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Original Article
A study of dry port development in China
A . B e r e s f o r d , S . Pe t t i t , Q . X u a n d S . W i l l i a m s
Logistics and Operations Management Section, Cardiff Business School,Cardiff University, Aberconway Building, Colum Road, Cardiff CF10 3EU, UK.E-mail: beresford@cardiff.ac.uk
Abst ract This article reviews the development paths of dry ports in China. Dry ports
have emerged as an integral part of trade facilitation in China in the last decade and have
played an important role in regional and economic development. The emergence of dry ports
(offshore ports) is driven partly by proximity to main population centres or industrial areas and
partly by the need to support rapidly growing container flows. However, the development paths
of Chinese dry ports show several differences, depending on their location, and this article
highlights and explains these. Without a clear definition, the institutional and regulatory frame-
work for dry port development is shown to be immature and complex. While the central
government has dealt with relevant institutional matters under the existing regulatory frame-
work, decision making at a local level is under the control of municipal bodies, providing
ample space for officials to interpret the intentions of central governance. Innovative policies
and relationship management are major tools for addressing different institutional problems;
however, the lack of a uniform set of policy guidelines raises many legal challenges. This article
suggests possible solutions to the problems identified during the establishment of mature dry
port facilities, with priority being given to establishing a clear legal definition of what dry ports
are. From this cascades their core purpose, responsibilities and modus operandi.
Maritime Economics & Logistics (2012) 14, 73–98. doi:10.1057/mel.2011.17
Keywords: dry ports; China; intermodal; case studies; institutions
Int roduct ion
In contrast with Europe and elsewhere in the world, where dry ports have been
long established (Beresford and Dobson, 1989; Beresford and Dubey, 1990;
Roso and Lumsden, 2010), in China they have become part of maritime logistics
r 2012 Macmillan Publishers Ltd. 1479-2931 Maritime Economics & Logistics Vol. 14, 1, 73–98www.palgrave-journals.com/mel/
operations for only around a decade. Their initial development was stimulated
by the pressure from high inland transport and transactional costs and the desire
to extend the benefits of containerisation as far inland from ports as possible.
According to Carruthers and Bajpai (2002), for the China – US trade, more than
60 per cent of total transport costs are attributable to moving containers to or
from seaports. This indicates that there is ample room for improvement in the
functioning of the inland supply chain. The inland leg is clearly a crucial part of
the supply chain from the point of view of operational efficiency and total supply
chain cost (Stopford, 2009; Pettit and Beresford, 2010).
Many of these dry ports were first developed in order to improve local
economies in the west of China, consistent with the Grand Western Development
(Go West) strategy introduced in 2000 (Ogutcu, 2002). The idea of the logistics
cluster, which forms the backcloth of dry port development, encourages trade
flows by funnelling them into specific corridors. In turn, scale economies can be
enjoyed by means of freight traffic concentration and consolidation (Roso and
Lumsden, 2009).
In parallel, port competition has forced seaports to change their commercial
strategies. Competition among ports has largely been replaced, it is argued, by
competition between transport chains (Van Der Horst and De Langen, 2008).
Meanwhile, growing intra-regional port competition led ports to seek out
business opportunities in competitor ports’ hinterlands and deep hinterland
connections became a vital weapon in the competitive environment (Rodrigue
et al, 2009, 2010). Moreover, the intensification of port competition has made
ports vulnerable to ‘hub hopping’ where ‘footloose’ shipping companies move
their business to another terminal or port offering better terms (UNESCAP and
Korea Maritime Institute, 2008). Thus, ports have had to be competitive in all
areas including their hinterland operations. As a consequence, ports in China
generally use inland terminals as ‘extended gates’ for a seaport through which
flows can be better managed (Roso and Lumsden, 2010).
Dry Port Funct iona l i ty
Deriving an all-embracing definition of a ‘dry port’ is difficult as the role of a
‘dry port’ varies from country to country and from region to region; dry ports
also vary in scale, complexity and area of specialism (Roso and Lumsden,
2009, 2010; Garnwa et al, 2010). Thus a broad definition, proposed by UNCTAD
(1982), is used here
a common user facility with public authority status, equipped with fixed
installations and offering services for handling and temporary storage of
Beresford et al
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any kind of goods (including containers) carried under customs transit
by any applicable mode of transport, placed under customs control and
with customs and other agencies competent to clear goods for home use,
warehousing, temporary admissions, re-export, temporary storage for
onward transit and outright export.
In practice, many dry ports have fitted into a coherent pattern of evolution,
which embraces both core port functions and broader logistics activities
(Figure 1).
Broadly, their management structures also follow the theoretical framework
which has been applied to seaports: that of landlord, tool and service ports. The
landlord model describes a structure within which the government provides the
infrastructure, while the concessionaire is responsible for the provision,
maintenance and operation of the infrastructure. Moreover, long-term conces-
sions, viewed as substantial investments, are expected from the private com-
pany (UNESCAP and Korea Maritime Institute, 2008). An intermodal terminal
operated under the tool port model means that the government provides both
the infrastructure and the operational superstructure with the operations being
carried out by the private sector. In case of the public service model, all
investment in the infrastructure and superstructure, as well as the operation of
the facility, is undertaken by the government (Table 1).
However, it is important to appreciate that, even though government
investment is an effective way of accelerating dry port development, the heavy
financial burden cannot be ignored, because few pure infrastructure projects
are truly profitable (Rodrigue et al, 2009). Perhaps, the best example of a
coordinated nationwide promotion of dry ports is seen in India, where facilities
Figure 1: Functional evolution of dry ports.Source: UNESCAP (2006a).
