Three months ago, the Chinese government shut down its lumbering, scandal-plagued Railway Ministry. Now, the massive cargo system's replacement, China Rail Corp., is promising big changes.
Of course, a train system is in the works. The agency is also promising a comprehensive logistics operation built to serve China's new manufacturing economy — particularly the semiconductor sector.
China's rail system was built for the 19th century. A byzantine system of fees and approvals demanded as many as 12 different steps to get goods from manufacturers to port. In the information age, where just-in-time logistics placed modern demands on aging Chinese supply infrastructure, that emerged as a staggering problem.
The new, semi-private system claims to remedy that with a streamlining program focused on modern supply customers. It seeks to include door-to-door logistical support and online tracking.
“We must turn from being a bulk-goods-focused transport service provider to being a full-service logistics provider,” Sheng Guangzu, a general manager at China Railway, told reporters last month, as quoted by the South China Morning Post.
If Sheng's claims pan out, the new system could radically change the way OEMs with suppliers in China will be doing business by 2020. Until recently, China's railways were an afterthought for the IT industry. With land, sea, and air systems more reliable, and more streamlined bureaucratically, it made no sense to look to rail transport for solutions, even between China-based steps in a manufacturing chain.
However, a better rail system would clearly appeal. On a per-mile basis, rail is in most cases cheaper and more secure than trucks, both in terms of piracy and accidents.
Recognizing the market advantage a good rail system would give it, China's growing wage competitor Vietnam — Intel, Samsung, and Sony have all moved major manufacturing hubs there in the past three years — has looked at an overhaul of its own aged rail system, in part to provide links between growing IT manufacturing hubs and new deepwater ports near both Hanoi and Ho Chi Minh City. “The Vietnamese government seems determined to take bold steps toward shifting a sizable portion of passenger and freight transportation to railroads,” said an analysis by consultants A.T. Kearney.
China had to respond to the growing market pressure. The new Chinese shipping corporation claims to be looking at establishing subsidiary operations in tech manufacturing hubs like Guangdong, and will offer services that look less like a government railway and more like competition for private logistics companies like DHL. Among the services the Chinese operation wants to offer are packaging and pickup services, online tracking, and large-scale logistics support. That's a long, long way from hauling coal over mountains.
Will this work? On one hand, it has to. With Chinese wages rising, and Southeast Asian rivals able to fund infrastructure improvements, Beijing needs to tell OEMs that they will have more supply chain options in China within the next three to five years.
On the other hand, the leap China is making is a dramatic one. Clearly Beijing thinks the IT sector will buy in to the new transportation scheme. If they're right, everyone wins. It looks good, but it's a brand new scheme. The new Chinese rail system only came online just a couple of weeks ago. It will be a few years before anyone decides whether the improvements it claims are actually showing up in an OEM's bottom line.
The intent seems clear. China is betting a multibillion-dollar move to the kinds of services electronics supply chains need is the way to stay competitive. Now, it's the OEMs' turn to decide whether they agree or not.