Trucpal: A Rising Challenger in China’s Freight Industry (Part 1)
Introduction
China’s freight industry has experienced an impressive growth trajectory over the past 45 years. This period, marked by China’s reform and opening-up policies as well as the advent of the internet and mobile internet, has seen significant progress in the freight sector. However, this rapid growth was built on an extensive and unregulated development model, along with eight years of government industry subsidies. Particularly in terms of financial and tax compliance, the lack of regulation has brought considerable risks to company operations, including potential fund misappropriation and financial deficits. In response, the Chinese government has implemented relevant policies to curb this unchecked growth, presenting challenges for established industry giants but also creating opportunities for new entrants. Trucpal is a promising challenger, prepared to achieve financial and tax compliance ahead of others and combine Web3 token economics to establish a comprehensive user credit system. This approach positions Trucpal to leverage the new landscape and achieve robust business growth.
Industry Evolution and Hidden Dangers
The transformation of China’s freight industry began in the late 1970s and early 1980s with national economic reforms. These reforms opened the door to private enterprises and foreign investment, laying the foundation for exponential growth in the logistics and transportation sectors. The introduction of the internet in the 1990s and mobile internet in the 2000s further accelerated this growth, making operations more efficient, enhancing connectivity, and providing innovative services. By 2023, the total annual revenue of the logistics industry reached 13.2 trillion yuan (1.82 trillion USD), with a year-on-year increase of 3.9%, indicating a continuing expansion trend in logistics revenue.
However, this period of rapid expansion was not without hidden dangers. The focus on growth often masked various problems within enterprises. Among all existing issues, the following three are the most serious:
- Over-reliance on government financial subsidies. When financial subsidies decline, platforms can only continue to squeeze their users to fill the gap. J Capital Research once released a 54-page short-selling report focusing on ‘Full Truck Alliance’ (China’s largest online freight platform and a representative of Web2.0 logistics internet, listed on NASDAQ), accusing it of financial fraud and deteriorating business after the end of tax subsidies. In addition to Full Truck Alliance, other existing online freight platforms also heavily rely on local government tax haven policies for survival.
- Compliance issues in financial and tax matters. Individual drivers often lack financial and tax awareness and fail to provide cost invoices or pay personal income tax when extracting freight income from online freight platforms, leading to tax violations on many platforms.
- Inability to establish an effective credit system for users through third-party credit and driving data alone. Currently, freight platforms in the Chinese market have not established a trustworthy credit system for truck drivers, making it impossible to assess user credit, resulting in high financing costs in the industry.
The Downfall of Giants in an Economic Downturn
In the past eight years, the online freight industry has enjoyed the highest reward policies among various industries. However, with the economic downturn in recent years, local finances have become extremely tight, and subsidy policies can no longer continue. There have even been cases of rewards being reclaimed by the finance bureau. On June 6 this year, after Premier Li Qiang signed the “Fair Competition Review Regulations,” such phenomena will become increasingly common, and a large number of small and medium-sized online freight platforms registered in tax havens will face serious crises.
The rapid development of existing online freight platforms in China over the past few years was built on two main models: 1. user subsidies, and 2. seeking tax havens (where enterprises concentrate in low-tax provinces to issue invoices, reducing tax expenses). The sudden cancellation of subsidy policies has directly led to a sharp rise in freight prices, increasing operating costs for manufacturing enterprises while also putting enormous operational pressure on freight platforms. Meanwhile, local governments detest enterprises seeking tax havens. Now, governments across various regions hope to retain this portion of tax revenue locally, and have thus successively introduced policies to resist such behavior by enterprises.
These changes undoubtedly bring significant impacts to existing online freight platforms. Traditional platforms, deeply tied to tax havens and reliant on issuing invoices in low-tax areas to secure more tax rebates, have no possibility of transformation and face resistance from regions without rebate policies. For instance, transport companies in Guangzhou have been required by the tax bureau to return already deducted VAT invoices issued by non-local online freight platforms and pay additional taxes. Therefore, when facing inevitable adjustments, existing platforms find it challenging to adapt to the times, making their downfall inevitable.
As a new challenger in the market, Trucpal deeply understands the drawbacks of the subsidy model. From the early stages of our creation, we have been seeking market competitive advantages for our business and innovative user incentive models. In 2021, we collaborated with the internationally renowned STO exchange INX to issue compliant TRUCPAL tokens. By introducing token economics into the Trucpal online freight ecosystem, we adopted a Web3 token incentive model to reward users.
Regulated Accounts Are Imperative
Currently, the accounts opened by online freight platforms in banks are not supervised by regulatory authorities. This gives platforms too much discretion over the use of funds, leading to risks such as fund misappropriation and financial deficits. These issues are easily hidden during platform expansion but become increasingly apparent when expansion stalls or, as now, when facing regulatory pressure.
The Chinese government has recognized these problems and realizes that the freight industry needs a more sustainable and regulated growth model. Thus, it has introduced strict policies aimed at forcing online freight platforms to comply with new financial account management systems and tax regulations.
These regulatory changes will undoubtedly impact existing online freight platforms, but they also offer unique opportunities for new entrants willing to embrace compliance and innovation. Companies that can effectively navigate this regulatory environment are well-positioned to disrupt the industry and gain a competitive advantage.
Trucpal is an enterprise dedicated to exploring compliant and innovative business models in the new era. Our collaboration with SuTong Card reflects our commitment to compliance and innovation. As the first issuer in the country to establish a compliant account system model, SuTong Card represents the standards Trucpal believes will become the norm for online freight service platforms in China.
Establishing a Credit System: The Foundation of Supply Chain Finance
A sound credit system is essential for companies to stand out in fierce market competition and achieve sustainable development.
A 2023 logistics industry financial status report by the China Federation of Logistics and Purchasing mentioned: Online freight platforms are key nodes for financial investment in the entire industry, and supply chain financial services place very high demands on online freight platforms, requiring risk control evaluations of both cargo owners and truck drivers. The current mainstream approach is to have both parties provide credit reports or to call some third-party authoritative credit institutions’ rating information through interfaces.
Under this model, platforms can only provide credit loans to users, as neither cargo owners nor truck drivers can offer collateral or guarantees. Credit loans without any collateral or guarantees are prone to bad debts, forcing platforms to collect debts or engage in lengthy lawsuits. Therefore, credit loans demand particularly high risk control management from platforms, shifting risks to the platforms. Hence, finding ways for users to provide collateral or guarantees becomes crucial to reducing platform risks and improving the quality of supply chain financial services.
Trucpal creatively combines our compliant Trucpal Token with a user credit system. By utilizing Trucpoints — earned through user mining and held by Trucpal, which can be exchanged for Trucpal Tokens — as collateral assets, we have perfectly solved the problem of users being unable to provide effective guarantees or collateral. This positions Trucpal at the forefront of financial innovation.
This article is the first part of “Trucpal: A Rising Challenger in China’s Freight Industry,” detailing the challenges faced by China’s freight industry from government compliance requirements and business innovation. In the second part, we will introduce Trucpal team’s reflections on existing problems and proposed feasible solutions.
