The Location Decisions of Foreign Logistics Firms in China: Does Transport Network Capacity Matter?

Anthony Chin, Hong Junjie
JEL codes: 
Paper No. 2005/09 - Jun 2005

In recent years the logistic needs have created tremendous pressure on the hard transport infrastructure. Logistics and the harness of information technology are the key facilitators of mobility. The Chinese logistics market is still in its infancy and creates tremendous opportunities for investors. It recognized as one of important driving forces both for national economy and business. Beijing, Tianjin, Shanghai, Shenzhen and Guanzhou aspire to be regional or international logistics hubs and have adopted preferential policies in attracting FDIs in logistics. From 1996 to 2001, foreign capital invested in transportation, storage, post and telecommunications increased from USD6.96 billion to USD15.16 billion.
This study looks at the location decisions of foreign logistics firms and identifies with the aid of a multinomial logit model factors that are crucial in attracting them to China. This is important as they have an important role to play in filling in the gap left by traditional Chinese firms, which largely concentrate, on warehousing and distribution.
The results suggest that location of logistics firms depends on transport infrastructure, market size, labor quality and cost, agglomeration economies, communication cost, economic privatization degree, as well as government incentives. The importance of the above factors varies by source of region. European and North American firms favor higher population densities, lower labor cost, convenient airway transport and large cities while logistics firms from Hong Kong, Macao and Taiwan put more emphasis on communication infrastructure.