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16 October 2017

Logistics Seen as New Lifeblood of China Economy

Oil has been long considered the lifeblood of the global economy. Nations have tried their best to protect oil shipping routes. But oil dependence has started to fall thanks to nuclear energy and technological advances in new energy. Instead, cargo logistics network has become the new lifeblood.

Two recent major acquisitions involving Chinese companies have demonstrated how critical logistics network is considered to be. In the first deal, China Vanke (02202.HK) has joined a Chinese private equity consortium to purchase warehouse operator Global Logistic Properties (GLP) for US$11.6 billion. GLP, spun out from a former Asian business unit of the world’s biggest industrial real estate operator Prologis, was acquired by Singapore’s sovereign wealth fund GIC in 2008 and listed in Singapore in October 2010.

As China’s largest logistic facilities operator, GLP controls 55 percent of the country’s modern logistics facilities. Even big players like Alibaba’s Cainiao and Vanke’s logistics property unit pale in comparison. Aside from its scale advantage, GLP had acquired premium locations in first and second-tier cities across China when the logistics industry was still in its infancy.

The company had already set its footprint in China in 1990s, and began to build large logistics parks in first-tier Chinese cities. Back then, the concept of logistics property was barely known in China. Currently, GLP operates 252 logistics parks in 38 Chinese cities. It owns eight logistics parks in Beijing and nine in Shanghai. Many e-commerce companies and traditional firms have to use its logistics services to ensure smooth cargo transport in first and second-tier cities.

GLP’s design, construction and operation knowhow of logistics parks is considered the best in the industry. Many foreign companies have viewed GLP as their exclusive logistics partner in China. China’s leading property developers like Vanke and Dalian Wanda all intend to shift to an asset-light business model. In fact, GLP itself started with an asset-light model.

Most of its logistics parks have introduced external partners like sovereign wealth funds, pension funds and private equity funds, with GLP only having minority stakes of 10 to 30 percent. That said, GLP generates handsome revenue from management fees. The asset-light approach also frees up capital and allows the company to expand rapidly.

Alibaba’s founder Jack Ma predicted that China will handle 1 billion packages daily by 2025. Logistics network is set to become increasingly important to China’s economy. This very much explains why Vanke and its partners are so keen on acquiring GLP. In another transaction, Cosco Shipping Holdings, China’s biggest shipping company, agreed to acquire smaller rival Orient Overseas (International) Ltd. for US$6.3 billion.

The deal would see the family of former Hong Kong Chief Executive Tung Chee-hwa relinquishing control of the shipping and logistics firm. Also, the acquisition would help the state-owned shipping operator leapfrog from fourth to third place globally. Given the importance of shipping services to China’s import and export industries, the deal can be seen as an effort to consolidate and strengthen the shipping sector.


Source : http://www.ejinsight.com/20170720-logistics-seen-as-new-lifeblood-of-china-economy/