Stalled reforms draw attention

27 Apr 2007

After years of stasis, Chinese telecom is once more starting to move. Over the past five years, with the Hu-Wen government focused on social and macro-economic issues, telecom sector reform has gone missing. Under the previous administration, led by Zhu Rongji, the industry was completely restructured: the old MPT was broken up, MII was formed, and the carriers were consolidated, corporatized and prepared for IPOs.

Certainly, telecom would appear to be traveling well from the current leaders' point of view. They see the carriers making profits, remote villages being connected and prices coming down.
Too bad that the rest of the world has meanwhile embraced 3G, VoIP, IPTV and direct competition between cable and telcos.

What efforts that have been made to move the industry forward - on 3G, or cable-telecom competition - have been confounded partly by turf wars between the lead agencies, SARFT, MII and SASAC.

Mostly, though it's because of the government's view of telecom as a strategic sector and - despite the market reforms of the past 25 years - its intervention in the economy through control of 150,000 state-owned enterprises.

Government vs private control

The China-India comparison, for once, is instructive. India's major telecom firms are controlled by some of the country's leading business conglomerates and run by professional managers who are building telecom empires that are now expanding globally.

The heads of the Chinese carriers are government officials under the direct control of the MII and the party. Notwithstanding China Mobile's stumbling efforts to go abroad, it is wholly focused on the domestic market.

Unfortunately, China's WTO commitments put upon the PRC certain obligations, such as allowing foreign firms to offer telecom services. That hasn't happened. The US telecom lobby group CompTel says China has made 'absolutely no progress' in tackling entry barriers in the last 12 months.

In its submission to the US Trade Representative's annual telecom policy review, Comptel noted that China's six-year grace period following its WTO entry will end in December 2007. Yet, it adds, 'there is still no telecommunications law, no independent regulatory authority - and tellingly, little foreign investment owing to the barriers that exist.'

If a foreign carrier has $240 million of market capital it can compete as a basic services provider. Under those conditions, and with no regulatory protections, of course no one has.

Those are the complaints that you'd expect lobby groups to make. Up to now, their voices haven't been heard in international trade politics, with the US and Europe have worried about currency, deficits and other matters. But that is about to change. A senior Commerce Department official last month singled out services such as aviation and telecoms as areas where the US expected to press China in coming trade talks.

The ground is also shifting in China. The Chinese government has just announced it wants its services sector to grow. The economy is unhealthily dependent on exports; consumer spending makes up about half of GDP, compared with 60% in advanced economies. The weak link is services, whose share of GDP actually contracted last year.

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