A study of dry port development in China
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have been established in several phases over a period of around 30 years
(Ng and Gujar, 2009). With the current ‘Go West’ strategy seen in China,
however, there are significant demands on the public budget for developing
the base transport infrastructure, such as highways and railways, which has
resulted in huge financial pressure on the government. In addition, growing
claims on the public purse for social spending are also endangering funding for
dry port developments.
Increasing private sector participation has thus become an important way
for reducing the financial burden on the state (Rodrigue et al, 2009, 2010).
Today, the public and private sectors cooperate through Public – Private –
Partnership (PPP) agreements (UNESCAP and Korea Maritime Institute, 2008;
SCRIBD, 2009). The options, which this form of partnership bring, are divided
into five types according to the share of their investment, risks, obligations
and duration. These are supply and management, turnkey, leaser, concession
and private ownership (Figure 2). Risk spreading, optimisation of asset utili-
sation, information sharing and an ensured rational pricing policy for all the
Table 1: Investment model for ports and terminals
Basic infrastructure Terminal infrastructure Superstructure
Landlord model Government Public/private Government /public/privateTool port model Government Government/public GovernmentPublic service model Government Government Government
Source: World Bank (2003).
PrivateOwnership
Supply andManagement
Turnkey
Leaser
Concession
Risk, Obligation and DurationPublic Sector
Private Sector
Private Sector
Investment
Figure 2: Public–private–partnership options.Source: UNESCAP (2009a).
Beresford et al
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stakeholders are substantial benefits that can accrue from such an approach
(Gujar, 2010).
Although the creation of a favourable economic environment by PPP is
clearly a sensible strategy, it has been suggested that government should only
play a complementary role rather than act as a direct participant (Porter, 1990;
Notteboom, 2007). To encourage more private and foreign investment, the
balancing point in the public–private relationship depends on the one hand on
the capacity and capability of the private company and, on the other hand, on a
sensitive regulatory approach adopted by government (ADB, 2008a).
Without private sector participation, general solutions to non-standardised
problems in different regions may divert services from being customer-oriented
(UNESCAP, 2009b). Nonetheless, developing a comprehensive regulatory
framework for dry port development using such an approach is fundamental to
a successful system (Rodrigue et al, 2009). The logistics regulatory system in
China remains fragmented: there are varying policies at each level of govern-
ment, covering a range of issues including land planning, project funding,
licensing, concession structure, inland customs clearance protocol and taxation.
Together, these are the main foci for review.
Research Methodology
In addition to generic desk research, here a case study approach is taken. This
is seen as an essential form of social science analysis (Yin, 2002). Such a
methodology can meet three requirements: defining the research topic; cov-
ering a broad range of variables and utilising multiple sources of evidence.
The key aspect of this approach is the use of interviews to support the case
studies and to capture information at a meaningful level (Kvale, 1996). The
primary objective of the interviews was to clarify the policies implemented
by the Chinese government, with a view to examine whether the approach
taken was encouraging or inhibiting a competitive environment. In addition,
although interviews are useful for obtaining in-depth knowledge of the par-
ticipant’s experiences, following up interviews with a questionnaire is an
effective way to investigate their responses in more depth (McNamara, 1999).
This approach was followed in this research.
Avoiding excessive ‘managerial consensus’ is a prerequisite for obtaining
meaningful views from discussion. Managerial consensus refers to a study,
which is only based on academic research but has no live experience. Hence, in
this research, the analysis has considered both ‘academic research’ and ‘lived
and experienced’ at the same time (Kvale, 1996). In the Chinese context, ethnol-
ogy cannot be ignored in the context of institutions. As evidenced in many
A study of dry port development in China
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cases, the government has been prone to too much intervention in operational
matters even at the micro level. It is very common in state-owned companies
and public capital controlled organisations for this to be observed. Although the
principle of ‘separate the governance from operation’ has been discussed for
many years, institutional implementation has never been successfully separated
from the political environment (Goss, 1976; Hoyle and Hilling, 1984; Goss,
1990; Frankel, 1991; Notteboom, 2007). The three cases highlighted here focus
on institutional implementation in dry port development in China, but other
aspects such as geography, economics, ownership, developer and expectation of
the government are also taken into account.
The first dry port to be considered is Shijiazhuang dry port, a seaport-based
dry port. This dry port serves as a satellite terminal of Tianjin seaport. Located
in the coastal area and dependent on public capital, Shijiazhuang dry port is
developing under municipal governance. As customs procedures underpin
terminal operation, the case of Shijiazhuang dry port is a good example which
highlights the cooperation that can exist between the dry port operator and
customs under overall government direction. The second case is Xi’an dry port,
which is a city-based dry port located in the heart of China. As the area is
considered to be an economic growth pole by the local government the dry port
was built to a high standard with a very large initial investment. This case
clearly shows how the Government can diversify funding channels by config-
uring relevant concession policies. The last example is a border dry port called
Kunming dry port in the southwest of China. As this case is viewed from
the perspective of a completely private operation, the focus is on how the
Government fosters the external environment in such a way as to attract private
Chinese and foreign capital to participate in the development and operation of
the dry port.
Ex is t ing Logis t i cs Inst i tut ion Deve lopment in China
Dry port development in China can be said to follow the principle of ‘dual
leadership mainly led by the local authorities’. The central government has
recognised the disadvantages of over-control that has the effect of enlarging the
distance between the decision making and operational units (Wang et al, 2004).
Thus, the Central Government acts as one stakeholder in the industry, whereas
local Government plays a more active role in logistics development in general,
and specifically, in dry port establishment and operation. The institutional
framework (Figure 3) in the industry follows a top-down approach, with a
three-tiered governance structure, namely central–provincial–municipal (ADB,
2008b).
