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Telecommunications, with Chinese characteristics
Telecommunications
Policy 1994 18 (3) 182-194
Telecommunications, with Chinese characteristics
John Ure
The formation of two new enterprises outside China’s Ministry of Posts and Telecommunications (MPT) to provide advanced data communication services and long-distance voice services reprosents a new phase in the development of China’s telecommunication sector. The author focuses on how two distinct policy agendas have contributed to this change. One is the desire of domestic interests who want to break into the lucrative telecommunications business and are dissatisfied with the MPT’s abiiity to provide advanced business services. The other is the desire on the part of the Communist Party to maintain control of the nation in an environment of rapid economic growth and decentralizing reforms. The author is with the Centre of Asian Studies, University of Hong Kong, Pokfulam Road, Hong Kong (Tel: 852 868 3985; fax: 852 868 4734).
‘Ken Zita, Modernizing China’s Telacommunications, EiU/Business international, London and Hong Kong, 1987, p 1. *‘Brief introduction of Ji Tong Communication Corporation Ltd’, Ji Tong, 2/F, Building D, Huiyuan Apartment, Asian Games Village, Beijing, June 1993.
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Since the adoption of the seventh five year plan, approved by the State Council in 1985, telecommunications have become a national priority.’
In June 1993 the development of China’s telecommunication sector entered a new phase when the Ji Tong Communication Corporation formally announced its registration as a company. Organized under the Ministry of Electronic Industries (MEI), Ji Tong’s shareholders come from 30 state-owned enterprises and research institutes in Beijing, Guangzhou, Shanghai and Shenzhen.’ Several ministries are involved, and also the State Council’s investment arm, China International Trust and Investment Corporation (CITIC). CITIC also owns 20% of Hong Kong Telecom and the Companhia de Telecommunica9oes de Macao, and a 33% share of Hong Kong’s AsiaSat. Ji Tong is, in turn, a stakeholder along with the Ministry of Railways and Ministry of Energy Resources in the Lian Tong (United) Corporation, another alliance poised to enter the long-distance telecommunications business. As of this writing, Lian Tong was still awaiting registration. Ji Tong’s aims include setting up joint ventures with overseas companies in communications research and product development, the building of local trunked radio, paging, cellular and CT2 networks, and the running of public data and value-added network services in China. These will be mostly radio and VSAT-based, but Ji Tong has cable building plans as well. Ji Tong hopes to make use of more than 30 private networks operated by around 20 different ministries. Lian Tong’s mission is to build and operate long-distance cables, with local interconnect, to supplement, or compete with, the MPT in voice traffic on its thick routes. As an alliance of ministries, Lian Tong is potentially well placed. For example, between Beijing and Guangzhou, Lian Tong may utilize the optical-fibre cabling of the railway. The formation of these two corporations represents a significant change, we might say a second phase, in the development of the telecommunication sector since China’s Open Door policy was adopted in 1979. If it is successfully carried out, it will be a dramatic departure from the previous policy of giving the Ministry of Posts and Telecommunications (MPT) exclusive rights to develop the telecommunications industry. What is driving this policy development? To say that China has
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recognized the strategic importance of telecommunications in national economic development and is determined to utilize all available domestic resources for network growth is true, but inadequate. In fact, there are other agendas involved in the unfolding of telecommunications policy in China. To explore all of them in detail would require considerably more research than has yet been done in this area. The arguments in this article should therefore be treated as no more than a preliminary contribution. In addition to the modernization argument I wish to highlight two other agendas, although this does not exhaust the list of stakeholders and interest groups. One is the agenda of domestic interests who want to break into the lucrative telecommunications business. They include ministries with private networks, and state organizations at the central and provincial levels, such as the People’s Liberation Army (PLA), which control radio frequencies, and the interests of enterprising managers lower down the ladder. The other, which is overarching in the sense that without it none of the reforms would be possible, is the concern within the top echelons of the Communist Party and the state over the politics of economic reform and the implications for the control of the nation.
Telecommunications and the Open Door policy
3Patriotism is a word highly venerated in the Chinese Communist lexicon. The PRC consists of five autonomous regions, including Inner Mongolia, Tibet and Xinjiang Uygur, and 55 recognized national minorities. There are eight major dialects, such as Cantonese, Hokien and Shanghaiese, besides the common dialect Putonghua (in Befjing accents) or Mandarin (in Tafwanese accents). *Deng Xiaoping played a leading role in the rehabilitation of scientific education in China. See Merle Goldman, China’s Intellectuals, Harvard University Press, Cambridge, MA, 1981. ‘For an overview of China’s approach to science and technology, see Richard Conroy, Technological Change in China, OECD, Paris, 1992. Conroy rather downplays the political and military aspects.
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A commitment to modernize China, almost at any cost, has stood at the heart of the Communist Party’s ideology from its early days. Mao’s first great failure, the Great Leap Forward, was entirely justified in these terms, and his second, the Cultural Revolution, partially so. Deng Xiaoping’s turn to the Open Door policy in 1979 came in the wake of a border war with Vietnam in which the technological backwardness of the PLA was badly exposed. Military and economic modernity were seen as symbiotic, and the implications for telecommunications were soon set out, as the quotation at the head of this article makes plain. A third factor was China’s geographical size and diversity of peoples and cultures. With over 1 billion people living across nearly 10 million sq km of often rugged and remote land, with many ethnic groups, languages and strong regional differences, China has a history of tension between centre and periphery, of fragmentation and warlordism.3 In sum, modernization, national unity and national strength are elemental aims compounded into the Party’s ideological aspirations and directing its political economy. Progress in science and technology figured high on this agenda during the 1980s. It needed to do so because China’s systems of education and of research and development had been nearly destroyed by the Cultural Revolution.4 But there is no question that the Open Door policy itself was the key driver to telecommunications development. It exposed the Chinese economy for the first time to the world market, beginning with the setting up of Special Economic Zones. These lures for attracting export-oriented foreign investment required good communications with the outside world as well as to domestic suppliers and officials of the local state bureaux. During the early and mid-1980s considerable attention was paid to issues of science, technology and industrial policy by the State Council, China’s highest government body.5 From these years came new guidelines as to the importance of telecommunications network development. But what emerged was also contested territory between different ministries. The Ministry of Electronic Industries (MEI) - until 1993 part
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of the Ministry of Machine-Building and Electronic Industries (MMEI) - is a major manufacturer of electrical and electronic equipment, including telecommunications equipment such as microwave radio transmitters, line equipment and switchboards. The ME1 therefore directly challenges the MPT for markets, and more recently for joint venture agreements with foreign companies wanting to invest in China’s equipment markets. Another source of tension between ministries came from the growth of private networks. Beginning in 1976, ministries such as Aerospace, Transport (roads, rivers, canals), Energy Resources (oil fields, mines, electricity grid), Railways and the PLA were authorized to develop networks of their own. China’s private networks consist of both fixed-wire and radio-based facilities. According to the China Business Weekly China’s total network capacity was 32 million lines, of which ‘19.26 million were for public use and 12.74 million for private or specialized use’.6 On the face of it this suggests private networks constitute 40% of China’s total. Although the private figure may include PABX lines, it is clear that the private networks of other ministries are a substantial part of China’s telecommunication scene. In recent years they have wanted to upgrade their systems, adding sufficient spare capacity to enter the very lucrative telecommunications business. Private trunked radio networks, paging networks and mobile cellular telephone networks have all offered opportunities for these state organizations to tap into public demand for telecommunications. Where interconnect arrangements have been struck at the local level with the Provincial Telecommunications Bureaux (PTBs) the clear separation between private and public access begins to dissolve.
First wave of state reform of telecommunications
‘%hina Business 1993.
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These competing interests were held at bay during the early stages of the reform and opening process, when the State Council allowed the MPT to have de facto responsibility for the planning, development and management of the national public telecommunications network in China. The State Council also decreed that in the use of radio spectrum for mobile communications the 800 Mhz frequency was reserved for private networks and the 900 Mhz for public, in effect determining the use of the TACS system for China’s analog cellular networks for the immediate future. But anomalies exist within this policy. For example, exceptions have been granted in the case of several poorer western provinces who were offered second-hand AMPS equipment by AT&T, while in the oilfields the 900 Mhz frequency is used by the Petroleum department of the Energy Resources Ministry. The state carried out other reforms. The PTBs were given considerable financial autonomy under the MPT, an important step towards flexibility in planning. Previously network targets had been set centrally, a process that was manageable when only government officials, state enterprises and Party cadres had access to telephones. Under the Seventh Five-Year Plan (1986-90) the PTBs were privileged in having their taxation rate reduced to 10% from the usual 33% levied on state enterprises. And within certain limits laid down by the MPT, for example which foreign equipment suppliers were on the approvals list, the limits imposed on foreign exchange transactions by the Ministry of Finance, and approvals required from the Ministry of Foreign Economic
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Telecommunications, with Chinese characteriks Table 1. Old and new Eighth Five-Year Plan
Exchange capacity (previoustarget) Telephone sets (previoustarget) Telephone density (previws w@) Toll trunk lines (previoustarget)
1995
2ooo
50 million (48 million) 36 million (31 million) 3% (2.5%) 520 WO (no change)
100 million (96 million) 78 million f; million) (5%) 1.4 million (no change)
Relations and Trade, the provincial PTBs could strike their own commercial deals. That is very much the situation today. All financing of the national trunk and international network is borne by the MPT, which also takes the revenue minus a local access charge or revenue share which returns to the PTB. The MPT also assists PTBs in the poorer provinces through a national redistribution formula which places subventions upon the PTBs according to the formula Revenue X Coefficient.7
Financing China’s expansion plans
‘Net contributing PTBs have a coefficient of less than 1, net receiving PTBs have a coefficient of greater than 1. For example, Beijing PTB has a coefficient of 0.6 and therefore hands over 0.4 of its revenue. Xiijiang PTB has a coeffiient of 1.4 and therefore receives a 40% increase on its revenue. Within provinces PTBs use the same method to reallocate resources to their poorer regions. BDeng was opposed in his go-for-growth policy by veteran Party economist and central planner Chen Yun, who supported reform but argued the market economy should be as free as a bird in a cage, the cage being the limits set by the planned economy. For an interesting account see Laszlo Ladany, The Communist Parly of China and Marxism, 1921-1995, Hoover Institution Press, Stanford, CA, 1966, Ch 22. Qan Zongjue, ‘The trends of optical fiber communications in China’, paper delivered to AIC Pan-Asia Optical Fibre Summit ‘93, Hong Kona, 5-7 June 1993. %&a D%/y, 15 February 1993. “China Da&. 2 Februarv 1992. 12163 acoo;dling to the-china Daily, 16 February 1993. ‘Qian, op tit, Ref 9.
