DHL clashes with China’s postal service

Aclash between DHL and China’s postal service over the German group’s entry into the domestic express delivery market has highlighted the tensions between foreign companies and the Chinese government over regulation of the country’s parcel delivery market.

Last month DHL, a unit of Deutsche Post, announced the launch of a domestic express delivery service, the first operated by a foreign company in China.

To outside observers, the move was hardly surprising – through its partnership with Sinotrans, DHL has a big presence in China’s express delivery market.

But the State Postal Bureau, which runs China Post, the postal service and dominant parcel delivery company, seemed to have been caught off-guard. It said it had never approved such a service.

The reaction underlines one of the peculiarities of China’s parcel delivery industry – the regulator is also a competitor in the market.

China Domestic, DHL’s domestic express service, will be closely watched in the parcel delivery industry. Rivals such as FedEx and United Parcel Service see China’s explosive growth as a big opportunity.

Foreign companies have been making deep inroads into the parcel delivery market, taking share from local operators.

Last month, DHL announced plans to build a logistics centre in Shanghai. FedEx has signed an agreement that facilitates its discussions with Chinese officials about building a hub in the southern city of Guangzhou.

Their operations must conform with local regulations, however, and these regulations are in flux. Beijing began revising its postal law in 2002. It released the fifth draft of the law late last year and is currently working on a sixth.

Part of the new law will dictate which areas of business will be included in China Post’s monopoly and which will be open to foreign competition. According to the fifth draft of the law, foreign companies may not provide express delivery services for parcels weighing less than 500g.

DHL’s service is limited to express parcels weighing 2kg and above. In a statement, it said: “DHL-Sinotrans has followed the necessary regulatory processes, and this business is in full compliance with the current regulatory and licensing requirements in China.”

Michael Chan, analyst at Bank of China International in Hong Kong, is less convinced. He says he doubts whether other parcel carriers will follow with their own express services until the Chinese government view becomes more clear. China Post declined to comment.

Ira Wolf, executive director of the Conference of Asia Pacific Express Carriers, says his group believes that in order to promote competition, China Post’s monopoly “should be as limited as possible” and that “there should be an independent postal regulator”.

“Monopoly and efficiency don’t go together,” he says.

A spokeswoman for DHL said that no one from China Post had contacted the company about the issue.