A2008:003. Transporter en extra växel för Kinas tillväxt. Förbättrad logistik driver på globaliseringen. Anders Linnhag

A2008:003 Transporter en extra växel för Kinas tillväxt Förbättrad logistik driver på globaliseringen Anders Linnhag

Transporter en extra växel för Kinas tillväxt Förbättrad logistik driver på globaliseringen Anders Linnhag

ITPS, Institutet för tillväxtpolitiska studier Studentplan 3, 831 40 Östersund Telefon 063 16 66 00 Telefax 063 16 66 01 E-post info@itps.se www.itps.se ISSN 1652-0483 (webb), 1652-8486 (tryck) Omslagsbild SXC/Stefan Prins Tabergs Tryckeri AB, Jönköping 2008 För ytterligare information kontakta Suzanne Håkansson Telefon 08 456 67 36 E-post suzanne.hakansson@itps.se

Förord Kina har under de senaste åren investerat stort i infrastruktur, särskilt i vägbyggen. Sedan år 2000 har de totala investeringarna i transportinfrastruktur motsvarat 3,5 4 procent av BNP, varav väginvesteringar har stått för omkring tre procentenheter. Investeringarna har prioriterats i den kinesiska ledningens långsiktiga planer, men också anpassats efter uppkommande behov. Denna rapport syftar till att beskriva de kinesiska satsningarna på infrastruktur, framför allt avseende vägar, och att diskutera dessa investeringars betydelse för landets utveckling och tillväxt, liksom deras betydelse för Sveriges och andra länders produktion i och handelsutbyte med Kina. Bättre transportinfrastruktur och -tjänster har underlättat Kinas exporttillväxt, men också skapat möjligheter för ekonomiskt eftersatta delar av landet att anknyta till de mer expansiva regionerna. Delvis som följd av internationell outsourcing har Kina dessutom blivit en viktig del av en global produktionskedja, vilket möjliggjorts av de förbättrade transporterna. De stora satsningarna till trots finns fortfarande stora utmaningar och brister i den kinesiska infrastrukturen, inte minst vad gäller lösningarna för det totala transportsystemet, det vill säga logistiken. Rapporten har författats av Anders Linnhag vid ITPS i Peking under hösten 2007. Värdefulla kommentarer och synpunkter på olika delar av texten har lämnats av Mattias Hector, Finansdepartementet, Göran Nyström, Riksdagens trafikutskott, Mats Harborn, Scania Sales i Kina och Martin Flack vid ITPS. Östersund, mars 2008 Brita Saxton, Generaldirektör 3

Innehåll Sammanfattning... 7 Summary... 9 1 Bakgrund och rapportens disposition... 9 2 Transportinfrastruktur En strategisk resurs enligt Kinas politiker... 23 3 Utvecklingen för olika transportslag... 27 3.1 Totala investeringar... 27 3.2 Inre vattenvägar... 28 3.3 Flygtransporter... 28 3.4 Järnväg... 29 3.5 Vägnätet... 33 3.5.1 Massiva investeringar...33 3.5.2 Ansvar för vägnätet, finansieringen och transportregleringen...35 3.5.3 Vägtullar en viktig finansieringskälla...38 3.5.4 Överlaster och underhåll...39 3.5.5 Orsaker till de stora väginvesteringarna en sammanfattning...40 4 Transporttjänster och logistik... 41 4.1 Vad är logistik?... 41 4.2 Kinas logistik Historik och nuläge... 42 4.2.1 Historik...42 4.2.2 Nuläge...42 4.2.3 Internationella logistikföretag driver på utvecklingen...44 4.3 Höga logistikkostnader... 45 4.3.1 Inledning...45 4.3.2 Ekonomins mognad...46 4.3.3 Den institutionella miljön och regelverket...48 4.3.4 Statliga ambitioner för att utveckla branschen...50 5 Makroekonomiska effekter... 53 5.1 Handel och tillväxt... 53 5.1.1 Aktuella framsteg inom den ekonomiska forskningen...53 5.1.2 Handelsutvecklingen i Östra Asien...55 5.2 Transportsatsningar som regionalpolitik och fattigdomsbekämpning... 57 5.3 Kina och Indien olika vägar till utveckling... 59 5.4 Infrastruktur för transporter Ännu en konkurrenskraftig kinesisk industri!... 60 6 Negativa följder av utbyggd transportinfrastruktur och ökad trafik... 63 6.1 En kvarts miljon döda i trafiken varje år... 63 6.2 Energiförbrukning och miljöskador... 64 6.3 Expropriering av mark en källa till oro... 66 7 Sverige och svenska företag... 67 7.1 Svensk transportpolitik och svenska investeringar... 67 7.2 Möjligheter för svenska företag inom transportsektorn... 68 8 Slutsatser... 71 Referenser... 73 5

