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China's Future: Yangtze River Development
Nowhere
is the pressure of increased trade between China and the rest of the world
more felt than within the China port structure. In 2002, 10 of the top 50
ports worldwide, were located in China. Without exception, each of these
ports posted double digit growth. In
2003, the Port of Shanghai surpassed Busan to become the world’s third
largest port with a throughput of 11.28 million TEU. This is up from 8.61
million TEU in 2002 and is not atypical of the growth of most China ports.
This growth is expected to be more
pronounced along the Yangtze River where more than 8 new terminals are
under construction which are designed to handle both breakbulk and
container vessels. As recent
as 2000, there were no container handling facilities along the Yangtze
River. There are two major points of focus driving port development in
China:
- Government
Policy providing beneficial treatment and priorities for foreign
investment in manufacturing, infrastructure and logistics facilities.
- The
restructuring and merging of State Enterprises and Port Entities to
become more market driven and more efficient.
This
paper is a condensed version of a white paper in process, which will
analyze the changes taking place in manufacturing and logistics along the
Yangtze River. The information gathered for this analysis and documented
in various forms, will be turned into a logistics guide for companies
seeking to relocate in cities west of Shanghai along the Yangtze River.
In October of 2003, a team of three people from Jon Monroe
Consulting (JMC) took a trip down the Yangtze River using various modes of
transportation, to begin this documentation process. The idea has been
germinating for some years however, the completion of the Three Gorges Dam
made the timing perfect to make this trip. The activity documented
includes the location of manufacturing industries, port facilities, and
infrastructure; to include barge, road, rail and air services.
Another
factor in the decision to make this trip was the working relationship JMC
has with Shanghai International Port Group (SIPG), the newly restructured
Shanghai Port Authority. While working on projects with SIPG, they became
aware of our interest in the Yangtze River Project and supported us in
ways that we never imagined. We were pleasantly surprised to find that
SIPG had representatives along the Yangtze River supporting approximately
10 joint ventures with cities up to Chongqing. Our trip down the Yangtze
River took 10 days and covered 9 cities. We were supported by SIPG and
their team of representatives who assisted us in making the appropriate
appointments with Port authorities and local government officials. We are
very thankful to Mr. Chen XuYuan, Vice President of SIPG, responsible for
Investment and Development, and to Mr. Chen Lishen, Vice President of SIPG,
responsible for operations and the staff stationed along the Yangtze
River.
Figure 1: Map of China with Yangtze River
Yangtze
River Trip
Many
people have asked us what made us decide to make such a trip. Even
authorities and businessmen we met along the Yangtze River asked us this
question. The answer is simple. We recognized three important developments
that are converging to influence a major restructuring of China’s
transportation infrastructure.
- The
rising costs in manufacturing in South China Cities which will drive
manufacturing north to Shanghai and the surrounding area.
- The
China government’s new “Go West” policy which is intended to
encourage development in the western areas of China. This is a
necessary step if China is to balance the economy. Most of the
development thus far, has been in the southern and coastal provinces.
- The
completion of the Three Gorges Dam. The completion of this project
will over time, raise the water levels which is needed to make the
Yangtze River navigable to larger vessels as far west as Chongqing.
This
trip covered 2400 kilometers from Chongqing to Shanghai. Two legs were
covered by a hydrofoil boat and the remaining eight legs were covered by
car, over the road. Traveling in this manner gave us the opportunity to
assess both the road and river conditions along the Yangtze River.
Yangtze
River Development
When
we assess the opportunities along the Yangtze River west of Shanghai, we
divide the area into three segments. The first and most economically
viable segment is the Yangtze River Delta. The definition of this area is
sometimes in debate and for our purposes covers the distance from Shanghai
to Nanjing including the city and port of Ningbo. The second and
interestingly enough, second most economically viable segment is the
central Yangtze River. This area we define as covering the distance from
Yueyang through Wuhan to Wuhu, a city west of Nanjing. The third segment
is the upper reach of the Yangtze River.
Figure
2: Map of Yangtze River
The
third segment of the Yangtze River is what we termed ‘The Upper
Yangtze”. This section includes the cities from Chongqing to Yichang.
Yichang is located in the Three Gorges reservoir. This area is the least
developed and is in the process of undergoing a major transformation. Most
cities are located on hills as the Upper Yangtze is set in a valley and
most of the time is covered in fog.
Upper
Yangtze River
When
one looks at a map of China, it may be asked why Chongqing and cities to
Yichang should be considered the Upper Yangtze River. Geographically,
Chongqing is located in the lower Yangtze River. Chongqing is the
furthermost point west of Shanghai that can handle cargo vessels with a
supporting infrastructure that allows companies to distribute their goods
to other cities in China. Though there are a few small cities further West
along the Yangtze River, Chongqing is considered the gateway for Southwest
China and for the most part, the area further west along the Yangtze is
not navigable by vessel. The Upper Yangtze River can be defined as the
upper reaches of the lower Yangtze River which covers the area from
Chongqing to Yichang to include Chendu and cities of the Sichuan Province.
