Strong Ties to Global Value Chain Are Part of DFTP's Winning Formula

TIANJIN, China--()--With central and local government bodies getting behind the Belt and Road (B&R) Program, the time is ripe for Dongjiang Free Trade Port (DFTP), at the core of Tianjin Binhai New Area on northern China’s seaboard, to leverage its key strengths and help Chinese companies upgrade their position in the global value chain.

“In an era where a high-quality development approach becomes the new norm, the primary task of a development zone has evolved from piloting programs to forging best practices that are oriented toward top quality”

B&R seeks to enhance trade and collaboration between countries encompassed by the Silk Road Economic Belt and the Maritime Silk Road, and will see an unprecedented boost in infrastructure investment and development.

DFTP is set to be a major player in the promotion of B&R, and also a concrete example of how B&R is inspiring innovative new approaches to cross-border initiatives in a wide range of industries.

Forefront of leasing

One major area in which DFTP's synergy with the B&R is clearly significant is the field of commercial leasing.

DFTP provides a financing platform for lessors that is enabling Chinese entities and their overseas partners to deepen partnerships in B&R countries in areas that range across transport, industry and energy. It is also spurring China's homegrown manufacturers of hi-tech equipment and vehicles.

“As Chinese enterprises are getting better integrated in the global value chain, the country will inevitably become a solution provider with a larger share of high-end projects in rest part of the world," said Ms Shen Lei, Chair of the DFTP Administrative Committee. "We are proud to have the opportunity to service our corporate partners in their ‘going out’ strategy.”

The aircraft sector is one of the most visible beneficiaries of DFTP's finance and leasing efforts. International carriers from B&R countries that have expanded their fleets through DFTP include AirAsia (Malaysia), Garuda Indonesia (Indonesia), Himalaya Airlines (Nipal) and SereneAir (Pakistan).

Meanwhile, as B&R spurs infrastructure projects across the region, DFTP has been instrumental in assisting a raft of State-owned Enterprises (SOEs), particularly those in the engineering and construction sectors. These include CRRC (which undertakes design, manufacture, testing, commissioning and maintenance of locomotives and rolling stock); CRCC (China Rail Construction Corporation) and China Railway Group.

Such effect has been noted on the world stage, according to Mr Joshua Yau, Principal of Infrastructure and Belt & Road Lead at PwC.

"A growing trend has been for Chinese construction players to increasingly bring their own financing into projects, switching from merely being the contractor to being the ‘owner’ and ‘operator’," said Yau.

“These top Chinese players leverage their strong balance sheets, therefore securing more projects, [especially] in response to the host governments’ demand to use the PPP (Public Private Partnership) model.”

DFTP's innovative leasing models have also boosted exports of Chinese-produced hi-tech equipment such as aircrafts, ships, oil and LNG tankers, drilling platforms, locomotives, green-energy systems and other equipment.

According to Ms Yang Liu, Deputy Chair of DFTP Administrative Committee, this pioneering approach in such fields as off-shore leasing, cross-border reselling, joint leasing, reselling of asset-backed securities (ABS) and maintaining the bonded status of leased export goods is the hallmark of DFTP.

"The biggest work pressure at DFTP actually does not come from securing as many investors or corporate tenants as possible, rather the top priority has always been to keep innovating," said Ms Yang. "Innovation to DFTP, just like R&D to a big Corporation, is the source of continued growth and sustainability."

More than just access to capital

DFTP's role does not end at financing. Indeed, it aims to act as a buffer and a safe harbor for China's outbound engineering service providers, who face a number of challenges. These include the costs of logistics, repair and maintenance.

One key way in which DFTP addresses these issues is its special outbound-focused status, which allows it to offer huge savings in terms of customs procedures and the cross-border movement of equipment.

One of the many tenants benefitting from this is China Railway Engineering Equipment Group (CREG), which established the CREG Advanced Equipment Re-Manufacture Center at DFTP in 2017. The center serves as a repair and maintenance solution center for the Group, servicing Southeast Asia, Europe, Central Asia and Western Asia.

