Salt Reform: How to Break Local Protectionism?

Click image for details Since the implementation of this round of salt industry reform on January 1 this year, policy breakthroughs have been made in areas such as "salt designated production enterprises entering the circulation and sales field" and "cross-regional operations of salt wholesale enterprises." Up to now, the policy has been in place for more than half a year. From the actual implementation of the policy, this round of reform has also encountered many practical difficulties. In this regard, a reporter from the Daily Economic News recently interviewed He Yuan, an expert who has paid close attention to the salt industry system reform. He is a "Chenguang Scholar" in Shanghai, a director of the China Administrative Law Research Association, Secretary-General of the Shanghai Administrative Law Research Association, and an associate professor at the Kaiyuan Law School of Shanghai Jiao Tong University. He Yuan believes that the most thorny problem at present is that some local salt bureaus illegally use "wholesale licenses" to block cross-regional operations of foreign salt. This round of salt industry reform urgently needs "market vitality" and "vertical management" to break "local protectionism." The current illegal "transfer and agency wholesale" issue has given local protectionism a legal cloak, and simply relying on the separation of government and enterprise cannot solve this problem. He suggests further marketization and central vertical management to break the current dilemma. Wholesale licenses should be fully or partially canceled, and further marketization should be implemented. ● On the current "local protectionism" Reporter: How do you view the current public opinion that local protectionism has emerged in the salt reform? He Yuan: From the current situation, except for municipalities directly under the central government such as Beijing, Tianjin, and Shanghai, as well as a few provinces like Shaanxi, the production and wholesale of salt in other places are controlled by local state-owned enterprises. This has also led to a trend of corporatization of local governments in salt affairs, and the "local separatism" in salt affairs is objectively existing. This has become very obvious after this round of reform opened up cross-regional operations for provincial salt companies and production enterprises. Reporter: What are the reasons for local protectionism in the salt reform process? He Yuan: As far as I know, before this round of salt reform, from the factory to the consumer, salt could only go through the single channel of unified wholesale by the local salt company. The profits from this administrative monopoly are undoubtedly excessive. After this round of reform, salt designated production enterprises and provincial salt wholesale enterprises from other provinces began cross-regional operations, coupled with independent pricing of salt, which has had a great impact on the salt market and directly touched the cheese of local salt companies, challenging their administrative monopoly position. Therefore, it is not difficult to understand that local salt companies use their other identity, the "Salt Bureau," to resist "cross-regional operations." Reporter: What specific behavioral patterns does this local protectionism take? He Yuan: Taking a certain province where interest competition is most intense as an example, I have summarized a few points:

• First, the local salt bureau adds obligations for foreign salt enterprises, turning notification and filing into administrative licensing;
• Second, the local salt bureau detains the production licenses and wholesale licenses of foreign salt enterprises for a long time;
• Third, the local salt bureau seizes foreign salt indefinitely in the name of "preservation for registration" (a legal procedure);
• Fourth, the local salt bureau announces unqualified or non-compliant foreign salt enterprises in the form of normative documents, including prime-time broadcasts on TV stations;
• Fifth, the local salt bureau detains foreign salt for a long time under the pretext of quality issues such as foot odor;
• Sixth, the local salt bureau accuses foreign salt of wholesale without a wholesale license, while wholesale of local salt without a license is considered a legal "existing channel" behavior. ● "Transfer and agency wholesale" needs further improvement Reporter: It seems that the specific manifestations of local protectionism all appear in the circulation link? He Yuan: Because in the circulation link, there is actually the issue of the salt wholesale license, commonly known as the legality of "transfer and agency wholesale." The current "Salt Monopoly Regulations" Article 10 stipulates: The state implements a wholesale license system for salt wholesale. Those engaged in salt wholesale business must apply for and obtain a salt wholesale license in accordance with the law. Those who have not obtained a salt wholesale license may not engage in salt wholesale business; Article 14 stipulates: Salt retail units, individual industrial and commercial households entrusted to sell salt on behalf of others, purchasing and selling agencies, and units using salt for food processing shall purchase salt from enterprises that have obtained salt wholesale licenses locally. Reporter: What impact has this regulation had on the specific implementation of the current salt reform? He Yuan: Before the reform, there were 6 channels for salt sales by salt companies; after the reform, the number increased to 11. The Ministry of Industry and Information Technology's Document No. 211 further summarized the cross-regional operation models during the transition period, including: self-built logistics systems or signing distribution contracts with third-party logistics companies to deliver salt to end users; self-built branch companies for salt sales; self-built sales outlets for direct salt sales; and sales through existing channels. But in fact, no matter which channel, in practice, it is necessary to entrust units or individuals without salt wholesale licenses to carry out multi-level distribution operations. Reporter: Why does this situation occur? He Yuan: This is determined by the objective attributes of salt itself, such as low price, low added value, heavy weight, and slow consumption. Salt sales cannot possibly achieve direct first-level distribution; instead, it often needs to be distributed layer by layer together with