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Before Deng Xiaoping’s climactic visit to the south in 1992, which decisively swung the political balance in the debate on economic liberalization,’ the Eighth Five-Year Plan (1991-95) targets for China’s network development was already ambitious. At the national level the MPT has embarked upon a phased development of optical-fibre cable links between all major cities, to provide for both PSTN and data traffic. A star pattern radiating from Beijing to the different regions of China is to be built, supplemented by transverse links from East to West. Twenty-two cables will have a length of 32 000 km. In addition, 20 interprovincial digital microwave systems will be installed, together with a network of 19 communication satellite Earth stations. This is what Professor Qian Zongjue of the Department of Science and Technology of the MPT refers to as the ‘three-dimensional nationwide digital communication trunk network’.’ According to the national plan, trunk circuits will increase from around 250 000 today to 520 000 by 1995 and to 1.4 million by 2000. At least a dozen additional satellite Earth stations are planned by 2000, and launches of China’s third-generation domestic satellite, Dongfanghong (‘East is Red’) - Series 3, should raise the number of satellite circuits to over 10 000. Qi Faren, President of the China Space Technology Institute, is quoted as saying that another 20 satellite launches are planned by the end of the century.” International satellite capacity in the region is also exploding, with the launch of AsiaSat 2, APStar, and others in 1994 and 1995. The VSAT market is set to expand in parallel, with the China Daily reporting forecasts of a 400% increase by 1995. l1 In addition submarine cable linkages with Japan and Korea are planned to provide alternative optical-fibre gateway facilities to Hong Kong. This ambitious national development will draw upon MPT funding, World Bank and other multilateral and bilateral funds. The real uncertainties about funding arise at the provincial level, where the torrid pace of PSTN development raises doubts about whether China can afford the needed construction and equipment. After Deng’s symbolic southern visit, ambitious telecommunications targets were raised still higher by bringing them forward five years. Table 1 provides the figures. By 1995 the aim is to install additional capacity of 30 million circuits, bringing the total to 50 million, and raising. the national telephone density from around 1.7 in 1993l’ to about 2-3 per 100 persons. Density in the larger cities should reach around 20%. By the year 2000 capacity is targeted at a capacity of 100 million switch circuits, and a density of over 5%. According to Professor Qian, density in the larger cities is targeted at between 30% and 40%. l3 If this expansion is accomplished an additional 80 million circuit capacity has to be installed. Taking conservative
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14Reports from Anhui and Heilongjiang provinces give costs of US$280 and US$220 equivalent. See China Telecommunication Construction, August 1992. IsJohn Ure, ‘Options and opportunities in China’s telecommunications’, paper delivered to IIR Telecommunications Deregulation in Hong Kong, Hong Kong, 2%30 April 1993; and Northern Business International report on China Telecoms, 1992. “Making sensible conversions of yuan into US dollars is not easy. At the time of writing the official exchange rate is around US$1:5.8 yuan, and the rate on China’s swap markets, which apply to foreign companies doing business in the PRC, is around US$l:8. Provincial PTBs are likely to get better rates than these when buying dollars to buy imported equipment, assuming they can get dollars at all. But for the sake of illustration only, let us assume the official rate. This converts MPT revenue into US$5.2 billion and US$10.4 billion for 1993 and forecast 1995. “Andrew Harrinaton. ‘The modernization of Asia-Pacific tekcommunications’, paper delivered to IIR conference on New Opportunities in Privatizing and Financing Telecommunications, Hong Kong, 28-30 June 1993. ‘8Xiong Bingqun, ‘The present and the future of telecommunications in China’, in Proceedings of the 5th International Conference, institute for Posts and Telecommunications, Tokyo, March 1993. lgDi Ang Zhao and Liu Junjia, ‘Telecommunications development and economic Telecommunications growth in China’, Policy, this issue, pp 211-215. 2oQuoted in Liaowang Zhoukan (Outlook Week/y), 12 April 1993. *‘China Daily, 30 March 1993. 22Yang Xianzu, ‘The development and reforming of telecommunications in China’, paper delivered to International Telecommunication Union, TelecomAsia ‘93, Singapore, 17-21 May 1993.
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estimates of US$200 per switch circuit14 and an additional US$SOO per customer connection for outside transmission plant, a total of US$lOOO, an expenditure equivalent of US$SO billion between now and the end of the century, or US$lO billion a year at today’s prices, will be required. If we assume that only 80% of capacity (64 million lines) will be connected directly to the customer, the costs reduce to US$64 billion plus US$3.2 billion for the installed but unused capacity, or US$8.4 billion a year. The MPT’s revenue could be over 30 billion yuan this year and 60 billion yuan by 1995, l5 80% of this coming from the telecommunications side of the business. l6 We are therefore talking of shortfalls of perhaps US$3 billion for one or two years before revenues appear to cover expenditure. If the average cost to install a circuit and connect to a customer were closer to US$1500, we are talking of US$96 billion spread over eight years, or US$12 billion annually at today’s prices. On this basis annual shortfalls in the early years rise to nearly US$7 billion and persist well beyond 1995. Dr Andrew Harrington of Solomon Brothers in Hong Kong has used an estimate of US$lOO billion, suggesting supplier finance could meet no more than US$25 billion of this,” but this would fill the gap beyond 1995. Continued strong revenue growth after 1995 coupled with falling equipment costs and rising local manufacturing output would close the gap entirely. These financing figures rest upon the vital assumption that US dollars are available to the PTBs, and renminbi convertibility does not substantially devalue. According to Professor Xiong Bingqun, President of the Chinese Academy of Posts and Telecommunications, post and telecommunications revenues are forecast to rise from 0.55% of GNP in 1990 to 6% by the year 2000.18 Surprisingly, Chinese sources cite much lower estimates. Professor Di Ang Zhao, Assistant Director of the National Research Centre for Science and Techology Development in Beijing, estimates the investment requirements of the Eighth Five-Year Plan at only 75 billion yuan (about US$13 billion) and those of the Ninth Five-Year Plan (1996 2000) at 150 billion yuan (about US$26 billion).19 This figure is close to the estimate of MPT Vice-Minister Chu Guo Fong, of ‘not less than 200 billion yuan from 1993 to 2000’ (say, US$34 billion).” But according to the China Daily the investment for 1993 alone is likely to be US$4-5 billion,*l and this must represent the thin end of the wedge. There are other significant means of financing these expansion plans. Addressing the International Telecommunication Union (ITU) last May, the MPT Vice-Minister, Yang Xianzu, quoted the MPT’s guiding principles: ‘Overall planning by the MPT, combined efforts by the central and the local governments, shared responsibilities and joint construction’. He significantly added: ‘Meanwhile, support will be given to other sectors in establishing the necessary private telecommunications networks so as to achieve coordinated development of the private and public networks.’ Then he spelt out some funding options: ‘Telecommunications enterprises will raise construction funds through various channels. By utilizing Chinese and foreign loans, circulating the necessary funds and leasing and collecting telephone installation fees, the enterprises will expand funding sources, increase self-accumulation and gradually bring about a favourable cycle of development.‘** The reference to loans and leasing is interesting. Leaseback arrangements have been appearing in China for the past year as various state
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enterprises with spare cash, or access to credits, have invested in PTB networks. Professor Di notes that by charging telephone installation fees a further 27 billion yuan will be forthcoming during 1991-95.23 But this would only cover 1993. Clearly the MPT expects the provincial PTBs to carry the lion’s share of the funding responsibilities. This of course permits them to seek loans. As Tan Zixiang of the School of Communication of Rutgers University has pointed out, over half of the investment in China’s public network has come from the PTBs in recent years.24 Foreign aid will undoubtedly remain important. Loans from Japan, France, Belgium, Spain and other countries accounted for 16% of P&T expenditure in 1991.25 But there are other ways in which the financing problem could be eased. The rapid expansion of domestic production of switching equipment, microwave transmission equipment and cable manufacture, including optical-fibre cable, will save China foreign exchange, because as of now most telecommunications equipment has to be imported. The key issue here is one of technology transfer. China has vigorously pursued a policy of insisting that foreign equipment vendors also undertake local manufacturing of key components, on a joint venture basis. Recently 100% foreign ownership factories have also been encouraged.
Mobile communications:
23Di, op tit, Ref 19. “‘Zixiang Tan, ‘Challenges to the MPT’s monopoly’, T&communications Policy, this issue, p 174-181. *%ee Xiong, op tit, Ref 18. 2eLu Er Rui, ‘Growth of mobile communications in the Guangdong province’, paper delivered to FBMA Mobile Comms ‘93, Hong Kong, 20 June1 July 1993. By October 1993 the figure in Guangdong alone had risen to 240 000.
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financing network growth?
