Opening Remarks by Ms Sandra Lee, Permanent Secretary for Economic Development and Labour (Economic Development) at CUHK/CityU's Center of Cyber Logistics Open Forum: WTO Implications on Air Cargo Logistics in China

Professor Chan, Professor Lai, distinguish guests, ladies and gentlemen,

It gives me great pleasure to join you this morning to discuss the Implications of China's WTO membership for the logistics sector. This is a timely topic and I would like to thank the Chinese University of Hong Kong and the City University's Centre of Cyber Logistics for organizing this open forum. Actually, when I saw that the open forum was organized by the Centre of Cyber Logistics, I thought we were all going to stay in our home or office and exchange views in cyber space.

2. But first of all what is Logistics? It is a very general term and could mean different things to different people. Back to its origin, "logistics" was a military terminology dating back to the Napoleonic War. It was then used to describe the organization of moving, lodging and supplying troops and equipment. The modern use of the word is based on much the same concept. It is defined as the cost effective process of planning, implementing and controlling the efficient and effective movement and storage of goods (including raw materials, goods in progress and finished goods), services, and related information from the point of origin to the point of consumption in conformity with customer requirements. From a customer's perspective, "logistics" ensures delivery of exactly what is needed at the right time, in the right condition and at the right place. This is yet another good example of applying military strategy and concepts to the business world.

Hong Kong's Strengths in Logistics

3. Logistics services are vital to international trade and are strategically important for enhancing the competitiveness of exports in world markets since they can reduce inventory level, speed up delivery and bring down costs. Over the years, Hong Kong has developed into the Logistics Heart of Asia: the one-stop shopping centre for sourcing, merchandising, distribution, transportation, and inventory management. Located right at the centre of Asia and next door to "the world's factory" and largest consumer market i.e. the Mainland, logistics services providers in Hong Kong are strategically placed to meet the logistics needs of the mainland of China and the Pearl River Delta in particular. Our logistics providers offer speedy, reliable and value-for-money services in bringing manufactured merchandise to their ultimate consumers. This goes a long way towards enhancing the competitiveness of mainland exports. At the same time, they also bring imported goods rapidly to consumers in the mainland.

4. In fact, Hong Kong has already capitalized on the rapid economic development of the mainland by serving as the key gateway to the mainland, and in the process developed ourselves into a major communications, transportation and logistics hub. Geographically, we are strategically located at the southern door-step of the mainland and within 5 hours' flight from half of the world's population. We have built up a very sophisticated and efficient economic and information infrastructure which provides essential support for the Mainland's two way external trade. We also enjoy a long and well-established economic partnership with the Mainland, especially with the southern province of Guangdong. We take up 22% of Guangdong's external trade and 71% of the total direct investment in Guangdong. Some 70% of the air cargo handled by our airport in fact originate from or are destined for the Pearl River Delta. Of the 17.8 million containers (TEU's) handled by Hong Kong last year, nearly 70% were generated from South China.

5. As far as air cargo logistics is concerned, I believe that Hong Kong has a definite comparative advantage because the time critical and high value nature of the air cargo demand, quality and efficiency of service, which Hong Kong can provide, by virtue of our comprehensive air services network and world class airport facilities, and more importantly, our entrepreneurial and innovative spirit. Since 1998, our aviation network has expanded significantly from about 3,000 flights per week to some 100 destinations to over 4,000 flights per week to over 130 destinations worldwide. The number of airlines operating in Hong Kong has also increased from 62 to 72. Our airport has also been the world's busiest airport for international cargo for six consecutive years and has received many international acclaim including being named Cargo Airport of the Year in January this year by Air Cargo News. In terms of growth in tonnage, last year our airport handled about 2.1 million tonnes of cargo. This is 13 times the tonnage handled by the old Kai Tak Airport 25 years ago (i.e. 1976).

Implications of China's WTO Accession

6. China's accession to the World Trade Organisation (WTO) will generate more external trade and business opportunities. The World Bank predicts that by 2020, China will become the world's second largest trading entity. These developments will have important implications for Hong Kong given the already close economic relationship between the two places. Integration of the Hong Kong economy with the Mainland economy through a hub-and-hinterland relationship has proved to be highly beneficial to both sides. I believe that for logistics services, this relationship will continue to grow as the Mainland's two-way external trade expands.

7. Obviously the logistics market in the Mainland is growing, while its logistics industry, still relatively young, is developing. A study conducted by the Hong Kong Trade Development Council last year estimated that logistics in China's industrial production takes up almost 90% of the whole production cycle time and 40% of general production costs. Hence, the logistics market potential in the Mainland is huge and I believe that logistics is an area in which Hong Kong and the Mainland can develop strong synergy to complement each other. In fact, at government level, are already undertaking a joint study with the State Development and Planning Commission on the scope for logistics cooperation between the Mainland and Hong Kong.

Strengthening Hong Kong's Logistics Role

8. Of course, the opening up of the Mainland market will create business opportunities not just for Hong Kong, but also other overseas logistics services providers as well. This may well mean that our traditional role as the key gateway and middleman for the Mainland will face increasing competition. If Hong Kong wants to maintain and increase our share of the growing logistics pie, we must upgrade our comparative advantages to deliver more on efficiency and quality of service.

9. We in Government have been pursuing measures to this end. Specifically, we will continue to strengthen our software and hardware economic infrastructure. On software, we will continue to progressively liberalize our air services regime to further expand our air services network and provide opportunities for airlines to expand operations. We will also seek to expand our existing air links with some 40 cities in the Mainland to cater for the growing market demand. To enhance information flow, we are actively examining the feasibility of developing a Digital Trade and Transport Network System which will provide an open and neutral e-platform for the electronic exchange of data among logistics players in the supply chain.

10. On hardware, we will continue to enhance our airport's cargo handling facilities, such as increasing the number of cargo stands. We already have the world's largest air cargo terminal in our airport. To enhance the availability of logistics services in the airport, a logistics centre will be completed next year and a dedicated express cargo terminal with a daily throughput of over 400 tonnes will be operational by 2004. To further enhance and consolidate our position as a preferred international logistics hub, we are also exploring the business case for building value added logistics parks to enable Hong Kong's logistics industry to cater for high value, time critical merchandise.

11. Recognizing that a smooth and seamless flow of goods across the border is of paramount importance for developing efficient logistics services, we have been proactively simplifying cross-boundary customs formalities and enhancing our transportation links with the Pearl River Delta region. For instance, the marine cargo terminal on the airport island started operation in 2001 and currently connects our airport with 17 river ports in the Pearl River Delta. Our airport cargo operators have also introduced an inter-modal service to take air cargo off-loaded at the HKIA by sealed trucks to Guangzhou Baiyun Airport, Shenzhen Baoan Airport and Huangpu Free Trade Zone. Simplified customs clearance procedures will apply at the land border, thereby cutting down the number of customs check points and the delivery time for cargo going between Hong Kong and the Pearl River Delta.

Conclusion

12. It is clear that there are both opportunities and challenges for Hong Kong's logistics industry arising from the Mainland's WTO accession. I am sure today's forum will help all players concerned to better assess the implications and map out an appropriate response strategy. I can assure you that the Government will strive to make available the necessary economic infrastructure and business environment to enhance Hong Kong's status as a logistics and aviation hub. But we also need the private sector, particularly the local logistics industry, to play its part to face up to the challenges and grasp the opportunities. I am encouraged by the good turnout at today's forum and hope that you will have a useful and rewarding discussion. Thank you.