BUSINESS COMMENT
One Belt One Road initiative and building
highways, ports, rail lines and other
infrastructure to economically link over 70
countries throughout Africa, the Middle
East, Asia and Eastern Europe.
This new, modernised Silk Road, along
with a potential long-term US trade war,
will create two regional trading zones.
One zone will link China as the hub to
all of Africa and Eastern Europe, the
Middle East and a mixed bag of countries
in South America and Asia. The US will
serve as the centre of the other regional
trading alliance, along with Canada and
Mexico, most of South America, Western
Europe and pro-US Asian countries. These
regional zones will create new routes
for air logistics companies. I predict in
the next ten years, routes from China
to places like Uzbekistan, the Ukraine,
Pakistan and northern Africa will multiply
as China continues to pour billions of
dollars into infrastructure investments
and loans to its One Belt One Road
partners.
This is all part of China’s plan to divest
its interest away from the US and into
emerging countries where it can wield
both political and economic infl uence.
China’s domestic market
One of Trump’s biggest gripes about China
is that the central government doesn’t
allow Western companies to freely operate
in many of its vertical markets. The
banking, oil and gas, telecommunications,
automobile and insurance industries are
all either closed to foreign companies or
heavily restricted.
China, however, has recently given in
to some of Trump’s demands. Next year,
for example, Tesla will be the fi rst 100%
foreign-owned automobile manufacturer
in China. The other foreign players, like
Ford and BMW, only have minority-owned
joint ventures. We’re also seeing signs
that China will allow foreign insurance
and credit card companies and banks to
operate more independently in China.
Trump’s sabre rattling will also help the
air logistics industry. FedEx and UPS have
had limited licences to operate in China
without a joint venture partner since 2014
but I fully expect China’s State Postal
If Trump and Xi can’t come to an
agreement in March, then expect
an all-out tariff war
Stanley Chao
Bureau to expand both FedEx’s and UPS’
service off erings in China that will include
more cities, more B2C and B2B coverage,
and the potential in the next few years to
operate their own independent aircraft
fl eet within China for domestic deliveries.
If talks fail…
If Trump and Xi can’t come to an
agreement in March, then expect an allout
tariff war. We could potentially see
three major fall-outs that will negatively
aff ect all Western air logistics and even
those with no interests in China.
For one, equipment costs will go up,
including ground support equipment and
parts, and the steel and raw materials to
make the equipment come from China.
So, expect to pay 20-40% more for dollies,
aircraft service stairs, jack lifts, tugs and
tractors and container loaders. And these
higher costs could last for years until new
vendors and suppliers are found, tested,
and certifi ed.
Second, the Chinese will engage in
what I term “bureaucratic harassment.”
I consulted for some Norwegian salmon
farmers in 2011 when Chinese customs
offi cials “accidentally” left thousands
of pounds of Norwegian salmon to rot
in aircraft cargo holds while waiting for
customs inspections. This was done in
retribution for the Norwegian Nobel
Committee awarding the Peace Prize to
the Chinese dissident Liu Xiaobao in 2010.
Customs delays, rotting fresh produce
and seafood, unwarranted customs
penalties and fi nes and delayed aircraft
landings and take-off s will be the new
norm.
Lastly, while China will probably give
more domestic market access to FedEx
and UPS in the coming months and
years, China could just as easily cancel
their domestic licences if the tariff war
transitions into a 1960s-style cold war.
Aside from FedEx and UPS, MacDonald’s,
Starbucks, Apple and Nike could all lose
their China operating licences.
But cooler heads will prevail
I don’t mean to scare you with the above
worst-case scenarios. It shouldn’t happen.
It won’t happen. History has shown us
that the leaders of both countries will
come to their senses, leave their egos
at the door, and do what’s best for their
country.
Both countries are at the end of their
game of chicken and ready to make
real, relationship-changing proposals. I
fully expect China to off er just enough
concessions to allow both presidents to
declare their countries winners in this
tariff skirmish. It will be a true win-win
situation.
But let this be a lesson for all companies
doing business in China: stick to your
long-term goals but react to short-term
situations and events. Don’t let any small
blips aff ect your original plans and views
on China. I told companies after the
Tiananmen Square riots in 1989 to stay
the course. The companies that listened,
instead of going with their knee-jerk
decisions, are now mostly doing very well
in China.
My advice? Stay the course.
ABOUT THE AUTHOR
Stanley Chao is Managing Director of All
In Consulting (allinconsult.com), assisting
companies in their China business
strategies and is the author of “Selling to
China: A Guide for Small and Medium-
Sized Businesses.”
30 February – March 2019 RAMP EQUIPMENT NEWS
/(allinconsult.com