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)