When news of the passing of China’s new postal law held up China Post’s monopoly on express documents and small packages, it was clear that there would be groups - foreign and domestic - that were going to be scrambling to develop a work around.

It is an issue that many foreign firms have been having to work through for many years (i.e. this is nothing new), and sometimes China Post would take small measures to make sure everyone knew who was boss, but many in the industry were hopeful that the law would change and the gates would open.

Sadly, a few firms who believed the changes were coming so much that they made significant investments through asset acquisitions and mergers to position themselves within China’s domestic market in an advantageous way. The problem with that, as will be fleshed out below, is that when the new law upheld the monopoly, it removed one of the most profitable segments of the market.  Which, as you can imagine worked against firms who had invested in domestic express networks.

Key to the changes are a few BROAD definitions:

Express is defined as delivery activity quickly completed within committed time frame.
Delivery is defined as the activity to send the letter and postcard, parcel, printing matters and other items to certain individual or company upon the address attached, via sending and receiving, sorting, transportation and delivery, etc.
Letter is defined as information carrier to a particular individual or unit sealed in an envelop according to the specific address excluding book, newspaper and magazine, etc.
Parcel is defined as the weight less than 50kg, each Length, Width and Height is less than 150cm. Further, L+W+H <= 300cm.

At the same time, in breaking down the product groups, it appears that there are 3 separate products that are being addressed through this regulation

• Letters and Postcard
• Printed material not exceeding 5kg/ piece
• Parcels not exceeding 10kg/ piece

However it is this passage (English translation of regulation) that effectively delivered the death blow:

Foreign invested companies are not allowed to deliver domestic Letter and Postcard.

Express companies are not allowed to deliver Monopolized Letters and Postcards and government documents.

In reading this, it is important to understand that while the first sentence pertains to foreign firms, and we heard from their people, the second sentence is really geared towards the local firms known as kauidi (express companies).  Why that is important is essentially that while FedEx was positioning itself as the foreign player to be reconed with, or at least the firm with the strongest global + China capabilities, there were literally dozens of express firms who were in the process of building their China wide networks (and international partnerships).

SF Express being one of the more interesting (which is still gladly taking by business!).

Of course, for local firms, it is possible to get certified:

• • Registered capital: delivery within one province or municipality - RMB 500,000;
  • Across province or municipality delivery - RMB 1,000,000;
  • International express - RMB 2,00,000
  • Entity type: company limited or company limited by shares
  • Service capability
  • Strict service quality control policy and operation process standard
  • Sufficient security policy and measures

Hurdles that are sure to be cleared by the likes of STO and SF express, but for many other local firms these new rules and regulations could present a significant hurdle to their ability to operate off the back of electronic bikes or through the underground.

Which, in the end, will go a long way to increasing Beijing’s dreams of improving the quality of its logistics industry.

.. and for those firms looking for a loophole, or think they will just slide by, the law has gone the extra mile to clarify that there are consequences to breaking the law:

• Running express business without license: confiscate all illegal income and RMB 50,000 ~100,000 of penalty. If serious, RMB 100,000 ~ 200,000 of penalty.
• If no inspection policy or no execution of inspection: punishment on responsible person, stop the business or even suspend the express license.

Moderator note - I would like to thank Eric for providing me with the translation

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For the last 20 years, China Post has held the sole right to deliever China’s mail, domestic China express packages, and express letters.

It is a situation a regulation that has been frustrating for many of the global express carriers (UPS, FedEx, TNT, and DHL) becasue Logistics is in its simplest form about control of goods.

Making sure things arrive. In one piece. Unadulterated

So, with global clients expecting this service when signing over their package, it is understandable that many of these firms would now be concerned with the recent passing of China’s Postal Law.

Foreign companies will be limited to delivering express packages domestically, and can only send express letters internationally, Wang Yuci, vice director of the State Post Bureau, told Dow Jones Newswires Friday on the sidelines of a press briefing.

Chinese companies, both state-owned China Post and privately operated ones, will carry out the business of domestic express delivery of letters, according to the revised postal law.

For many firms, firms like TNT and FedEx, who were betting and positioning in China’s domestic delivery space, this is likely to come as really bad news as each had put a lot of money into developing domestic networks that would move documents around the country, and depending on the definition of the term “packages”, they could also find themselves having to outsource their domestic delivery of letter pouches to local partners as well.

Outside of the organic growth markets in China being blocked for foreign firms, firms who were gearing up to enter the local market through investments were also impacted - as confirmed by a quote in Xinhua:

the amendment article on not opening domestic delivery to foreign investment conforms to China’s WTO commitment

So what does this really mean for foreign firms sending their packages, it is still a largely unanswered question. With so many firms relying on UPS to send contracts and sensitive documents through a trackable system, it is clear that firms will need to watch and assess the situation.

The new law also put in place a new article article forbidding “all organizations or individuals from opening, hiding, damaging or discarding others’ letters, instead of just preventing postal workers from doing so.”, but I would remain skeptical on the value of this clause and find little value in it.