UPS and FedEx Just Got a Major Boost in the Chinese Market

BEIJING (TheStreet) -- The Chinese government's cabinet has pledged to move toward internationalizing the country's package delivery industry, signaling new profit potential for United Parcel Service (UPS) and FedEx (FDX) as China's retail sector shifts to online shopping.

The parcel delivery business will be "fully opened up" to "create a fair and competitive business environment in which domestic and foreign-financed enterprises receive equal treatment," according to a summary of the State Council decision posted late Wednesday on a government Web site.

The decision bodes well for UPS and FedEx, which are currently licensed to deliver parcels in several dozen cities but not nationwide, as well as for e-commerce businesses such as Dangdang (DANG) , an onlline shopping site run by Walmart (WMT) , JD.com (JD) and Alibaba (BABA) -- all of which rely on so-called "kuaidi" couriers to move products from warehouses to buyers.

Also in line to benefit are investors in stocks linked to China's growing e-commerce sector and listed in New York, where Alibaba scored a blockbuster initial public offering last week.

The government is promoting online shopping as a key way to expand the economy's consumer sector and cut China's dependency on exports. The latest decision shows the government also wants to fuel competition and streamline the courier services that online retailers can't do without.

E-commerce shoppers bought goods boxed inside 70% of the 8.1 billion packages delivered in China between January and August this year, according to government data. Most parcels were delivered to consumers by domestic services such as SF Express, ZTO, Shentong and YTO.

Wednesday's council meeting was chaired by Premier Li Keqiang, who was quoted in a separate press release as saying that "the kuaidi business stimulates and invigorates new market activity" and that "many countries have already recognized that logistics drives economic development as a whole, stimulating consumption."

The press release said Li had discussed opening the market in March with executives from SF Express and FedEx CEO Frederick W. Smith.

While speaking with Smith, the press release said, Li "pledged on the spot to open the market in China more widely, making the logistics environment more fair and competitive." But it also said the premier warned Smith "to be prepared to compete with Chinese counterparts."

The State Council statement did not specify how foreign companies would be allowed to expand their parcel service businesses, nor when the changes would take effect. But it said the government's licensing procedures would be "simplified" to promote "the orderly and healthy development of the industry." Moreover, mergers of existing domestic companies would be encouraged to improve industry efficiency.

An underlying goal of the liberalization is "to create conditions that stimulate consumption by supporting businesses," according to the statement.

UPS and FedEx are licensed to operate in cities through the government's State Post Bureau, which runs the nation's postal service as well as the state-owned express delivery service EMS. EMS is often used for shipping business documents and overseas packages, but rarely for online shopping deliveries in China. EMS has been competing with UPS and FedEx in the international air cargo business since 2010.

The Chinese subsidiary of FedEx, which has been in China since 2003, is based near the Beijing airport. FedEx operates one of its 12 global air hubs at an airport in southern China's city of Guangzhou. UPS has provided air cargo services on the mainland since 2005 and cooperates with the Chinese logistics provider Sinotrans.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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