Beresford et al
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Realising the complexity and diversity of the industry, the Central Gov-
ernment asks various ministries and appropriate agencies to handle the policies
and financial affairs of each specific sector. In the logistics industry, this gen-
erally involves the Ministry of Transport (MOT), Ministry of Railways (MOR)
and the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) (ADB,
2008b). Customs is an exception as it is a stand-alone department. Considering
several municipal governments are directly overseen by the Central Govern-
ment, both provincial and municipal governments are viewed as ‘local
governments’ in this study; less attention is given to provincial government.
Second, the concession policy is an important tool for local governments to
steer the development of dry ports. It is also a solution for countries with
regulations that do not allow private ownership of certain infrastructure assets
(Guislain and Kerf, 1995). In China, in particular, concession policies are a
useful tool for local governments wishing to include private sector participation
in infrastructure provision without losing total control.
An online survey was implemented and follow-up interviews with 12 dry
port managers were conducted during the period January to June 2010. From the
survey and interview programme, it emerged that the government, as a major
Central Planning & Policy
Investment Model
Provincial Government
MOFTEC CustomsMOT MOR Others
Municipal Government
Policies
Dry Port Operator
Seaport Local Customs Other Partners
Marketplace
Local G
overnment
Central
Governm
ent
Direct ControlRelationship Management
Figure 3: Dry port development in China: Institutional Framework.Source: Authors.
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player themselves, usually have a role in the nomination of border crossing
points. It is also evident that very few private sector companies directly invest in
dry ports. Rather, they generally participate in operations via concession agree-
ments. The role of port authorities in a seaport system is clearly defined by
Chinese port laws but the position of private companies in the dry port sector is
still ambiguous. The biggest role is played by the operating company that signs a
concession agreement with other partners. An operator can take various forms in
China including: a state-owned ‘inland port company’ a ‘Local Port or Export
Processing Zone administration committee’ (a bridge organisation of municipal
Government), or a privately owned logistics company.
Ex is t ing Dry Port Deve lopments in China
The definition of a ‘dry port’ includes the role as a fully functioning logistics
platform, and in order to assess existing dry port developments in China, this
article classifies them into three groups, namely: seaport-based dry ports, city-
based dry ports and border dry ports. The classification relates to the location,
function and local economic environment, and each group faces a different
suite of institutional challenges.
Seaport-based dry ports
Seaport-based dry ports in China refer to facilities which are sited at the coast
with a major function of pre-customs clearance. The initial purposes of a dry
port of this type are to capture more cargo flowing along the inland supply chain
and to relieve capacity constraints at the seaport. The sustainability of these
dry ports relies on the function of customs clearance and their consolidation
capacity. The convenience of customs clearance is a very important issue as the
close proximity of the seaport implies that their target is to restructure their
supply chain locally and shorten lead times. The functions of these dry ports in
the initial phase usually include
1. Modal shift (road/rail/inland waterway transport connection).
2. Cargo loading and discharging.
3. Handling and storage of containers with/without break bulk cargo services.
4. Pre-customs inspection and clearance.
5. Low-value added activities (optional).
6. Targeting of distributors operating on a just-in-time basis.
These basic functions can be put in place with a relatively small initial
investment. Under this situation, the concession agreement may not be the
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most important element. In China, such dry ports tend to be purely owned or
controlled by the public sector, typically the municipal government, as a stra-
tegic node. Apart from the municipal government, major stakeholders generally
include government, customs, seaports, shipping lines, freight forwarders and
Container Freight Station (CFS) operators. This small number of stakeholders
has simplified the coordination of activities at such sites.
Considering that customs clearance is the core function of dry ports, it follows
that the connections with customs are the most important in dry port operations.
Reviewing customs practices requires Government involvement, especially in the
initial phase. In most cases, for streamlined operation between seaport customs
and dry port customs, provincial and municipal government are active in
strengthening inter-customs relationships, inter-government relationships and
seaport–dry port relationships. A series of customs agreements have been secured
with the purpose of smoothing and simplifying customs procedures between dry
ports and seaports. Tianjin seaport, for example, has signed ‘The Memorandum of
Express Customs Clearance in China’, which embraces 12 cities for the creation of
a ‘borderless’ dry port system (Wang and Wei, 2008; CNSS, 2010).
In addition to customs, consideration is also given to synchronisation
within the seaport system, especially in the area of tactical support. Today, with
the help from both regional and local governments, many seaports participate
in dry port development by providing expertise or technical support to assist the
dry port’s daily operation.
With the ability to handle an increasing share of trade volumes linked
to political influence, it is clear that many dry ports will ultimately transform
into distribution centres. More value-added activities will be introduced into
the dry port in order to develop the logistics cluster, indirectly attracting
more manufacturing companies into the city. Generally, this expansion process
starts from the development of bonded customs zones within or close to the
dry port. Today, a large number of seaport-based dry ports serve as satellite
terminals of a seaport in the coastal regions. Although still in the develop-
ment stage, these dry ports benefit from proximity to seaports and strong
support from local Government due to their key role in future local economic
development.
Ci ty-Based Dry Ports
While the seaport-based dry port focuses primarily on the day-to-day provision
of logistics services, new logistics hubs are emerging in central China triggered
by the expansion of nearby cities. Although import and export activities are the
major driving force for coastal logistics development, the logistics markets in
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inland China are primarily driven by the growth of the domestic economy
(Chinaknowledge, 2010). The city-based dry port is typically positioned within a
larger logistics cluster which itself serves production and consumption.
