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The True Growth Potential for Global Logistic Properties in China

“China is the next growth story!” is an over-used statement that I’ve heard all too frequently. But in the case of China’s logistics industry, that statement might be well worth repeating.

The success of the country’s e-commerce industry has led to huge demand for modern logistics facilities. With China being one of Global Logistic Properties (SGX: MC0) key markets (the country accounts for 60% of the company’s annual turnover) and modern logistics facilities being the company’s bread-and-butter, can it take full advantage of the potential growth in that area?

“Open Sesame,” said Alibaba

E-commerce is an incredibly fast growing sector within China with research outfit Euromonitor recently estimating that sales that had taken place on the internet within the country had grown by 43% in 2013, and close to 80% in 2012. And when talking about e-commerce within China, it’s nay impossible to peel away from the Alibaba Group.

Alibaba, the largest e-commerce outfit in the whole of China, has been leading the growth of the country’s e-commerce sector since the very beginning. This has led to Alibaba now controlling about 80% of all the online retail that’s done in China.

Alibaba’s co-founder, Jack Ma, explains the torrid pace of growth in the country’s e-commerce sector as such: Unlike in the USA for instance, where online retailing is a “side dish” due to the strong infrastructure that traditional brick and mortar retail markets enjoy, online retailing is the “main course” in China. This is why e-commerce is so huge in the Eastern economic giant.

But despite e-commerce continuing its seemingly unstoppable forward-gallop, there is a catch: The logistics infrastructure that supports the e-commerce sector there is still very much under developed. Less than 20% of all logistic warehouses in China can be considered as ‘modern’. In fact, even a small city like Boston in the USA (with a land area of around 230 square kilometres), has more modern logistic warehouses than the whole of China, which has a land area of 9.7 million sq km.

Industry experts expect investments of up to US$2.5 trillion is needed to bring China’s logistics facilities up to mark. Compared to older logistic facilities, modern ones have features that include large floor areas, high lode tolerances, and enhanced safety systems, amongst others.

The competition heats up

With Global Logistic Properties’ focus on modern logistic facilities in China, one could say that it has some strong tailwinds going for it in a business-sense. But, great opportunities often aren’t unnoticed and in this case, the company does have formidable competition forming up.

Alibaba Group and Jack Ma’s private equity firm, Yunfeng Capital, is also planning massive investment in the field. Just last year, the consortium, which has the backing of the Chinese government, announced they will invest US$16 billion in building-up a nation-wide logistics business.

With such developments, it’s perhaps no surprise that Global Logistic Properties, despite currently being the largest modern-warehousing player in the country, is not sitting still and is still expanding its footprint rapidly.

For instance, as of 31 March 2014, the company’s number of completed properties had grown by 22% to 526 from 431 exactly a year ago. In the process, the land area of its completed logistic properties also grew by 25% from 7.6 million square metres (sqm) to 9.6 million sqm. Elsewhere, Global Logistic Properties had also recently raised up to US$2.5 billion worth of investments from a “group of Chinese state-owned enterprises and financial institutions”, according to newswire Reuters.

Foolish Summary

As I’ve mentioned earlier, when there’s great business potential somewhere, there is bound to be competition. Besides Alibaba, there are many other large private equity firms such as Blackstone Group and Carlyle Group who are all eager to enter into the modern logistic facilities market in China in a big way. Even though Global Logistic Properties currently has leading market share in China, only time will tell as to who would end up as the eventual winners.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.