A further source of revenue which is difficult to estimate, but which is growing by leaps and bounds, is income from mobile communications. The price of a cellular mobile telephone handset and registration stand at around US$4000, with local variations. Like telephone rentals and call charges within provinces, mobile tariffs are set by the local PTBs. The MPT’s original projection for mobile telephones was 30 000 subscribers by 1995. Already there are an estimated 200 000 users, and as Lu Er Rui, the General Manager of the Guangdong Mobile Communications Corporation, points out, half of them are in Guangdong province. 26 At the beginning of 1993 the city of Wuhan had 2000 subscribers with a waiting list of 300. A shortage of handsets is the principal problem. These figures indicate that waiting lists represent around 20% of current subscribers. If the expansion forecasts of the coastal provinces are a guide, the likely capacity of cellular networks in China by the year 2000 could well reach the 6 million mark. Certainly every town and city of any size is either building a mobile network or is planning one. The revenues from this golden market will certainly contribute to the financing of the national PSTN targets, assuming the mobile communications business units of the PTBs do not become separate and independent entities. A similar story seems to be unfolding with CT2, although more caution is required in discussing the prospects for this technology. According to Motorola, the leading supplier in China, at least six provinces are now committed. In Shenzhen a payback period of about six months was sufficient to cover initial costs. Although CT2 is looked upon with hostility by some senior engineers in China, who regard it as a diversion of PSTN circuits for a technology that may not last, others see it as a major commercial opportunity to generate funds for future development. This highlights a major change taking place in the PTBs in China.
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They are responding to the challenge of this new-found marketplace by setting up separate mobile communications business units. Organizational restructuring will, in turn, lead to a weather change in their perceptions. Costs and revenues will emerge as key questions, and issues such as network services development and customer relations will become important, although the latter may have to await network competition before it takes hold. This is looking to the future. As of today, the business units of the local monopoly mobile operators usually have very little idea of what the actual costs of the network really are, especially the incremental costs of adding more customers. They do not need to know since they can sell handsets and registration at supplyconstrained prices. Paging is the other major mobile money earner. According to Professor Xiong, there are over 2 million pagers in use today.” This compares with the MPT’s figure of 436 000 in 1990. PTBs run paging operations, but so do other state bodies such as the PLA and the public security bureaux (emergency services such as police, fire brigade, etc). In theory these other bodies operate private systems. In fact they do deals with the PTBs for interconnect to the PSTN, and by revenuesharing break into public service. Often they rely upon foreign participants to supply equipment, capital, and operational and commercial advice. Numerous Hong Kong companies who either manufacture paging equipment, operate paging equipment or act as vendors are involved in such deals. What the Chinese partner brings to the table is the most valuable commodity of all, radio spectrum. By State Council decree the State Radio Regulation Commission (SRRC) determines national guidelines of radio frequency allocations. The SRRC, like the MPT, has its provincial bureaux, and the bureaux themselves are becoming partners with the PTBs and other bodies in paging and cellular networks. And, as noted earlier, even non-telecommunications enterprises in China with access to spare cash are becoming involved, usually in leaseback arrangements, a form of loan to the PTB.
Competing agendas
“Xiong, op cit. Ref 18. 28Two examples: The Hong Kong company Champion Technology announced a joint venture with the Chengdu Tongfu Telecommunication Company, itself a joint venture between Chengdu PTB (60%), a business unit subsidiary of the Chengdu PLA (209/o), and Chengdu banks and state enterprises (20%). See Hong Kong Economic Journal, 15 April 1993. And according to Technology Resources Industries (TM), a Malaysia company run by an entrepreneur Tajudin Rameli which operates a cellular telephone network in Malaysia, it has a joint venture agreement with TriPoly, 80% owned by TRI and 20% by China Poly Economic Technology Development, a group managed by the PtA. See Business China, 18 October 1993.
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The first area, then, in which the MPT’s monopoly over networks has been eroded is radio-based mobile telecommunications. Compounding this issue is the distance, both physical and financial, between the MPT in Beijing and the provincial PTBs. In other words, there are two distinct layers of monopoly to be considered: the MPT’s monopoly over the industry and the monopoly of the PTBs over local facilities and services. On a daily basis the PTBs are much more closely involved with provincial governments, and provincial-level interest groups, than they are with the MPT. Their growing financial autonomy since the late 1980s has emboldened the PTBs to make their own arrangements with local private networks. In that sense, the monopoly of the MPT has been eroded involuntarily while the PTBs have been prepared to enter joint ventures with non-PTB bodies. These joint ventures have increasingly included Hong Kong companies, and in some cases the partners involved have gone so far as to openly publicize their joint venture deals.28 These arrangements are tantamount to the local PTBs and provincial governments allowing foreign direct investment into China’s mobile telecommunications net-
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works. It remains a grey area in Chinese administrative law whether the provincial PTBs and provincial governments do or do not have the authority to authorize foreign direct investment. One highly placed Beijing official in the telecommunications field assured this author they do, but since spring 1993 a campaign to halt these incursions of foreign influence has been underway. The Beijing Review reported a spokesman for the MPT on 25 May 1993 reiterating policy as follows: ‘No organization, enterprise or individual outside China may engage in the management of China’s broadcasting networks, special wire or wireless services, or become a shareholder in a telecommunications business.‘29 In Hong Kong the statement was interpreted as a rebuke to the growing number of claims by companies from Hong Kong, other Asian countries and North America that they had secured deals with PTBs, business units of the PLA or other state organizations in China to build and operate paging, trunked radio or cellular mobile networks. In some cases the companies concerned cautiously redefined their arrangements as equipment contracts, but it is widely believed that agreements are being structured which offer some form of indirect revenue-sharing from the operation of these networks. However, for every genuine deal there are several that should be dismissed as fanciful.30 The agenda involved in the closure of telecommunication service markets to foreign investment may be much wider in scope. A major review of telecommunications has been under way in China for more than a year, with a working group at State Council level reporting to Premier Li Peng, and Vice-Premiers Zhu Rongji and Zhou Jiahua (to whom the ME1 and MPT report). Widely expected changes include the separation of regulation from network operation within the MPT, and the licensing of Ji Tong and Lian Tong as second carriers for data, value-added services and voice, respectively. The latter liberalization is the result of pressure from at least two sources: the ministries with spare network capacity, led by the ME1 under the influential reformist minister Hu Qili, and the large users of VSAT and long-distance telecommunications such as the Bank of China, the China International Travel Service, the airlines, print media and others. In preparation for the new era, the MPT must reassert as much control as possible over provincial PTBs, and limit their scope for offering opportunities to private network operators. It has therefore moved to rein in their local-level agreements. On 14 September 1993 the China Daily quoted MPT spokesman Xu Shanyan announcing a tightening up: [Bleginning in November, only those units obtaining approval and business licenses from local telecom administrations will be allowed to launch such services as radio paging, radio trunked telephone systems, radio mobile telephones and domestic VSAT communications. Xu said units offering phone and computer information services, E-mail, ED1 and videotext must report their businesses to local telecommunication authorities. Xu went on to explain that new regulations were being drafted and these were designed to ‘safeguard telecommunications order, guarantee safe%eJing Review, 14-20 June 1993. ty and quality of telecom service for the public and create a favourable Vt is a familiar practice in Asia for entreenvironment for competition’. But overlaying the MPT’s position is a preneursof newly formed telecommunications companies to raise large sums of Party concern about control and corruption. The greater the licence capital on the cheap througha stock flota- enjoyed by local authorities, the greater the opportunity for local-level tii, or to host existingshare prices,on a kickbacks, fraudulent accounting and the laundering of money, much of claim to have secureda franchisehere or a contractthere. it through Hong Kong. TELECOMMUNICATIONS
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3’Soufh China Morning Post, 16 October 1993. 3qhe statement is reported in Chinese in Ming Pao, 16 October 1993. By contrast, the South China MorningPost changed its translation of the same passage on 6 November 1993 to the innocuous ‘to protect the Chinese nation’s splendid cultural tradition’. 33China Daily, 9 October 1993. 34Quoted by Far Eastern Economic Review, 4 November 1993. 35Peop/e’s Daily, 11 September 1993.
Similarly, in past struggles hardline Maoists have traditionally raised the need to defend Chinese state-socialist culture against the encroachments of foreign imperialism and bourgeois liberalization. This theme was clearly expressed in October 1993 by Wang Feng, Vice-Minister of the Ministry of Radio, Film and Television, a bastion of the hardliners, when he announced that the ban on operating satellite television dishes, which has been widely ignored in China, was to be enforced through a strict licensing system starting in April 1994. According to the translation of his speech in the South China Morning Post, he explained: ‘Such control is beneficial to the cultivation of patriotism among our citizens, safeguarding the superior tradition of the Chinese race, promoting socialist civilization and maintaining social stability.‘31 It needs to be pointed out immediately that this translation is contentious and illustrates the dangers in the West of stereotyping Chinese political thinking. The original text could more plausibly be translated as reading ‘the first class traditions of the Chinese’ without the obvious racist implications of the version provided to English readers in Hong Kong.32 Typical of the confusion that often accompanies Chinese law, the use of unlicensed dishes is forbidden, but making and selling them is not. The new regulations, signed by Premier Li Peng, will require manufacturers and vendors to be licensed, 33 but this is a lucrative trade, and many factories associated with powerful ministries like the ME1 and MPT are involved. It is unlikely that production will cease, and where there is supply there will be demand. It is not likely that many provincial governments will enforce these regulations very rigorously for a long time. A similar regulation requiring the registration of mobile telephones and pagers and similar electronic devices, and a requirement for licensed ventures to seek new approvals, was announced through articles in Beijing’s Economic Daily (Jingji Ribao) in October. As one of the articles put it: ‘Communications is the nation’s nerve system and involves the nation’s secrets and security. If China’s information system is spread about and not grasped firmly in hand, how can people feel safe?‘34 This paranoia may sound slightly ridiculous to a Western reader who has become used to telecommunications being treated less as a utility and more as a commodity, but it underlines the real fears and concerns of the Communist Party as its grip over the hearts, minds and pockets of the Chinese people weakens. But in tandem with the Party’s fears that the state may lose control over the means of communications, powerful organizations within the state are jockeying for control over them. The MPT is fighting a rearguard action to defend its monopoly; since the 1980s the ME1 has been fighting a long battle to break into that monopoly; and most recently the PLA has been asserting its influence to monopolize the 800 MHz frequencies which are reserved, under State Council ruling, for private cellular mobile networks.
