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China's Role in US Industrial On the Wane

Slower growth will in turn create less need for new warehouse and distribution centers, which some major US industrial REITs have been counting on.

By John McCloud | Updated on December 17, 2008

BOSTON-Various sources suggest the Republic of China’s influence on the US industrial sector may be waning. According to China Logistics, a report released in late November by UK-based Transport Intelligence, while the Chinese logistics industry is set to experience strong growth over the next five years, the rates of growth for some sectors will be slower than previously anticipated. The slower growth will in turn create less need for new warehouse and distribution centers, which some major US industrial REITs have been counting on to provide the engine of growth needed to counter reduced domestic demand for new product.

In particular, say TI researchers, the Chinese international express industry is now forecast to expand around 23% a year to 2012, far below the 35-40% growth rates reported for the past few years. In addition, the contract logistics sector is forecast to show a 21.7% average annual compound growth rate of 21.7%, modestly below recent levels, while the freight forwarding will likely see only a 13.5% annual average growth rate, less than half recent levels and far below previous predictions.

Nonetheless, as TI chief executive John Manners-Bell points out, growth will continue, even if at a slower rate than some might hope. “Given that much of the developed world is on the brink of recession, it would be easy to write off prospects for growth in China on the false assumption that the market is solely dependent on Western consumers,” he says. “Although China is certainly not completely decoupled from its export markets, the country’s economic growth – forecast this year to be ‘only’ 9.5% − has in recent years developed its own domestic dynamics. With the government planning to stimulate its economy further by investing in the coming year some of its huge reserves, China is a good bet to ride out the recession.”

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