condiments like soy sauce and MSG or daily necessities like rice, that is, through dense distribution channels to finally reach consumers. Take Shanghai, which has developed logistics, as an example. According to accurate sales data I have learned: In 2015, about 74% of Shanghai's salt sales were through multi-level transfer and agency wholesale in farmers' markets, while direct-operated terminal sales accounted for less than 2%; in 2016, about 78% were through multi-level transfer and agency wholesale in farmers' markets, and direct-operated terminal sales were only about 1.5%. Even in Shanghai with developed logistics, salt is mainly sold through multi-level transfer and agency wholesale in farmers' markets. The situation in central and western regions is even more severe, and the proportion of transfer and agency wholesale is obviously higher. Reporter: But this is actually illegal? He Yuan: Strictly speaking, this "multi-level distribution salt sales model" commonly existing in practice violates Article 10 of the "Salt Monopoly Regulations." In this situation, local salt management departments use Articles 10 and 14 of the "Salt Monopoly Regulations" as legal basis to frequently use "wholesale licenses" to block cross-regional (provincial) operations of foreign salt. In fact, it also causes selective enforcement by local salt bureaus, that is, for the same multi-level wholesale operation, local salt companies are treated as legal "existing channels," while foreign salt companies are treated as "illegal operations." Reporter: Can the self-built logistics or entrusted third-party logistics mentioned in Document No. 211 solve this problem? He Yuan: As far as I know, a box of 20 kilograms of salt is worth about 50 yuan. Using a certain e-commerce logistics price, the direct delivery fee is 8 yuan, and the logistics cost alone accounts for 16% of the sales price. Such a cost is obviously unbearable for salt wholesale enterprises. If the "multi-level transfer and agency wholesale system" is canceled, salt enterprises are likely to raise salt prices and pass the cost on to end consumers. In that case, after the reform, salt prices would rise instead, and the paradox of salt reform would inevitably appear. Moreover, the less developed the transportation in central and western regions, the higher the salt price; while in eastern regions, salt prices would be relatively lower. This is obviously contrary to the original intention of this round of reform. ● "Separation of government and enterprise" is insufficient to solve the problem Reporter: Regarding the "transfer and agency wholesale" issue, what solutions do you think exist? He Yuan: Further marketization is possible, with three specific options: First, comprehensive marketization. On the premise of retaining the "salt designated production licensing system" and improving the "salt electronic traceability system," cancel the "salt wholesale license" and achieve comprehensive marketization of salt sales; Second, partial marketization. On the premise of retaining the "salt designated production licensing system" and improving the "salt electronic traceability system," further retain the "provincial salt wholesale license," continue the "salt monopoly system" at the provincial level, and implement a first-level wholesale system. But completely cancel the "salt wholesale licensing system below the provincial level," and freely open up the sales links below the provincial level without administrative licensing; Third, the transfer and agency wholesale plan. That is, on the premise of fully retaining the existing "salt designated production licensing system" and "salt wholesale licensing system," further fully implement the "transfer (agency) wholesale licensing system" that the National Development and Reform Commission once implemented, to actually solve the last mile problem of salt sales. I think the second option is the best because it is the most operable. It does not conflict with the "State Council Salt Industry System Reform Plan," retains the "salt monopoly system," and achieves market vitality. It ensures the safety of salt and realizes the marketization of salt prices, truly benefiting the people. Reporter: Many people pin their hopes on another part of this salt reform, which is the realization of "separation of government and enterprise." What is your view on this?** He Yuan: Judging from the reform plans issued by various regions at the end of June, most have designated the economic and information technology (or industry and information technology) department as the competent authority for the salt industry. Provinces with the economic and information technology department as the competent authority reached 14, and industry and information technology departments 7. Two provinces have the grain department as the competent authority. Others include commerce, supply and marketing cooperatives, food and drug supervision, and salt affairs departments as industry competent authorities. In addition, there are other independent salt management plans. But among the above plans, whether it is the Economic and Information Technology Commission plan, the Industry and Information Technology Department plan, or the independent Salt Administration Bureau plan, achieving the formal goal of separation of government and enterprise may not be difficult, but the thorough separation of interests between salt enterprises and local governments in the true sense is almost an impossible task. The new salt administrative leadership team is likely to draw personnel from salt companies. In such an environment, hoping to completely break the "local separatism" in salt reform through formal "separation of government and enterprise" is undoubtedly a fantasy. My personal suggestion is to implement "central vertical management." The specific plan could be for the central government to implement a vertical management system for local salt administrative departments at all levels, changing the situation where local governments directly manage them, and fully realizing the "de-localization" of salt administrative management; or through market or administrative means, the central government or central state-owned enterprises could carry out comprehensive mergers and acquisitions of provincial salt wholesale enterprises and designated production enterprises, thereby truly achieving the separation of interests between local salt companies and local governments. Source: Daily Economic News -END-