Economies of agglomeration may then serve to attract additional manufactur-
ing-related investment. Therefore, city-based dry ports often have a wider range
of value-added logistics services than seaport-based dry ports. They tend to be
located in Logistics Parks or Export Processing Zones, which directly support
local trade. Transport support is also required and for this reason, locations near
road junctions, city gateways, industrial centres and other access points are
favoured. In summary they have the following characteristics:
1. Located in Mid- and West China, at strategic transport junctions
2. Long distances from seaports
3. Large facilities with diverse functions
4. Require sufficient land for future expansion
5. Mainly serve the export market
6. Tend to be located in metropolitan areas
7. Target both manufacturers and distributors with medium order lead times
From the above characteristics, it is clear that the initial investment required
will be significantly greater than for a seaport-based dry port. In the start-up
phase, major direct investment is expected to come from the government.
Moreover, in order to attract more private and foreign investment and thus
cushion the financial burden, the government has been flexible in its approach
to granting concessions. During the operational phase, the dry port operator
focuses on coordinating daily operations and increasing cooperation with the
relevant seaport. There are three reasons for this:
1. Long distances results in poor synchronisation between the two systems
2. To strengthen the confidence of shippers
3. To attract more logistics partners to the dry port
With Government assistance seaports will often set up an inland terminal
within the dry port area and operate it by themselves. To encourage demand,
some seaports have signed cooperation agreements with the local dry port in
order to promote the cargoes originating from these terminals. The physical
connection between the two systems relies heavily on the external transport
environment, especially road and rail. However, insufficient logistics capacity is
still a major restriction on trade development in inland China. Consequently,
dry ports also need the government to pay increased attention to the improvement
of external physical logistics infrastructure. Since dry port investment is directly
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related to the local economy, these projects are strongly supported by local
governments. Dry port development has already been accepted by many local
governments as a strategy for regional economic development. Xi’an dry port is
a typical example.
Border Dry Ports
A border dry port refers to a dry port located in the border area/city, with
the major function being as a transhipment centre or custom clearance service.
The introduction of border dry ports starts with their special geographical
characteristics. Generally, they are located in the border areas of western China
adjacent to Russia, Central Asia, South Asia and the ASEAN region, with long
distances to seaports (42000 km). Therefore, in many cases, these dry ports
will usually act as trans-modal centres for linking inland freight distribution
systems in different hinterlands. The landlocked location and the low levels of
trade development have restricted their development. The dry ports thus tend to
be small and they mainly serve domestic trade by road and rail.
Although it has many comparative trade advantages (for example rich re-
sources and low labour costs), private sector resources and foreign capital are
still scarce in the region. Weak logistics infrastructure and long lead times in
supply chains are the major reasons for this. For example, it takes more than
7 days to deliver freight from Kunming city to the major seaports of the Pearl
River Delta or Hong Kong. Thus, time-sensitive cargoes can only realistically be
organised around air transport, with consequent high costs. Further, limited
central government funds leads to reluctance by the local government to con-
sider participating in logistics development projects. On the other hand, the
local economy normally has a sound logistics environment as government is
‘hands-off’ towards the private sector. Thus, a large number of concessions are
made in these areas to encourage participation of the private sector.
In addition, concerns are also raised in terms of market competition. As
private operators usually pursue efficiency and profit maximisation, the loca-
tion and design of dry ports are specific to their clients with volume and profit
maximisation in mind. In the case of border dry ports competition is very
strong, with the result that the government has placed increased attention on
creating a sound external market environment and encouraging healthy market
competition. Important niche opportunities for border located dry ports also lie
in cross-border trades. However, the structural immaturity of China’s land
trades has held back the development of these dry ports with the exception of
Kunming dry port where trade is buoyant and commercial practices are
favourable (Doingbusiness, 2010).
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Case Studies
Seaport-based dry port: Shijiazhuang dry port
Shijiazhuang dry port is located at a regional transport confluence of Huabei
province in Northeast China, 1.5 km from the city’s eastern ring road and 29 km
from Shijiazhuang airport. It is close to the Shitai and Shihuang highways,
National Highway 103, and the Shijiazhuang–Dezhou and Beijing–Taiyuan
transport corridors. It directly serves Tianjin’s seaport, around 400 km away.
Shijiiazhuang city is also one of the most important industrial centres in
northern China, with a GDP of 311.5 billion Yuan and a trade value of US$5.5
billion (SIPC, 2009). The project was originally proposed by Tianjin Port
Authority and approved by the central, provincial and municipal governments;
it began operations in 2006. The facility has a land area of 26.2 Ha with a total
investment of 268 million Yuan (SIPC, 2009).
The first and second construction phases have been completed and cus-
toms, inspection and quarantine, port agents, shipping companies and other
units are now stationed in the dry port. Currently the services provided include
K Cargo consolidation, storage, distribution
K Freight forwarding
K Export declaration
K Intermodal transfer (Rail-Road)
K Bonded warehouse
The third construction phase from 2011 onwards will focus on improving the
accessibility of rail and road, capacity building and the construction of ancillary
facilities. It is expected that the design capacity can reach 205 000 TEU per year
when the construction is complete (SIPC, 2009). This will improve both cost
and service levels by increasing scale economies and allowing expansion of
its hinterland from Shijiazhuang to Huabei province, embracing the cities of
Yulin, Taiyuan, Yangquan and beyond.
Shijiazhuang dry port serves as an extended gateway for Tianjin port.
