Can China Post"s new “business” model succeed? 　　 　　MOVING ON: After the reform, China Post will be divided into two parts, a supervisory body and a business-focused division
　　All quiet on the postal front is beginning to cause a stir among reform-minded leaders. “It is not a good sign,” said Zhao Meiling, Director General on duty of Beijing’s Baiwanzhuang office of China Post.
　　“When the reform goes deeper and deeper, it will be confronted with more difficulties and become harder. We must take it seriously.”
　　China’s postal system has been undergoing reform since 1998, when telecom was separated from it. However, the root of postal system problems has remained. It was not until July 2005 when the State Council passed a reform scheme requiring certain business elements of the postal system to be spun off as enterprises. The scheme touched the heart of the postal system, and these reforms are just now getting underway.
　　
　　Or are they?
　　
　　Zhang Yong, a mailman with the Baiwanzhuang post office, seems indifferent to the reforms and insists the burden of the postal system is too heavy to be changed overnight.
　　“It will take at least three to five years to reform the postal system in the whole country,” Zhang said.
　　But despite the lack of hustle and bustle-and even complaining-that marks reform periods, the wheels have been set into seemingly inevitable motion toward, in large part, reforming the post office.
　　
　　Self-monopoly destruction
　　
　　BATTLING FOR POSTAGE: DHL set up its operating branch in China as early as 1986 and is now a big competitor of China Post
　　Currently, the China State Post Bureau is the highest organ governing and operating all postal issues. Local postal bureaus shoulder the responsibilities of supervising postal issues, delivering mail and attracting bank deposits.
　　But in light of reforms passed by the State Council, the postal bureaus will be reshuffled into a larger post administration bureau and China Post Group, a government-backed business venture, will be established.
　　The State Post Bureau noted that after reshuffling, the State Post Administrative Bureau will act as a supervisor and China Post Group will manage business operations. The group will mainly handle three types of businesses: universal postal service like delivering letters, competitive business like periodical distribution and express mail service, and postal deposit service.
　　The State Post Administrative Bureau and China Post Group are slated to be launched at year end.
　　“The reform is beneficial in terms of breaking the monopoly of post offices in the country,” said Feng Fei, a researcher with the Development Research Center of the State Council.
　　Feng explained that China Post is one of the few remaining organs that combine business operations and supervisory function. This monopoly goes against the principle of establishing a fair market economy, leaving consumers few choices, he said.
　　Feng also noted that the current postal system in China is not in line with China’s WTO commitment, under which, China should open up its postal services gradually. Foreign capital should be able to enter the Chinese postal market by way of establishing joint ventures or wholly foreign-owned companies.
　　
　　However, under the current situation in which the business operations and supervisory functions are tied together, private postal enterprises cannot compete fairly.
　　Further, China’s postal service is suffering from huge losses, which is also part of the reason for reform.
　　In 1998 when telecom had just separated from the postal system, China Post suffered a loss of over 17.9 billion yuan. Consequently, the Chinese Government had to subsidize China Post from 1999 to 2003, with decreasing amounts of 8 billion yuan, 5 billion, 3 billion and 1 billion over the four years. The government hoped to turn the loss-generating postal business into being profitable. Although the Central Government stopped subsidizing the postal service in 2003, large-scale losses were still inevitable.
　　A report from the State Post Bureau shows that China Post suffers an annual loss of 4.17 billion yuan in terms of universal postal services, which include distributing mail and packages.
　　The postal system’s business acumen so far has been non-existent. In 2003, China Post Logistics Co. was established to handle three business operations, namely, logistics, periodical distribution and stamp collection. But after three years’ development, the new company failed to fulfill the government’s expectation and saw slow profit growth.
　　“As a result, the separation is a must and inevitable,” said Yang Hairong, a professor at Beijing University of Posts and Telecommunications, referring to the separation of business and supervision.
　　
　　The key reforms
　　
　　SPECIAL DELIVERY: China Post has the largest delivery and service network in China
　　“Separation is the first step, while the second step, which is to distinguish competitive business operations from universal postal services, is actually the biggest problem,” Yang said.
　　The reform can be generalized into three phrases: separation, reform and “perfections.” In fact, two specific reforms are underway: that of the postal bank deposits and postal services. And four “perfections” are slated to take place for: the universal postal service mechanism, competitive service mechanism, safety guarantee mechanism and pricing mechanism.
　　The service quality of universal postal services should be improved, and the competitive business operations like logistics and express mail service should be open to market competition, Yang said. The reform must guarantee that other enterprises can compete with the future China Post Group fairly, he said.
　　Currently, the government is amending the Postal Law, which is undergoing eight draft amendments. In the fifth draft amendment, the law stipulated that personal express mail service with mail under 500 grams should be delivered only by post offices, courting criticism from private express service providers. So, in the sixth draft, the limit on the weight was further reduced to 350 grams, while in the eighth, it was cut slightly further, but the draft added a limit on the weight of packages and printed materials, among which, those under certain weight should be delivered solely by post offices. While soliciting suggestions, the draft has again ignited the ire of private and even foreign express mail service providers.
　　
　　In recent years, international express mail service providers and logistics companies have been striving to take market share, including the four international logistic giants DHL, UPS, FedEx and TNT. There are over 100,000 foreign and non-state express mail service providers that shoulder about 80 percent of same-city mail delivery and over 50 percent of trans-province express mail services. However, reportedly mail below 350 grams accounts for 70 percent of total services.
　　Confronted with large-scale criticism from private express service companies, the Postal Law amendment was postponed.
　　In December 2005, China allowed foreign capital to be invested in logistics and express service sectors. Currently, the express mail service is open to all and periodical distribution is also opening up.
　　“Actually, we are also very competitive, as long as an incentive system is built up and the regulations are improved,” said Zhang, the China Post mailman.
　　Zhang said there are over 36,000 post offices all over the country, and no other private or foreign enterprises can compete with its huge network.
　　Zhang believes there are two major questions: how to separate universal postal service from competitive service, and how to share the market with private and foreign enterprises.
　　“If the two questions are not resolved, the postal system reform cannot be said successful because we don’t know what we can do and what we should do in the future,” Zhang said.

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