The PLA In September 1993 the PLA seems to have strengthened its position in a joint statement (Order 128) issued by the State Council and the Central Ministry Commission (CMC) signed by Premier Li Peng and Party Secretary and Chairman of the CMC, Jiang Zemin.35 The statement divides responsibilities for non-military and military allocations of radio spectrum between the State Radio Regulation Commission and the
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PLA, respectively. It is significant for two reasons. First, Order 128 affirms the State Radio Regulation Commission, rather than the MPT, as responsible for the allocation of commercial frequencies to valueadded service operators. Hong Kong journalist Nick Ingelbrecht argues that the ‘new licensing regime is the first practical step in the separation of the regulatory and operational functions of the MPT’.36 Second, it affirms PLA authority over much of the 800 MHz frequency range. Modern techniques of spectrum splitting and signal compression are freeing up certain ranges of frequency which have civilian applications, and the PLA wants guarantees that it, rather than the State Radio Regulation Commission or other bodies such as the MPT, will control the commercial exploitation of this spectrum. CT2 and AMPS cellular mobile telephony are cases in point. The MPT wants to use the international standard spectrum allocation 860-880 MHz, but the frequencies 825-845 MHz and 870-890 MHz are military allocations in China. These are also AMPS frequencies, and with five western provinces now operating public AMPS networks it looks increasingly probable that AMPS, alongside 900 MHz TACS networks, will become public as well as private network standards in the PRC. The PLA has its own financial problems, and is under pressure to raise funds just to cover overheads such as military pensions, pay, uniforms and food.37 Under the CMC, the PLA is organized into various bureaux - strategy, political, supplies, military policy, national defence. Under the strategy bureau is a communications section which administers the PLA’s own communications equipment manufacturing arm, Zhongguo Dianzi Xitong Gongcheng Gongsi (the Chinese Electronic Systems Works Company), and its communications business arm, Zhongguo Zhi Hua Company (the Chinese Will Company).38 Most of the PLA’s commercial mobile radio business is organized through the latter at provincial and municipal levels. If the demand for cellular networks requires encroachments below 890 MHz the PLA is now well positioned to control whatever business arises.
The MEI, Ji Tong and Lian Tong
%Niik Ingelbrecht, ‘New Chinese telecom regulations’, in Pacific Rim Telecommunications, Probe Research, New Jersey, 15 October 1993. 37For an overview of the PLA’s commercial actiiities see Far Eastern Economic Review, 14 October 1993, pp 64-70. =For details see Contemporary, Hong Kong, November 1992. =See Tan, op tit, Ref 24. 4oAsia-Pacific Telecommunications, October 1993, p 6.
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The PLA is not the only one with eyes on the radio-based telecommunications markets. The MEI, which Tan suggests has lost business in recent years with the cutting back of military R&D expenditure,39 is keen to enter the digital mobile equipment market, and is also lobbying hard for the opening of the 800 MHz frequencies for public use.4o Through Ji Tong the ME1 hopes to enter joint manufacturing ventures with foreign equipment suppliers, and new service ventures with PTBs, PLA business units and any other state organization holding spectrum rights. Lian Tong is awaiting the approval of the State Council to operate long-distance voice and fax traffic in direct competition with the MPT. If it succeeds it is likely to be the more lucrative and extensive of the two alternative networks. The real opportunities for foreign participation, however, seem to lie with Ji Tong. The primary point of entry for Ji Tong is initially in radio-based national data communications. China’s data communications networks are, by world standards, rudimentary. The demand for data communication and related value-added services such as e-mail, ED1 and store-and-forward fax is still small. But the MPT has discouraged the development of this market by adoptiong high
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tariffs on private leased circuits. This situation will change as the economy grows and data communications network facilities become more available. On the supply side, the MPT is already undertaking a major development of a modern nationwide packet-switched data network using Northern Telecom data switches. With assistance from France T&corn the MPT’s China Academy of Posts and Telecommunications has also been developing a videotex information capability, and with the assistance of US companies the Guangdong PTB has begun operating an information centre from Shenzhen, available in Hong Kong via Hong Kong Telecom’s ChinaLink. Companies like Reuters, Telerate and Knight-Ridder have already begun on-line financial information services to the Shanghai and Shenzhen stock markets. On the demand side, at least 12 international banks have been allowed to set up offices in cities in China,41 and the growing diversity of domestic banking and non-banking financial institutions in China will create a demand for data communications. The spread of computers, especially in sectors such as travel, utilities and the media, will feed through to a demand for metropolitan and wide-area networks. As yet these requirements hardly exist, except for foreign multinationals and foreign embassies in Beijing, and their needs are international more than national. AT&T and Japan’s KDD have financed an international data satellite service run by the MPT from Beijing and Shanghai. As corporate and state enterprise demand increases, so will the demand for lower prices and higher reliability. Under these circumstances corporate users will shop around for alternative networks which can handle their traffic despite the MPT’s expansion plans. This is already happening in the case of VSATs. The China National Airlines Corporation has a contract with AT&T to set up its own network. Other corporations, such as the Bank of China, the People’s Daily and the China International Travel Service, are regular users of VSATs. The systems are used for oil exploration and transport coordination, as well as providing remote areas with basic telephone communication. Officially Ji Tong’s efforts will be directed towards these VSAT markets. But Ji Tong is also well positioned to resell capacity on China’s extensive private networks. On their own they can certainly provide network facilities as an alternative to the public network on a point-topoint basis, and perhaps on a limited point-to-multipoint basis for some corporations with the appropriate geographic spread. Up to now the MPT has utilized some of the capacity of these networks on a leased basis, but now the ME1 wants to go further. The outstanding advantage of Ji Tong from its own point of view is that it straddles equipment supply and network operations. The former is open to foreign direct investment, the latter is, officially, not so. Ji Tong managers make plain their enthusiasm for the possibilities of foreign investment. They are entrepreneurs in the business of attracting funds, and to overseas companies they are bound to be seen as a possible back door into network investment. Ji Tong’s existence therefore opens another grey area of investment opportunity in China’s telecommunications.
41For details see South China Morning Post, Financial Review, 22 October 1993.
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The Four Golden Projects The
major task confronting
the ME1 had to be selling the idea of
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42See Ref 8.
430utkwk Weekly, 2 August 1993.
network diversity at State Council level to Vice-Premiers Zhu Rongji and Zhou Jiahua, who have responsibility for both the MPT and the MEI, and to Premier Li Peng. As we have seen above, the ME1 and other ministries have exerted pressure since the late 1980s to allow them to resell their networks, and the MPT has leased capacity from time to time. But what has made the difference now? The answer is personalities and circumstances. The ME1 Minister, Hu Quili, a protege of fallen Party General Secretary Zhao Ziyang, is rather senior in the party and state rankings, and an influential reformer. The retirement in 1993 of the hardline MPT Minister Yang Taifang has removed an obstacle, while his deputy and successor, Wu Jichuan, is less senior and will carry less weight than Hu Qili. In recent years circumstances have also changed radically. Economics and politics must be seen as two sides of the same coin in Party debates in China. Deng Xiaoping’s campaign for economic reform and unimpeded growth was strongly opposed by Premier Li Peng, who upholds the ideas of veteran Party economist and elder statesman Chen Yun4’ favouring a more cautious approach to reform. Deng is looking for a way to safeguard the succession after his death and must be concerned that Li will act as a bridge for hardline Maoists. But equally worrying for all the leaders is the sense of loss of Party legitimacy and control, especially since 1989. Deng’s appointment of Zhu Rongji as Vice-Premier with special responsibility for economic reform was therefore an attempt to counterweight Li Peng and strengthen Deng’s choice of Jiang Zemin as Party Secretary to replace the disgraced Zhao Ziyang and a move to shift the limelight from the unpopular Li to the more acceptable image of Zhu, the reformer. Zhu has found, of course, that Deng’s unimpeded economic growth is inconsistent with keeping down inflation, maintaining a positive trade balance and controlling unofficial credit creation, speculation and corruption. Any realistic attempt to manage the macroeconomy therefore requires a much greater flow of information from around the county to the Beijing centre. If the centre does not even known what the growth rate of money supply is, or how the volume and value of external trade fluctuate each month, any attempt at economic management must fail, with possibly dire political consequences. Further, we have noted that the self-interests of the provinces often clash with Beijing’s view of the national interest. Beijing cannot rely upon the provinces to supply accurate information, or carry out policy directives. Having an independent information system is therefore very attractive to Beijing, and that is exactly what the ME1 and Ji Tong have offered the State Council. Outlook Weekly carried the first public announcement by the ME1 of its proposals, the Golden Projects.43 The Golden Bridge project is the building of a national economic information network of stored and real-time data linking state economic departments. The Golden Card project will create a bank credit card payment and authentication network. The Golden Gate project will network all customs offices and provide an ED1 system. These networks will combine satellite and fixed-wire systems. Missing from this list is a fourth project that the author has learned from Beijing sources, the Golden Sea project. This project is named after Zhongnanhai (Central South Sea), the compound where the top Party leaders live and shop and where their children go to school. It is located close to the old Forbidden City where China’s emperors have resided since the 15th
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century. It would seem that the Golden Sea project will separately network the Communist Party. Information is empowerment, and power is an ingredient of control. Economic control and political control have gone hand in hand in China’s system of state socialism. When the two were temporarily broken during the Cultural Revolution, the highly politicized military filled the vacuum. Once again the two are under growing pressure, but this time the emphasis is upon modernization, and the ME1 is successfully promoting information technology as a weapon in the struggle to maintain Party and state discipline over the people and provinces of China.
Conclusion
“Yang, op tit, Ref 22.