The development of Shijiazhuang dry port has already enabled Tianjin port to
increase their export volumes from Huabei province, a major industrial pro-
vince in China. The dry port has been built as the largest dry port in the Huabei
region, in the hope of attracting more trade volume through the city. Promoted
by the municipal government, the dry port is also expected to operate as an
economic growth pole in the Huabei region. Strong support is being given by
both the provincial and municipal governments. The project is listed in the ‘The
11th Five-year Development Program’ and ‘The plan for Modern Logistics
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Development’ of Huabei provincial government. The dry port is a state-owned
corporation (Shijiazhuang Inland Port Company Ltd – SIPCL), with ownership
split between three companies that have a strong relationships with the
municipal government and it is being developed following the tool port
investment model. Except for one crane which is provided by Tianjin port, all
the infrastructure and facilities are owned by the SIPCL (Doingbusiness, 2010).
Along with the support by municipal government, it receives significant
preferential treatment, including a 50 per cent discount on land purchase prices
and direct financial support. With support from local government, the dry port
has effectively resolved the land and financial problems that it faced.
The SIPCL is principally responsible for daily operations and delivering
concession agreements with partners such as shipping lines and other logistics
operators. They do not, however, participate in any investment in facilities
(see Figure 4).
As a satellite terminal of Tianjin port, Shijiazhuang dry port firstly provides
pre-customs services for local exporters; this makes its connection with the
seaport and relationship with customs critical. For this reason, the government
has engendered cooperation between the dry port and the customs office. Under
its intervention, agreements have been signed with customs as follows:
K In 2004, Huabei province and Tianjin province tightened up inter-customs
clearance services and signed a ‘Memorandum for Express Customer
Clearance’ for container transport.
K In 2005, a letter of intent with Tianjin customs was signed for developing a
long-term mechanism for regional customs cooperation.
K In 2007, a further memorandum with Tianjin customs was signed for express
customs clearance (Liping, 2009).
Municipal Government
Port Authority Committee
Stated-Owned Joint Venture
Facilities Infrastructure OperationsLand Use
Figure 4: Investment structure of Shijiazhuang dry port.Source: Authors.
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These initiatives sought to simplify and standardise inter-customs declaration
processes by simplifying the checking process within the clearance procedures.
In this context, first, the cargoes of importers or exporters who have ‘A’ or
‘AA’ certification can be declared and released at the dry port, and no further
check is required at the seaport. In addition, cost reductions can also be
achieved by this ‘One Check’ system. According to a report about the dry port,
cost reductions can reach 300 Yuan per FEU and 200 Yuan per TEU, respectively
(Shijiazhuang Daily, 2007). Subsequent commercial experience has confirmed
the principle and scale of these savings. The reduction comes from the saving
made in transport and customs costs. More importantly, the time for tax
reimbursement can be reduced from 20 to 7 days (Liping, 2009). It has thus
improved the cash flow of exporters. Second, for the convenience of shippers
and in the interests of efficiency of operations in the dry port, a 24 h customs
clearance system has been developed. Further, a dedicated ‘green channel’ for
fresh perishable products has been established. These actions have effectively
reduced disturbances in the supply chain, thereby saving time and money.
Third, to improve the management of container operations, Jijin International
Logistics Company Ltd was established using the agreements outlined above.
This company plays a major role in the management of the container operation
by transferring managerial expertise to dry ports and providing knowledge and
training. The company has also strengthened the confidence of shippers, inland
freight transport companies, and shipping lines, helping to develop partnerships
with the dry port.
Ci ty -Based Dry Por t : X i ’ an Dry Por t
With an ambition to become the leading dry port in China, the Xi’an dry port
acts as the main conduit for trade through Xi’an International Trade and
Logistics Park (XITLP). It also undertakes the mission of promoting the city’s
status as a leading logistics hub in Central China. The dry port is part of a
logistics park with an area of about 6 km2. It consists of five components,
including a new-build CFS, a B-type bonded logistics centre, an international
logistics zone, a domestic logistics zone and a logistics cluster area. The CFS is
one of the railway container centres invested in by Chinese Railway Interna-
tional United Container Ltd (UNESCAP, 2006b). This CFS will improve the
operation of two rail terminals, namely Xi’an East Railway Station, which
services more than 80 per cent of international maritime containers for the
region and Xi’an West Station which is responsible for domestic container
transport. The dry port also enjoys a unique location as a critical transport
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intersection at the heart of the country, with a tri-modal transport network of
highway, railway and airway.
Xi’an metropolitan area is a very large production and consumption centre
in Central China, with a GDP of 217.9 billion Yuan in 2009 (Chinadaily, 2009).
A significant amount of international trade is processed in, or passes through,
Xi’an City and Shan’xi province. In 2009, trade values reached US$7.5 and
8.4 billion, respectively (Chinadaily, 2009). With the ongoing national ‘Go West’
strategy, secondary industries will increasingly be attracted from the coastal
cities to central and western areas in the interest of cost reduction.
As a manufacturing centre, the trade around Xi’an city is export-orientated
and relies heavily on rail transport. Apart from a small volume exported by
rail via Alashankou and some high-end technology, high value-added cargo
exported by air, 75 per cent of exports from Shan’xi province are transported by
rail to major sea hubs. These hubs include: Qingdao, Tianjin, Shanghai,
Lianyungang, Shenzhen and Alashankou, accounting for 53, 16, 11, 8, 4 and
less than 1 per cent, respectively. The imbalance in trade is significant and the
ratio of exports to imports is at least 2:1 (Xiao, 2009). However, there is still no
direct rail connection to the dry port.
The dry port acts as a comprehensive service platform, which includes
customs clearance, goods distribution, warehousing and distribution, interna-
tional and domestic freight forwarding, intermodal transfer, value added
activities and bonded warehousing. Consequently, this dry port can be classi-
fied as a pure inland loading centre since it is located remotely from the seaports
and targets supporting manufacturing industry by providing a wide range
of logistics services. These services involve a significant initial investment of
60 million Yuan (Chinadaily, 2009).