Sammanfattning I Kina har det på senare år skett en massiv utbyggnad av transportinfrastruktur, särskilt på vägsidan. Kina har i dag till exempel världens näst längsta motorvägsnät efter USA. Satsningarna förklaras till stor del av att den politiska ledningen har tagit fram långsiktiga och omfattande planer för denna utbyggnad kombinerat med en beredskap och flexibilitet för nya behov. Under slutet av 1990-talet möttes exempelvis asienkrisen med stora väginvesteringar för att öka den inhemska efterfrågan. Det är emellertid inte bara planeringsförmågan som legat bakom framgången i genomförandet av väginvesteringarna. Nya finansieringsmöjligheter har också öppnats för vägbyggen. Dessa möjligheter har, tillsammans med provinsernas incitament att upprätthålla hög ekonomisk tillväxt, drivit på investeringarna i transportinfrastruktur. De samlade transportlösningarna logistiken är dock fortfarande underutvecklade i Kina jämfört med USA och Västeuropa. Logistiken beräknas i dag kosta över 18 procent av BNP, nästan dubbelt så mycket som i USA. De höga logistikkostnaderna i Kina beror dock delvis på de höga vägtullar och andra avgifter som har varit nödvändiga för finansieringen av investeringarna. Marknadsförutsättningarna är också helt olika i Kina jämfört med OECD-länderna. Detaljhandeln, liksom stora delar av det övriga näringslivet är i Kina mycket fragmenterade. De effektiva transporter, med konsolidering av frakter och planerade rutter som har fått stort genomslag i till exempel USA och Sverige, har därför haft svårt att breda ut sig. Kinas nuvarande branschstruktur och energianvändning, med stor andel tunga transporter av exempelvis cement, stål och kol innebär dessutom höga transportkostnader i förhållande till godsvärdet. Även den institutionella miljön hindrar en utveckling mot effektiv logistik. Ansvaret för transportfrågor är spritt på ett antal ministerier som inte samarbetar effektivt. Vidare florerar det av licenskrav avseende verksamhetens inriktning och geografiska utbredning. Det gör det i sin tur lättare för lokala myndigheter att skydda lokala företag och försvåra för dem som är registrerade i andra städer. Detta bidrar till en mycket fragmenterad transportmarknad. Vidare är brister i det juridiska systemet en orsak till att mycket få företag outsourcar sina transporter. Det leder till att frakterna sällan samordnas och till en hög andel lastbilar som åker tomma på returresan efter att ha levererat sitt gods. En konsolideringsprocess av transport- och logistikbranschen i Kina har dock påbörjats. Tack vare WTO-medlemskapet i december 2001 och de krav på frihandelsinriktade reformer detta medfört har ett antal hinder gentemot utländska företag avvecklats. Denna anpassning avslutades under 2006. Det är framför allt de stora utländska logistikföretagen som i dag driver på konsolideringen genom företagsförvärv och expansion av egna servicenät. Detta ställer i sin tur krav på de inhemska aktörerna att öka effektivitet och service, bland annat att bli mer nationellt heltäckande. De större inhemska företagen är ofta statligt ägda och staten har tydliga ambitioner att skapa starka kinesiska företag i denna bransch, bland annat genom fusioner. De ekonomiska effekterna av transportsystemets förbättring har varit betydande, trots kvarvarande brister. Bättre vägar på landsbygden har bidragit till en mer inkluderande tillväxt. Grupper som är marginaliserade i den snabba ekonomiska utvecklingen har kunnat 7

