The savings outlets run by China Post look, in the eyes of the central bank, like the badly-baked eels: Awful to taste, but a little sorry if simply thrown away.
Instead of their traditional businesses such as post delivery and magazine and newspaper subscription services, China Post, the sole agency in charge of China's nationwide post services, is relying more and more on their mushrooming deposits outlets across the country as their profit sources.
In other words, China Post is running the savings outlets more as a parent bank than a general post office, although the People's Bank of China, the central bank, doest not permit any non-banking institution to do banking businesses.
"If left on itself, China Post might one day grow into a special agency branded as a post office but actually undertaking banking business," said the International Finance News, an affiliate of the leading People's Daily.
By October 2001, deposits collected by the savings outlets of China Post shot to 563.1 billion yuan (US$67.84 billion), closely tailgating the four State-owned commercial banks, said the newspaper.
In 1986, savings outlets attached to post offices opened their business only in 12 cities, according to the newspaper.
But now they have encroached into 1,700 cities and counties across the country, which are mutually webbed together through Internet, offering uniform depositing and lending services.
A mammoth hard to discipline
For the other four State-owned commercial banks, another big rival is now well in shape; for the central bank, savings stalls under the wings of China Post are hedgehogs hard to manage.
Ever since its separation in 1998 from the telecommunication sector, the once fattest State-run industry due to its monopoly in the domestic market, China Post has to struggle to find substitute money flow to support its over bloated staff and maintain profitability.
To lighten the concussion accompanying the separation, policy-designers offered a compromise: The central bank would pay the deposits China Post put in the central bank an interest rate much higher (100 percent and above) than it offers to deposits by the other commercial banks.
Early this year, China Post announced a profit of 60 million yuan (US$7.28 million), reversing its money-losing history after the division.
But other commercial banks think it a result of an unfair competition: Around 40 percent or higher percentage of China Post's earnings is from its so-called financial business. In other words, the profitability is out of the central bank's pampering hands, the specially fixed higher deposits interest rate.
Driven by the easy bucks from the higher deposits interest rate, China Post are deploying its savings outlets wherever their post offices go, including small villages and towns in the countryside, where the four commercial banks might find too costly to place their branches.
During the mid-1980s when the post offices started the savings services, their enthusiasm to open more savings stalls was welcome: The more money the central bank could collect from households, the lighter the inflation pressure would be.
The pervasive shortage of consumer products during that period had made inflation a high alert of the central bank. The runaway inflation rate in 1988-89 and 1993-94 was as high as 27 percent, which forced the central bank to set anti-inflation as the keynote of its monetary policy.
But now, China's economy has alternated its wind direction.
Since 1996, China has slipped into a deflation, whose symptom might appear lightened sometimes, but its irksome shadow keeps looming there despite the central bank's efforts.
Here comes the problem: On one hand, the central government is cutting the interest rate and persuading households to buy; on the other hand, China Post's savings outlets continue to siphon money out of families and send it back to the central bank.
Under the wings of China Post, the saving outlets even find clout to disregard the central bank's guidelines. Sometimes they go so far as to promise privately higher interest rates to depositors to lure their savings.
Such seemingly unruly behaviors incurred a heavy slap early this year: The central back shut down 1,585 savings outlets under China Post's control.
Striding over a dilemma
There are generally two ways for China Post's savings outlets.
First, they should organize into a new commercial bank. This way, the central bank will be able to brush aside once for all China Post's protective wings, and put the savings outlets under its effective oversight.
But such an option has got a shortcoming: Apart from the existing four State-owned commercial banks, a new giant will be born. The more pressing task now before the central bank, however, is to develop small financial institutions to cater to medium- and small-sized firms' demand for banking services.
The other option is more an expedient than an effective alternative: To lower China Post's deposits interest rate in the central bank and separate its semi-banking services from the traditional mailing and magazine-&-newspaper subscription services.
Through this measure, the central bank hopes to dampen the savings outlets' impetus to frenetically accumulate deposits and, on the other hand, to prevent the post service sector of China Post to appropriate money collected by the savings outlets.
On February 21, China Post's deposits interest rate in the central bank was lowered to 4.347 percent from 4.6008 percent, but the other reforming measures have yet to be observed.
( People's Daily August 2, 2002)
