Postal dinosaur cringes from competition in the mail – China Post

China Post's deep-seated antagonism towards competition is standing
in the way of the bureau's tremendous need to get out of debt. Ever since
the Ministry of Information Industry allowed the
profitable telecoms sector to stop subsidising China Post – its
ailing communications partner – when they split in 1998, the State
Postal Bureau has been searching for ways to rid itself of its 18
billion yuan (about HK$16.7 billion) of inherited debt. Between 1991 and
1994, China Post's Express Mail Service (EMS)
volume increased at 35 per cent annually. However, with EMS
ill-equipped to handle the influx of international deliveries
necessitated by the country's economic reforms, FedEx, DHL and TNT
were allowed into the Chinese market. Since 1995, EMS volume has slumped
to 2 per cent growth annually and
its share of the market has been falling yearly at a rate of 4 per
cent, and EMS now captures only 40 per cent of the mainland express
delivery market. In contrast, DHL and TNT grew at rates between 20 and 40
per cent a
year. Now that US-based UPS has won a hard-fought licensing battle
to enter the market this April, EMS can expect to have its market
share further eroded. Local competition has also sprung up and,
working in co-operation with foreign delivery services, the
newcomers have set up extensive delivery routes throughout China,
chipping into EMS's domestic market share as well. China Post has been
left in the dust because of bare-bones business
principles. As a lumbering state-owned enterprise, EMS is typically
15 per cent more expensive than the competition and lacks the
infrastructure to deliver as expeditiously as they can. Despite the gloomy
economic prospects, China Post officials are
trying to be optimistic. "We are confident that we will make a profit this
year, although we
still have a debt of three billion yuan to pay," Wu Jian,
director-general of the policy research office at China Post,
recently said. However, to meet the target of eliminating its debt this
year, the
State Post Bureau will have to find ways to improve efficiency with
fewer staff and substantially lower its rates, all while trying to
handle the increased influx of transport needs and competition
spurred by inevitable WTO accession. "China's postal business will benefit
much from the WTO opportunity.
But if we don't take effective measures, our share of the business
will be reduced," Liu Liqing, postmaster general of the State Postal
Bureau, said. However, China Post's idea of effective measures have been
so
self-protective it appears to have lost sight of the inevitable, and
often positive, outcomes that competition and even privatisation
brings an otherwise flagging sector. When PostNet, a US-based franchise
offering mail delivery services,
opened two outlets in Shanghai late last year, customers eager to
find a more efficient and friendly service provider flocked to the
multi-service chain store. However, after being boasted as the "first
American postal service
in China" by local media outlets, the Shanghai Administration for
Industry and Commerce cracked down by raiding the stores and
detaining some of the company's assets. "Such activities are strictly
prohibited by Chinese laws, as postal
services concern a state's sovereignty, information security and its
citizen's privacy," thundered a State Postal Bureau spokesman about
the PostNet case. Instead of finding ways to maximise globalisation and
harness a
share of the profitable overseas market, China Post has made several
unsuccessful efforts with rate cuts. Despite an EMS rate cut of 10 per
cent last summer, its
state-regulated fees do not have enough flexibility to remain
competitive. Regular mail delivery profits have also been quashed by
the growing surge of virtually instant and cost-free e-mail
communications. Public relations efforts have fared even worse. At the
International
Post Office in Beijing, customers can buy more than stamps and
packaging boxes – from snuff bottles and CD music to shampoo and
alcohol. However, not only does this type of low-grade convenience
market effect a minimal level of image enhancement for a bureaucracy
riddled with inefficiency, poor technology and often rude service,
it makes even fewer inroads in helping to alleviate massive debt. China
should take heart knowing that it is not alone. Robert Cohen,
director of rates analysis and planning at the US-based Postal Rate
Commission, suggested the US postal service should consider both
giving up its monopoly on letters and privatising. "A postal service faced
with competition would only get better,"
said Mr Cohen, who has witnessed the poor results from the US Postal
Service's US$26 billion of investment in recent years. China should look
at Germany's Deutsche Post, which broke its
government-owned monopoly by putting 30 per cent of the company on
the block at the Frankfurt stock exchange last November. Deutsche Post
expects to rake in 40 per cent of its profits through
international services this year and has just bought a controlling
stake in DHL. Another important lesson comes from watching how its former
partner,
the telecommunications industry, has flourished on the open market. China
Railway Communications Information (China Railcom) was
launched a few days ago, becoming the nation's 6th licensed telecoms
operator after China Telecom, China Mobile, China Unicom, China
Netcom and Jitong Communications. Already a prime growth stock, China
Unicom surged 12.39 per cent to
HK$12.70, a one-month high since it listed in Hong Kong last June.
China Telecom is now slated to make in initial public this July.
Ultimately, the best cure for what ails China Post is further
deregulation, enhanced competition and even privatisation.
Copyright 2001 South China Morning Post Publishers Ltd.
Source: World Reporter (Trade Mark) – Asia Intelligence Wire.SOUTH CHINA
MORNING POST, 29th January 2001