anknyta till såväl varu- som arbetsmarknader och dessutom fått bättre tillgång till exempelvis skola och vård. Förbättrad transportinfrastruktur har också varit betydelsefull för tillverkningsindustrin och bidragit till den exportdrivna tillväxten. Denna utveckling har lyft fram Kina som kugge i en numera internationellt uppdelad produktionskedja. En gradvis mer konsumtionsinriktad kinesisk ekonomi bidrar också till nya och högre krav på landets transportsystem. Bristerna i logistiken kan delvis bero på att politiskt koordinerat arbete med logistik bara pågått sedan ett par år. Detta till skillnad från infrastrukturen, som funnits på de högsta politikernas dagordning i decennier. I dag är logistik högt prioriterat. Det framgår av de två kanske viktigaste politiska dokumenten, den elfte femårsplanen avseende 2006 2010 och premiärministerns årliga rapport till nationalförsamlingen från 2007. I femårsplanen specificeras transportutveckling och logistik som de två första, av fem, tjänstebranscher som ska utvecklas. I premiärministerns rapport är logistik den första bransch som nämns bland de tjänsteområden som ska förbättras. Ett troligt scenario är därför att flera av de institutionella problem som finns på logistikområdet efter hand kommer att åtgärdas. Marknadsförutsättningarna kommer också successivt förbättras i takt med att näringslivet mognar (med större detaljhandelskedjor etc.). Infrastrukturutbyggnaden kommer samtidigt att fortsätta i oförminskad takt. Politikerna kommer dock tvingas att balansera konsolideringen av transportbranschen mot risken att småföretagare och anställda i statligt ägda företag ska bli arbetslösa. Det senare kan dock vara underordnat den politiska målsättningen att öka tillverkningsindustrins konkurrenskraft med en effektivare logistik. En effektivare logistik kommer leda till att konkurrensen från tillverkningsindustrin i Kina ökar ytterligare. Kraftfulla politiska åtgärder för att förbättra logistiken är än mer troliga om en global konjunkturnedgång eller högre växelkurs skulle medföra svårigheter för industrin. I detta sammanhang bör man vara medveten om den stora problemlösningsförmåga som kinesiska politiker hittills har uppvisat. Det kan också konstateras att den mycket starka efterfrågan på byggmarknaden i Kina har lett till en framväxt av stora inhemska företag som även har framgångar på den internationella marknaden för byggnation av transportinfrastruktur. I takt med att den kinesiska ekonomin växer ökar också affärsmöjligheterna i form av export och direktinvesteringar för svenska företag. Det kan samtidigt konstateras att konkurrensen är hård från allt mer sofistikerade inhemska tillverkare i de flesta delbranscher. Utvecklingen på transport- och logistikområdet i Kina kommer under alla omständigheter bidra till de successivt ökade kraven på svensk tillverkningsindustri och dess anpassningsförmåga. Sverige är ett mycket internationellt orienterat land med stor utrikeshandel. Globaliseringen har ytterligare ökat Sveriges beroende av väl fungerande transporter. 8

