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Cablegate: Express Delivery Services Face Prospect of "Harmonious

DE RUEHGZ #1074/01 2640813
R 210813Z SEP 07




E.O. 12958: N/A
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

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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

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

"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

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.


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