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The stage seems set for radical changes of direction in China’s telecommunications industry. The regulatory functions of the MPT are to be separated from network operations, and other China players will be allowed to enter value-added network service markets and basic voice. In his speech to the ITU’s TelecomAsia ‘93 in Singapore, MPT Vice-Minister Yang Xianzu talked about ‘multi-level management and decentralization in telecommunications’, but it seems the model breakup of the Aeronautics Ministry into separate operating companies will not be applied to telecommunications. He spoke of the need to change ‘the government functions and separate government and enterprise functions’, to achieve ‘separation of posts and telecommunications’ and to ‘push them to the market to improve services’. And he spoke of the need to ‘gradually introduce competition into non-basic telecommunications services through legislative means’.44 These changes are not the result of a single pressure arising from the need to modernize. They arise from a number of agendas, from the interests of the provincial PTBs, from PLA business interests, from state enterprises as users, from ministries with network capacity to resell. Some of these agendas are being pursued discreetly, especially in radio communications and in areas far removed from Beijing. But for the major reforms to take place the political and economic agendas of the Party and state have to be fulfilled. From this perspective, and in light of China’s ability to generate very high revenues from the industry, the likelihood of a major change in state attitude towards foreign direct investment in networks is low. But equally, as provincial PTBs and second network operators develop their markets they will demand the right to enter commercial alliances which benefit them. The timetable for telecommunications reform will be set by these competing agendas.
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Policy 1994 18 (3) 182-194
Telecommunications, with Chinese characteristics
John Ure
The formation of two new enterprises outside China’s Ministry of Posts and Telecommunications (MPT) to provide advanced data communication services and long-distance voice services reprosents a new phase in the development of China’s telecommunication sector. The author focuses on how two distinct policy agendas have contributed to this change. One is the desire of domestic interests who want to break into the lucrative telecommunications business and are dissatisfied with the MPT’s abiiity to provide advanced business services. The other is the desire on the part of the Communist Party to maintain control of the nation in an environment of rapid economic growth and decentralizing reforms. The author is with the Centre of Asian Studies, University of Hong Kong, Pokfulam Road, Hong Kong (Tel: 852 868 3985; fax: 852 868 4734).
‘Ken Zita, Modernizing China’s Telacommunications, EiU/Business international, London and Hong Kong, 1987, p 1. *‘Brief introduction of Ji Tong Communication Corporation Ltd’, Ji Tong, 2/F, Building D, Huiyuan Apartment, Asian Games Village, Beijing, June 1993.
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Since the adoption of the seventh five year plan, approved by the State Council in 1985, telecommunications have become a national priority.’
In June 1993 the development of China’s telecommunication sector entered a new phase when the Ji Tong Communication Corporation formally announced its registration as a company. Organized under the Ministry of Electronic Industries (MEI), Ji Tong’s shareholders come from 30 state-owned enterprises and research institutes in Beijing, Guangzhou, Shanghai and Shenzhen.’ Several ministries are involved, and also the State Council’s investment arm, China International Trust and Investment Corporation (CITIC). CITIC also owns 20% of Hong Kong Telecom and the Companhia de Telecommunica9oes de Macao, and a 33% share of Hong Kong’s AsiaSat. Ji Tong is, in turn, a stakeholder along with the Ministry of Railways and Ministry of Energy Resources in the Lian Tong (United) Corporation, another alliance poised to enter the long-distance telecommunications business. As of this writing, Lian Tong was still awaiting registration. Ji Tong’s aims include setting up joint ventures with overseas companies in communications research and product development, the building of local trunked radio, paging, cellular and CT2 networks, and the running of public data and value-added network services in China. These will be mostly radio and VSAT-based, but Ji Tong has cable building plans as well. Ji Tong hopes to make use of more than 30 private networks operated by around 20 different ministries. Lian Tong’s mission is to build and operate long-distance cables, with local interconnect, to supplement, or compete with, the MPT in voice traffic on its thick routes. As an alliance of ministries, Lian Tong is potentially well placed. For example, between Beijing and Guangzhou, Lian Tong may utilize the optical-fibre cabling of the railway. The formation of these two corporations represents a significant change, we might say a second phase, in the development of the telecommunication sector since China’s Open Door policy was adopted in 1979. If it is successfully carried out, it will be a dramatic departure from the previous policy of giving the Ministry of Posts and Telecommunications (MPT) exclusive rights to develop the telecommunications industry. What is driving this policy development? To say that China has
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recognized the strategic importance of telecommunications in national economic development and is determined to utilize all available domestic resources for network growth is true, but inadequate. In fact, there are other agendas involved in the unfolding of telecommunications policy in China. To explore all of them in detail would require considerably more research than has yet been done in this area. The arguments in this article should therefore be treated as no more than a preliminary contribution. In addition to the modernization argument I wish to highlight two other agendas, although this does not exhaust the list of stakeholders and interest groups. One is the agenda of domestic interests who want to break into the lucrative telecommunications business. They include ministries with private networks, and state organizations at the central and provincial levels, such as the People’s Liberation Army (PLA), which control radio frequencies, and the interests of enterprising managers lower down the ladder. The other, which is overarching in the sense that without it none of the reforms would be possible, is the concern within the top echelons of the Communist Party and the state over the politics of economic reform and the implications for the control of the nation.
Telecommunications and the Open Door policy
3Patriotism is a word highly venerated in the Chinese Communist lexicon. The PRC consists of five autonomous regions, including Inner Mongolia, Tibet and Xinjiang Uygur, and 55 recognized national minorities. There are eight major dialects, such as Cantonese, Hokien and Shanghaiese, besides the common dialect Putonghua (in Befjing accents) or Mandarin (in Tafwanese accents). *Deng Xiaoping played a leading role in the rehabilitation of scientific education in China. See Merle Goldman, China’s Intellectuals, Harvard University Press, Cambridge, MA, 1981. ‘For an overview of China’s approach to science and technology, see Richard Conroy, Technological Change in China, OECD, Paris, 1992. Conroy rather downplays the political and military aspects.
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A commitment to modernize China, almost at any cost, has stood at the heart of the Communist Party’s ideology from its early days. Mao’s first great failure, the Great Leap Forward, was entirely justified in these terms, and his second, the Cultural Revolution, partially so. Deng Xiaoping’s turn to the Open Door policy in 1979 came in the wake of a border war with Vietnam in which the technological backwardness of the PLA was badly exposed. Military and economic modernity were seen as symbiotic, and the implications for telecommunications were soon set out, as the quotation at the head of this article makes plain. A third factor was China’s geographical size and diversity of peoples and cultures. With over 1 billion people living across nearly 10 million sq km of often rugged and remote land, with many ethnic groups, languages and strong regional differences, China has a history of tension between centre and periphery, of fragmentation and warlordism.3 In sum, modernization, national unity and national strength are elemental aims compounded into the Party’s ideological aspirations and directing its political economy. Progress in science and technology figured high on this agenda during the 1980s. It needed to do so because China’s systems of education and of research and development had been nearly destroyed by the Cultural Revolution.4 But there is no question that the Open Door policy itself was the key driver to telecommunications development. It exposed the Chinese economy for the first time to the world market, beginning with the setting up of Special Economic Zones. These lures for attracting export-oriented foreign investment required good communications with the outside world as well as to domestic suppliers and officials of the local state bureaux. During the early and mid-1980s considerable attention was paid to issues of science, technology and industrial policy by the State Council, China’s highest government body.5 From these years came new guidelines as to the importance of telecommunications network development. But what emerged was also contested territory between different ministries. The Ministry of Electronic Industries (MEI) - until 1993 part
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of the Ministry of Machine-Building and Electronic Industries (MMEI) - is a major manufacturer of electrical and electronic equipment, including telecommunications equipment such as microwave radio transmitters, line equipment and switchboards. The ME1 therefore directly challenges the MPT for markets, and more recently for joint venture agreements with foreign companies wanting to invest in China’s equipment markets. Another source of tension between ministries came from the growth of private networks. Beginning in 1976, ministries such as Aerospace, Transport (roads, rivers, canals), Energy Resources (oil fields, mines, electricity grid), Railways and the PLA were authorized to develop networks of their own. China’s private networks consist of both fixed-wire and radio-based facilities. According to the China Business Weekly China’s total network capacity was 32 million lines, of which ‘19.26 million were for public use and 12.74 million for private or specialized use’.6 On the face of it this suggests private networks constitute 40% of China’s total. Although the private figure may include PABX lines, it is clear that the private networks of other ministries are a substantial part of China’s telecommunication scene. In recent years they have wanted to upgrade their systems, adding sufficient spare capacity to enter the very lucrative telecommunications business. Private trunked radio networks, paging networks and mobile cellular telephone networks have all offered opportunities for these state organizations to tap into public demand for telecommunications. Where interconnect arrangements have been struck at the local level with the Provincial Telecommunications Bureaux (PTBs) the clear separation between private and public access begins to dissolve.
First wave of state reform of telecommunications
‘%hina Business 1993.
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Weekly, 21-27
February
These competing interests were held at bay during the early stages of the reform and opening process, when the State Council allowed the MPT to have de facto responsibility for the planning, development and management of the national public telecommunications network in China. The State Council also decreed that in the use of radio spectrum for mobile communications the 800 Mhz frequency was reserved for private networks and the 900 Mhz for public, in effect determining the use of the TACS system for China’s analog cellular networks for the immediate future. But anomalies exist within this policy. For example, exceptions have been granted in the case of several poorer western provinces who were offered second-hand AMPS equipment by AT&T, while in the oilfields the 900 Mhz frequency is used by the Petroleum department of the Energy Resources Ministry. The state carried out other reforms. The PTBs were given considerable financial autonomy under the MPT, an important step towards flexibility in planning. Previously network targets had been set centrally, a process that was manageable when only government officials, state enterprises and Party cadres had access to telephones. Under the Seventh Five-Year Plan (1986-90) the PTBs were privileged in having their taxation rate reduced to 10% from the usual 33% levied on state enterprises. And within certain limits laid down by the MPT, for example which foreign equipment suppliers were on the approvals list, the limits imposed on foreign exchange transactions by the Ministry of Finance, and approvals required from the Ministry of Foreign Economic
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Telecommunications, with Chinese characteriks Table 1. Old and new Eighth Five-Year Plan
Exchange capacity (previoustarget) Telephone sets (previoustarget) Telephone density (previws w@) Toll trunk lines (previoustarget)
1995
2ooo
50 million (48 million) 36 million (31 million) 3% (2.5%) 520 WO (no change)
100 million (96 million) 78 million f; million) (5%) 1.4 million (no change)
Relations and Trade, the provincial PTBs could strike their own commercial deals. That is very much the situation today. All financing of the national trunk and international network is borne by the MPT, which also takes the revenue minus a local access charge or revenue share which returns to the PTB. The MPT also assists PTBs in the poorer provinces through a national redistribution formula which places subventions upon the PTBs according to the formula Revenue X Coefficient.7
Financing China’s expansion plans
‘Net contributing PTBs have a coefficient of less than 1, net receiving PTBs have a coefficient of greater than 1. For example, Beijing PTB has a coefficient of 0.6 and therefore hands over 0.4 of its revenue. Xiijiang PTB has a coeffiient of 1.4 and therefore receives a 40% increase on its revenue. Within provinces PTBs use the same method to reallocate resources to their poorer regions. BDeng was opposed in his go-for-growth policy by veteran Party economist and central planner Chen Yun, who supported reform but argued the market economy should be as free as a bird in a cage, the cage being the limits set by the planned economy. For an interesting account see Laszlo Ladany, The Communist Parly of China and Marxism, 1921-1995, Hoover Institution Press, Stanford, CA, 1966, Ch 22. Qan Zongjue, ‘The trends of optical fiber communications in China’, paper delivered to AIC Pan-Asia Optical Fibre Summit ‘93, Hong Kona, 5-7 June 1993. %&a D%/y, 15 February 1993. “China Da&. 2 Februarv 1992. 12163 acoo;dling to the-china Daily, 16 February 1993. ‘Qian, op tit, Ref 9.