Summary This report is motivated by the fact that the Chinese economy has grown by an exceptional 9.8 per cent annual average since 1980. The past few years growth has continued to surprise on the upside and, in the first half of 2007, accelerated to 11.5 per cent. The combination of high growth and the size of the country means that China is affecting Sweden and other OECD countries to an ever increasing extent. The need to understand this growth phenomenon is evident. Investments, industrialization and exports are fundamental and well-known parts of the transformation of China and its economic growth. The fact that transportation infrastructure has been and remains a major recipient of investments in fixed assets is less well recognized. One of many impressive Chinese projects is the Hangzhou Bay Bridge, which will be seven times longer than the Öresund Bridge between Sweden and Denmark, the longest bridge in Europe. At a very general level, transportation infrastructure has been noted as an explanation for the higher economic growth in China as compared to, e.g., India. Thus, a more thorough study of Chinese transportation could be warranted since the knowledge on this topic is limited. 1 The current report focuses on freight transportation with the bulk of the report on road transportation, though rail transport is also given reasonable attention. Inland waterways and air transport are described very briefly. Infrastructure, however, is not enough for an efficient transportation system. Good logistics are needed to take advantage of the infrastructure. Also, good links between the transportation modes are needed to realize an intermodal transportation system. To achieve this, a transparent and streamlined regulatory system is needed. The report therefore continues with a description of the state of logistics and an analysis of the reported high costs for logistics in China. The effects of the developments in transportation infrastructure and logistics on the Chinese economy are analyzed in the final part of the report, before some conclusions are drawn. 1 Political involvement and views, with a soft spot for S&T Government involvement can be more motivated in the area of infrastructure than in several other fields of the economy. One reason for this is that economy-wide benefits of infrastructure investments are often larger than the financial returns. Thus, a good starting point for a study on infrastructure is the political arena, especially in China where the government is generally more involved in economic development than in OECD countries. Formulations in 5-year plans and other political documents make it evident that transportation infrastructure has been highly prioritized in China. According to the outline of the 11 th 5-year plan (for 2006 2010), infrastructure and building a new countryside are priority areas supported by the central government. Improved roads in rural areas are an important component in building this new countryside. Furthermore, a major goal in the outline is to develop the service industry, with five specific industries cited. The first of these is transportation, the second logistics. According to the Ministry of Communications, the national expressway network is both an urgent need of building a well-off society in 1 This comment does not include institutions like the World Bank, the Asian Development Bank etc. with strong analytical capabilities and deep involvement in the transportation sector in China. 9

an all-round way and realizing modernization, and an important precondition for the enhancement of national competitiveness under the background of economic globalization. From the highest political level it has been decided that economic development should be based on Science and Technology (S&T). In the area of transportation, for instance, there are 5-year plans for S&T development of Highway and Waterway Transport. One of the goals in the current plan is to break through major and key technical bottlenecks in transportation industry, make a batch of S&T achievements with proprietary IPR and world leading level, greatly increase the commercialization rate of S&T achievements, and raise the overall technology content of the transportation industry. Thus, ambitions are very high in the field of transportation. 2 Different modes of transportation Roads getting the bulk of investments Total investments in transportation infrastructure That the political statements have not only been rhetoric is proved by the very large investments made, especially over the past decade. In past years, total investments in the transportation sector have corresponded to around 4 per cent of GDP. This can be compared to 1.2 per cent in Sweden and 1.4 per cent in Eastern European countries. The investments in China are mainly the result of long-term planning, but the outcome is also an effect of the incentive structure for local politicians. China is a very meritocratic society and local politicians are assessed based on criteria such as GDP growth and employment. This makes for strong incentives to invest in infrastructure. Ambitious plans in road infrastructure are in fact often realized not only on time but ahead of schedule. The resources dedicated to transportation have also been adjusted to new circumstances, most notably following the Asian crisis in 1997, when the Chinese opted to meet the downturn in external demand with increased domestic investments, particularly in infrastructure. Rail Significant capacity expansions and quality improvements have been made in the rail sector. Approximately 50 per cent of infrastructure financing is generated by the rail construction surcharge, a large portion of freight rates. The remainder of the financing came for a long time from the national budget, but recently provinces must provide 20 50 per cent of financing. Investments have been far too small however (10 20 per cent of total transportation infrastructure investments), and rail is suffering from a substantial lack of capacity. The Chinese railway system is by far the most heavily used in the world, also in relation to network length, and demand continues to rise rapidly. There is too little customer orientation in terms of flexibility, quality and security in the provision of services in part due to this lack of capacity. Rather impressive though, is the fact that Ministry of Railways in this environment has managed to cut the number of employees from 3.4 to 2.2 million between 1992 and 2004, while transportation increased by two thirds, as measured in ton-km, during the same period. The staff cuts have taken place both through the sale of non-core businesses and increased overall efficiency of the remaining operations. Some of the businesses sold now provide construction or other services based on competitive bidding. 10