In summary, as the core facility of the logistics park, the Xi’an dry port has
three main objectives:
K To strengthen transport capacity and capability by introducing more private
and foreign logistics partners into the dry port;
K To extend the seaport’s hinterland and its capacity by also performing a role
as an inland gateway; and
K To attract more goods into, from, and through the city area by encouraging
the development of a mature logistics cluster.
The project has been the subject of considerable attention by the National
Development and Reform Commission. It is listed as one of the major
projects in the provincial ‘11th Five Year Plan (2005–2020)’. Under the plan, the
project of XITLP was approved in 2005 by Xi’an Municipal government. The dry
port is jointly supported by the Municipal Government and four state-owned
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companies, thus it is purely state-owned in nature. Following the landlord
model, the municipal government has directly invested in land, infrastructure,
basic facilities and superstructure. This direct government participation has
helped the dry port enjoy a land price of around one-third as much as that
charged for commercial use (see Figure 5).
The overall operation of the park is subject to control by the XITLP
Committee, a branch organisation of Xi’an Municipal Government. Its compo-
nents include 11 divisions and two sub-companies (XITLP, 2010a). The com-
mittee, on behalf of the municipal government, has made considerable effort to
attract private and foreign investment into the dry port. First, the government
allows diverse PPP models for attracting private investments, ranging from
supply and management, to turnkey, leasing and concessions. Relying on
these partnerships, private or foreign investors can directly participate in the
construction and operation of the facilities. For the dry port, these flexible
partnerships can mitigate financial constraints; for the partners, they can
Municipal Government
Port Authority Committee
Facilities Operation InfrastructureLand Use
PPP
Model 1 Model 2 Model 3
Figure 5: Investment structure of Xi’an dry port.Source: Authors.
Box 1: Preferential policies on bonded zone of XITLP
1. Domestic goods entering the bonded logistics centre are deemed as exports and entitles to anexport tax rebate;
2. Foreign goods entering the bonded logistics centre can process any value-added activitieswithout customs control;
3. In line with customs and foreign exchange regulations, the bonded Logistics Centre providesflexible payment methods, with the purpose of separating business flow, goods flow andcapital flow.
Source: XITLP (2010c).
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improve integration into their supply chain by investing in facilities according to
need. Second, concession policy is also an effective means of attracting
more investment (see Box 1). To attract investors to B-type bonded zones
in the dry port, participants can be exempted from rental fees in the first
year (XITLP, 2010b). In addition, the committee and local customs are
committed to providing a ‘no border delay service’ in the longer term and
creating a series of preferential taxation policies. Third, a lot of concession
policies are also jointly provided by ‘Entry-Exit Inspection’ and Quarantine
Bureau. These policies are also aimed at developing the ‘no border delay
service’ (see Box 2).
Furthermore, in light of the ‘Go West’ policy employed by Central Gov-
ernment, foreign investors stationed in the dry port are entitled to enjoy ‘dual
preferential treatment’, namely, favourable policies from both central govern-
ment and the dry port at the same time (see Box 3). These policies have created
a positive environment for attracting foreign capital. Singapore CWT Logistics
Company and Xian Shi Gao Logistics Company have recently signed contracts
for the investment of US$38 million and US$100 million, respectively. They are
Box 2: Preferential policies on inspection and quarantine of XITLP
1. Goods which enter/exit the centre are only inspected or quarantined once.2. Domestic goods do not need physical inspection within the zone, but they remain subject to
legal inspection.3. Goods for domestic trade are generally not subject to quarantine but are subject to legal
inspection.4. Subject to the related laws and regulations of China, foreign goods exiting/entering the centre
should be subject to inspection and quarantine according to the kind, packaging, shipmentand state regulation.
Source: XITLP (2010d).
Box 3: Dual preferential treatment policy
1. ‘Foreign-investment enterprises enjoy an income tax rate of 25 per cent. Foreign manufactureenterprises, which meet the legislation requirements are entitled to a special income tax policywith a rate of 15 per cent between 2001 and 2010 y. These policies are aimed at thedevelopment of western China’.
2. ‘Foreign manufacturing enterprises, with an operation period of more than 10 years, areentitled to enjoy exemption from corporate income tax for the first 2 years after the firstprofitable year. From the third to fifth years, income tax will be levied with a 50 per centdiscount. The enterprises which have benefited from a 15 per cent income tax rate, can enjoya further income tax rate reduction of 10 per cent from the third year’.
Source: XITLP (2010e).
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participating in the construction of a ‘container operating zone’ and a ‘com-
prehensive bonded zone’ (XITLP, 2010b).
On the other hand, the XITLP committee is also devoted to fulfilling the dry
port’s ambitions as a ‘port’. First, the Committee cooperated with the seaport in
the start-up phase of its construction. Early in 2005, the Xi’an Municipal
Government signed a cooperation agreement with Shanghai Port Authority and
this was followed by another ‘Memorandum of Cooperation’ with Lianyungang
Port Authority and Qingdao Port authorities, respectively.
These agreements are aimed at gaining more technical and management
support from the seaports. From the point of view of the seaports, it is hoped
that the effective operation of the dry port will shorten transport distances by
consolidating consignments to/from western China. Diverse PPP (turnkey,
leasing and concession) models are available to improve cooperation. One of
the first ports to follow such a path, in August 2010, was Tianjin port, which
officially inaugurated its dry port at that time (see Box 4).
This approach appears to confirm that the Chinese national and provincial
governments are primarily focused on using their strong political position to
leverage different public relationships but primarily through concession policies.
The flexibility of concession models can meet different partners’ service expecta-
tions on the one hand, and open up greater flexibility for finance on the other.
