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Printer-Friendly "Economic Trends and Prospects"
U.S.-China Business Council
"China-U.S. Relations: Past, Present and Future"
College Station, Texas
November 6, 2003
Michael L. Ducker
Executive Vice President
FedEx Express
What an honor it is to be part of this very stimulating conference. And what an honor it is to be on this very distinguished panel.
Sitting here this morning, at this opening session, I feel a little like the baseball player who has been called up to play on the field with these veterans.
Malcolm Williamson, our chair of session, who certainly knows his way around the world's financial institutions. John Thornton, an old China hand with a deep understanding of the global economy. And... Mr Wu Yaowen and Mr. Xu Qin have enormous, first-hand knowledge about how the Chinese economy is changing. I am very eager to hear more from them about what China's business success means for the future.
So, with your permission, and to save myself from embarrassment, I am going to defer to them on all financial and economic prognostications.
Instead, I'd like to offer you a business perspective that has come from my experience with FedEx, which has been conducting business in China for nearly two decades. As we know, there is no shortage of companies doing business in China and doing it well. While it may sound pretentious, I think our experience as an express shipper gives us a unique vantage point.
Given the very nature of our service, FedEx has been deeply immersed in every type of commerce in China. Every month when new trade statistics are published showing another jump in Chinese exports and imports, we have already felt its impact. We have benefited enormously from the surge in Chinese trade. But we also feel that—given the centrality of transportation—we have contributed to this growth.
So in my remarks this morning I'd like to make just a few points.
- First, what we have seen in China over the last few years, and what it tells us about China's future role in the global economy.
- Second: you can't understand China's economic revolution without understanding the revolution in transportation. As I'll explain, the two go hand in hand.
- And finally, why liberalization—in the economy, in trade and in transportation or shipping logistics; however you want to characterize it, but, essentially, the movement of goods—must be the path for the country if China wants to continue to produce remarkable achievements.
So let me begin with our experience in China.
As some of you may know, FedEx international began with service to just two countries. Today we serve 215, including Afghanistan and Iraq. Our view of express shipping is shaped by our belief in the promise of a global economy. We don't like trade barriers of any sort. They limit our business. But we have seen first-hand, over and over again, how free trade is the best stimulus for prosperity.
Because of our global exposure, I'm often asked, Where is the next great market? Where is the next great opportunity? For the last few years, my answer has always been the same: eastern China, middle China, and western China.
That's no exaggeration. This market has taken shape so rapidly, with so much capacity, so much growth... and so much that remains untapped. I say this recognizing that there are other parts of the world—especially in Asia—where the growth in trade may be even stronger. But the rate of growth in China, coupled with the magnitude of its market, puts it in a class all its own. Today, air cargo figures from China are 10 times greater than a decade ago. More than $60 billion worth of goods will be shipped by air from China this year alone. It sometimes amazes me that this has occurred while much of China's transportation infrastructure remains relatively underdeveloped. This will change.
Yet what will emerge there over the next decade is a very sophisticated infrastructure that will have a huge impact on moving goods in and out of the country.
For example, China has begun development of a national highway system. The best comparison I can make is to the interstate highway system built here in the 1950s and paved the way for the basic infrastructure of a truly national American economy. The same change is about to emerge in China.
Also, the country plans to build a state-of-the art railroad system over the next 15 years. Meanwhile, we have more than doubled the frequencies of our original flight schedule into China this year and hope to see them increase further.
Trains, planes, automobiles… These are not just the signs of modernization. They are the preconditions for a country that wants to be integrated into the global economy.
That is why we at FedEx see our relationship with China as long and deep one.
We began in 1984, hiring local transportation agents and serving just Shanghai and Beijing. Today we serve more than 200 cities, having just opened Fuzhou and Xiamen, two of the most bustling cities in southeast China. We plan to expand our cities served by at least 100 in the next five years and we open a new China headquarters in Shanghai, next month.
China's air cargo exports are ten times greater than a decade ago. Two years ago, $44 billion. This year they will probably surpass $60 billion.
I'd make one other observation about how our business has changed, which also tells us about the economy as a whole. When we started in China, our chief clients were multinational corporations. Then we saw a considerable increase in smaller firms needing express delivery support. Today we are serving many local Chinese firms who are reaching out to the world. It is a remarkable thing to see.
And, the engine that drives that growth is a very hardworking, entrepreneurial class in China. In some developing countries, the evolvement of the global entrepreneurial instinct takes years to emerge. In China, that spirit is already there. What they need is access to the marketplace.
What has been happening in China is well documented. It is the success story of globalization. It is the best example of how trade and liberalization are the keys to prosperity in the developing world.
But I want to take a moment to turn to my second point: the link between trade and transportation.
From our viewpoint, globalization is often misunderstood, even by its greatest champions. They tend to think that globalization is purely a result of the great leaps in technology we have witnessed: the Internet, fiber optics, satellite phones. And they’re partially right. These dramatic improvements in telecommunications have enabled money and data to be moved around the world at warp speed. For the first time, we have a global capital market—an almost borderless world for investors.
But it’s only part of the story. At its most fundamental level, globalization is a revolution in the way goods are moved from point A to point B. This has been the essence of trade since Marco Polo's time. It is still true today.
Tom Friedman, the New York Times columnist, won a Pulitzer Prize for his pro-globalization book The Lexus and the Olive Tree. In it he tells us that globalization "enables individuals, corporations and nation-states to reach round the world farther, faster, deeper and cheaper than ever before."
