China clears path for private capital

Jane Wang/Ovum
16 Jul 2012

China’s Ministry of Industry and Information Technology (MIIT) recently issued a policy that will open the Chinese telecommunications industry to private investment.

The sector is currently dominated by state-owned companies, but the government’s national economic strategy, which was released in May 2010, proposed using more private investment to stimulate the economy, increase competition, and improve outcomes for customers. Private investment in the telecom industry will be essential if the Chinese government is to realize its ambitious convergence plan and its soon-to-be-released broadband plan.

The MIIT’s new policy only identifies the areas of the telecoms industry that will be opened to the private sector. Private investors will require more clarity about the rules for investment before they decide to risk their capital. More specific policies must be released by the MIIT and other government departments if they are to ensure the flow of private funds into the telecoms sector.

Eight areas opened up to private investment

In its new policy, titled “Measures to Encourage and Guide Further Investment of Private Capital in the Telecommunications Industry”, the MIIT has opened eight areas up to private investment:

  • mobile telecoms service resale
  • network access and customer premises network services
  • managed network services
  • telecoms value-added services
  • engineering project design, implementation, management, network systems integration, and project bid brokering
  • infrastructure construction, operations, and maintenance for areas including base stations and communications towers
  • allowing private capital to enter the basic telecoms market through the purchase of equity
  • expanding investment in international telecoms services in order to develop the international capacity market.

While foreign ownership was not directly addressed in the policy, we expect that the MIIT will follow China’s existing foreign ownership rules by requiring foreign companies to set up joint ventures with local companies that are limited to 50% foreign ownership.

The MIIT’s policy has been released ahead of similar policies for other industries. In Ovum’s view, the MIIT’s aggressive approach is due to the capital requirements of China’s telecoms industry, which needs private investment to achieve the goals of the government’s convergence and broadband plans. Both plans will require considerable investment and innovation from the private sector if they are to deliver on their goals of nationwide broadband coverage and cable network upgrades over the next few years.

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