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Before Deng Xiaoping’s climactic visit to the south in 1992, which decisively swung the political balance in the debate on economic liberalization,’ the Eighth Five-Year Plan (1991-95) targets for China’s network development was already ambitious. At the national level the MPT has embarked upon a phased development of optical-fibre cable links between all major cities, to provide for both PSTN and data traffic. A star pattern radiating from Beijing to the different regions of China is to be built, supplemented by transverse links from East to West. Twenty-two cables will have a length of 32 000 km. In addition, 20 interprovincial digital microwave systems will be installed, together with a network of 19 communication satellite Earth stations. This is what Professor Qian Zongjue of the Department of Science and Technology of the MPT refers to as the ‘three-dimensional nationwide digital communication trunk network’.’ According to the national plan, trunk circuits will increase from around 250 000 today to 520 000 by 1995 and to 1.4 million by 2000. At least a dozen additional satellite Earth stations are planned by 2000, and launches of China’s third-generation domestic satellite, Dongfanghong (‘East is Red’) - Series 3, should raise the number of satellite circuits to over 10 000. Qi Faren, President of the China Space Technology Institute, is quoted as saying that another 20 satellite launches are planned by the end of the century.” International satellite capacity in the region is also exploding, with the launch of AsiaSat 2, APStar, and others in 1994 and 1995. The VSAT market is set to expand in parallel, with the China Daily reporting forecasts of a 400% increase by 1995. l1 In addition submarine cable linkages with Japan and Korea are planned to provide alternative optical-fibre gateway facilities to Hong Kong. This ambitious national development will draw upon MPT funding, World Bank and other multilateral and bilateral funds. The real uncertainties about funding arise at the provincial level, where the torrid pace of PSTN development raises doubts about whether China can afford the needed construction and equipment. After Deng’s symbolic southern visit, ambitious telecommunications targets were raised still higher by bringing them forward five years. Table 1 provides the figures. By 1995 the aim is to install additional capacity of 30 million circuits, bringing the total to 50 million, and raising. the national telephone density from around 1.7 in 1993l’ to about 2-3 per 100 persons. Density in the larger cities should reach around 20%. By the year 2000 capacity is targeted at a capacity of 100 million switch circuits, and a density of over 5%. According to Professor Qian, density in the larger cities is targeted at between 30% and 40%. l3 If this expansion is accomplished an additional 80 million circuit capacity has to be installed. Taking conservative
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14Reports from Anhui and Heilongjiang provinces give costs of US$280 and US$220 equivalent. See China Telecommunication Construction, August 1992. IsJohn Ure, ‘Options and opportunities in China’s telecommunications’, paper delivered to IIR Telecommunications Deregulation in Hong Kong, Hong Kong, 2%30 April 1993; and Northern Business International report on China Telecoms, 1992. “Making sensible conversions of yuan into US dollars is not easy. At the time of writing the official exchange rate is around US$1:5.8 yuan, and the rate on China’s swap markets, which apply to foreign companies doing business in the PRC, is around US$l:8. Provincial PTBs are likely to get better rates than these when buying dollars to buy imported equipment, assuming they can get dollars at all. But for the sake of illustration only, let us assume the official rate. This converts MPT revenue into US$5.2 billion and US$10.4 billion for 1993 and forecast 1995. “Andrew Harrinaton. ‘The modernization of Asia-Pacific tekcommunications’, paper delivered to IIR conference on New Opportunities in Privatizing and Financing Telecommunications, Hong Kong, 28-30 June 1993. ‘8Xiong Bingqun, ‘The present and the future of telecommunications in China’, in Proceedings of the 5th International Conference, institute for Posts and Telecommunications, Tokyo, March 1993. lgDi Ang Zhao and Liu Junjia, ‘Telecommunications development and economic Telecommunications growth in China’, Policy, this issue, pp 211-215. 2oQuoted in Liaowang Zhoukan (Outlook Week/y), 12 April 1993. *‘China Daily, 30 March 1993. 22Yang Xianzu, ‘The development and reforming of telecommunications in China’, paper delivered to International Telecommunication Union, TelecomAsia ‘93, Singapore, 17-21 May 1993.
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estimates of US$200 per switch circuit14 and an additional US$SOO per customer connection for outside transmission plant, a total of US$lOOO, an expenditure equivalent of US$SO billion between now and the end of the century, or US$lO billion a year at today’s prices, will be required. If we assume that only 80% of capacity (64 million lines) will be connected directly to the customer, the costs reduce to US$64 billion plus US$3.2 billion for the installed but unused capacity, or US$8.4 billion a year. The MPT’s revenue could be over 30 billion yuan this year and 60 billion yuan by 1995, l5 80% of this coming from the telecommunications side of the business. l6 We are therefore talking of shortfalls of perhaps US$3 billion for one or two years before revenues appear to cover expenditure. If the average cost to install a circuit and connect to a customer were closer to US$1500, we are talking of US$96 billion spread over eight years, or US$12 billion annually at today’s prices. On this basis annual shortfalls in the early years rise to nearly US$7 billion and persist well beyond 1995. Dr Andrew Harrington of Solomon Brothers in Hong Kong has used an estimate of US$lOO billion, suggesting supplier finance could meet no more than US$25 billion of this,” but this would fill the gap beyond 1995. Continued strong revenue growth after 1995 coupled with falling equipment costs and rising local manufacturing output would close the gap entirely. These financing figures rest upon the vital assumption that US dollars are available to the PTBs, and renminbi convertibility does not substantially devalue. According to Professor Xiong Bingqun, President of the Chinese Academy of Posts and Telecommunications, post and telecommunications revenues are forecast to rise from 0.55% of GNP in 1990 to 6% by the year 2000.18 Surprisingly, Chinese sources cite much lower estimates. Professor Di Ang Zhao, Assistant Director of the National Research Centre for Science and Techology Development in Beijing, estimates the investment requirements of the Eighth Five-Year Plan at only 75 billion yuan (about US$13 billion) and those of the Ninth Five-Year Plan (1996 2000) at 150 billion yuan (about US$26 billion).19 This figure is close to the estimate of MPT Vice-Minister Chu Guo Fong, of ‘not less than 200 billion yuan from 1993 to 2000’ (say, US$34 billion).” But according to the China Daily the investment for 1993 alone is likely to be US$4-5 billion,*l and this must represent the thin end of the wedge. There are other significant means of financing these expansion plans. Addressing the International Telecommunication Union (ITU) last May, the MPT Vice-Minister, Yang Xianzu, quoted the MPT’s guiding principles: ‘Overall planning by the MPT, combined efforts by the central and the local governments, shared responsibilities and joint construction’. He significantly added: ‘Meanwhile, support will be given to other sectors in establishing the necessary private telecommunications networks so as to achieve coordinated development of the private and public networks.’ Then he spelt out some funding options: ‘Telecommunications enterprises will raise construction funds through various channels. By utilizing Chinese and foreign loans, circulating the necessary funds and leasing and collecting telephone installation fees, the enterprises will expand funding sources, increase self-accumulation and gradually bring about a favourable cycle of development.‘** The reference to loans and leasing is interesting. Leaseback arrangements have been appearing in China for the past year as various state
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enterprises with spare cash, or access to credits, have invested in PTB networks. Professor Di notes that by charging telephone installation fees a further 27 billion yuan will be forthcoming during 1991-95.23 But this would only cover 1993. Clearly the MPT expects the provincial PTBs to carry the lion’s share of the funding responsibilities. This of course permits them to seek loans. As Tan Zixiang of the School of Communication of Rutgers University has pointed out, over half of the investment in China’s public network has come from the PTBs in recent years.24 Foreign aid will undoubtedly remain important. Loans from Japan, France, Belgium, Spain and other countries accounted for 16% of P&T expenditure in 1991.25 But there are other ways in which the financing problem could be eased. The rapid expansion of domestic production of switching equipment, microwave transmission equipment and cable manufacture, including optical-fibre cable, will save China foreign exchange, because as of now most telecommunications equipment has to be imported. The key issue here is one of technology transfer. China has vigorously pursued a policy of insisting that foreign equipment vendors also undertake local manufacturing of key components, on a joint venture basis. Recently 100% foreign ownership factories have also been encouraged.
Mobile communications:
23Di, op tit, Ref 19. “‘Zixiang Tan, ‘Challenges to the MPT’s monopoly’, T&communications Policy, this issue, p 174-181. *%ee Xiong, op tit, Ref 18. 2eLu Er Rui, ‘Growth of mobile communications in the Guangdong province’, paper delivered to FBMA Mobile Comms ‘93, Hong Kong, 20 June1 July 1993. By October 1993 the figure in Guangdong alone had risen to 240 000.
