US logistics giant BAX Global has been able to better implement its two-pronged strategy to expand on the Chinese mainland and keep its entities here wholly owned, thanks to a free trade pact between the mainland and Hong Kong.

The company's Hong Kong subsidiary has signed a memorandum of understanding to establish a wholly owned firm in Guangzhou, capital of southern China's Guangdong Province.

A subsidiary of the New York-listed Brink's Co, a Fortune 500 company, BAX Global mainly serves the aerospace, automotive, high-technology, retail and healthcare industries in 124 countries and regions.

The Guangzhou firm will be the first wholly owned entity of BAX Global outside free trade zones in China, with the current three located in bonded zones in the cities of Shanghai, Xiamen in Fujian Province and Shenzhen in Guangdong Province. The company's Chinese operations also include 13 representative offices, mostly along the coast.

The establishment of the Guangzhou firm has become possible only through the mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA), which promises to open up the former's logistics sector to Hong Kong companies. It took effect in January.

Starting in 1982, BAX Global's Hong Kong subsidiary has met all the criteria to be considered a Hong Kong company under the CEPA and received a warm welcome from the government of Guangzhou for opening a wholly owned entity, said Andrew Jillings, BAX Global's vice-president for Northeast Asia.

"CEPA is extremely important to us," Jillings told China Daily, adding if the Guangzhou firm gets all of its licenses by September, it would mean an opening date 15 months earlier than promised under the terms of China's entry into the World Trade Organization.

A firm outside the free trade zones will mean additional business, which will otherwise be lost because BAX Global has stuck to its global policy of keeping its entities wholly owned. The company has stayed away from joint ventures, unlike most of its overseas counterparts.

BAX Global's Guangzhou firm has applied for licenses for warehousing, logistics, freight forwarding, road transport and Non Vessel Operating Common Carrier activities.

After a year, the Guangzhou venture will be allowed to set up subsidiaries in other parts of the country, said Michael Tung, BAX Global's manager for business development in southern China.

Jillings said the growth rate in the China market will be incredible. "A lot of our customers are sourcing in that area." Bax Global's customers in China include Samsung, Dell, Hewlett-Packard and Legend, and 90 percent of its customers are multinational companies.

"The renminbi is quite low, which is very competitive, the productivity is very high, things are cheap and it is logistically easy to ship things from China to other areas," Jillings said.

BAX Global has recorded 40 percent average annual growth in its revenues on the Chinese mainland since it entered the market in 1994, he said.

The company's turnover surged 38 percent to US$70 million last year, with turnover in eastern China's Yangtze River Delta area doubling compared with 2002.

The Guangzhou firm will serve as the headquarters for BAX Global's operations in China's south, Jillings said. "The whole Pearl River Delta will be a big growth region in the next 10 to 15 years."

With infrastructure projects, such as the proposed Hong Kong-Zhuhai-Macao Bridge, a new airport in Guangzhou and the expansion of the port in Nansha, Guangzhou, and its manufacturing power, the Greater Pearl River Delta region will strengthen its role as a logistics center, Jillings said.

And the Guangzhou firm is opening at an opportune time since the city's new airport will come online in June. It will have a greater handling capacity than Shenzhen and handle more goods from western Guangdong, he said.

The company plans to set up an office at the airport, Tung said.

To support the province's growth, BAX Global plans to open more representative offices in Zhuhai, Huizhou, Panyu in Guangzhou, Yantian in Shenzhen and Foshan this year, Jillings said.

BAX Global will not invest heavily in facilities such as warehouses but will take full advantage of cooperation with local partners, he said.

(China Daily April 5, 2004)