With the retail industry in the world's second-largest economy maintaining sustainable growth, an ongoing e-commerce boom and the recognition that the circulation of commodities needs to be improved, many are saying it is time the logistics industry improved its efficiency.

"In order to expand domestic consumption, it is urgent for us to implement a modern logistics technology system to reduce distribution costs, especially in improving distribution for agricultural products," Jiang Zengwei, vice-minister of commerce, said during a meeting in March.

In addition, it is important for us to put more emphasis on logistics challenges in e-commerce, both in domestic and cross-border businesses, said Jiang.

High transportation costs and a lack of modern logistics facilities have been an outstanding problem in China's supply chain for years.

"There are many scattered logistics companies in China, but most of them are small because the threshold for entering the industry is low," said Fu Yuning, chairman of State-owned conglomerate China Merchants Group.

At the moment, among China Merchants Group's 11 biggest sectors, which include shipping, commercial property and banking, Fu said the rate of return from the logistics business is the lowest, yielding about 5 percent in profit.

"It is difficult for us to attract social investment to scale up," said Fu.

Although trials to replace business tax with value-added tax have been conducted in the logistics industry, the program needs improvements because various fees and taxes are still high and the logistics industry in China lags behind the growth of the economy.

"The fundamental way out for logistics is prompting standardization in transportation and technology, even at each transporting link," said Fu.

Fu also suggested the industry should speed up the integration to help deal with the irregularity of market orders and establish big players in the industry.

"Jobs will be added because the development of the supply chain needs a lot of labor and salaries will be improved when the industry attracts more capital," Fu added.

Chinese businesses engaged in the industry compete against many foreign logistics companies, such as Dutch parcel-delivery giant TNT Express and German logistics giant DHL Express. They want to seize the opportunity while the country's e-commerce and consumption flourish.

However, overseas logistics businesses that run at a higher cost and face regulatory restrictions are struggling to compete with their Chinese peers.

"The reason behind our participation in the purchase of SF Express is that we are very optimistic about China's logistics sector," said CITIC Capital Chief Executive Officer Zhang Yichen.

"For local companies, once the facilities and other problems are improved, they will receive high profits," he added.

yaojing@chinadaily.com.cn

(China Daily USA 04/08/2014 page16)