Reform of the country's postal system, which has been in the pipeline for a couple of years, was finally approved on Wednesday by the State Council, China's cabinet.

The scheme focuses on splitting the government's administration of the industry away from the postal business. Savings banks will also be established.

According to the scheme, the State Postal Bureau will be restructured into a regulator that will supervise the sector, responsible for making rules and setting standards. It will be independent of the business operation.

Meanwhile, China Post Group Corp will be set up to run various postal services.

Currently, the State Post Bureau combines the functions of industry regulator and profit-making company.

Also, postal saving services, which contribute approximately 39 per cent of the total revenue of China's postal system, will be separated and a new bank will be formed.

Postal savings in China are estimated at 800 billion yuan (US$96.4 billion).

That huge amount is in the People's Bank of China, the nation's central bank. These savings differ from commercial bank savings in that the State Post Bureau only offers savings accounts and never offers loans.

The new bank, however, will be responsible for all potential risks and will provide regulated financial services just like other commercial bank.

"The approval has been revealed much earlier than expected," said Wang Yongjiang, professor with Beijing University of Post and Telecommunications.

Usually laws guide such reforms, but the Postal Law is still under revision at the moment.

"The reform practices carried out under the scheme will help pave the way for new legislation," he said.

Insiders believe that a key factor that facilitated the changes is the business's profitability.

Reforming the postal system has been on the government's agenda since 1998 when telecom services were split from postal services.

The central government gradually reduced its subsidies to the State Post Bureau from 1999, expecting the system to make a profit by 2003.

That goal has been achieved.

Some aspects of the new scheme have not yet been made clear.

One is how the current postal business, involving both basic services and competitive services, will be split up.

"Splitting mixed services into independently operating businesses is crucial to the reform," Liu Jianxin, secretary-general of the Express Delivery Committee of China International Freight Forwarders Association, told China Daily.

The present postal service is classified into basic services and competitive services.

Basic services refer to sending letters and newspaper subscriptions, as well as stamp printing and circulation, which have been core areas of the postal system in the past.

But express delivery and logistics services, as well as postal savings, fall into the category of competitive businesses, areas that are open to non-postal companies.

"The government may continue to allocate subsidies to basic postal services, as in many other countries, but it has to know exactly where the money is going," said Liu.

Profitable businesses, including logistics and express delivery services, are currently mixed with money-losing basic services, and it is impossible to tell the real profitability of each segment, he explained.

Meanwhile, regulations concerning post-exclusive business, a highly-disputed item in the Postal Law currently being revised, remains untouched in the new scheme.

Often post-exclusive business refers only to private letters and official documents, with commercial letters open to both postal and non-postal service providers.

(China Daily July 22, 2005)