Plan your logistics for China

The challenge

China is the world’s second largest economy with the world’s largest population, offering great potential to businesses looking to grow abroad. Even if China is not a direct part of your growth strategy, as the largest global exporter it should be considered as part of the wider economic picture.

Your aim

After reading this guide you will understand the opportunities presented by China and know how to take make the most of them, as well as have a general understanding of China’s place in the global balance of powers and why this affects businesses.

When planning how to grow your business abroad, it’s important to consider the current climate of the market you’re planning to enter. China is the world’s second largest economy in terms of nominal GDP, and the largest in terms of purchasing power. It has good transport infrastructure, a heavy focus on manufacturing, and is the largest exporter of goods in the world.

China’s logistics market is fragmented, with the top 20 transport companies accounting for less than 2% of the market. The majority of its logistics companies are small and medium enterprises that operate locally. There are a few foreign-owned enterprises (DHL, FedEx and UPS), as well as state-owned and private logistics companies, but foreign transport providers find it hard to compete with local companies who have their own networks. When thinking about transport costs, look to local companies for the best deals.

China is home to the world’s largest ecommerce market, ahead of the U.S. ($450 billion), UK ($110 billion), and Japan ($95 billion). Ecommerce is a growth area: sales accounted for 23.1% of all retail sales in China in 2017, and are expected to increase to 40.8% by 2021.¹ The annual growth rate of online shoppers in provinces like Henan, Shanxi and Xinjiang exceeds 100 %, and overall ecommerce growth is fueling the country’s rapidly expanding logistics industry.

• Online spending in China is projected to reach one trillion dollars by 2019.¹

• China continues to be a highly favorable location for cross-border purchases. This is mainly due to cost advantages.²

• Buying habits continue to evolve: 74% of the population only shop domestically, 24% shop cross-border and domestically, and 2% only shop cross-border.³

• Popular product categories for cross-border ecommerce in China are shown in the chart.⁴

It’s crucial to think about customer behaviour when expanding in new markets. How does your target customer usually buy products? What’s their preferred method of delivery? The following factors will help you consider how customer trends will affect the way you go about doing business in China.

• Chinese customers are used to receiving orders quickly and many online stores offer same-day delivery.

• When shopping cross-border, Chinese customers tend to buy certain products from foreign countries. For example, electronics are often purchased from American and Japanese companies and beauty products are purchased from Japanese and South Korean companies.

• Chinese customers are more likely to buy from a brand with a strong social media presence and are heavily influenced by online reviews and recommendations. In many parts of Asia, more than 50% of ecommerce purchases are driven by social media.¹

• While social media presence is critical for brands selling to Chinese consumers, an independent online store is not as important, since online shoppers often shop via marketplace, where they can access a variety of choices.

• Approximately 2/3 of online sales in China are mobile sales, a 2000% increase since 2012.²

• Ecommerce growth in China is being driven by third-and fourth-tier cities. Consumer behaviour in emerging cities will impact overall growth and trends.³

Many companies establish their businesses in China’s Free Trade Zones (FTZs). These are special economic zones where goods may be landed, handled, manufactured, and re-exported without intervention from Chinese Customs authorities.

FTZs are organised in areas with geographical advantages (major seaports and international airports). The first one opened in Shanghai in 2013, with several other FTZs following suit, including Tianjin, Guangdong and Fujian.

Within an FTZ, labeling and other requirements apply to both B2B (business to business) and B2C (business to consumer) imports arriving in China. Although Customs regulations are national, the way the regulation is applied may differ depending on which Customs gateway is used. Here are some overview facts of the key FTZs when considering what’s right for you:

Shanghai FTZ

• Established in 2013, the Shanghai FTZ was the first of its kind to be set up in mainland China and covers over 120 square kilometers.
• Offers vast space for warehouse facilities, procurement, distribution and supply chain management. Pre-registration requirements for overseas merchants and stock keeping units make Shanghai an unpopular gateway for B2C businesses. It is primarily used for B2B imports.