DFTP is also a major node helping to integrate surrounding areas into the B&R. An example is that of Xiong An New Area, some 160km from DFTP. The two work together to coordinate customs declarations, foreign currency clearance, and tax supervisions. Corporate tenants of Xiong An are expected to be soon able to leverage DFTP's bonded and free trade zone status.

DFTP is a vital gateway for the B&R not just in terms of its policy but also its physical location and geography. It has excellent connectivity, as it sits on the eastern end of the Eurasian Continental Bridge on a man-made peninsula making it the point of integration between the land-based Silk Road and its maritime counterpart. It is home to the Rail-Sea Transit Center for China's rail links to Europe. And the Tianjin Port has trading connections with over 500 ports in more than 180 countries.

International shipping giants with presences at DFTP include MAERSK, Mediterranean Shipping Company, and CMA CGM Group. It also has some 800,000 square meters of warehousing space for bonded goods as part of its growing dry port facilities.

Port-centered ecosystem

DFTP sees its status as a port as central to building a strong and thriving ecosystem by attracting companies to set up headquarters, leasing and service providers.

These include leading tenants like China Communications Construction Company (CCCC), Sinotrans, CRRC, Datang, Huaneng, China Guodian, Aluminum Corporation of China (Chinalco) and COSCO.

This has given rise to a range of service providers establishing themselves at DFTP across the realms of law, finance, insurance, e-commerce, policy research, data analytics, consulting, and transaction.

By the end of November 2017, of DFTP's 11,466 corporate tenants, over 4,100 were trading companies; 1,300 shipping services; over 300 commercial factoring companies and many other professional service providers. Import e-commerce retail was also among the fastest growing segments.

A total of 53 state-level SEOs based in Beijing have (re)located their functional headquarters to DFTP.

Shen Lei, Chair of DFTP Administrative Committee, envisions the region’s long-term endeavor to build itself into a ‘smart-port-city’ that serves as a ‘one-stop international shipping hub and base for Chinese enterprises that are extending globally’.

Ms Shen sees these efforts as part of what she calls ‘production servitization,’ that is, using service sector innovations to boost the economy as a whole.

“In an era where a high-quality development approach becomes the new norm, the primary task of a development zone has evolved from piloting programs to forging best practices that are oriented toward top quality,” Ms Shen said.

Mitigating risk to become a high-value hub

While it is true that B&R will increase the risk exposure that Chinese entities face in developing countries, DFTP's administrators have already made plans for helping them better mitigate the new challenges and deepening the support for China’s planned upgrade from free trade zone to free trade port status (FTZ-to-FTP).

A FTZ is characterized by free flow of goods, but a FTP builds upon this by adding capital, venture and manpower into the free-flow mix.

Advantages conferred by the proposed Beijing-Tianjin-Hebei Grand-area Free Trade Port include granting export status to goods once they are in FTPs, saving huge inbound/outbound logistics costs. Meanwhile, there is a freer flow in terms of conversion between different currencies, and fewer boundaries when it comes to talent flow.

Tianjin is the fifth-largest port in the world, and the first in northern China to exceed 500 million tons of cargo throughput.

Shen Lei points to Tianjin's success as a port as being a strong basis for the FTP campaign, and sees it becoming a high-value hub in the mold of Singapore that will further drive B&R.

"The goal of the establishment of a free trade port is not only on the trade of goods itself, but a whole variety of trade-triggered, service industries," said Ms Shen. "We must keep stay the tremendous added value brought by huge trade volume."

Contacts

Z. H. STUDIO
Lan Shen, 86-21-3257-2065
lan.shen@zhstudio.net

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Release Summary

With the backdrop of Belt & Road Program, DFTP is ready to leverage its key strengths and help Chinese companies move up along the global value chain.