CB Richard Ellis is a global leader in real estate services, with 11 offices across China. Its industrial and logistics services department provides professional and comprehensive industrial real estate services to assist clients in rent review, lease renewal, design building and lease-back of facilities throughout China. CB Richard Ellis’ s Industrial & Logistics Services Executive Director Andrew Hatherley talks about industrial zone growth trends and offers tips on investing on the mainland.
Q: What are the biggest challenges your clients face in purchasing industrial property on the mainland?
A: Initially the biggest challenge in purchasing industrial property on the mainland is deciding on the location, given the size of the country and the speed of infrastructure development and growth. Also, changes in government legislation provide additional challenges. When a company makes the decision to come [to China] to set up and appoint people to look at buying industrial property, [they need to look at] how they need to fund and operate. The fact that [the laws] can change and do change quite regularly makes companies rather nervous.
Q: What kind of government policies are changing?
A: The central government is changing the policies substantially relating to investing in China. I think the intent of the changes is to cool down the very hot residential market. The terminology in the policy changes captures not only the residential markets but also the commercial and industrial investment markets. I don’t know necessarily that the government had any major reasons to cool the industrial market because it was a new market and not overheated by any means.
Q: What are the most important considerations for companies looking to set up here?
A: Companies need to allow a considerable amount of time to set up because the approvals that are required to set up and build in China are suitably longer than elsewhere. So when companies come to us and are thinking of [setting up in China], we advise them that if it takes six months to set up a similar industry elsewhere, then maybe allow 12 months in China.
Q: Why is so much time needed?
A: This ensures all the preparatory work is done at the front-end and done diligently, with all the necessary approvals having been granted. [This] makes life a lot easier. If something is not done in the front-end, it will potentially cause a lot of delays and grief down the track. Companies should make sure they have the right type of people advising in various specialty fields – lawyers, project managers or real estate advisers.
Q: How important are logistics for companies setting up for the first time on the mainland?
A: The logistics industry is about the storing and distribution of products that the company makes. So coming into a business park for the first time you have to work out your logistics, whether you are going to warehouse it yourself, outsource to another company to pick up the products that you have created, or store it at another place to distribute to your clients. So that is a big part of what the logistics industry is about these days. It might be that there is a company that is very good at making widgets, and it is efficient in a warehousing sense [for it to] just send their widgets to TNT or DHL, [which will then] store and distribute to its clients.
Q: How has the logistics industry in China evolved throughout the years?
A: Initially the inefficiencies in the logistics industry in China was costly to the production of products being exported to overseas markets because of the poor quality and design of warehousing facilities. Most were multilevel, low-clearance buildings serviced by goods lifts. The international logistics companies coming to China were demanding grade A logistics buildings, the type you find in North America and Europe. This one change in warehousing standards has helped enormously in making the Chinese logistics industry more competitive.
Q: How has logistics evolved and played a role in China’s growth?
A: Basically everything started to change with China’s accession to the World Trade Organization. When that happened the government had to nominate various industries that were going to be opened up to foreign competition. One of those industries was the logistics industry.
Q: How has the investment environment changed since then?
A: In 2003-2004, companies that wanted to be involved in the logistics industry in China could do so only by being partnered with a local company. From 2004 to 2006, the market [was opened] and companies [operating as] joint ventures started to become wholly-owned companies and get involved in the China market more heavily. Part of the reason the government allowed these industries in was because the logistics industry was pretty inefficient up until that point.
Q: What trends are happening in the industrial zones sector?
A: The logistics industry is on the rise, with many manufacturing companies taking advantage of having third party logistics doing their warehousing and distribution. The high-tech area is also very much on the rise. The central government’s desire is to see China become more involved in the high-tech computer and software industry in the future – to move away from reliance on industries such as clothing or shoes to [transition] into a more high-end base.
Q: How important are logistics zones to new businesses?
A: Companies setting up or relocating facilities in China are generally drawn to either export processing or free trade zones as a direct result of the function of the business and the markets to be serviced. The emergence of the new bonded zones offers many companies real opportunities to save money either via very quick VAT rebates or by rent savings.
Q: What is the trend for industrial growth in the Bohai Bay area?
A: For Bohai Bay, the Tianjin industrial area was nominated by the central government as a special economic zone. The government is putting a lot of emphasis on industries going to Tianjin, and there is a very bright future for industrial growth in Bohai Bay. Dalian is also incorporated in that area, which is doing extremely well in the IT sector. Dalian’s location in relation to Korea and Japan makes it a place of interest for those countries to set up their manufacturing operations. Of course in Beijing, their economic development zone is pushing ahead as well. So economically that is very positive.
Q: What about industrial growth in the Greater Yangtze River Delta region?
A: I think the trend here is for industries to move toward the west. The land in Shanghai is getting rather expensive, so people are looking at places like Suzhou, Wuxi, Nanjing, Ningbo, as places to relocate to within driving distance to Shanghai, since labor, rent and land prices are more reasonable. The types of industries likely to remain around Shanghai are more of the high-tech and computer, software-related industries.
Q: What do you think of China’s “Go West” policy to expand inland and westward?
A: For the Pearl River Delta, companies are looking to move westward as well, from Guangzhou and Shenzhen to Chengdu and Chongqing. I think [westward expansion will] move rather quickly, like everything else in China. We talked about Tianjin being made into a special economic zone – at the same time [the government] is also making Chongqing a special economic zone. The government can make it attractive for the industry.
Q: How are these new economic zones developing so far?
A:Tianjin attracted Airbus, and just that one company can attract so many more related aerospace industries, making a huge difference to the economy [in terms of] jobs and opportunities. The Chinese government is able to put in infrastructure at a very fast pace. What would normally take years if not decades for other countries to do, China can achieve in months or maybe one or two years.