China Post tries to squeeze out small operators

A million people in the express service industry could be out of work in China if a draft proposal revising the Postal Law is passed by the National People's Congress. It will give China Post's express arm EMS (Express Mail Service) the sole authority to handle documents weighing under 150 grams, effectively forcing most domestic express companies to shut down as 90 percent of their business is derived from handling such small items.

Domestic freight forwarders as well as foreign express operators expressed their discontent with the draft during a meeting last month with Dong Chaojie, deputy division director of the Legislative Affairs Office (LAO) of the State Council and Da Wa, director general of the Department of Industrial Administration of the State Post Bureau. Attending the meeting were executives of 16 domestic companies as well as representatives from the big four foreign operators – DHL, TNT, FedEx and UPS.

Dong acknowledged that LAO was not aware of the severity of the impact of the draft on private and foreign express operators and her department would look into the matter. "It is impossible to fulfil your requirements all at once," she told the protesters.

During the meeting, some executives suggested private express companies in Shanghai stop operations for one day as a trial to show the impact of the new draft but this line of action was frowned upon by LAO officials and they warned the private operators not to be troublemakers, according to Liu Jianxin, chief secretary of the express operators committee of the China International Freight Forwarders Association.

Liu said if the draft goes through, "one million staff employed by express operators face the fate of either losing their jobs or operating illegally''.

Similar comments were made by Xu Yong, president of TTK, a Shanghai-based express delivery firm, who was also at the meeting. "This could wipe out almost all private firms in the same-city express delivery business as 90 percent of their business was items under 150 grams," said Xu. As for inter-city business, 40 percent of the courier items are below 150 grams, which roughly equals the weight of 30 sheets of A4 paper.

The draft also proposed that EMS be solely responsible for the domestic delivery of printed materials under 5kg and parcels under 10kg, which means 70 percent of the parcel delivery by operators other than EMS is going to be ruled as illegal, said Liu.

The draft also sets minimum requirements for registered capital – US$62,500 for operators providing same-city delivery service and USD125,000 for providing inter-city delivery. This will put 70 percent of the private operators out of business as they cannot raise the minimum capital required, said Xu. The Company Law. which came into effect in January, requires only USD3,750 start-up capital, noted Xu.

The fundamental problem is that China Post is involved in the drafting of the revised Postal Law, said Liu. "They are simply using their political power as a means to edge out small, private competitors."

Domestic operators expressed doubts on EMS's ability to cope with the business. "It will be a challenge for EMS to fulfil the demand of such a giant market if all of us stop delivering," said Xu. EMS has around 30,000 staff while the private sector has about a million. Liu warned of corruption if EMS sub-contracts part of the business to other companies.

Although the foreign express giants are less involved in domestic delivery business, they also feel they are going to be effected by the new regulations. Mark van der Horst, chairman of the European Express Association's competition and market reform committee, said the revised law "could potentially lead to a very difficult environment in China, which would severely limit the potential growth of the sector''.

China Post's market share of domestic express delivery has dwindled from 90 percent in the 1980s to less than 30 percent in recent years with the flood of small, private operators and the arrival of the foreign giants.

From 2000-2004, DHL, UPS, TNT and FedEx saw their business in China grow by 50 percent annually while EMS only recorded 15 percent growth.