The Chinese government certainly acted quickly and successfully to reverse the first downward sales trend for new car sales it experienced during the second half of 2008. Today, thanks largely to a hefty cut in sales tax on cars with a 1.6-litre engine or less, sales are up in the first quarter year-on-year, including a 34% increase between February and March this year. And since the government announced at the end of March that it would include the logistics sector in its stimulus measures, it would appear that the automotive logistics sector, standing in the crosshairs of policy, stands to benefit mightily.
The reality is not quite so clear, and judging from the perceptions of logistics managers from carmakers as well as LSPs in China, there is a need for a wider policy debate as the automotive sector continues to grow. There are certainly some very impressive plans.
At the Automotive Logistics Conference this week in Shanghai, Wei Yong, Division Chief for Transport and Logistics at the National Development and Reform Commission, swept into the event to run off a pretty list of measures. It included plans to improve infrastructure, build special logistics zones, develop the railway and intermodal further and also to build state of the art distribution centres and warehouses. He assured the audience that automotive logistics was considered to be a very “important” part of the logistics sector, and one that could play an exemplary role, particularly as the industry expands and domestic players become more global.
He provided no further details, however, of how the plans would affect automotive logistics specifically; he also didn’t address other issues vital to the sector today, such as environmental regulation, truck length and overloading. He left promptly after delivering his statement, too busy to stick around for any questions he said. We don’t doubt how busy he is, but he nevertheless left many companies wondering what the reality of the grand plans will really mean to them.
Maggie Wang, Regional Logistics Supervisor from Delphi Asia Pacific, told Automotive Logistics that while the new government has certainly done more than the previous, she wonders about the execution of the plans. “The feeling is that the government is good at making plans, but needs someone to deliver results,” she said.
Edwin Chow, Regional Director Asia Pacific and Automotive Sector Head for DHL, felt that most of the plans would benefit the local, asset-owning company that could now buy trucks at lower rates thanks to tax breaks. “However, if a foreign company can get into one of the logistics zones at the right time, there are also many good incentives,” he said.
But not all the local players see it that way. Even if stimulus measures offer tax breaks, many see problems with current regulations that hamper the profitability of local companies. Robert Jiang, General Manager for Shanghai Dajin Logistics, said that current policy actually favours non-asset companies, such as foreign LSPs. “You are only allowed a certain amount of invoices for each truck that you own, which can hamper the effectiveness of the fleet,” he said. “But if you’re a non-asset company, using a sub-contractor, you have no limit on invoices.”
Jiang also believes that incentives are much higher for companies investing in higher-skilled labour, such as electronics production, than for warehousing and truck drivers, for example.
George Ho, Senior Logistics Manager for the Chinese carmaker, Geely, said there are a number of issues that the sector will have to lobby the government to change. Among them is a customs procedure that makes it difficult for Geely to export aftermarket parts. Under current policy, if an export part is damaged, and a carmaker needs to re-export components worth more than $600, it will be subjected to a heavy duty, on top of the taxes it might have to pay abroad. “This means that we might not be able to ship our own parts to dealers for spares, which leave us with less control over quality,” he told Automotive Logistics.
While Mr Ho admits it’s a frustrating policy, he also is fairly confident in the ability to lobby the government for change. “As the industry has grown so fast, there are many such policies that will need to be reviewed in the coming years, but I think we will resolve them,” he said.
There is ample evidence that he is right, considering the expediency in which the government can act. However, policies such as these, along with inconsistent laws on car carrier length and loading, which often leaves China’s road covered with dangerously overloaded trucks, need to be addressed with an urgency similar to the stimulus plans.