Border Dry Port : Kunming Dry Port
The dry port is a part of an Export Processing Area within Kunming National
Economic and Technological Development Zone (KETDZ), with a total area of
47.33 Ha (FIL, 2010). The dry port is in a primary geographical location at the
convergence point for four modes of transport: road, rail, air and inland wa-
terway (goods can be shipped to South Asia via the Lancang River and Mekong
River). Furthermore, it sits within the Yunnan province strategically located
close to southeast Asia, and south Asia, bordering Laos, Vietnam and Myanmar.
Box 4: Preferential policy for Xi’an Dry Port
1. Three forms of priority in the seaport can be enjoyed by the cargo owner from the dry port,including: port procedures, terminal facilities, loading and unloading.
2. To provide a competitive rate in seaport charges.3. To introduce more shipping companies, shipping agents and freight forwarders who operate in
the dry port to customers.4. To provide support in equipment, technology and staff training.Source: CNSS (2010).
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The dry port’s main responsibilities include: domestic trade, material distribu-
tion, international distribution, value-added services, cargo loading, storage,
tallying and bonded logistics. Both general cargo and containerised cargo are
catered for (FIL, 2010).
Similar to the XILTP, the KETDZ receives direct investment from the
Government and the entire operation is overseen by the government. The
KETDZ committee is a branch organisation of Kunming Municipal Government,
which is responsible for land planning, basic infrastructure construction and the
coordination of daily operations in the zone. Yugang Logistics Company is
the dry port’s operator, which is a joint venture with the private sector
(see Figure 6). Through a concession agreement the company owns and oper-
ates a bonded warehouse covering 7000 m2, a 50 000 m2 general warehouse and
two railway sidings. Total investment in the dry port is about 26 million Yuan
(FIL, 2010).
Many efforts have been made by the company to improve its operational
efficiency. The company has developed a logistics management system for the
integration of human resources, finance, road haulage, rail scheduling, ware-
house management and other resources. Taking an holistic approach, cost-
savings can be achieved through better coordination of container movements. It
is expected that efficiency savings of 5500 Yuan per TEU can be achieved
(Yunnan, 2010). This was broadly confirmed by the field interviews.
Clearly, optimising the operation is the priority goal of private operators.
However, the sustainability of the dry port is still unclear, since it is difficult
to leverage the relationship with the customs authorities, and this remains a
weakness. In this ‘private operation’ model, the government is more ‘hands-off’
towards companies and development is mainly market-driven. Numerous efforts
have been made by the local government to attract more private and foreign
investment in order to boost local trade and logistics development. Such policies
were first presented in the policies of Yunnan Provincial Government (Opinions
on accelerating Non-State-Operated Economic Facilities) and by Kunming
Municipal Government (Consensus of further development of Non-State-
Municipal Government
KETDZ Committee Stated-Owned Joint Venture
Facilities OperationsLand Use Infrastructure
Figure 6: Investment structure of Kunming dry port.Source: Authors.
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Operated Economic Facilities). To increase the impact, a series of incentives for
example tax exemptions, rent reductions and so on have also been provided
inside the zone. Total foreign investment has reached more than 170 million Yuan
(KETDZ, 2010). An industry cluster including tobacco processing, machinery
manufacturing, electronic information and biotechnology has emerged.
Although these policies are not unique to the development of dry ports,
they have indirectly affected the dry port in a positive way by allowing
diversification of financial channels and improving transport demand. The dry
port has been in operation since 2009 and its trading volume in its first month
was over US$10 million (Yunnan, 2010).
Discuss ion
The cases discussed above have highlighted particular challenges facing the
development of dry ports in China. The study of the Government’s interventions
Table 2: Main characteristics of three cases studies
Shijiazhuang dry port Xi’an dry port Kunming dry port
Cooperation modeland major operator
Tool Port, publicoperator
Landlord, PPP Landlord, private operator
Policy expectationfrom dry port
Land subsidy, specialcustom policy
Land, directinvestmentConcession policy,subsidy (land,finance, tax)
Concession policyCompetition policy
Function of dry port Extended gateway,Growth pole oflocal economy(future)
Growth pole of localeconomy (current)Attracting privateand foreigninvestment
Growth pole of localeconomy (future)Attracting private andforeign investment
Major issues Mismatch of customspolicies
Land, competitionpolicy
Lack of market regulationInsufficient systematicplanning
Major stakeholder LimitedLocal Government,Seaport, Custom
ManyProvincial andLocal GovernmentSeaport, Custom,LogisticsCompanies
LimitedGovernmentShippers
Competitor Seaport Inland logistics hubs(for exampleChengdu dry port)
Diversify inland logisticsnodes
Political culture Very strong Strong Not muchMajor policy
approachesSpecial custom
corporation andpolicy
Land policiesConcession policies
Provincial and MunicipalplanConcession policies
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has pointed towards possible solutions to the problems and Table 2 summarises
the main characteristics of the three cases.
Shi j iazhuang Dry Port
Under government direction, Shijiazhuang dry port has been operating
successfully with the full cooperation of the local customs agency. The custom
integration policies, however, still have room for improvement as the existing
‘one check’ custom policy cannot cover all the shippers. Only companies
owning an ‘A’ or ‘AA’ certificate are entitled to the convenience of the one-check
customs procedure in the dry port. According to online surveys, only about
50 companies in the Shijiazhuang City qualify for ‘A’ or ‘AA’ status. Further-
more, the customs regulations also allow these companies to declare their
cargoes at their warehouses and to directly release consignments at the seaport.
To common user shippers, the ‘twice clearance’ procedure in both the dry port
and seaport results in cumbersome customs procedures, extra time and hand-
ling costs. All of these factors militate against using the dry port. The incoher-
ence of customs policies has thus limited the customer base of the dry port.
