Logistics firms wary of China's economic zones despite lures
Officials in China's new economic zones are hoping cheap warehousing and hassle-free customs procedures will encourage logistics and storage firms supplying Hong Kong's domestic market to relocate to the Pearl River Delta. But not many firms seem interested in moving.
"It is almost unheard of to have any product that is for local Hong Kong consumption to be stored in China because the turnaround lead time is not workable," said Raymond Chan, general manager of logistics firm Cargo Freight Services.
Last year the central government announced plans to establish three development zones in Nansha, Hengqin and Qianhai along the Pearl River, part of a wider effort to develop and integrate southern mainland China, Hong Kong and Macau into a single economic hub.
Initiatives including preferential tax treatment and liberalised financial reforms were pitched as incentives to lure business. Another idea is to create a seamless customs zone connecting Hong Kong to bonded warehouses and free-trade port areas in the delta.
"The policy directions have been given out but the details are not yet finished," said Hong Kong Trade and Development Council economist Wing Chu. The Qianhai economic zone in Shenzhen has 300 registered logistics firms, including 130 from Hong Kong. This represents 15.2 per cent of companies in the zone, according to local government data from October last year.
In many cases, registration is a formality while companies wait to see what further benefits can be derived from siting a storage or logistics business in the nearly 15 square kilometre zone, Wing said. By comparison, the 800 square kilometre site at Nansha includes an established logistics park, one of two deep-water ports on the mainland, and a rail-road-sea transport network.
Last month Kerry Logistics Network chairman George Yeo visited Zhuhai seeking land for warehouses. Completion of the Hong Kong-Zhuhai-Macau bridge would provide more opportunities for logistics providers as there was a lack of land and warehouse facilities in Hong Kong, Yeo said.
Oriental Logistics managing director Gilbert Lau said limited warehouse space had contributed to rents doubling in recent years, forcing up consumer prices and pushing logistics operators further into the New Territories. High-value items including branded products, chemicals, and raw materials are stored in more expensive godown centres like Kwai Chung or Kowloon East, while lower margin products are housed in Yuen Long or Tuen Mun. Oriental Logistics owns and rents warehouse space in Hong Kong, but there is not enough capacity to meet demand, Lau said.
Among retailers one solution is to keep less stock, meaning shops run out of products faster. Retailers were training shoppers to buy quickly as "there is no safety stock concept," said Chan, referring to the practice of keeping excess stock.
Despite the excess capacity and lower warehouse rents in the mainland's southern areas, Hong Kong logistics firms are wary of storing goods there given final-mile delivery costs and border formalities. The city lacks cold storage facilities but public distrust in mainland food safety standards means logistics firms do want to store imported meat across the border, say logistics firms executives. Partly due to storage limits, with imported frozen meat products in Hong Kong, "you can pretty much charge a premium," Chan said.
Chan sees the logistics zones being favoured by Chinese firms targeting the Hong Kong market and to support global trade moving in and out of China.
Efforts to promote the economic zones to store Hong Kong-bound products are also complicated by customs procedures. The use of bonded warehouse zones where goods can sit free of Chinese import duties before crossing Hong Kong's tax free borders play an important role, but mainland regulations are complicated and in flux, Yeo said.
It is still early days for the zones, but some are not convinced much will change. "Whatever they are doing right now should be taken with a grain of salt," Chan believes.