China's draft postal law triggers protest from foreign deliverers

The amended draft of China's Postal Law has triggered strong protests from foreign and local private mail delivery companies, and three industry associations have jointly submitted a complaint to China's legislature, the 21st Century Business Herald reported.

The newspaper said the draft law version, which came out on November 17, bans overseas and private express mail delivery companies from delivering mail under 500g, and authorizes China Post to decide whether to offer mail delivery business licenses to its competitors.

It said the China Association of Enterprises with Foreign Investments, China International Freight Forwarders Association and China National Enterprises Association for Foreign Trade & Economic Cooperation jointly submitted a complaint to the National People's Congress on November 21, alleging the draft 'violates WTO rules and China's WTO commitments.'

The '500g barrier' is a long-disputed issue between China Post and foreign express mail deliverers.

China State Post Bureau (China Post) issued regulations in February 2002, banning non-state express companies from delivering mail under 500g, which incited massive protest from international express companies, such as DHL Worldwide Express, FedEx Corp, United Parcel Service Inc and TNT Express.

In September 2002, China's Ministry of Information Industry, the former Ministry of Foreign Trade and Economic Cooperation, and China Post jointly abolished the regulation, allowing overseas express mail delivery companies to deliver mail within China under 500g.

However, the 21st Century Business Herald said the amended draft of the China Postal Law includes the controversial '500g' clause, which will seriously damage the China-based business of international express companies.

The law also authorizes China Post to decide whether to offer business licenses to foreign and private mail delivery companies.

In addition, the law requires 1.0 mln yuan minimum registered capital for private mail deliverers to carry out business in one city, 5.0 mln for provincial-wide business and 10 mln for nationwide business.

These stringent investment requirements are likely to bankrupt many small-scale local private express delivery companies, the newspaper said.

China Post, both the regulator and dominant player in China's mail delivery market, is facing increasing competition from both local and foreign players as well as eroding market share, particularly in lucrative express mail delivery.

According to China Post's 2002 annual report, its express mail delivery business, or EMS, recorded a 2.15% year-on-year decline in revenue to 4.886 bln yuan last year.

The operating profits of EMS plunged 41.47% year-on-year to 603.74 mln yuan in 2002, compared to 1.032 bln in 2001. However, the sector is essential for China Post to maintain a profit, since its net profit in 2002 was only 120 mln.

Major global players, including FedEx, DHL, UPS and TNT, have grabbed a 62% combined market share in the international forwarding service sector over the past 10 years from virtually nil.

The People's Bank of China, the central bank, also abolished the favorable interest rate system on postal deposits from Sept 1, 2003 cutting annual interest rates of China Post's deposits in the central bank to 1.89% from 4.131%, striking another heavy blow to China Post's profitability.

China Post previously made zero-risk profits from its savings deposits business with the favorable interest rates from the central bank, accounting for about one-third of its overall profits.

It could previously attract depositors with higher interest rates than banks, but does not offer any loans. Instead, it would deposit the savings into the central bank, as it receives higher interest rates from the central bank.

In its annual report, China Post said it received 17.56 bln yuan in revenue from postal deposits, up 22.38% versus 2001.

Furthermore, the Chinese government will also end direct subsidies to China Post from this year on, following 1.0 bln yuan subsidies in 2002, 3.0 bln in 2001, 5.0 bln in 2000 and 8.0 bln in 1999.