Express Delivery Services Face Prospect of "Harmonious

UNCLAS SECTION 01 OF 02 GUANGZHOU 001074 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECPS ECON ETRD EIND PGOV CH SUBJECT: Express Delivery Services Face Prospect of "Harmonious Competition" in Guangdong ¶1. (SBU) SUMMARY: U.S. Postal Regulatory Commission Chairman Dan Blair emphasized to Guangdong officials and businessmen his belief that vibrant competition and consumer choice in the express delivery service (EDS) market would provide greater benefits than government regulation. Chinese government and trade association representatives responded that controlled, regulated, "harmonious" competition would be the model of EDS development in Guangdong. In spite of the challenges ahead, major U.S. EDS providers remain committed to expansion in south China and believe long term prospects for market development are good. END SUMMARY A Preference for Regulation -------------- ¶2. (SBU) Guangdong Postal Administration Director General Luo Jianqing and his deputy, Li Qingxi, shared the official vision of the future of the Guangdong EDS market with U.S. Postal Regulatory Commission Chairman Dan Blair and his delegation September 19. Noting that the service quality of Chinese EDS companies varied dramatically, Li said the administration planned to develop minimum service standards for the industry. In his opening comments, Chairman Blair emphasized that consumers themselves were the best regulators and that vibrant competition and consumer choice -- not regulation -- would allow for strong growth by the south China EDS market. ¶3. (SBU) During the meeting, Chinese officials evinced a deep misunderstanding of the U.S. EDS market. Lin Shufen, another Deputy Director General at the Guangdong Postal Administration, was surprised to learn that the U.S. EDS industry was completely unregulated. When the puzzled Lin asked how service standards were maintained, Chairman Blair reiterated that an unbeatable combination of competition, price and service would drive bad players out of business. A (Very) New Association -------------- ¶4. (SBU) In a separate meeting, Guangdong Express Association (GEA) President Wen Shaoqi said his organization, which was established August 15, 2007, and includes Chinese and foreign EDS companies, hoped to serve as a bridge between government, industry, and the public. In addition to promoting "fair and orderly" competition -- the mantra, as noted above, of the Postal Administration -- GEA also hopes to acquire advanced EDS technology for the Chinese market. Wen's presentation was upbeat, but it is unclear with GEA in its infancy, just how its plans, policies, and organization will develop. "Vibrant" Competition is Good, But . . . -------------- ¶5. (SBU) When asked about the difference between "vibrant" and "harmonious" competition, GEA Deputy Secretary General Wu Weixin said that "vibrant" competition was desirable, but warned that competition could not be allowed to become excessive or disorderly. As justification for "harmonious" competition, Wu called U.S. companies "giants" and Chinese companies -- including state-owned enterprises -- "babies," saying that "babies need to eat, too." ¶6. (SBU) Wu tried to allay fears that GEA meetings would include discussions of service levels, such as minimum delivery times, or price fixing. He emphatically said GEA would "definitely not" engage in price setting, noting that prices should be determined by the market. Wu admitted that GEA still needed to research and analyze the EDS market's service levels, but said that service standards would ultimately be consistent with international practices while also taking into account China's special market conditions. ¶7. (SBU) As he did in the meeting with the Guangdong Postal Administration, Chairman Blair called the discussions "a good start," and encouraged continued dialogue between all parties from the U.S. and Chinese governments and industry. He noted that there were certain kinds of conversations that U.S. companies could not be a party to (noting discussions of pricing). Both the Chinese officials and GEA officers responded enthusiastically to Chairman Blair's invitation to visit the United States to better understand the U.S. EDS market. U.S. EDS Companies Wary, but Committed -------------- ¶8. (SBU) Following the meetings, representatives of two large U.S. EDS companies discussed with Chairman Blair the need for the U.S. industry to engage GEA and other similar associations to influence the future development of the industry in Guangdong. Apparently GUANGZHOU 00001074 002 OF 002 still skeptical of GEA's promises not to discuss prices or service levels, one U.S. industry representative worried about the awkward necessity of U.S. members of GEA having to walk out of meetings if such subjects were raised. Even considering the difficulties, however, the U.S. executives were generally optimistic about their expansion into the south China market. ¶9. (U) The delegation did not have an opportunity to review this cable before transmission. GOLDBERG