China Post is poised to become a public company with a Hong Kong stock market listing. A senior official has revealed plans to establish a national holding company based on operating companies in Beijing, Shanghai, Jiangsu, Zhejiang, Fujian and Guangdong.

This is the latest in a series of initiatives introduced by China Post to address its operational difficulties. The past few years have seen it having to react in the face of growing competition for its traditional business. It has introduced measures directed against private newspaper distribution, the express delivery sector and even international freight agents. However, it has not been able to halt the decline in its business and has lost market share.

Now its bid for a listing on the Hong Kong Stock Market is being met with suspicion in some quarters.

Splitting the Business

Could the profitable parts of the business like savings and express delivery be split off from the postal network? An expert, who declined to give his name, said that it would not be a good idea to divide up the postal service into a number of separate regional businesses. This would lead to difficulties in fixing postal charges and in clearing financial transactions.

However he is of the view that it is both possible and necessary to separate the postal business from the network which supports it. Following reorganization, customers would be able to choose the level of service they were prepared to pay for.

Officials at China Post speak of the difficulties involved in such a split and point to the same personnel, equipment and so on being involved throughout the service. They say cost centers could be established in the new company. They also deny the claim of clearance difficulties in a regional split. It is their view that clearing financial transactions is just a technical matter and capable of resolution.

The statistics show that nationwide the business currently has some 66,740 post offices and fixed assets of 75.7 billion yuan (about US$9.26 billion). China Post sees its huge network as its greatest asset and profit base.

Ready for Listing?

Government's financial support for China Post is gradually being phased out through what has become known as the "8531 Program". This refers to an annual stepping down of subsidy over four years. The sequence has been 8 billion yuan (US$970 million), 5 billion yuan (US$600 million), 3 billion yuan (US$360 million) and finally just 1 billion yuan (US$120 million) this year.

Clearly this could carry the potential for serious financial difficulties and a stock market listing is viewed as the best way to raise new money. China Post has set its sights firmly on reform. Turning loss into profit is seen as a necessary step on this road.

By October 2001 China Post was able to achieve a profit of some 160 million yuan (US$19.35 million) though no detailed breakdown of the figure was released.

Experts are concerned that China Post hasn't yet met the basic requirement for going public of three consecutive years in profit. They point out that last year's profit was only as a result of a 3 billion yuan subsidy.

But what of the group of six comprising Beijing, Shanghai, Jiangsu, Zhejiang, Fujian and Guangdong? These six subsidiaries have benefited from rapid expansion following reorganization in 1999.

Take Beijing Post Bureau for example. It has an annual turnover of some 3.2 billion yuan (US$387 million) out of the national total of 40 billion yuan (US$5 billion). It also has profits running at 500 million yuan (US$60.48 million).

Problems

Three problem areas need to be addressed according to the experts:

The planned economy had led to overstaffing. By the end of 2,000 the payroll had reached 524,000.

How should the revenues raised by the stock market flotation be allocated? The six operating companies of the new group would have to share a common postal network and operating costs with the remaining subsidiaries.

Fixing postal charges will be a problem. Current rates are not based on actual costs. The new company will still be in the postal business. Will potential investors have confidence that the new company can turn a profit?

Independent experts and postal insiders alike are cautious about the prospects for China Post's stock market listing.

They accept that overstaffing and financial issues could well be resolved through negotiation. But the matter of postal charges would require a change in the law. Work on drafting the necessary amendment has already started but there is still quite some way to go.

(China.org.cn by Tang Fuchun, November 14, 2002)