FedEx, Datian split in China denied

FedEx Express and Tianjin Datian W Group have denied rumours that the two parties will soon suspend their co-operation in China's international fast delivery market. Foreign express firms may not necessarily seek fully-owned subsidiaries right after the nation opens its express market, according to experts. "So far we are not prepared to make any changes in our business modes in China," FedEx said in a media statement last week. FedEx, the world's largest express transportation carrier, is rumoured to be on the brink of seeking a controlling stake in the joint venture with its Chinese partner Datian Group. That indicates FedEx will probably end its co-operation with Datian and later run express services through its subsidiaries as China fully opens its express market in the next year. The rumour came as the Chinese Government earlier this year permitted foreign express companies to hold as much as a 75 per cent share in their joint ventures with Chinese companies. Foreign companies will be allowed to set up fully-funded express subsidiaries in China by December 11, 2005, according to China's commitments upon its accession to the World Trade Organization. Datian Group President Wang Shusheng said that "it is impossible (to quit the co-operation)." "We are satisfied with our co-operation with FedEx. Now the two parties are endeavouring to expand their business," he said. FedEx and Datian established a joint venture (JV) in 1999, with 50-50 shares, to provide international express services. FedEx company officials declined to comment on when the contract will expire. While FedEx operates through its fully-funded subsidiaries in other markets, the company in China is FedEx's only JV. According to the agreement, FedEx runs the overseas business, while the two co-operate in services concerning China market in a way that "FedEx offers its transportation network and management team, and Datian provides technical support," according to the statement. Yet insiders say the JV is actually independently run by FedEx, and Datian has no access to daily operations, although it harvests an annual revenue of nearly 100 million yuan (US$12.05 million) from the deal. "FedEx plays a dominant role in the co-operation, just as the other foreign express giants do in their partnership with Chinese local companies," said Liu Zhanfang, vice-president of China International Freight Forwarders Association (CIFA). The other companies she referred to include US-based United Parcel Service (UPS), and Netherlands-based TNT Express and Germany-based DHL, which all entered the market through JVs. "But it is unlikely that FedEx will suspend the co-operation with Datian soon after the market fully opens to foreign players, because FedEx still needs some network resources from its China partner," Liu said. "It is hard to say what will happen in the future. FedEx may later split its express business from the JV," she noted. FedEx also said in its statement that it "will carefully assess the opportunities brought by further market opening." Meanwhile, it seems Datian is also preparing for a possible split. Datian Group set up a fully-owned subsidiary in 2001 to expand its domestic express business, with capital from its shared revenue in the JV. Insiders say the move arises from the concern that Datian, which has little influence in the JV, needs to establish its own transportation network. "Market opening is not a decisive factor in foreign express companies' China strategy," CIFA President Li Limou said. "It largely depends on specific cases, and there's no general rule. Foreign companies may resort to JVs instead of wholly-owned subsidiaries even after 2005." Liu added: "Despite the WTO commitment to fully open the express market, foreign firms may still need to wait for government approval." Early this month, UPS and its Chinese partner Sinotrans, China's largest express company, ended their co-operation upon expiry of the contract. UPS is now preparing to set up a wholly-owned subsidiary in China. TNT Express suspended its co-operation with Sinotrans last year and turned to a little-known domestic express agency. The move was considered a prelude to establishing fully-invested subsidiaries in China. But DHL so far shows no signs of splitting from its partner Sinotrans. DHL officials reportedly said it will remain faithful to the partnership over the coming five decades.