Roads Overview Three quarters of investments in transportation infrastructure during the past years have been in the road sector. That, together with the problems in rail transport, has pushed transportation buyers to the road transport market. Road transportation (ton-km) as a share of the sum of road and rail transportation increased from 5 to 30 per cent between 1978 and 1998 and has since remained stable, largely due to increased demand for basic materials (coal, petroleum, metals), mostly transported by rail. Trucking has also increased because of rapid industrialization and the need for more flexibility and just-in-time deliveries. The increased share of transportation carried by road could therefore be regarded as a normalization in relation to more developed countries. Chinese roads are classified in two dimensions responsibility and construction standards. Responsibility is at the nation, province, county, township or village level. National responsibility is limited to planning and setting the standards for the national roads (mostly expressways). Construction and, to a large extent, financing is handled by the provinces. Construction standards are the basis for classification as expressway or class 1 4 roads. There is also a significant mileage of unclassified roads. The first expressway in China was opened as late as 1988 but the national arterial roads mostly expressways have been prioritized the past 15 years. For the past few years, annual construction of expressways equaled almost three times the total current length of Swedish expressways, and now totals 45,000 km, second only to USA. The target for 2020 is an almost doubling of the network to 85,000 km. The aim is to connect all cities with a population larger than 200,000. While maintaining the exceptional growth of expressways, there is an increased emphasis on lower classes of roads. A recently introduced separate program for rural roads is supposed to generate 1 million km of roads by 2020. This will create paved connections for all villages in eastern and central China as well as townships in western China to the national road system by 2010. By 2020, all villages in western China will be connected by paved roads. Road financing Total road investments have increased over time and, in 2006, amounted to 620 billion RMB. However, full information of the sources of financing is not available. Figure 1 gives an overview of the funds from different sectors for 2005. More than 40 per cent of financing comes from unspecified bank loans. On top of that, loans are taken by provinces and lower level local governments (see below). Total loan financing is estimated to be 65 per cent. In 2005, no more than 12 per cent of funds for road investments came from the central government. Most of this was generated by vehicle registration fees (10 per cent of vehicle price). The size of the national contribution depends on the economic situation of the province, meaning that the poorer (often western) provinces are prioritized. 11

Figure 1 Overview of funds from different sectors in 2005. Total investments 540 billion RMB 64 billion, Central government (12 %) 150 billion Provinces (28 %) 81 billion Local gov. (15 %) 225 billion, Bank loans (42 %) 16 billion World Bank, ADB, etc (3 %) 11 billion General gov. revenue 54 billion Vehicle registration fee 4 billion, Private investments, (1 %) Provinces contribute more than one quarter of the financing, mostly from loans backed by road tolls. Another important revenue source is 20 per cent of a road maintenance fee that can be used for new investments. Budgetary funds are scarce, due to small local taxation powers and very limited revenue redistribution from rich to poor provinces by the central government. There is therefore a proliferation of local fees, often without support in national legislation. In order to increase financing opportunities, bond financing by provinces and larger companies may potentially be allowed in the near future (some steps in this direction have already been taken). Bond financing will mostly be relevant only for expressways that can generate the necessary revenue. That would, however, free public funds for rural roads. Lower level local governments provide 15 per cent of investment funds, generated by local fees on transportation. This part also includes funds raised among the local population. International institutions like the World Bank, Asian Development Bank, etc. provided 3 per cent of investment funds, while the private sector only had a share of 1 per cent. Chinese toll roads make up approximately 70 per cent of the global mileage of tolled roads. Furthermore, the toll rates are very high, especially in relation to income in China. For trucks, China has fees of 0.12 0.21 US dollars per km, compared to 0.15 USD in Germany. The high cost for motorists has led to significant loss of traffic on some roads, as truckers choose old roads without fees. As road construction successively moves inland and to less populated and/or poorer regions, toll financing will become more difficult. There are a few provinces that redistribute toll revenue within their jurisdictions. However, no national system for redistribution among provinces is planned. The planned projects for road construction will raise very large financing needs. An added component is financing for maintenance, an increasing need as the stock of roads expands. A widespread custom of driving trucks overloaded causes significant damage to the road 12