Fujian FTZ

• Established in 2014, the Fujian FTZ covers ~118 square kilometers and includes the Xiamen, Fuzhou and Pingtan areas.
• Aims to build a trading environment that will open China to the rest of the world by focusing on economic cooperation with Taiwan.
• Focuses on advanced manufacturing, international shipping, tourism, building a 21st century maritime silk road and financial instruments cooperation.

Guangdong FTZ

• Located in the coastal province of Guangdong, the Guangdong FTZ seeks to further integrate mainland China with Macau and Hong Kong.
• Aims to develop an internationally linked financial zone, manufacturing-based service industry in the Qianhai and Shekou districts and a global shipping and supply chain hub.
• Focuses on the financial industry, Customs clearance and opening maritime trade routes to Europe and Africa.
• Main hub for Chinese ecommerce imports.

Tianjin FTZ

• Established in the municipality of Tianjin, the Tianjin FTZ covers an area of about 119 square kilometers and aims to boost Tianjin in the China-Mongolia-Russia economic corridor.
• Aims to develop the Beijing-Tianjin-Hebei region and open it for institutional innovation throughout China.
• Main activities include: high-end manufacturing, R&D and technology transfer, financial leasing and international shipping and logistics.¹

(Source: Mylo Trade)

New FTZs

Seven new FTZs have been approved in Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan and Shaanxi, and each have different priorities.The Zhejiang FTZ will focus on international maritime services and international oil storage, Liaoning will focus on deepening state firm reform, Chongqing will promote the development of China’s “One Belt, One Road” initiative and Henan will focus on international logistics and transport.

Benefits of FTZs:

• Fewer taxes when importing and exporting.
• A special customs monitoring system, making administrative matters easier to deal with.
• Detailed Customs clearance is only needed at a later stage.
• Faster Customs clearance of goods.
• Suppliers can get a VAT refund after shipping products to an FTZ that’s being piloted or to Bonded Logistics Parks (these have similar rules to FTZs).²

Intra-China transport

Thanks to well-established transport infrastructure, you can ship anywhere within mainland China in 7 days or less. In areas along the east coast or in Central China, the time is 1-3 days. Companies typically use a centralized fulfilment centre, or have multiple fulfilment centres to accommodate local markets (a common and cost-effective way to serve Chinese customers). If you’re considering China as your new market, at least two major fulfilment centers are advisable: one in South China and one near Shanghai (or closer to Beijing).

Small parcel carriers

As detailed below, the most common carriers in China are CTO, TTK, Best Express, ZJS, STO, Yunda, YTO, ZTO, EMS (China Post) and SF Express for small deliveries. EMS is popular for its nationwide coverage, which includes rural areas that are not serviced by private couriers. The two largest ecommerce marketplaces, Alibaba and Jindong, have their own last-mile delivery infrastructure in place in major cities.¹

• SF Express: market share 8.2%
• EMS / China Post: market share 6.2%
• ZTO: market share 14.3%
• YTO: market share 14.7%
• Yunda: market share 10.5%
• STO: market share 12.4%
• Others: market share 33.7%

Less-than-truckload (LTL) and truckload (TL) carriers

You should use several carriers for large deliveries, as different providers service different regions. Below are the main carriers for larger loads:²

• Deppon
• ANE
• ZTKY
• YIMIDIDA
• YCG
• HOAU
• SF Express
• ShengFeng
• LBEX
• CNEX

When thinking about your move into the Chinese market, think about the business vehicle that would best suit you and confirm that the goods you offer can be imported. Next, think about the import and export controls that may be triggered, and whether an import declaration may be required for when your offering reaches China. Finally, find a fulfilment centre and carriers that deliver to the areas you’re targeting in China.

Using the World Bank’s Doing Business Index, you can get a heads-up about the ease of doing business in China. It ranks on a scale of 1 - 190 how easy it is for a business to set up and run a local firm in each of the world economies. Ten topics are assessed to gain the score. These include the ease of getting electricity, the ease of getting credit, and the potential for cross-border trade.

When trading in a new market, it’s good to know the administrative, regulatory, and logistical challenges that may lie ahead. Navigating legal requirements and working out logistics is made a lot easier with Market Finder - find further support and tools including in-depth guides and insights.

Ingram Micro Commerce & Lifecycle Services provides logistics solutions to help businesses connect supply and demand.