Today, the ability to move things farther, faster, deeper and cheaper is precisely what has allowed China to enter the global economy. And, it is precisely why express shipping has played such a special role in shaping the Chinese economy that is now emerging. It is not just making things more efficient. It is literally changing the character of the economy.
For centuries, the economies of the world depended on commodities that, by their very nature, could only be moved slowly and on an uncertain timetable: iron ore, coal, grain, lumber, stone.
Today, the productive global economy is increasingly defined by goods that arrive, as they say, "just in time," feeding advanced supply chains. As we say, the supply chain begin in Asia and especially in China. Microchips, car parts, food ingredients, electronic components. What makes these products valuable is not just their inherent worth, but the ability to get them anywhere precisely when the customer needs them. They are part of the higher-value supply chain—and China has very wisely pursued it.
That's part of the reality. For all its successful modernization, the country still has huge swaths of the economy that rely on traditional agriculture and mining—places where goods are moved by oxcart. There are still significant parts of the economy that are inaccessible by express delivery planes, or are hampered by unreliable roads once you do get there. In fact, I've been told that the income in the country is six to seven times less than in the urban areas.
But that is going to change.
The China that will take shape during the next decade will be one with an economy based on sophisticated textiles, electronics, precision tools, medical instruments, photographic equipment and computer motherboards. At the risk of sounding parochial, let me say confidently that none of this can happen without the presence of express shipping. Farther, faster, deeper, and cheaper are the qualities that transform a developing country into an integrated global player.
This past September, the U.S.-China Business Council published a year-long study on the role of integrated express shipping in China's economy. I highly recommend it to everyone here.
According to the council's findings the benefits of unrestricted air express industry on China's leading export industries are enormous. Over the next five years, they study projects that air express alone could contribute $3 billion in additional investment, $84 billion in higher manufacturing output and 800,000 new jobs.
But the study makes it very clear that these numbers can't be reached under current conditions. There has to be improvement in the integrated air express service. In fact, the council's survey of companies doing business with China found that 64 percent of businesses say that the current logistics gaps reduce the country's competitiveness. Many of these China-based businesses report that without efficient, integrated air express services, they will scale back their reinvestment or expansion plans in China.
The study pointed out why express shipping is so crucial to improving China's ability to move up the value chain and continue attracting international investment. It listed a number of key factors that can be decisive in improving the environment for a high-value economy.
While this may sound like a FedEx commercial, it came directly from that report:
For example: door-to-door delivery. We take this for granted in the U.S, but in a country like China, a chief concern of a business is what happens once the shipment reaches an airport. Getting a package through that "last mile" can be one of the most costly and complex parts of a business transaction. What we have and are trying to replicate in China is a seamless delivery service that handles all aspects of pickup and delivery.
Another factor is control. Is there a system in place that can take responsibility for a shipment at every stage from origin to delivery? This is one of the first things that any business looks to when doing imports or exports with China.
Track and trace technology is the precondition for just-in-time manufacturing. If you have a shipment of anything and the arrival cannot be precisely predicted, it is very hard to create a cutting-edge manufacturing base. China's ability to be a vital part of the world's supply chain depends on its ability to leverage technology that tells a company exactly where a shipment is at any given moment. The timetable of modern business simply demands it.
One more factor is customs clearance. This is a challenge not just in China, but in countries around the world. Businesses can often get a product or component to the airport or the docks. But if it languishes in customs, it turns supply chain management into a guessing game.
We have participated in projects to help China Customs improve. We were a leading participant in the Shanghai model customs project which was inaugurated during China's hosting of the 2001 APEC Summit. The model clearly demonstrated advanced clearance procedures for all the APEC economies and how predictability in customs clearance smoothes the whole supply chain.
There is a clear role for an express shipper who can manage the customs process for any business coming into China. It is another way to make China a more attractive place to do business.
That last point is important because, despite all we hear about the trade deficit with China, it is crucial to remember that the country is also a huge importer. If we were only sending empty planes into China and flying full ones out, the economic outlook would not be nearly so rosy.
Fortunately that is not the case. In the first half of this year, exports from China grew at a remarkable 34 percent. But imports into China grew at an even more amazing 45 percent.
Here in the United States, we may see a computer arriving in a box stamped "Made in China." But remember, that computer may have been designed in California with a screen from Malaysia, a processor fabricated in Israel, a hard drive from Singapore, software from India and a plastic casing from Japan. Getting goods into China is important to China and to the rest of the world.
If you want to understand how China can continue to place itself in the red-hot center of such global commerce, don't look at just the raw trade figures. Look at the improvements in logistics, transportation infrastructure, customs facilitation and landing rights. From our vantage point, those are the best predictors of China's future economy because the movement of goods is the circulatory system for any economy.
So let me conclude with a few thoughts about what we can expect next.
In my view, the success of China's economy comes down to essentially two words: liberalization and integration.
Liberalization of its trade rules... Liberalization of its outlook on the global economy... Liberalization of rules for foreign companies doing business... Liberalization of aviation industry, the customs system, the licensing system and so on.
Integration into the world's trading system with WTO commitments and transparent business environments.
On these fronts, I am optimistic. China's accession to the WTO opens new opportunities in a positively-evolving process of Chinese global economic integration.
This will not be a smooth process. The size, complexity and divergence of economic standards within the Chinese economy almost guarantee a process of fits and starts and uneven progress. But we at FedEx have been and are part of that process. We are in it for the long haul and wouldn't be there if we weren't certain it was worth it.
So with that note of forward-looking optimism, Mr. Chairman, I look forward to hearing the thoughts of my colleagues on the panel.