The
potential of the upper Yangtze River is far from being understood or
realized. One little known fact that seems to be lost on the rest of the
world is that Chongqing is technically the world’s largest city with a
population of 31 million people. Made a municipality in 1997, Chongqing is
now one of four municipalities to include Beijing, Tianjin and Shanghai.
This should underscore the importance the China government places on
Chongqing and the development of Western China. Just as important, is the
location, strategically situated as a gateway to Southwest China. The
population along the Upper Yangtze River which includes the Province of
Sichuan and Municipality of Chingqing is approximately 115 million people.
With the completion of the Three Gorges Dam in June of 2003, a renaissance
has begun that will transform the upper Yangtze River into a productive
manufacturing and agricultural mecca.
Both
the local and central governments are aggressively pursuing an investment
and development strategy to connect this region with the key international
gateways in China. Investments in new roads, railways, airports and port
facilities are currently under construction to support the migration of
manufacturing and logistics development to this Southwest China. For
example; in 2000, there were no container facilities to handle the
movement of containers in and out of Chonqing and the ports along the
Upper Yangtze River. Most barges handled primarily breakbulk. In 2003,
Chongqing port will have a throughput of approximately 95,000TEU. What is
more amazing, is that the current plan supports the expansion of the
current terminal to handle more containers and the construction of a new
terminal that together will have a design capacity of 700,000TEU
throughput by 2009.
Figure
3: Chongqing Port
Figure
3 provides an example of the many challenges faced by the port authorities
along the upper reaches of the Yangtze River. The cities are located along
the river in a mountainous area with water levels that rise and fall as
much as 30 meters. Figure 3 shows a floating crane that must transfer the
container to a tram system which moves the container up the hill to the
terminal where it is picked up by a gantry crane and dropped on a truck to
move it to the appropriate stacking location. Three new terminals are
being built along the upper reaches that will more than triple throughput
in the coming three years. The
barge transit to Shanghai is 7 to 10 days depending upon the service
however, at least one new barge company will be offering a Chongqing to
Shanghai express service with a 7 day transit.
Central
Yangtze River
The
central Yangtze River includes cities from Yueyang through Wuhan to Wuhu
and winds through the Provinces of Hubei, Hunan and Anhui. Wuhan may be
the most important cityin the Central Yangtze Region. Wuhan is
strategically located, central to both the east-west flows of the Yangtze
River connecting
Chongqing
to Shanghai and the north south rail line connecting Beijing in the north
with Guangzhou in the south. Wuhan might very well become the Chicago of
China. Historically, Wuhan has been
considered the gateway to nine provinces. Companies like Anheuser Busch
have located here and handle their distribution throughout China from a
single location. Using the Yangtze River for east-west traffic and and the
rail lines for north-south traffic, Anheuser Busch can distribute product
to most major cities in China. A little known
fact in the U.S., is that Anheuser Busch now has 50% of the premium
beer market in China. They have accomplished this using a single location
to distribute product to their distributors.
The
central Yangtze River region is noticeably more active than the upper
reaches. This is in part, due to fact that
larger vessels can call Wuhan vs. Chongqing, Wanzhou and Yichang.
Wuhan can handle up to 5,000 ton vessels. As we moved down river from the
upper Yangtze, we could sense the increased activity. There is also a more
diverse manufacturing base in the central region. Sophisticated special
economic zones are either being constructed or in the final stages of
completion. Both Jiujiang and Wuhu have sophisticated plans for the
development of side by side manufacturing and logistics facilities.
Figure 4: Wuhu Economic Development Area
Figure
4 shows the model of the new Wuhu Economic Development Area being built to
encourage investment in manufacturing and logistics.
Yangtze
River Delta
The
Yangtze River Delta (YRD) covers the area from Shanghai to Nanjing and
includes the provinces of Zhejiang to the South and Jiangsu to the North.
The key cities of the Yangtze River Delta include Shanghai, Nanjing,
Ningbo and Hangzhou. The YRD accounted for 23.5% of China’s industrial
production and 17.2% of the country’s GDP in 2002. This was accomplished
by only 6.2% of China’s population using only 1% of the nation’s land.
The Yangtze River Delta area is where most of the manufacturing
base supporting U.S. retailers have set up operations. Cities like Suzhou,
Wuxi, and Hangzhou have overnight been transformed from farmlands to
manufacturing centers.
It
has only been since the 90’s that Shanghai began pursuing a more
aggressive stance to support the development of the city as a trade center
with the creation and opening of the special economic zone in Pudong. In
1996, Shanghai’s role was expanded with the creation of the Shanghai
Combined Port Authority (SCPA) which was established as a cross regional
authority to coordinate port development activities in Shanghai and the
ports located in the provinces of Jiansu and Zhejiang. This is what is now
often referred to as the Yangtze River Delta.
Figure 5: Yangtze River Delta
It
is only a matter of time before the Yangtze River becomes a manufacturing
basin that in our estimation, has the potential to surpass the Pearl River
Delta. Admittedly, this is a point of argument that is currently under
debate. Many in Hong Kong argue that Shanghai and the Yangtze River Delta
cannot hope to compete or keep up with developments in Guangdong province
and the Pearl River Delta area. Many projects that are currently under
development in South China are cited by the Hong Kong government as proof
that there is still life and growth in the Pearl River Delta. In fact, the
Hong Kong government has an analysis posted on their investment website at
www.investhk.com.hk
that attempts to make this point. Our purpose is not to make the
argument that one manufacturing area is better than another but to analyze
the potential of new areas and document the transportation and logistics
infrastructure available to support this migration of manufacturing and
logistics companies to Central and West China.
