China Offers New Incentives to Logistics Industry

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Aug. 24 – In order to promote the robust development of the country’s logistics industry, China’s State Council issued new guidelines (guobanfa [2011] No.38) on August 19 offering fiscal and administrative incentives to logistics enterprises.

“The issuance of the guidelines showed the government’s determination to cure its ‘chronic disease’ in logistics, particularly how to handle problems concerning the high costs of logistics, such as road tolls, uneven business tax rates and repeated taxation issues,” He Liming, chairman of China Federation of Logistics and Purchasing – the country’s only officially approved large-scale comprehensive logistics organization – told the media.

The new guidelines covered nine areas: reducing tax burdens on logistics enterprises, providing favorable land policies for the industry, promoting convenient transport of vehicles, accelerating reform in logistics management, encouraging integration of logistics resources, boosting the innovation and application of logistics technologies, increasing investment into the logistics industry, prioritizing the development of agricultural product logistics, and strengthening coordination among government departments.

Prior to the new guidelines, the State Council has already issued the “Plan on Restructuring and Developing The Logistics Industry (guofa [2009] No.8)” in March 2009. Since the release of the document, China witnessed a rapid growth in logistics. Compared to 2008, the industry’s value-added reported a net increase of RMB700 billion (US$109.38 billion) in 2010, He Liming told the Xinhua News Agency.

However, he noted that current policies lagged behind the actual needs of the industry, which restricted further development of the sector.

“It is a pressing need for the government to adopt new measures to boost the logistics industry,” he added.

The new guidelines have put forward specific measures to solve the long-term problems in the industry, including the transportation and taxation issues – the major concerns of many logistics businesses.

In transportation, the main problems are high road tolls, imbalanced and sometimes inordinate fines, limitations on the number of vehicles from certain cities and regions, and truck-targeted regulations such as stopping them when they enter the city or interfering with off-loadings.

Statistics show that road tolls accounted for nearly one-third of the operating costs of logistics enterprises, which not only weighed on the companies’ profit margins, but also reduced efficiency.

To solve these problems, China vowed to cut fees and road tolls by gradually eliminating tolls on secondary roads, reducing toll gates and restricting the number of toll ways, according to the guidelines.

Tax is an important leverage to regulate the economy. The unbalanced business tax rates and repeated taxation in the industry are considered the main restraints on China’s logistics development. The guidelines order relevant government departments to work on standardizing business tax rates for all the different links within the logistics sector. It’s anticipated by media reports that, in the future, the business tax rate for the industry will be 3 percent.

In an attempt to tackle the land issues, the country will make plans for developing national logistics parks, which, according to the guidelines, are likely to enjoy preferential policies. The guidelines also support the use of old factory buildings and warehouses for logistics facilities construction.

In addition, the guidelines support logistics enterprises to go public, encourage large logistics firms to boost business through mergers and acquisitions, and buttress small and medium-sized enterprises to forge alliances for common development.

Local governments are required to invest more in the construction of logistics infrastructure and provide necessary capital support to key logistics companies.

The guidelines also signified the importance of technology innovation in the logistics industry.

Liang Huanlei, a business analyst at the Distribution Productivity Promotion Center of China Commerce, says the new guidelines are indeed comprehensive, but when it comes to practice it may not be fully carried out. Plus, the guidelines could come into force much slower than people expect due to the fact that logistics is involved in so many government organizations, such as commerce, taxation, customs, quality inspection and more. However the Liang believes that China’s logistics industry remains promising and this will be the beginning of new reforms in China’s development.

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