The slow pace of the postal law amendment process is becoming a major impediment to the country's postal system reform, experts say.

The State Council, China's cabinet, finally endorsed a long-awaited postal system reform package late last month, formally kick starting a long-stalled reform process in the sector that many say is overdue.

According to the plan, State Postal Bureau (SPB), also known as China Post, will separate the administrative role from its postal business functions, a move that many had expected.

To be specific, the current postal system will be reorganized into three parts.

SPB, which currently functions as both the industry regulator and a profit-making business venture, will be restructured into a regulator only, in charge of drafting rules and setting standards for the sector.

SPB will spin off its business operations to the proposed China Post Group Corp, which will also run other postal services.

In addition, a postal savings bank will be set up.

The much-debated postal system reform has been in the pipeline for seven years.

Compared with the reform of other sectors, the postal system reform has been described, at best, as sluggish, and at worst as at standstill.

"There is no legitimate reason to drag feet on postal system reform any longer, as reforms in similar sectors that are also under government protection such as oil and electricity have almost been completed," Liu Gang, a lecturer at the Business School of Renmin University of China, told the Beijing News newspaper.

But approval of the reform package, which has been under drafting since 2003, still surprised many last month when it was unveiled.

"The approval has been revealed much earlier than expected," Wang Yongjiang, a professor at Beijing University of Post and Telecommunications, told China Daily last month.

As a reform that will have an immediate impact on 500,000 employees, the government has every reason for being cautious about pushing through the postal system restructuring.

And the very nature of the postal system itself makes the reform a delicate task, experts say.

"The slow-moving nature of the postal system reform is, in a large part, due to the nature of the system in question," Li Zuojun, a researcher with the Development Research Centre of the State Council, told Caijing magazine. "It makes the reform a complicated issue and hard to move forward."

Currently, the postal service in China is separated into basic services and competitive services.

Basic services, which refer to sending letters and newspaper subscriptions, as well as stamp printing and circulation, are also called post-exclusive services.

Because the government is obliged to guarantee citizens' right of communication, it usually hands out subsidies to post-exclusive services, which are often loss-making

Nationwide, basic postal services made a loss of about 5 billion yuan (US$616 million) in 2001.

The other part of the postal service, the competitive services, includes express delivery and logistics services, two sectors that have grown rapidly in recent years.

But the competitive services, which also include the postal savings business, are open to non-postal companies, which make them direct competitors with the postal system.

Running both basic and competitive services, the current postal system therefore has a direct conflict of interests with those express delivery or logistic companies.

Obviously, if the scope of post-exclusive services can be expanded, non-postal service providers' competitive business scope will be squeezed accordingly.

Acting as a regulator, the postal bureau has the incentive to use its rule-setting power to favour its own competitive business by expanding the scope of post-exclusive services.

For the postal system, expanding the parameter of post-exclusive services also means they could get more State subsidy.

The demarcation of the post-exclusive services line, therefore, has become a contentious issue between the postal system and non-postal services providers.

As such, the postal system's combination of basic services (or post-exclusive services) and competitive services is a tough nut that the current reform is determined to crack.

"This (postal system's running of both basic and competitive services) is indeed the Gordian knot of the postal system reform," said Li, the researcher.

The task of defining the post-exclusive services scope is up to the law.

However, the existing postal law, which was enacted in 1986 and is currently under revision, does not spell out explicit standards for post-exclusive services.

The revision of the postal law, which is now in its sixth draft, has been in stalemate primarily due to the unsettlement about the scope of the post-exclusive services.

Two camps - the State postal system and the non-post system service providers, represented by world express delivery giants DHL, FedEx, TNT, UPS and the country's growing private logistics firms - are both lobbying hard to have their voices heard in the decision-making process.

The recent reform plan, however, still did not set the post-exclusive services scope, which makes the introduction of the new postal law an even more pressing issue.

Another obstacle to moving forward the postal system reform is the splitting of the postal savings services from the postal system.

At present, postal saving services is a major cashing cow for China's postal system, contributing approximately 39 per cent of its total revenue.

The profits made from postal savings services are used to offset the huge losses the postal system suffers from its basic postal services.

The government used to offer subsidies to the postal system, but it stopped its handouts in 2003, making the income from the postal savings service even more important for the postal system.

According to the reform package, the postal savings service will be transformed into a postal savings bank, which will be independent from the postal system.

Obviously, if this cash generating machine falters, the postal system could have a hard time financially, even threatening its ability to fulfil its duty of providing basic postal services, if no compensation mechanism is set up at the same time.

However, because the compensation mechanism is expected to subsidize the basic postal services, the scale of the compensation mechanism will depend on the scale of the basic postal services. The compensation mechanism, therefore, can only be calculated once the size of the basic postal services is decided.

Clearly, the issue boils down to how the basic postal services, or post-exclusive services, are explicitly demarcated, an issue that can only be settled by the on-going postal law amendment.

The slow postal law revision process, it seems, is now becoming a major drag on the postal system reform.

"The postal system reform should move forward side by side with the postal law revision process, which needs to speed up its pace," Li Zuojun, a researcher who is also a drafter of the reform package, told Caijing magazine.

(China Daily August 9, 2005)