipalities) which include
• Chongqing, Gansu, Guangxi, Guizhou, Inner
  Mongolia, Ningxia, Qinghai, Shaanxi, Sichuan,
  Yunnan, Xinjiang and Tibet
• A measure of success is that Jan-Jun 2004 GDP was
  up 12 and Fixed Asset Investment up 34 Over 2003

4
ChinaInland Infrastructure Investment

• U9.6 billion investment by the end of 2004 in 10
  key projects
• Projects include Electricity Transmission,
• Gas Pipelines, Highways, Water Supply and
  Control, and Railways

5
What has been the geographic pattern of growth?

• FDI and its associated export growth have been
  the engine of Chinas economic development
• But it has nearly all taken place in the coastal
  port cities. These now have high labor costs,
  traffic congestion, poor air quality and other
  symptoms of too rapid growth

6
What is needed to address these negative growth
impacts?

• Three approaches to finding out
• Central planning would create and implement a
  Plan for new industries in the inland provinces.
  Tried in the 1950s and 1960s and failed
• Create mathematical development models to
  indicate what factors would lead to inland growth
• Ask the companies why they dont move inland, and
  what changes might induce them

7
Nine Multinational Company Case Studies

• Agilent Technologies
• APL
• Tier One Auto Supplier
• Caterpillar Logistics Services, A-P, Inc.
• Coca-Cola (China) Beverages
• Intel
• Hewlett Packard
• Li Fung (IDS Logistics)
• Cementhai Distribution Comp. (Siam Cement)

8
Agilent Technologies

• Manufacturer of test measurement equipment
• (1999 spin-off from Hewlett Packard Company)
• Net Revenue of U 7.2 billion in 2004
• 47 of all Business from Asia in 2003
• January, 2005 formed China Holding Co.
• in Shanghai for investments
• Inland joint venture in Chengdu, Sichuan with
• Qiangfeng Electronics Ltd., Corporation, Jan 2005

9
Agilent Technologies

• Obstacles to Inland Expansion
• - Domestic Airlines Lack Supply Chain
• knowledge and technical competencies
• - Quarantine and Inspection bureau
• - Administration of Regulations
• Suggested Solutions
• - Create logistics Industry Associations
• - Training in Supply Chain Management at all
  Levels
• - Guidance to provincial agencies for
  implementing national regulations

10
American President Lines (APL)

• APL and APL Logistics are now part of Neptune
  Orient Lines, Singapore
• Total Revenues of U5.5 billion in 2003
• Employs 1,450 in China
• Pioneer of intermodal transport and double
• stack trains (DSTs) for Inland Destinations
• Is now using an Intermodal DST model in China to
  engage China Ministries of Communications and
  Railways to promote DSTs in China

11
American President Lines (APL)

• Obstacles to Inland Expansion
• -Infrastructure Development of Railways and
  Roads
• -Lack of Integrated Logistics (supply chain
  management and intermodalism)
• -Administration of Customs
• Suggested Solutions
• -Regular Consulting with Users
• -US West Coast Ports Training Sessions
• -China Ministries Meet with Ocean Liners and
  World Customs Organization
• - facilitate DSTs in China, improve multimodal
  transport

12
Tier One Automotive Supplier

• Manufacturer of automotive components sold
  directly to automobile makers as original
  equipment
• Worldwide revenues of U7.7 billion
• Eight Facilities in China (Central and Shanghai)
  --90 of sales are domestic
• Plans to Invest U10-20 million in China
• over next 3-5 years

13
Tier One Automotive Supplier

• Obstacles to Inland Expansion
• - High logistics costs
• - Inadequate infrastructure development
• - Lack of integrated logistics services
• - Lack of Standards for Logistics Providers
• Suggested Solutions
• - Increase knowledge in China of rail services
  potential
• -Training of logistics providers
• -Central Registration/Certification of
  Logistics Providers

14
Caterpillar Logistics Services Asia Pacific

• Manufacturer of heavy equipment used
• in highways, ports, energy projects and dams
• Worldwide Revenues of U22.7b in 2003
• Dealer network in China supported by
• Caterpillar Logistics worldwide supply
• chain expertise
• It is developing a Parts Facility near
• Shanghai port for regional East Asia
  distribution and has acquired coastal equipment
  manufacturer

