Is Transport, Distribution, and Logistics in Mainland China Efficient - Case Study Example

Is Transport, Distribution, and Logistics in Mainland China Efficient? Name Course Name and Code Date 1.0 Introduction Chinese transport system is experiencing expansion and major growth in the recent years. The economic development and numerous industries in China including the middle-class requirements mean that more goods and services have to be supplied. The transport includes rail network, road, ship and ports, and airports. These enable effectiveness when it comes to distribution and logistics requirements. In addition, the legal and administrative changes in China influence the future of the economic and manufacturing opportunities. The paper discusses the transport, distribution and logistics in mainland China. The aim is to determine whether the processes and structures in place are efficiencies in fulfilling the logistics and distribution requirements. The discussion is centered on transport infrastructure, distribution and logistics, policy directives and legislative, and challenges. The paper concludes through determining whether the transport, distribution and logistics are efficient or ineffective in China. 2.0 Transport Infrastructure 2.1 Rail Network The rail network contributes to the highest distribution mode in China. As of 2010, the Chinese rail network was 91,000 km and 19,431 locomotives. The government owns most of the rail network infrastructure, but other players are local entities that own 352 locomotives and the joint venture railways that own 604 locomotives; in addition, high-speed train, and Maglev train enables movement of people and goods (Wang et al., 2014). The Chinese government has improved railway networks to the neighboring countries such as Russia, Mongolia, Kazakhstan, Vietnam and North Korea. The country is in continuous engagement with neighboring countries such as India and Laos to expand the railway links (Hu et al., 2010). 2.2 Road Network The road network is grouped into two categories: Expressways of China and China National Highways. As of 2003, the estimate road network was 208,000 kilometers, and the government continues to invest in opening the country. The improving road networks enable different modes of transport including motorbike, heavy transport trucks, cars, and buses (Cui and Zhang, 2010). The advancement of the bridges also means that the transport network is improving and enables investors to transport their resources easily (Wang et al., 2014). Even though areas exist that are not favorable for transportation, the current developments have spurred economic development. 2.3 Sea and Air Network Based on the available information as of 2007, there are more than 500 airports of different sizes and types in operation (Cai et al. 2012). In addition, heliports are numerous including the Airlines that operate in the region. The Civil Aviation Administration of China controls the air transport and enforces legislations. Some of the largest airports are located in Guangzhou, Shanghai, and Beijing. China also has numerous ports and shipping areas in which, it is estimated there are more than 2000 ports. In fact, there are sixteen shipping ports that enable transportation of more than 50 million tons annually. The China ports witness growth because of the economic developments, and the ports and shipping sector will continuously grow to address the changing business requirements. 3.0 Distribution and Logistics 3.1 International Companies Multinational logistic operators are numerous in China but face challenges when it comes to creation and obtaining the appropriate operating permits and licenses (Wang, Zhou, and Zhou 2012). Bureaucracy and segmentation of the processes into different departments makes the processing of acquiring documentation a problem (Cui and Zhang, 2010). In addition, the internal companies face problems when operating in China because of the preferences of the local business to outsource services to local business. The international companies are then left with dealing with international businesses. 3.2 Local Companies Numerous private entities exist and are allowed to operate in less restricted sectors such as express delivery, general logistics and trucking (Singh et al. 2012). However, most of the logistic operations are controlled and managed by the Chinese state-owned companies. Some of the major ones are the China Post and Sinotrans Group while others are China Rail Express, China Air Express and EMS. These state-owned companies dominate the restricted sectors. The local private companies also support each other meaning multinationals are facing challenges when getting local businesses (Cui and Zhang, 2010). 4.0 Policy Directives and Legislations The legal regime in China is complex, which also affects logistics and distribution management. The regulations and laws relating to logistic management are implemented by numerous government bureau or ministry. The government entities involved in regulation and enforcement of logistics and distribution requirements, especially for multinationals, are Customs General Administration, Ministry of Communication, Civil Aviation Administration of China and Ministry of Commerce (Wang et al., 2014). Even though Chinese government embraces some fundamentals of World Trade Organizations, internal processes including corruption limit the effectiveness of any legislations and regulations (Cui and Zhang, 2010). The different sectors of distribution have regulations when it comes to international players. For example, the road sector is controlled, and WFOEs are allowed, but the foreign majority stake is limited to 75% of owners. The same aspects apply to freight forwarding. The rail, maritime, storage and warehousing have flexible rules and entities have the capacities to access the market. The local businesses have advantages because the investment is not restricted; therefore, from the perspective of local investors, the market access is convenient even though an individual is required to address the corruption and bureaucratic problems. The Chinese government continues to create a business environment through reviewing some legislation (Garver, 2006). For example, structures for a distribution entity have been defined, and investors can choose the appropriate structure; for example Foreign-Invested Partnership, Equity Joint Venture, and Representative Office among others. Clarification on the foreign exchange and taxation has been discussed even though when it comes to foreign currency exchange, the effectiveness of the program is debatable (Wang et al., 2014). Relevant laws on logistics and distribution such as price law, anti-corruption law, anti-unfair-competition law, antitrust/competition rules, and China contract laws are other laws aimed at improving the business experience in China (Wang et al., 2014). Therefore, the legislative and regulatory aspect of logistics and distribution are been addressed to improve the business operations. 5.0 Challenges of the Transport, Distribution and Logistics Industry in China Many challenges affect the transport and logistics industry in China, and rising costs are the major one. The fluctuation in fuel prices, which the government controls, results in numerous refineries and distributors of oil limiting the supply because of revenues (Holslag, 2010). In addition, the land use tax rates affect the value of the property and create challenges in constructing warehouses; the cost of hiring the warehouses is also high. Hence, the warehousing that supports distribution and logistics are expensive and few in number. Financing bottles in developing the infrastructure and capital requirements inhibit investment in the transport and logistics sectors (Cui and Zhang, 2010). The cost of loans is high resulting in fewer financing options (Wang, 2010). In addition, the mindsets of the Chinese companies seeking distribution and logistics services are skewed against international establishments. For example, it is difficult for local businesses to outsource the distribution and logistics services to an international entity. The localization of services and the limited supply chain opportunities result in an increase in costs (Wang et al., 2014). In addition, the lack of unified institutional coordination increases the cost of operation because a business has to go through different entities to receive the appropriate documentations (Wang et al., 2014). Imbalanced infrastructure developments and constraints on human resources are other challenges that negate the effectiveness of the distribution and logistics industry in China. 6.0 Conclusion The transport, distribution and logistics in mainland China can be termed as efficient because of the infrastructure developments and the growing awareness of the importance of appropriate legislations to advance business operations. Chinese logistics and distribution are immature because fragmentation and intense competition. The appropriateness of competition is improving the business environment analyzing the competition; it occurs the numerous logistics companies share the same resources. The government through state-owned entities plays an important role in restricted sectors. However, numerous businesses have been licensed to operate in the e-commerce sector and international business because China export and import industry is growing faster. The efficiency can also be viewed from the continuous investments and developments in China. Without effective transport, distribution and logistics infrastructure, it prevents the country from developing. However, China is among the top countries in the world that exports and important products meaning the efficiency are good. However, there are minimal problems, if addressed would improve the efficiency of the transport network. For example, giving authority to a single institution to enforce the regulations and legislations on transport, logistics and distribution would be important in reducing the difficulties that people face. The bureaucratic, legal complications and corruption has to be addressed to improve further the operations of China when it comes to supplying chain requirements. 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