The salt solution

Such was its longevity, perhaps it’s no surprise that efforts to dismantle China’s ancient salt monopoly have run into difficulties. Consumers are crying foul – and only four months after new measures were introduced to stop provincial governments from protecting local producers by blocking their regional rivals.

As we reported in WiC236, the salt monopoly was established 2,136 years ago when the Han Dynasty’s Emperor Wu decided that one of “life’s seven necessities” would provide a lucrative source of taxation (even the Chinese character for salt contains the pictograph of an imperial government official). In more recent decades the sector has been the preserve of China National Salt Group (CNSG), which not only distributed salt through provincial bureaus, but also acted as the industry regulator.

Starting this January there was a major shake-up: the government freed the country’s 100 or so state-owned producers to sell their salt directly in hope that competition would reduce retail prices. Also part of the plan: a reduction in the oversupply of salt in a country which consumed roughly 10.5 million tonnes of sodium chloride in 2015, but has the capacity to produce 48 million. As part of the reform process, provincial governments have been told to maintain stockpiles and Xinhua says there were reserves of 1.55 million tonnes of table salt at the end of 2016 (equivalent to about three months of demand) and about 1.3 trillion tonnes of rock salt.

However, as Beijing News reports, some provinces have been trying to give local producers an advantage by seizing supplies shipped in from other regions on the pretext that they represent illegal sales or breach product quality violations. The newspaper says eight salt companies across Jiangsu, Guizhou and Henan provinces reported seizures of roughly 2,000 tonnes in the first quarter.

Taking a more detailed look, Beijing News says the Jiangsu Provincial Salt Administration has been particularly active against CNSG Shanghai and CNSG Dongxing. The former showed reporters emails demanding they meet eight preconditions before it could sell salt in Suzhou. And the Dongxing firm said the Nanjing Municipal Salt Industry Bureau had also seized its salt – on the pretext it needed a licence – and fined it for a sum worth twice the confiscated amount.

CNSG Shanghai has also had problems in Nanjing after finding itself on a list of potentially illegal businesses. It took the provincial bureau to court over the matter.

Jiangsu Provincial Salt Administration director Wang Yingyun tells Beijing News there was a misunderstanding, because companies do not have to register with the bureau before they can sell. And he claims Jiangsu is selling salt from 30 different producers, many of them from other provinces. However, Beijing News says it could only find locally produced salt in the shops and supermarkets that it checked out in Nanjing.

The regional infighting has drawn a sharp response from the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT). In mid-April, the two issued what the domestic media describe as a “harshly-worded” statement instructing provincial governments to embrace “the spirit of the reform programme” and make sure their regulations are consistent with national policy by the end of June. “Relevant departments shall not seize or confiscate salt on quality inspection grounds,” it warns.

Social media users say they are unimpressed with the changes so far, despite a more positive picture from an NDRC website set up to assess the first 100 days of the reform. It suggests retail prices have fallen by as much as half. But customers have been countering that prices have gone up in some cases, or that packet sizes have been reduced from 550g to 400g. Other netizens speculate that the former salt bureaus must be furious that their power has been eroded, and that they are now turning on each other. One contributor to Sina Finance quoted an old saying, which highlights how self-defeating a fight between two enemies can be. “When a dog bites a dog, they both just end up with a mouthful of hair,” he concluded.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.