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financing network growth?
A further source of revenue which is difficult to estimate, but which is growing by leaps and bounds, is income from mobile communications. The price of a cellular mobile telephone handset and registration stand at around US$4000, with local variations. Like telephone rentals and call charges within provinces, mobile tariffs are set by the local PTBs. The MPT’s original projection for mobile telephones was 30 000 subscribers by 1995. Already there are an estimated 200 000 users, and as Lu Er Rui, the General Manager of the Guangdong Mobile Communications Corporation, points out, half of them are in Guangdong province. 26 At the beginning of 1993 the city of Wuhan had 2000 subscribers with a waiting list of 300. A shortage of handsets is the principal problem. These figures indicate that waiting lists represent around 20% of current subscribers. If the expansion forecasts of the coastal provinces are a guide, the likely capacity of cellular networks in China by the year 2000 could well reach the 6 million mark. Certainly every town and city of any size is either building a mobile network or is planning one. The revenues from this golden market will certainly contribute to the financing of the national PSTN targets, assuming the mobile communications business units of the PTBs do not become separate and independent entities. A similar story seems to be unfolding with CT2, although more caution is required in discussing the prospects for this technology. According to Motorola, the leading supplier in China, at least six provinces are now committed. In Shenzhen a payback period of about six months was sufficient to cover initial costs. Although CT2 is looked upon with hostility by some senior engineers in China, who regard it as a diversion of PSTN circuits for a technology that may not last, others see it as a major commercial opportunity to generate funds for future development. This highlights a major change taking place in the PTBs in China.
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They are responding to the challenge of this new-found marketplace by setting up separate mobile communications business units. Organizational restructuring will, in turn, lead to a weather change in their perceptions. Costs and revenues will emerge as key questions, and issues such as network services development and customer relations will become important, although the latter may have to await network competition before it takes hold. This is looking to the future. As of today, the business units of the local monopoly mobile operators usually have very little idea of what the actual costs of the network really are, especially the incremental costs of adding more customers. They do not need to know since they can sell handsets and registration at supplyconstrained prices. Paging is the other major mobile money earner. According to Professor Xiong, there are over 2 million pagers in use today.” This compares with the MPT’s figure of 436 000 in 1990. PTBs run paging operations, but so do other state bodies such as the PLA and the public security bureaux (emergency services such as police, fire brigade, etc). In theory these other bodies operate private systems. In fact they do deals with the PTBs for interconnect to the PSTN, and by revenuesharing break into public service. Often they rely upon foreign participants to supply equipment, capital, and operational and commercial advice. Numerous Hong Kong companies who either manufacture paging equipment, operate paging equipment or act as vendors are involved in such deals. What the Chinese partner brings to the table is the most valuable commodity of all, radio spectrum. By State Council decree the State Radio Regulation Commission (SRRC) determines national guidelines of radio frequency allocations. The SRRC, like the MPT, has its provincial bureaux, and the bureaux themselves are becoming partners with the PTBs and other bodies in paging and cellular networks. And, as noted earlier, even non-telecommunications enterprises in China with access to spare cash are becoming involved, usually in leaseback arrangements, a form of loan to the PTB.
Competing agendas
“Xiong, op cit. Ref 18. 28Two examples: The Hong Kong company Champion Technology announced a joint venture with the Chengdu Tongfu Telecommunication Company, itself a joint venture between Chengdu PTB (60%), a business unit subsidiary of the Chengdu PLA (209/o), and Chengdu banks and state enterprises (20%). See Hong Kong Economic Journal, 15 April 1993. And according to Technology Resources Industries (TM), a Malaysia company run by an entrepreneur Tajudin Rameli which operates a cellular telephone network in Malaysia, it has a joint venture agreement with TriPoly, 80% owned by TRI and 20% by China Poly Economic Technology Development, a group managed by the PtA. See Business China, 18 October 1993.
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The first area, then, in which the MPT’s monopoly over networks has been eroded is radio-based mobile telecommunications. Compounding this issue is the distance, both physical and financial, between the MPT in Beijing and the provincial PTBs. In other words, there are two distinct layers of monopoly to be considered: the MPT’s monopoly over the industry and the monopoly of the PTBs over local facilities and services. On a daily basis the PTBs are much more closely involved with provincial governments, and provincial-level interest groups, than they are with the MPT. Their growing financial autonomy since the late 1980s has emboldened the PTBs to make their own arrangements with local private networks. In that sense, the monopoly of the MPT has been eroded involuntarily while the PTBs have been prepared to enter joint ventures with non-PTB bodies. These joint ventures have increasingly included Hong Kong companies, and in some cases the partners involved have gone so far as to openly publicize their joint venture deals.28 These arrangements are tantamount to the local PTBs and provincial governments allowing foreign direct investment into China’s mobile telecommunications net-
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works. It remains a grey area in Chinese administrative law whether the provincial PTBs and provincial governments do or do not have the authority to authorize foreign direct investment. One highly placed Beijing official in the telecommunications field assured this author they do, but since spring 1993 a campaign to halt these incursions of foreign influence has been underway. The Beijing Review reported a spokesman for the MPT on 25 May 1993 reiterating policy as follows: ‘No organization, enterprise or individual outside China may engage in the management of China’s broadcasting networks, special wire or wireless services, or become a shareholder in a telecommunications business.‘29 In Hong Kong the statement was interpreted as a rebuke to the growing number of claims by companies from Hong Kong, other Asian countries and North America that they had secured deals with PTBs, business units of the PLA or other state organizations in China to build and operate paging, trunked radio or cellular mobile networks. In some cases the companies concerned cautiously redefined their arrangements as equipment contracts, but it is widely believed that agreements are being structured which offer some form of indirect revenue-sharing from the operation of these networks. However, for every genuine deal there are several that should be dismissed as fanciful.30 The agenda involved in the closure of telecommunication service markets to foreign investment may be much wider in scope. A major review of telecommunications has been under way in China for more than a year, with a working group at State Council level reporting to Premier Li Peng, and Vice-Premiers Zhu Rongji and Zhou Jiahua (to whom the ME1 and MPT report). Widely expected changes include the separation of regulation from network operation within the MPT, and the licensing of Ji Tong and Lian Tong as second carriers for data, value-added services and voice, respectively. The latter liberalization is the result of pressure from at least two sources: the ministries with spare network capacity, led by the ME1 under the influential reformist minister Hu Qili, and the large users of VSAT and long-distance telecommunications such as the Bank of China, the China International Travel Service, the airlines, print media and others. In preparation for the new era, the MPT must reassert as much control as possible over provincial PTBs, and limit their scope for offering opportunities to private network operators. It has therefore moved to rein in their local-level agreements. On 14 September 1993 the China Daily quoted MPT spokesman Xu Shanyan announcing a tightening up: [Bleginning in November, only those units obtaining approval and business licenses from local telecom administrations will be allowed to launch such services as radio paging, radio trunked telephone systems, radio mobile telephones and domestic VSAT communications. Xu said units offering phone and computer information services, E-mail, ED1 and videotext must report their businesses to local telecommunication authorities. Xu went on to explain that new regulations were being drafted and these were designed to ‘safeguard telecommunications order, guarantee safe%eJing Review, 14-20 June 1993. ty and quality of telecom service for the public and create a favourable Vt is a familiar practice in Asia for entreenvironment for competition’. But overlaying the MPT’s position is a preneursof newly formed telecommunications companies to raise large sums of Party concern about control and corruption. The greater the licence capital on the cheap througha stock flota- enjoyed by local authorities, the greater the opportunity for local-level tii, or to host existingshare prices,on a kickbacks, fraudulent accounting and the laundering of money, much of claim to have secureda franchisehere or a contractthere. it through Hong Kong. TELECOMMUNICATIONS
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3’Soufh China Morning Post, 16 October 1993. 3qhe statement is reported in Chinese in Ming Pao, 16 October 1993. By contrast, the South China MorningPost changed its translation of the same passage on 6 November 1993 to the innocuous ‘to protect the Chinese nation’s splendid cultural tradition’. 33China Daily, 9 October 1993. 34Quoted by Far Eastern Economic Review, 4 November 1993. 35Peop/e’s Daily, 11 September 1993.
Similarly, in past struggles hardline Maoists have traditionally raised the need to defend Chinese state-socialist culture against the encroachments of foreign imperialism and bourgeois liberalization. This theme was clearly expressed in October 1993 by Wang Feng, Vice-Minister of the Ministry of Radio, Film and Television, a bastion of the hardliners, when he announced that the ban on operating satellite television dishes, which has been widely ignored in China, was to be enforced through a strict licensing system starting in April 1994. According to the translation of his speech in the South China Morning Post, he explained: ‘Such control is beneficial to the cultivation of patriotism among our citizens, safeguarding the superior tradition of the Chinese race, promoting socialist civilization and maintaining social stability.‘31 It needs to be pointed out immediately that this translation is contentious and illustrates the dangers in the West of stereotyping Chinese political thinking. The original text could more plausibly be translated as reading ‘the first class traditions of the Chinese’ without the obvious racist implications of the version provided to English readers in Hong Kong.32 Typical of the confusion that often accompanies Chinese law, the use of unlicensed dishes is forbidden, but making and selling them is not. The new regulations, signed by Premier Li Peng, will require manufacturers and vendors to be licensed, 33 but this is a lucrative trade, and many factories associated with powerful ministries like the ME1 and MPT are involved. It is unlikely that production will cease, and where there is supply there will be demand. It is not likely that many provincial governments will enforce these regulations very rigorously for a long time. A similar regulation requiring the registration of mobile telephones and pagers and similar electronic devices, and a requirement for licensed ventures to seek new approvals, was announced through articles in Beijing’s Economic Daily (Jingji Ribao) in October. As one of the articles put it: ‘Communications is the nation’s nerve system and involves the nation’s secrets and security. If China’s information system is spread about and not grasped firmly in hand, how can people feel safe?‘34 This paranoia may sound slightly ridiculous to a Western reader who has become used to telecommunications being treated less as a utility and more as a commodity, but it underlines the real fears and concerns of the Communist Party as its grip over the hearts, minds and pockets of the Chinese people weakens. But in tandem with the Party’s fears that the state may lose control over the means of communications, powerful organizations within the state are jockeying for control over them. The MPT is fighting a rearguard action to defend its monopoly; since the 1980s the ME1 has been fighting a long battle to break into that monopoly; and most recently the PLA has been asserting its influence to monopolize the 800 MHz frequencies which are reserved, under State Council ruling, for private cellular mobile networks.