system and puts further pressure on maintenance. Tolling by weight has been introduced in ten provinces, which should reduce the problem. 3 Logistics Introduction Even though logistics is an old concept dating back hundreds of years, it is only recently that the private sector has realized the importance of efficient logistics for competitiveness. This comes from a stronger focus on providing value for the customer, which in turn to a large extent originates in the ideas of Michael Porter. One of the concepts Porter introduced is the value chain: The value chain disaggregates a firm into its strategically relevant activities A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors. The concept of the value chain implies that companies should analyze all their activities and outsource those in which they do not have a comparative advantage. This logic is now widely accepted and has led to a focus on core business and a dramatic upturn in outsourcing, making supply chains more complicated. This has increased the importance of good logistics, especially in China, a major destination for industrial outsourcing. Good transportation infrastructure is a prerequisite for efficient logistics. In this area China has made impressive improvements. The road network is rapidly being improved and extended. This means shorter routes, especially when expressways replace the older roads. The road network is also becoming more coherent. Better roads with higher load capacity also mean that larger trucks and higher speeds can be used. Thus, deliveries can to an increasing extent be made just-in-time, which results in increased possibilities to optimize and reduce inventories. Infrastructure has also been significantly improved in the other modes of transport. Much more remains to be done, however, to reach a satisfactory level of transportation infrastructure in China. Current plans for such improvements are very ambitious, but, at this point, the most obvious improvements are in logistics regulations and provision of services. General developments in the logistics market in China As well as many other markets in China, logistics companies make up a very disparate group. Many deliveries are still made by donkey or tricycle, sometimes to some of the most advanced logistics companies in the world that also operate in China. The latter group uses IT and modern vehicles, including air freight, and strives to work in the same fashion as in any OECD country. The road transport market is characterized by a large share of very small companies, often with old trucks in poor condition. Furthermore, the market share for third-party logistics (3PL) is low. However, the more sophisticated part of the market is growing more rapidly than overall logistics. Foreign logistics companies are pushing up the overall level of sophistication by competing with domestic ones. Some of their most important customers are multinational companies, where outsourcing of logistics services is an established practice. Competition between MNCs and domestic manufacturing companies generate interest in purchasing 13

