Posted by Elena Luk'yanenko
Elena Luk'yanenko
Elena has more than five years of experience in international marketing providing services for the foreign com...
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on Monday, 27 October 2008
in Business in China

Storage Solutions in China

With industrial land prices rising, building one’s own logistics facilities is too expensive for most manufacturers. The emergence of logistics parks, or designated areas for storage and distribution often built to compliment industrial zones, has brought a cheaper and more efficient option to the table - Bonded Logistics Parks (BLPs).

BLPs - which combine bonded area and international port - serve the needs of multinational corporations for the transshipment and supply of products, materials, and parts within and outside China and for international transit, distribution, procurement and trade. The first BLP location was established in Shanghai’s Waigaoqiao Free Trade Zone in 2004. Additional locations include Dalian, Tianjin, Zhangjiagang, Ningbo, Xiamen Xiangyu, Shenzhen, Guangzhou, Qingdao, Fuzhou, Shantou, Zhuhai and Haikou with Chongqing BLP coming up next year.

BLPs are the logistics service bases for the region, including for the enterprises in Free Trade Zones (FTZs) and Export Processing Zones (EPZs). As evidenced by thousands of multinational companies located in the free trade zones across China, FTZs have been strategic places for logistics and supply chain activities. However, due to the many restrictions and inefficiencies the FTZs are becoming less attractive.

A bonded zone (also loosely referred as free trade zone) is an enclosed area that is considered outside of China’s customs territory in terms of import tax. Therefore, import duty and taxes are exempted/suspended until the goods are removed from the bonded zone into the domestic market. Companies with operations in China’s bonded zones suffer from bottlenecks since cargo between the ports and the zones must undergo complicated customs check procedures both at ports and the bonded zones. As a result transportation capacity can’t be tapped. The bonded zones have also lost their appeal as China continues to cut its tariff rates since accession to the WTO.

Export Processing Zones (EPZs) are also bonded, thus goods going into these areas from overseas are no subject to VAT, customs duty or consumption taxes. Manufacturing and warehousing are the only two types of businesses that are allowed. EPZs also benefit from priority and streamlined customs clearance. Customs supervision is handled by a computerized control system which offers significant operations improvements over the original paper-based control system. Since EPZs focus exclusively on export processing, the most significant difference between them and FTZs is the export rebate policy.

BLPs bring immediate benefits to companies involved in import/export processing by helping to reduce logistics and transaction costs. Because of its location next to an export terminal, the Shanghai BLP, for example, offers companies reduced freight costs and cycle times by enabling later container freight station cut-off times. Another significant advantage is that goods in the park can be shipped overseas and back to China - outside the park - through duty/VAT claims, or through bonded manufacturing handbook transfers.

Companies wishing to use China as a regional distribution hub and those conducting a lot of factory transfer sales will definitely benefit from BLPs.

Multinational companies exporting their goods to China will benefit from using BLPs as bonded distribution center (DC) for domestic and Asia-Pacific distribution. In the Park foreign companies have the ability to collect bonded materials from China and Overseas outside of Customs and without being required to set up a domestic office. Customs clearance documentation is simplified when importing bonded materials from the BLP and can be managed there. Foreign supplier can ship in batches according to domestic purchasing orders. While the minor assembly can be done in BLP, manufacturing process should be performed in the non-bonded facilities. From BLPs the goods can be sent to the Chinese customers upon their demand, undergoing the customs clearance process, or exported to Asia-Pacific region with no additional duties.

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