15
Caterpillar Logistics Services, Inc. Asia Pacific

• Obstacles to Inland Expansion
• -Supplier and Service Providers
• -IWW Barge Companies Cartel?
• -Poor Rail/Roads for transport of raw materials
• Suggested Solutions
• -All transport modes should consult with MNCs
• -High level Ministries training
• -Registration, Grading, Training of
  Suppliers
• - create understanding of multi modal transport

16
Coca-Cola (China) Beverages

• Branded Sodas and Carbonated drinks
  manufacturing. Bottling franchise system in China
• Worldwide revenue of U21b of which
• Asia was 24 in 2003
• Domestic Company with model of one plant in
  each of 31 provinces. Since 1979, U1.2 b
  invested (10-30m/plant)
• Inland Strategies are long term based on consumer
  demand and income levels

17
Coca-Cola (China) Beverages

• Obstacles to Inland Expansion
• -Poor roads in Western region to serve local
  markets by trucks
• -Uneven Pattern of Economic Development
• Suggested Solutions
• -Upgrading and better maintenance of roads in
  West to cover more rural territories
• -Consult Leading Group for Western Region
  Development of the State Council to help
  stimulate demand through Go West policies

18
Intel

• Manufacturer of semiconductor products
• used in computers, printers, cellular phones
• Total Revenues of U30.b in 2003
• China was 12, or U3.7b
• Three AssemblyTest Facilities in China
• Shanghai
• New AT facility in Chengdu,
• New facility in Sichuan
• Phase One of possibly four more of
• U200-300 mn on 400,000 sq ft for 1,500

19
Intel

• Obstacles to Inland Expansion
• -Administrative
• -Transportation and Logistics Providers Operate
  Nationwide-Barriers?
• - Too many problems in coastal locations to
  consider inland
• Suggested Solutions
• -Monthly meet with foreign exchange,
• Ministry of Information Industry,Customs
• and WTO officials
• -Align Central and Provincial policies
• for smoother foreign and domestic services
• across national frontiers under WTO rules.

20
Hewlett Packard

• Manufacturer of computers and printers,
  outsourced to Contract Manufacturers
• Total Revenues of U73b in 2003
• worldwide
• All HP notebook computers made in Shanghai need
  delivery in 5 days but best from inland is 10 days

21
Hewlett Packard

• Obstacles to Inland Expansion
• -Lack of understanding of concepts
• Short Product Life Cycles and Just in Time
• Delivery Required by MNCs for all shipments
• -Slow Delivery to Seaports
• Suggested Solutions
• -Tuition based Supply Chain Management
• Training for Certification based on National
  Standards
• -Development of inter-modal transport and
  technology

22
IDS Group

• Contract Manufacturing, Logistics and Marketing
  for retail customers (part of Li Fung Group)
• Devises supply chain strategies from
• materials to delivery based on client
  specifications
• Worldwide supplier with 7,500 clients and CM
  relationships to control information flows
• Inland Hub Strategy to serve retail needs

23
IDS Group

• Obstacles to Inland Expansion
• -Poor rail Infrastructure
• -Lack of intermodal transport
• -Lack of Track and Trace systems
• -High inter-provincial Truck Fees
• Suggested Solutions
• -Improve inland rail networks
• Introduce double stack trains
• -Introduce pilot tracking technologies for rail
  and truck
• -Ministry of Communications lead change
• in regulating inter-provincial truck fees

24
Cementhai Distribution Company

• Three activities Trading and logistics,
• Sales and marketing, and seaport terminal
  operation
• All are managed and operational functions are
  outsourced locally (part of Siam Cement Group)
• Total Revenues of U4 billion of which
• Cementhai Distribution is U1b in 2003
• Inland strategy based on demand,
• competition, and ability to distribute using
  sea,rail and/or road) and level of taxation

25
Cementhai Distribution Company

• Obstacles to Inland Expansion
• -Availability of Containers
• -Lack of Public-Private Cooperation in
  transport
• -International Trade Payments slow
• Suggested Solutions
• -World Bank and Thailand
• Ministries Meet to form Agreement
• -World Bank and National Logistics Council meet
  to improve standards, facilitate better
  private-public cooperation
• -World Bank provide logistics quality standards
  and measure performance against them

26
Summary of Obstacles and Proposed Solutions

• Main obstacles to inland expansion
• Poor infrastructure, particularly rail
• Under developed multi-modal transport
• Lack of understanding of what is feasible
• Proposed solutions
• More investment in infrastructure, particular
  reference to double stack trains
• Institutional development of multi-modal
  transport
• More training at all levels
• Creation of Logistics Institute