China to Cut Operational Cost for Logistics Companies

China is to cut the operational cost for logistics companies, to boost the development of the industry.

As Wu Jia reports, experts point out that reducing tax and transportation expenses remain the key sticking points.

Besides cutting operational costs, the Chinese government has vowed in its latest stimulus plan to increase government investment in the logistics sector, as well as launch projects to encourage innovation.

He Dengcai, an official with the China Federation of Logistics & Purchasing, says high operational costs mainly come from taxation and transportation.

"High taxation and transportation expenses are major obstacles that hinder the development of the sector. According to our statistics, transportation fees may take up one third of the total operational cost."

Proposals to cut transportation costs, especially toll fees, remain a topic for heated discussion in China, where 100,000 kilometers of roadway require tolls and account for more than 70 percent of the world's total toll-road kilometers.

High toll fees have become a financial burden for many transport-related industries, and are believed to be the major reason why so many trucks are being overloaded for transport.

Wang Weiyi is a professor of logistics from Beijing Wuzi University.

"The toll-fee issue relates to the distribution of finances between central and local governments, and between different administration departments. Local governments can find other ways to make a profit to compensate for losses as a result of reducing highway tolls."

Professor Wang Weiyi points out that it may be difficult to formulate a detailed tax reduction plan, as some logistics companies may be reluctant to release their business information, which would be required when determining appropriate taxation levels.

"Big logistics companies usually farm out their business to smaller ones, which means the same goods may be levied several times as it goes through different companies. Statistics show that over half of Chinese people's income are used to pay taxes in various ways. To cut operational costs not only means cheaper services for customers, but could also be a key way to spur domestic consumption."

The stimulus plan also suggests lowering the establishing thresholds for logistics companies. That's a move that many believe could bring healthy competition into the sector, but requires both self-discipline and stronger supervision.

Boosted by online trade, the logistics industry has been growing rapidly, with nearly 20 million people working in the sector. The added value of the industry last year accounted for 6.8 percent of the national GDP.

For CRI, this is Wu Jia.