logistics services also among the latter. As an international trend, logistics companies are also handling an increasing number of operations, for instance, packaging, labelling and adaption of products for the local markets. Competition with foreign companies is one of the reasons for the Ministry of Communications and authorities at the provincial level to support consolidation in the domestic logistics market. The goal is to create 15 20 large logistics companies. Whereas good logistics has been concentrated to coastal areas for the purposes of manufacturing and exports, a number of logistics hubs are now emerging in the interior of China, motivated more by a growing domestic consumption. Logistics costs The successful developments in the building of transportation infrastructure have not led to as efficient logistics as might have been expected. The reported inefficiencies are often based on the statistics on logistics costs. These are 18.6 per cent of GDP in China, compared to 9.5 per cent in USA. Real-life proof of the problematic Chinese logistics is that it takes eight days to ship a container 1,600 km from Chengdu to Shanghai, compared to three days for the 2,800 km between Chicago and Los Angeles. The cost of logistics must be seen in context however. The improvements and expansion of the Chinese road network has occurred much faster than in any other country. The costs for these investments can only be paid for in two ways: either by general taxes or directly by users. In China, roads are financed to a very large extent by road tolls. According to one survey, tolls amounted to 20 40 per cent of the non-fixed costs of eight freight companies. In Europe, this number is usually 2 3 per cent. (Furthermore, half of the railway construction is financed by a rail construction surcharge, part of the price for freight shipments. There are also a number of local fees on transportation.) Financing via the central government budget would have pressed taxation upward. In 2005, government revenue was only 17 per cent of GDP. In Europe and the US, general taxation funds a large part of infrastructure. Thus, it seems likely that the Chinese transportation sector is assuming a larger part of financing than in OECD countries. In Europe, however, fuel tax not introduced in China is also an important component of financing. Other reasons for high logistics costs can be divided into two groups: those that are more or less natural parts of a less developed economy, and those that the government can address directly. In the first group: China is still a fairly immature economy. Therefore, it is currently characterized by intensive construction and a manufacturing industry with low value added (although it is rapidly becoming more sophisticated). Furthermore, coal and other basic materials take a large chunk of transportation capacity, especially as regards rail and inland waterways. This leads to bulky and expensive transportation in relation to value. The Chinese retail sector is composed mainly of a large number of small mom-and-pop stores. Small trucking companies can provide their basic needs. USA and Europe, on the other hand, are home to larger retail companies, some known in large part for having built their success on efficient logistics where scale economies can be utilized (Wal-Mart, Zara, Ikea, etc.). Scale economies entail freight consolidation and efficient routes as well as profitable investments in technology. Lack of freight consolidation is one reason for a high share of empty return trips in China. Chain stores are rapidly growing in some retail sectors in China, however. 14

Chinese manufacturing companies typically outsource logistics to a smaller degree than is the case in OECD countries. The same problems arise as described above. High inventory levels because of low IT utilization, but also hoarding of goods due to high damage rates, uncertainty about delivery times, etc. Lack of experienced staff, a problem in many sectors of China. High logistics costs are also dependent on a number of factors that the government can address directly, all correlated with institutions and regulations: There is a lack of coordination between the ministries responsible for different modes of transportation. Also, cooperation between different geographical areas is not well developed; instead, competition between provinces sometimes leads to duplication of airports or harbors. In the road sector local protectionism is common (see below). Coordination between different levels of government can also be improved. Today it is possible to see expressways connecting directly to very low class local roads. Lack of coordination is a major reason for intermodal transports not being effectively realized. Local protectionism can for example mean that a trucking company is not allowed to enter a city. Freight must then be handed over to other companies, with better local connections. This leads to an excessive number of handovers and short average trucking distances, reducing economic viability for more expensive large trucks. Licenses are required for every local office and type of business. One logistics company has 700 licenses for their business in China. Furthermore, the licenses must be renewed every year. Because of local protectionism and licensing requirements, larger logistics companies often cooperate with local trucking companies. It is difficult to receive compensation when contracts have not been fulfilled in China. Even when courts have judged in favor of a plaintiff, he might only receive 30 per cent of the awarded damages. This is a barrier to outsourcing, also in logistics. All in all, logistics suffers from some serious problems in China. It should be realized, however, that while infrastructure has been important for the political leadership, at least since reform policies began in 1978, logistics has only been on the political agenda for a couple of years. In 2005, logistics was mentioned for the first time as a separate industry in a 5-year plan. That year, an inter-ministerial meeting was also held to promote efficient logistics. Notably, in the Report on the Work of Government from 2007, six service sectors are targeted for support, logistics being the first one mentioned. Proper policies increase the possibilities for a forecast by a government-supported logistics institute to be realized. The projection is for logistics costs to fall from 18.6 per cent of GDP in 2005 to 16.8 per cent of GDP in 2010. That would be a further boost to the competitiveness of manufacturing in China and likely lead to a further increase in manufacturing outsourcing from OECD countries. Besides the question of overall global competition, this puts further light on already strained transportation systems in OECD countries. 4 Economic effects of improved transportation infrastructure and logistics Even though substantial improvements are possible in the Chinese transportation and logistics sector, the accomplishments achieved have already been tremendous. This has 15