Xi ’an Dry Port
Xi’an dry port is a perfect example of an institution-driven facility, which is
strongly driven by central government expectations. Thus investors, shippers
and carriers benefit from diverse concession policies and a flexible PPP.
Whether these policies have violated fair competition rules remains to be an-
swered as these policies have been implemented by the Government without
uniform guidelines. Besides, institutional systems have some other elements
that may influence performance. According to interviews with senior manage-
ment in the dry port, the existing official performance measurement system has
significantly influenced the development of the dry port. One of the principal
problems is created through the allocation of land to develop the dry port and a
greater knowledge of how the measurement system is affected by this allocation
by local officials and local government could help better understand this
problem. Currently, the performance of local government officers and govern-
ment itself is measured by the level of local economic development, with jobs
and local economic output being the major indicators. In this system, their
actions may work against the goal of dry port development as they could turn to
real estate investment for higher returns. First, the existing land price for dry
port development is one-third of the charge for commercial use, which means
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less income for business rates. In addition, dry port construction is a 10-year
investment with different construction phases. Therefore, it is hard to see a
major contribution to the local economy in the short term. As land allocation is
controlled by the provincial and municipal governments the business plan can
easily be configured for long-term development. Although the link between
expanding transportation infrastructure and a region’s rate of economic
development can clearly be understood, development directly in the short term
is still the primary metric and motivator.
Kunming Dry Port
Operated by the private sector, Kunming dry port has only a loose link with
the Government. The dry port aims to maximise its profitability based on
market principles within a trade zone dominated by large shippers rather than
industrialists. Rather than using direct intervention, the municipal government
tends to operate indirectly, employing policies which encourage private and
foreign investors to engage in logistics development. Therefore, the regulatory
framework is critical in that it must allow enough freedom for customs
authorities to interact properly with the private operators. As a critical link in
international trade, it is not surprising that efficient customs has become one of
the major factors in defining a ‘dry port’, otherwise becoming a barrier for
market access for the private sector.
In the vicinity of Kunming City the municipal Government has made
little progress in updating market regulations. Compared with local economic
development, transport development is, rather, the ‘poor relation’. Around
Kunming City many CFS run by small logistics companies have emerged. These
CFSs term themselves ‘dry ports’, though they operate at a lower standard and
have much lower levels of integrated technology. The existence of numerous
CFSs implies a lack of consistent market standards regarding services and
policies. High levels of competition but low levels of efficiency characterise the
local logistics industry, putting pressure on the local trade and economy.
A Common Chal lenge : The Lack of Inst i tut iona lCoord inat ion
The Chinese Government has made some progress in structuring and organising
the logistics market, but there remain some conflicts between planning, oper-
ating and regulating inland intermodal systems; these in turn hinder achieving
their performance goals. Rail is seen as a key part of the development strategy
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for dry ports, but rail access is not always available. The Ministry of Railways,
who dictate the country’s rail construction, has been singularly unsuccessful in
pressing the case for integrated rail container services away from seaports;
there is still not a single dry port with on-dock rail in China. These missing links
have resulted in long container turnaround times and inconvenience for ship-
pers as they must interface with different logistics operators when moving
cargos to seaport networks. Hence, in many cases shippers are reluctant to use
dry ports (especially seaport-based dry ports).
Considering the variety of existing institutional challenges facing dry port
development in China, a uniform governance standard is needed to encourage
their development. Some of the key areas where change is required, stemming
from the research presented above are
K To develop a legal definition of dry ports: The purpose of tightening the
institutional framework is to better protect stakeholder interests. This means
all the reforms of the institutional and regulatory framework should start
from the legal definition of a dry port combined with a good understanding of
its service scope. The policy makers should identify all stakeholders and their
interests. Without such a definition, it will be hard to create a ‘fair’ policy
framework.
K To develop a unified top-level institutional approach: An integrated
government approach at ministerial level could help ensure the long-term
success of dry ports by developing efficient intermodal interfaces and
logistics centres. This suggested improvement is also the starting point for
addressing the existing rail freight access problems.
K To establish a ‘Dry Port Code’; namely, a systematic regulatory framework
aimed at providing legally binding guidelines for stakeholders’ roles. The
framework should address several key areas:
J The definition of the major elements of a dry port system.
J The regulation of stakeholder behaviour.
J The regulation of macro–micro relationships.
J The development of a standard legal and technical regime for dry ports.
K To assist dry port operators to better connect with different administrative
sectors. More attention should be paid to the small private dry port operators,
since their restricted political position has made it hard for them to maintain
an effective relationship with customs, seaports and logistics companies.
Moreover, the municipal government should assist dry ports in building up
connections with these major stakeholders under the principles of openness
and fairness.
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Conc lus ions
This article has addressed the question ‘How has the existing institutional and
regulatory framework influenced dry port development in China?’ by outlining
existing structures and how they could be adjusted to encourage the effective
operation of Chinese dry ports. A top-down system was identified with
three major characteristics: first, the lack of a unified top-level institutional
coordination body. Three ministries operate independently with different roles
in planning, operating and regulating inland intermodal transport systems,
and this has hindered dry port development. Second, local government has
considerable autonomy in interpreting Central government policy according to
local need. Third, a comprehensive regulatory framework for dry port devel-
opment is still absent.
In respect of the second question: ‘How have existing dry ports developed
in China?’ this research shows that different dry ports in China are at different
stages of development. This is determined by their core functions and institu-
tional expectations. Under such a loose institutional structure, government in-
tervention has become necessary to solve the financial problems and leverage
public relations. However, other legal problems have made the situation worse
and a systematic policy framework is the fundamental solution, but this will
require a standard dry port definition.
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