CHINA’S TELECOMMUNICATIONS INDUSTRY INTRODUCTION China has developed a huge telecommunications sector. Today China is one of the largest telecom subscribers in the world’s telecommunication market. China’s telecommunications industry started to expand during early 1990s due to economic growth, technological improvements, low tax rates, and institutional changes, which allowed competition. Figure 1 shows that electronic-telecom industry had the fastest growth of sales revenue during 1990-2000 in the manufacturing sector. [pic]
Source: China Statistical Yearbook, 1990, 1995, 2000 The situation in telecommunication industry today differs from the one that was a decade ago. This paper focuses primarily on current issues in telecommunication industry. It briefly discusses government regulation of the telecommunication infrastructure since the People’s Republic of China was established (1949), outlines current government policies, describes major companies in telecommunication business and their competition, and provides information on recent developments of the telecommunications industry.
GOVERNMENT REGULATION OF THE TELECOMMUNICATION INDUSTRY During the Mao Zedong’s years (1950’s-1970’s) mainly politicians and military personnel were allowed to use telecommunications service in People’s Republic of China. Telephones were considered luxurious goods. In 1949 there were only 263,000 telephones with 310,000 telephone lines (Ding Lu, 2003). But at the end of the Cultural Revolution politicians realized that industrialization process in modern society could not be accomplished without reliable communications systems.
And in 1975 the number of the telephone lines increased to 3. 48 million (Ding Lu, 2003). In 1970’s the State Council enabled the Ministry of Post and Telecommunications (MPT) to operate post and telecommunications sectors. Under MPT local post and telecommunications administrations (PTE) were established to help develop post and telecommunications industries. Telecommunications services were allowed to set prices on their own telephone rates which could not exceed MPT’s prices. Starting in 1980’s the state became an active financial supporter of telecommunications industry.
The government issued a “three 90%” policy, according to which MPT was allowed to keep 90% of profit and 90% of foreign exchange earnings and in addition, repayable loans did not include 90% of central government investment (John Wong, 2002). In 1988 the “sixteen character” policy was implemented. It was based on four principles: MPT should be in control of planning the industrial development and coordinate with local authorities, all administrative levels should be equally responsible, and infrastructure’s construction should “mobilize resources from all concerned” (John Wong, 2002).
According to Ding Lu, in 1990’ the investment in telecommunications industry was shared among three sources (2003). 40 % of the investment was coming from users sector as a fee for installation, 30% ? rom domestic and foreign government loans, and the other 30% ? from PTE’s profits (Figure 1. ). Before 1990’s only one monopolistic telephone company, Telecom, controlled by MPT, was on China’s market. In 1994 another phone company, Unicom, emerged. It was established to unite the domestic network. Later other companies, like Jitong and Netcom, appeared. In the late 1990’s the number of ministries in China was increased.
As a result The Ministry of Information Industry was created to regulate telecommunications industry instead of MPT. Because of the competition, creation of new markets, expansion of mobile network, and rapid economic growth, the number of the users of telecommunication industry in the past years increased significantly. Since 2002 the number of connections in China has been growing 20-30 million a year while the U. S. has been adding only 10 million a year (John Wong, 2002). Thus, China surpassed the U. S. in 2002. CURRENT GOVERNMENT POLICIES The Ministry of Information Industry (MII) regulates the elecommunication industry today. It was formed from former members of the PMT and the network Department of the Ministry of Radio, Film, and Television. The head of MII became the former minister of PMT, WU Jichuan. The main purpose of creating the new agency was to achieve better control and supervision over the competition on telecommunications market. MII main goals were: to prevent creation of already existed networks, to maintain fair competition, to regulate services more strict, and to emphasize the role of the state in competitive market.
MII regulates telephone and internet companies. In 1999 MMI implemented the “vertical divestiture” plan. According to this plan, China Telecom Company was divided into four separate companies: the China Telecom Group Corporation, the China Mobile Telecom Group Corporation, the China Paging Telecom Group Company, and the China Satellite Telecom Group Company. MII also controls Internet Service Providers (ISPs). In 1999, MII issued licenses to 300 ISPs and 53 of them were allowed to conduct their business nationwide (John Wong, 2002).
In 2000, China Telecom, China Unicom, Jitong Communications, and China Netcom received their Internet Protocol (IP) telephony licenses. Also in 2000, China’s Secrets Bureau passed the act, called “ The State Secrecy protection Regulations for Computer Information Systems on the Internet” according to which “National backbone networks, Internet access providers and users shall accept the supervision and inspection conducted by departments in charge of protecting secrets and shall cooperate with them” (Ding Lu, 2003).
In general under this act, telecommunications operators were required to make their network according the standards established by the national security. COMPETITION IN CHINA’S TELECOMMUNICATIONS INDUSTRY MII feared that China Telecom might lose its dominance on the market due to competition. Among the first China Telecom’s competitors was China Unicom, established in 1994. It was a joint enterprise of the Ministry of Railways, the Ministry of Power Industry, and the Ministry of Electronics Industry.
Another competitor was China Satellite Communications Corporation (China Satcom), established in 2001. It was formed by China Telecommunications Broadcast Satellite Corporation, China Orient Telecom Satellite Company Limited, China Space Mobile Satellite Telecommunications Company Limited, and ChinaSat of China Telecom. In 2000 China Telecom signed an interconnection agreement with China Unicom. After that China Unicom was permitted to enter the international call market, and in 2002 China Unicom already had 60 million mobile lines and 45 million subscribers in 100 cities (J.