had substantial positive effects on the Chinese economy. It could probably be said that transportation improvements have been a fundamental part of the growth story in China. The theoretical underpinning is the acknowledgement of scale economies and imperfect competition, leaving the older assumption of constant economies of scale and perfect competition. Scale economies imply specialization, i.e. geographical concentration of production. For this to be possible, there needs to be cross-border trade. The lower the costs for transportation, the more production can be divided into separate smaller processes among separate suppliers/producers. The lower the costs for transportation, including barriers to trade, the more scale economies can be utilized due to an increasing potential market. With the business management perspective of core business and outsourcing, and these macroeconomic theoretical developments, there are powerful arguments for transportation and logistics as drivers of economic growth. Developments in trade in East Asia, including China, constitute a good illustration of these processes. Trade has expanded considerably in the region, and economic growth has been very strong. Parallel to overall globalization, there is a pronounced process of regionalization in East Asia. Trade within the region makes up 55 per cent of total trade, almost as high a share as in Europe, with 60 per cent. The regional integration is to a large extent driven by trade in parts and components an area where regional trade agreements have been particularly supportive for trade. That has been important for building the supply chains now in place, with China a central player. Increasingly complicated supply chains make logistics ever more important. Furthermore, in China, production and export of products with significant scale economies have been growing substantially more than other products. This is another sign of the fundamental role that transportation is playing in the development of China. Poverty reduction is also attributed to improved transportation. According to one study, in India, investments in rural roads is the most efficient way to use public finances if poverty reduction is the goal. For China, it comes second behind education. Growth in China has been characterized as inclusive, i.e. improving lives for everyone in society, especially the poor. For instance, rural roads connect remote regions to markets, enabling the sale of farm products and purchase of inputs. They also facilitate travel to education and health care facilities. The reduction of global poverty is to a large extent an effect of development in China, where the number of poor was reduced by a quarter of a billion people between 1990 and 2005. Transportation infrastructure can also be viewed from the perspective of the investment climate. Infrastructure is widely recognized as an important factor for investment decisions. According to a study by the World Bank, deficient infrastructure was a problem for business in China, but to a lower extent than in other countries at a similar level of economic development. China has been among the three largest recipients of FDI every year from 2002 2005. The World Bank has also compared China and India, highlighting the fact that investments in transportation infrastructure have been substantially higher in China than in India, as well as the fact that different paths of economic growth have made China three times larger than India in nominal GDP, whereas these economies were almost at par in the early 1990s. The very high demand for construction has led to the creation of a large number of big Chinese construction companies. Importantly, many of these are active internationally. In 16

2005, a fifth of the 225 largest international construction companies were Chinese. On the domestic Chinese market, on the other hand, there has not even been one foreign bidder for road or rail construction. This is probably due to very competitive pricing by the Chinese companies. Opportunities for foreign companies seem to be better in the areas of construction equipment and transportation equipment and services. Also in equipment, competition seems to be very tough. In addition to foreign suppliers, there is a proliferation of domestic manufacturers in trucks, industrial trucks and road building equipment. There are Swedish companies that are successful in China, but a remarkable example is the market for heavy trucks. Sweden is home to two of the top manufacturers in the world. The total Chinese market for these trucks is over 300,000. Imported trucks only have a market share of 1 per cent. Together, the two Swedish companies have around half of that. This can be compared to Brazil, where they have a 30 per cent market share. Among the negative effects of transportation developments are: emissions from vehicles, which now make up a substantial part of pollution in the cities; accidents, being the cause of death for a quarter of a million Chinese every year; and relocation of local population. According to the World Bank however, relocation is mostly caused by industrial development and dam constructions. 17

18