When we think of it this way, we cover not simply the Yangtze River
Delta, but the area from Shanghai to Chongqing including the Yangtze River
Delta. Depending on how one counts the population in this area, it
includes between 360 million and 410 million people.
The
Role of Shanghai as the Head (Gateway) of the Dragon
Shanghai
is often described as the head of the dragon. The dragon referred to of
course, is the Yangtze River. This is another way of making the point that
Shanghai is the gateway to central and southwest China and all it has to
offer. Depending upon how they are counted, there are somewhere between
360 million and 410 million between Shanghai and the Chongqing-Chengdu
corridor. This includes the Yangtze River Delta area and the provinces
that lie along the path of the Yangtze River to Chongqing. The cities of
these provinces feed into the Yangtze River and in a very real sense,
create a unique economic unit.
There
is little doubt that Shanghai has become the driver for future development
of the Yangtze River Delta area. Shanghai may become even more key to the
successful development of the entire Yangtze area once the deepwater port
is completed. Three factors will continue to drive Shanghai’s growth as
a trade gateway through the next decade.
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The
completion of the deepwater port which will attract the larger
8,000+TEU vessels.
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Development
along the Yangtze which by 2006, will increase dramatically the throughput
from the Yangtze River making Shanghai a key river gateway port similar to
Rotterdam.
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Transition
to a major transshipment center for the countries in Northeast Asia
Conclusion
China’s
development will create new opportunities for Foreign Direct Investment as
manufacturing and distribution facilities move north to Central, Western
and Northern China. Since 1979 the development of manufacturing and
logistics has been largely concentrated on South China and the Pearl River
Delta. Now, at the dawn of the new century, we are witnessing the
emergence of Shanghai as a major gateway to and from China as the central
government allocates more investment dollars for infrastructure investment
in Western China. In the governments 10th Five Year Plan (2001
to 2005) approximately US $85 billion has been allocated for investment in
the Western Provinces and this is a keystone of China’s “Go West”
Policy.
Shanghai
will be a key driver as the gateway to one of the most economically
vibrant regions in the world. Consider
the following:
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In
2003, Shanghai surpassed Busan to become the world’s 3rd
largest port registering 11.28 million TEU |
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The
new Yangshan deepwater port is expected to increase Shanghai’s
throughput to 25.4 million TEU by 2020 |
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There
are 8 to 10 new terminals being built along the Yangtze River
that can handle containers and will become operative by the end
of 2005 |
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With
the new deepwater port operative, Shanghai has the potential to
become a major transshipment port |
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Approximately
364 million people live between Chengdu-Chongqing and Shanghai,
depending upon how the provinces are counted; arguably the
world’s largest and most competitive labor market |
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Since
January of 2003, the China government and cities along the
Yangtze River, have held annual conferences to study integration
of the cities along the Yangtze River into a single economic
region |
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As
manufacturing and transportation costs rise in South China, the
Yangtze River area, becomes a more viable manufacturing center
to keep costs down |
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The
Yangtze River cities are learning quickly from their southern
neighbors |
With
the entry of China into the WTO, the role of Shanghai as a gateway takes
on a new meaning, as the country moves to address both manufacturing and
distribution. U.S. and European companies will benefit during this
transition as management talent and technology become necessary to support
the evolution of Central and Southwest China into an integrated economic
unit. The beneficiaries will include most industries however, the greatest
impact in the short term will fall to companies in one of three
categories:
Automotive
Companies and Suppliers: The automotive industry in China has exploded
as the up and coming younger middle class will continue to pursue a
dream to own an automobile. The automobile market exploded in 2003 as
China surpassed Germany to become the world’s third largest auto
market. Improved infrastructure will provide easier access to cities
and lower cost distribution to dealers. RO/RO facilities and over the
road car carrier services will improve considerably. Retailers
will move more of their sourcing to the Yangtze River Delta and
beyond. Textiles and low value plastic products will be the first to
move. These will be followed by other consumer merchandise as price
continues to become an issue for the consumers of the U.S. and Europe.
Retail buyers are already spending more time in Shanghai and buying
offices are beginning to emerge in the city. Consumer
goods companies that have China as a market will also benefit from
these changes. Rapid improvements in the river, road, rail and
domestic air transportation network will lower the cost for these
companies to reach the China consumer market. Companies will begin
moving inland as the infrastructure improves and cities like Chongqing,
Wuhan, Jiujiang and Wuhu are cities that come to mind which will
benefit from these changes.
In
spite of the growing controversy surrounding the competition between the
Pearl River Delta area and the cities along the Yangtze River, it is
becoming clear that manufacturing and logistics companies will migrate
north to this region. As the completion of the Yangshan deep water port
becomes a reality, Shanghai
will become a key driver in this transition.
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