Parcel and small freight delivery has been a relatively mature business in most developed economies for many decades, and for the same amount of time it has been the sluggish preserve of a poorly run state monopoly in China.
This area of business in the last few years has taken off in a major way.
Part of the dynamism has come from the entry of the big international logistics firms (UPS, DHL, TNT and FedEx) into China; there have also been thousands of private start-ups. A third force has been the rise of several ambitious state-owned companies.
Together, all these firms move a torrent of parcels between China’s manufacturers, and a similarly expanding stream of documents.
Overall revenues grew by more than 20% last year, to RMB40 billion ($6 billion), according to state statistics but this is probably an underestimate of the true size of the market and its growth.
On April 24th, after years of tough internal discussions and international negotiations, China enacted a new postal law that seems chiefly intended to prop up the creaking old monopoly, China Post. The new law is troubling in two respects: some parts of it because they are so specific, and others because they are so vague.
Specific new rules will gut many small domestic companies by imposing registration and capitalisation rules, and will severely limit the activities of foreign-owned firms by blocking them from the domestic document-delivery market — a good business in its own right, and an important source of revenue to offset the heavy fixed costs associated with building and operating a national collection and distribution system.
Under the new rules the big state-owned companies, notably Sinotrans, China Air Express and China Railway Express, will also have to surrender this market, despite their tremendous success.
If that were not disruptive enough, the vague wording of the law means that China Post’s monopoly rights are only loosely defined, so competitors will be vulnerable to whimsical expropriation.
The Economist reports that in the late 1990s China Post was technically allowed to maintain its monopoly on letter delivery, but some Chinese ministries began licensing alternative carriers to transport packages, many of which inevitably contained paper documents.
Delivery services were discussed in the negotiations leading up to China’s entry into the World Trade Organisation in 2001 and an agreement was reached to open up all areas except those covered by China Post’s monopoly.
The new postal law is due to take effect on October 1st.
There will be complaints from firms that are forced to shut down their operations and from customers who rely on them.
The biggest loss will be to economic efficiency. Perhaps because China is doing relatively well compared with the rest of the world, its bureaucrats are not concerned — at least not yet.
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