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Reduction of Corporate Costs Requires Further Cuts in Logistics Expenses
Reducing logistics costs for Chinese businesses is an important measure to reduce corporate costs and support the real economy
By Yang Guomin | NO. 17 APRIL 27, 2017

A container is moved at the Chongqing Western Logistics Park on April 11 (XINHUA)

In 2016, logistics expenses of Chinese companies totaled 11.1 trillion yuan ($1.6 trillion), accounting for 14.9 percent of the country's total GDP, 1.1 percentage points lower than the proportion in 2015, according to the China Federation of Logistics and Purchasing. This indicates that every 10,000 yuan ($1,455.6) of GDP generated last year imposed logistics costs of 1,490 yuan ($216.89) on businesses, a figure 6.9 percent lower than that in 2015, saving the nation 800 billion yuan ($116.45 billion).

Reducing logistics costs for Chinese businesses is an important measure to reduce corporate costs and support the real economy. Carrying out its Medium and Long-Term Plan for the Development of the Logistics Industry (2014-20), China has achieved some success in reducing logistics costs in recent years. Figures show that in 2013-15, the proportion of logistics expenses in GDP stood at 18 percent, 16.6 percent and 16 percent respectively; and in 2016, China achieved the goal of reducing the proportion of total logistics expenses in GDP to below 15 percent four years ahead of the target set by the plan.

We must, however, recognize that there is still room for improvement in reducing logistics costs. Currently, China's proportion of total logistics expenses in GDP is higher than those of India, Brazil and other BRICS countries and is also 5 percentage points higher than the world average. Furthermore, the ratio is around double those of developed economies such as the U.S., Japan and Germany.

Considering China's current scale of GDP, if China could reduce its proportion of logistics expenses in GDP to 8.3 percent, which was the level in the United States in 2010, at least 5 trillion yuan ($727.8 billion) would be saved for Chinese businesses. Businesses have been burdened with exorbitant logistics expenses—about 30 percent of production costs in the manufacturing sector are taken up by logistics, much higher than the 10-15 percent in developed economies.

Therefore China should not slack off its effort to reduce logistics costs.

First, the government should continue to improve the policy and market environment of the logistics industry. Many favorable policies and plans concerning the industry were issued in 2016, and the government needs to ensure implementation of those policies, further alleviating the tax and fee burdens on logistics companies. For example, the proportion of road tolls in total road transportation costs has been reduced to around 30 percent, and after years of effort, illegal charges and fines have been diminished. But the government needs to further reduce road tolls, regulate fines and prevent excessive fines.

Second, China should accelerate transformation of its economic growth model and improvement of its industrial structure. Figures show that for every 1-percentage-point increase in the service sector's contribution to GDP, the proportion of logistics expenses in GDP drops by 0.5 percentage point. In 2016, benefiting from the improved industrial structure, the proportion of logistics expenses in GDP dropped by 0.7 percentage point, saving 500 billion yuan ($72.78 billion) in logistics costs for businesses. The government should further press ahead with supply-side structural reform and improve the efficiency of the logistics industry.

Third, the logistics industry should be upgraded toward more innovation-driven and coordinated development. Moreover, the industry must adapt to new requirements from smart manufacturing and provide better supply-chain services to meet the increasing demand in this respect. Compared with developed economies, whose supply chains are more advanced, China still has huge potential in integrating professional logistics services.

The author is an economic commentator and this article was first published in Economic Daily

Copyedited by Chris Surtees

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