- March, 2002  
A Shanghai fair showcasing the city’s advantages as an Asian supply centre is targeting multinationals
—By Mark O’Neill in Shanghai
  

In the city’s biggest international event since the end of the Sars crisis, Shanghai yesterday opened a purchasing fair for multinational companies, challenging them to choose it over Hong Kong as their supply center for the Asia-Pacific region.
Vice-Commerce Minister Ma Xiuhong and vice-mayor of Shanghai Zhou Yupeng presided at the opening ceremony for the three-day fair on an area of 8, 200 square metres at the city’s World Trade Centre, with participation by more than 4,000 Chinese suppliers and 88 multinationals, including Wal-Mart, Carrefour, General Electric, Ford, Unilever, Motorola and LG.

After the Communists took power in 1949, Hong Kong became the shop window for the mainland, a middleman role which allowed it to prosper for more than 40 years. Now Shanghai is telling foreign firms that it is cheaper and easier to base their purchasing operations in Shanghai, for China and for Asia.

  

Jeffrey Bernstein, managing director of Emerge Logistics, said Shanghai’s advantages were that it was close to production and consumption, with an abundance of suppliers. “It is convenient, with flat land, railways that have traditionally been unreliable but are improving and quite good roads,” he said.

“Shanghai is in the centre of the coastal areas, between Beijing and Guangdong. It is well situated , to send raw materials to Japan, South Korea and Southeast Asia. Its port costs are lower than Hong Kong and it is planning a substantial increase in port capacity. If you come to China, it is best to come to Shanghai.”

Mr. Bernstein said that, compared to Hong Kong, Shanghai’s drawbacks were its customs processing speed, foreign exchange controls, system of business licences and the rule of law. “Its customs are slower compared to international

 

competitors, with exports easier than imports and there are no direct shipping links to Taiwan.

“In the past, suppliers did not have the legal authority to sell overseas, which involved using an agent or middleman that carried a risk. Ideally, multinationals want to buy and sell products anywhere.

“They want low tax and the flexibility to build profit. Chinese tax policy has to make exceptions. To be fair, it will make itself uncompetitive.”

Entry to the World Trade Organisation means the mainland will gradually have to remove tax privileges given to foreign investors, with the result that tax rates will be higher than other entrepot trade centres.

“We will purchase US$400 million from the region this year, double the 2002 level, and this will rise to $1.5 billion by 2006.

 

 
   



Of this, about 85 per cent comes from China,” he said.

“These goods are shipped to Electrolux plants around the world. We have our main commercial centre in Shanghai. We have resources here. It has good logistics, a port facility and base of suppliers.”

In 1999, the firm bought a refrigerator plant in Changsha which it has turned into its main production base for China and Japan and it is considering exports to other markets. Next year it will open a factory in China to produce air-conditioners to replace a plant in the United States.

David Wei, China president of B& Q, the British D-I-Y chain with 11 large stores in the mainland, including four in Shanghai, said that the company was gradually moving its purchasing operations from Hong Kong to Shanghai.

“For the first time, we are spending our own money to buy a building,

 



a 12,500-square-metre facility in Pudong. In the rest of the world, we rent. Currently, we have 200 people in our purchasing centre in Hong Kong and 40 in the mainland. The number of those [in Shanghai] will increase.”

“We have been in Hong Kong since 1996 but have no shops there. In Shanghai, we plan to increase the number to more than 10.”

Last year the firm purchased $1 billion worth of goods in China, of which it exported $850 million and sold $150 million at its mainland outlets.
“In the past, Hong Kong and Taiwan have been good channels to buy from China. As China opens more and more, Hong Kong’s advantages will disappear. But it maintains an advantage in use of foreign exchange and bills settlement,” Mr. Wei said.

Lily Cao, a human resources manager in Shanghai for French

 



retailer Auchan, said suppliers in Hong Kong and Taiwan offered high quality and efficiency.

“We purchase 90 per cent of our toys from Hong Kong and 40 to 50 per cent of all our purchases in Asia are from Hong Kong, ” she said. “But the tendency is to move towards direct contact with mainland suppliers, which is cheaper. After its entry into the WTO, China is becoming more and more open.”
But Arne Gramckow, product manager at Gemex Trading, a member of the Metro Group, which has hypermarkets in 26 countries including 17 in 14 cities in China, said it would not move its Asia –Pa-cific purchasing centre from Hong Kong to Shanghai.

“We strated in Hong Kong 30 years ago and it is the right location, with other offices in the Asian region. It has a good financial and legal set-up, a fine infrastructure and educated people,” Mr. Gramckow said.

“But it could be different in five

 
 



years. From next year, it will become a global purchasing centre and will buy from all over the world.”

Last year the company purchased goods from China worth up to $700 million, with an annual in –crease of 15 to 20 per cent that will continue for the next two to three years.

Mr. Bernstein said the future vision of the government was Hong Kong as the trading centre for the Pearl River Delta and Shanghai the hub for the Yangtze River Delta. “But, if you only need one, which do you choose?”