China’s logistics hubs dominate the country’s coastal areas. At present, 85% of China’s modern logistics facilities are found in the five primary hubs of Shanghai, Beijing, Guangzhou, Shenzhen and Tianjin.
But China’s interior is becoming more prosperous, and the supply chain is beginning to snake westward. As so-called second-tier cities become more important, a handful are poised to become major logistics centers in the next few years.
A Jones Lang LaSalle report published in February, for example, names 10 potential new logistics hubs: Chengdu, Hangzhou, Shenyang, Chongqing, Wuhan, Nanjing, Harbin, Changchun, Xi’an and Zhengzhou.
These emerging cities are attractive because of their strategic location on China’s transport networks, as well as their large consumer or manufacturing bases. Chengdu, Hangzhou and Shenyang, for example, have growing consumer markets, while the other cities are major manufacturing hubs.
According to Darren Benson, head of the Jones Lang’s industrial section in Beijing, China’s large coastal hubs currently absorb about 75% of all investment in logistics. But the new inland cities promise lower land prices and greater availability of strategic land parcels. “In established cities, it is harder to find reasonably priced available land to build more facilities, and so developers are looking for new areas to develop,” he said.
New developments also are generally built to a higher specification and with greater functionality. Older developments, even if located in coastal cities, may not be as well designed. Newer warehouses typically have higher clearances, improved loading areas and better entry zones, thus increasing efficiency. “Many older facilities were built to be more suitable for light manufacturing,” Benson said. “As a matter of fact we still see some newer [warehouses] falling into these traps.”
But the developing inland cities still have some teething problems that need to be addressed. Existing regulatory barriers, such as provincial border controls and tariffremain problematic. Provincial governments sometimes promote their own interests by enforcing complicated regulations and overly stringent border controls, according to Jones Lang’s report.
Infrastructure is another obstacle: Some of these cities lack adequate rail and water networks. “Anyone that moves into these cities needs to be patient because the existing infrastructure and facilities, as well as level of services, are still running behind international standards,” Ming Z. Mei, China president of the logistics solution provider ProLogis, said. “Investors in these cities need to have the right expectations that it will take them about three to five years to catch up with the major cities.”
Market observers say that government support is essential to a healthy logistics market. Local government officials in Chengdu, the capital of Sichuan province, are campaigning to turn the city into a logistics hub by 2010, with Beijing’s support. The local government will develop two logistics centers in west and northeast Sichuan, and is upgrading its traffic infrastructure.
Chengdu on the rise
Indeed, the Jones Lang report noted that Chengdu had the most potential to transform itself into a logistics hub. Jacky Tsai, general manager of Colliers International in Chengdu agrees. He says the city’s proximity to China’s agricultural heartland and its rising expertise in manufacturing consumer goods means it is well-placed to act as a transit and distribution node for the southwest.
Chengdu’s geography also makes it a gateway to South and Southeast Asia. Tsai says there is an acute need for a hub in the west and Chengdu is the most likely to fill that gap. But he acknowledged doing so could take up to five years because the city lags in infrastructure development.
Major players like ProLogis and Mapletree are already expanding into inland cities. ProLogis is now focusing on the interior, its China president, Mei, said. It currently spends 20% of its total investments in second-tier cities. It announced in March that it would secure land for five industrial and logistics parks in Changsha, Chengdu, Chongqing, Nanjing and Wuhan.
The new ProLogis parks will have over 750,000 square meters of distribution space and require an estimated US$246 million in total investment. The first distribution centers at the new parks will be completed this year. “These five cities give us better network coverage to complement our operations in the coastal areas and other parts of China,” Mei said. “We expect to build up our presence in these cities over the next three to five years.”
At the same time, Singapore-based Mapletree Logistics Trust acquired a distribution center in Xi’an for US$11.6 million. “This acquisition will allow us to capitalize on the emerging growth opportunities in China’s burgeoning retail industry, as distribution centers play an important role in supporting the retail supply chain,” a spokesperson said.
ProLogis and Mapletree’s recent investments mean Xi’an and Chengdu are primed to be the newest links in China’s lengthening supply chain. If the forecasts are correct, they won’t be the last.
Future logistics hubs
Chengdu: A key transport hub in southwest China; it acts as a gateway and transfer location to South Asia and Southeast Asia.
Hangzhou: An economic center of Zhejiang province and a key transport node with extensive network connecting it to other provincial cities.
Chongqing: A major inland port on the Yangtze River; has an ambitious local government hoping to create one of China’s largest auto manufacturing bases.
Nanjing: A major Yangtze River port city and strategically located on major road and rail axes; benefits from significant growth in the automobile industry.