Reuvid, 2005). Despite the impressive numbers of the China Unicom the major revenues in 2002 were gathered by China Mobile ? 36. 7%. 33. 1% of the share belonged to the China Telecom, and on the third place (16. %) was China Network (Figure 3). Unicom shared only 12. 3% of revenues, Railcom ? 1. 2%, and Satcom ? 0. 2%. Even though China Mobile and China Telecom remain the most dominant companies in China, the other six companies, especially Unicom, Railcom, and China Netcom can become very tough competitors.
According to Table 1, these companies have the same business scopes as China Telecom. Unicom, Railcom, and China network have local fixed lines, backbone network, IP telephony, Internet access and can provide long distance calls. In May 2002 China Telecom and China Netcom were renamed. China Telecom’s new name was China Telecom Corporation and China Netcom’s ? China Netcom Communication Group Corporation. Today China Telecom Corporation has its business in majority of provinces. TABLE 1. BUSINESS SCOPES OF SIX MAJOR CARRIERS China Telecom |China Mobile |Unicom |Railcom |China Netcom |Satcom | |Local fixed line |yes | |yes |yes |yes | | |Long distance |yes | |yes |yes |yes | | |Backbone network |yes |yes |yes |yes |yes |yes | |IP telephony |yes | |yes |yes |yes |yes | |Internet access |yes | |yes |yes |yes |yes | |Mobile telephony | |yes |yes | | | | |Source: Ding Lu, China’s Telecommunications Market, 2003. U. K. RECENT ACHIEVEMNTS IN CHINA’S TELECOMMUNICATIONS INDUSTRY One of the important events in Chinese telecommunications industry was joining the World Trade Organization (WTO). China became a ember of the WTO in December 2001. To have a better relationship with other countries and therefore more opportunities to trade, China lowered its tariffs and opened its telecommunications industry for the foreign equity investment. As a result, the foreign capital share in telecommunications and paging services in 2003 reached 50%, in mobile telephony ? 49%, and in domestic and international businesses of basic telecommunications ? 49% (Ding Lu, 2003). Another aspect of joining WTO was that foreign suppliers could introduce new technology to China’s market earlier than this technology might appear in other countries.
As a result of new reforms Chinese telecommunication market started to expand very rapidly. Among recent achievements of the telephone services was China Telecom and China Netcom’s agreement on linking up their message services. People became able to send and receive messages from China Telecom to China Netcom and vice versa. In March 2004 one of the China’s computer companies, Lenovo Group, offered its sponsorship for the 2008 Beijing Olympic Games together with such world-known companies as McDonald’s and Samsung.
A few other companies, ZTE and Huawei Technologies, which specialize in telecommunications equipment were looking forward to enroll in sponsorship program. ZTE already participated in sponsorship program for 2004 Athens Olympic Games (J. Reuvid, 2005). With the ability to FIGURE 4. demonstrate their capacity on the world’s arena telephone companies continue to grow.
The number of telephone subscribers increases every year. In 2001 it reached 324 million, Figure 4. Revenues from the telecommunication sector significantly contribute the GDP.
China’s telecommunication sector attracts many foreign investors and government will Source: U. S. Department of Commerce. www. buy. usa. gov/china/en always consider this industry one of the major Chinese industries. The overall GDP significantly depends on the development of telecommunications industry.
The most successful and profitable mobile company in China is China Mobile. Established in 1987, mobile telephone service has been bringing the most revenue since 1996. The cell phones that are used in China are 900M cell phones. Prior to emerging of Unicom, prices on cell phones service were very high because China Telecom had monopolized the market. Today with the variety of companies, many people can afford to have a cell phone. Such companies as Motorola are involved in China’s telecommunications market. Motorola plans to sell a number of cell phones according to its best wireless standards.
Sony Ericsson is also an active participant in China’s mobile industry, increasing its stake in joint venture from 10% to 50%. According to Figure 5, the number of mobile subscribers was growing from 1999 to 2005 and in 2006 stayed almost at the same level as in 2005. FIGURE 5. [pic] Source: www. online. wsj. com/article/SB. html CONCLUSION China went through many changes to become one of the largest telecommunication industries. It still builds its management and property right system by passing new laws and regulations. Competition remains one of the most important aspects in telecommunications market.
Further promotion of competition will help enterprises to emerge in the telecommunications industry. To keep developing its telecommunications sector, China’s government needs to follow international norms and standards. Works Cited Lu, Ding. (2003). China’s Telecommunications market: Entering a New Competitive Age. Cheltenham, UK; Northampton, MA: Edward Elgar. Reuvid, J. and Li Yong. (2005). Doing Business with China. London; Sterling, Va: GMB Pub. , accessed June 3, 2007. Xiaojuan, J. (2001). China’s Industry in Transition: Organizational Change, Efficiency Gains and Growth Dynamics.
Huntington, NY: Nova Science Publishers. Williams, J. (1999). Business Opportunities in Northeastern China. New York: Prentice Hall. Wong, J. (2002). China’s Economy into the New Century: Structural Issues and Problems. River Edge, NJ: World Scientific. Statistical Sources State Statistics Bureau. (1990-2000). China Statistical Yearbook. Beijing: China Statistics Press. United States of America Department of Commerce. Wall Street Journal Online. ———————– FIGURE 2. INVESTMENT IN TELECOMMUNICATIONS INDUSTRY 30% 30% 40% PTE’s profits domestic and foreign loans installation fee