The PLA In September 1993 the PLA seems to have strengthened its position in a joint statement (Order 128) issued by the State Council and the Central Ministry Commission (CMC) signed by Premier Li Peng and Party Secretary and Chairman of the CMC, Jiang Zemin.35 The statement divides responsibilities for non-military and military allocations of radio spectrum between the State Radio Regulation Commission and the
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PLA, respectively. It is significant for two reasons. First, Order 128 affirms the State Radio Regulation Commission, rather than the MPT, as responsible for the allocation of commercial frequencies to valueadded service operators. Hong Kong journalist Nick Ingelbrecht argues that the ‘new licensing regime is the first practical step in the separation of the regulatory and operational functions of the MPT’.36 Second, it affirms PLA authority over much of the 800 MHz frequency range. Modern techniques of spectrum splitting and signal compression are freeing up certain ranges of frequency which have civilian applications, and the PLA wants guarantees that it, rather than the State Radio Regulation Commission or other bodies such as the MPT, will control the commercial exploitation of this spectrum. CT2 and AMPS cellular mobile telephony are cases in point. The MPT wants to use the international standard spectrum allocation 860-880 MHz, but the frequencies 825-845 MHz and 870-890 MHz are military allocations in China. These are also AMPS frequencies, and with five western provinces now operating public AMPS networks it looks increasingly probable that AMPS, alongside 900 MHz TACS networks, will become public as well as private network standards in the PRC. The PLA has its own financial problems, and is under pressure to raise funds just to cover overheads such as military pensions, pay, uniforms and food.37 Under the CMC, the PLA is organized into various bureaux - strategy, political, supplies, military policy, national defence. Under the strategy bureau is a communications section which administers the PLA’s own communications equipment manufacturing arm, Zhongguo Dianzi Xitong Gongcheng Gongsi (the Chinese Electronic Systems Works Company), and its communications business arm, Zhongguo Zhi Hua Company (the Chinese Will Company).38 Most of the PLA’s commercial mobile radio business is organized through the latter at provincial and municipal levels. If the demand for cellular networks requires encroachments below 890 MHz the PLA is now well positioned to control whatever business arises.
The MEI, Ji Tong and Lian Tong
%Niik Ingelbrecht, ‘New Chinese telecom regulations’, in Pacific Rim Telecommunications, Probe Research, New Jersey, 15 October 1993. 37For an overview of the PLA’s commercial actiiities see Far Eastern Economic Review, 14 October 1993, pp 64-70. =For details see Contemporary, Hong Kong, November 1992. =See Tan, op tit, Ref 24. 4oAsia-Pacific Telecommunications, October 1993, p 6.
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The PLA is not the only one with eyes on the radio-based telecommunications markets. The MEI, which Tan suggests has lost business in recent years with the cutting back of military R&D expenditure,39 is keen to enter the digital mobile equipment market, and is also lobbying hard for the opening of the 800 MHz frequencies for public use.4o Through Ji Tong the ME1 hopes to enter joint manufacturing ventures with foreign equipment suppliers, and new service ventures with PTBs, PLA business units and any other state organization holding spectrum rights. Lian Tong is awaiting the approval of the State Council to operate long-distance voice and fax traffic in direct competition with the MPT. If it succeeds it is likely to be the more lucrative and extensive of the two alternative networks. The real opportunities for foreign participation, however, seem to lie with Ji Tong. The primary point of entry for Ji Tong is initially in radio-based national data communications. China’s data communications networks are, by world standards, rudimentary. The demand for data communication and related value-added services such as e-mail, ED1 and store-and-forward fax is still small. But the MPT has discouraged the development of this market by adoptiong high
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tariffs on private leased circuits. This situation will change as the economy grows and data communications network facilities become more available. On the supply side, the MPT is already undertaking a major development of a modern nationwide packet-switched data network using Northern Telecom data switches. With assistance from France T&corn the MPT’s China Academy of Posts and Telecommunications has also been developing a videotex information capability, and with the assistance of US companies the Guangdong PTB has begun operating an information centre from Shenzhen, available in Hong Kong via Hong Kong Telecom’s ChinaLink. Companies like Reuters, Telerate and Knight-Ridder have already begun on-line financial information services to the Shanghai and Shenzhen stock markets. On the demand side, at least 12 international banks have been allowed to set up offices in cities in China,41 and the growing diversity of domestic banking and non-banking financial institutions in China will create a demand for data communications. The spread of computers, especially in sectors such as travel, utilities and the media, will feed through to a demand for metropolitan and wide-area networks. As yet these requirements hardly exist, except for foreign multinationals and foreign embassies in Beijing, and their needs are international more than national. AT&T and Japan’s KDD have financed an international data satellite service run by the MPT from Beijing and Shanghai. As corporate and state enterprise demand increases, so will the demand for lower prices and higher reliability. Under these circumstances corporate users will shop around for alternative networks which can handle their traffic despite the MPT’s expansion plans. This is already happening in the case of VSATs. The China National Airlines Corporation has a contract with AT&T to set up its own network. Other corporations, such as the Bank of China, the People’s Daily and the China International Travel Service, are regular users of VSATs. The systems are used for oil exploration and transport coordination, as well as providing remote areas with basic telephone communication. Officially Ji Tong’s efforts will be directed towards these VSAT markets. But Ji Tong is also well positioned to resell capacity on China’s extensive private networks. On their own they can certainly provide network facilities as an alternative to the public network on a point-topoint basis, and perhaps on a limited point-to-multipoint basis for some corporations with the appropriate geographic spread. Up to now the MPT has utilized some of the capacity of these networks on a leased basis, but now the ME1 wants to go further. The outstanding advantage of Ji Tong from its own point of view is that it straddles equipment supply and network operations. The former is open to foreign direct investment, the latter is, officially, not so. Ji Tong managers make plain their enthusiasm for the possibilities of foreign investment. They are entrepreneurs in the business of attracting funds, and to overseas companies they are bound to be seen as a possible back door into network investment. Ji Tong’s existence therefore opens another grey area of investment opportunity in China’s telecommunications.
41For details see South China Morning Post, Financial Review, 22 October 1993.
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The Four Golden Projects The
major task confronting
the ME1 had to be selling the idea of
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42See Ref 8.
430utkwk Weekly, 2 August 1993.
network diversity at State Council level to Vice-Premiers Zhu Rongji and Zhou Jiahua, who have responsibility for both the MPT and the MEI, and to Premier Li Peng. As we have seen above, the ME1 and other ministries have exerted pressure since the late 1980s to allow them to resell their networks, and the MPT has leased capacity from time to time. But what has made the difference now? The answer is personalities and circumstances. The ME1 Minister, Hu Quili, a protege of fallen Party General Secretary Zhao Ziyang, is rather senior in the party and state rankings, and an influential reformer. The retirement in 1993 of the hardline MPT Minister Yang Taifang has removed an obstacle, while his deputy and successor, Wu Jichuan, is less senior and will carry less weight than Hu Qili. In recent years circumstances have also changed radically. Economics and politics must be seen as two sides of the same coin in Party debates in China. Deng Xiaoping’s campaign for economic reform and unimpeded growth was strongly opposed by Premier Li Peng, who upholds the ideas of veteran Party economist and elder statesman Chen Yun4’ favouring a more cautious approach to reform. Deng is looking for a way to safeguard the succession after his death and must be concerned that Li will act as a bridge for hardline Maoists. But equally worrying for all the leaders is the sense of loss of Party legitimacy and control, especially since 1989. Deng’s appointment of Zhu Rongji as Vice-Premier with special responsibility for economic reform was therefore an attempt to counterweight Li Peng and strengthen Deng’s choice of Jiang Zemin as Party Secretary to replace the disgraced Zhao Ziyang and a move to shift the limelight from the unpopular Li to the more acceptable image of Zhu, the reformer. Zhu has found, of course, that Deng’s unimpeded economic growth is inconsistent with keeping down inflation, maintaining a positive trade balance and controlling unofficial credit creation, speculation and corruption. Any realistic attempt to manage the macroeconomy therefore requires a much greater flow of information from around the county to the Beijing centre. If the centre does not even known what the growth rate of money supply is, or how the volume and value of external trade fluctuate each month, any attempt at economic management must fail, with possibly dire political consequences. Further, we have noted that the self-interests of the provinces often clash with Beijing’s view of the national interest. Beijing cannot rely upon the provinces to supply accurate information, or carry out policy directives. Having an independent information system is therefore very attractive to Beijing, and that is exactly what the ME1 and Ji Tong have offered the State Council. Outlook Weekly carried the first public announcement by the ME1 of its proposals, the Golden Projects.43 The Golden Bridge project is the building of a national economic information network of stored and real-time data linking state economic departments. The Golden Card project will create a bank credit card payment and authentication network. The Golden Gate project will network all customs offices and provide an ED1 system. These networks will combine satellite and fixed-wire systems. Missing from this list is a fourth project that the author has learned from Beijing sources, the Golden Sea project. This project is named after Zhongnanhai (Central South Sea), the compound where the top Party leaders live and shop and where their children go to school. It is located close to the old Forbidden City where China’s emperors have resided since the 15th
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century. It would seem that the Golden Sea project will separately network the Communist Party. Information is empowerment, and power is an ingredient of control. Economic control and political control have gone hand in hand in China’s system of state socialism. When the two were temporarily broken during the Cultural Revolution, the highly politicized military filled the vacuum. Once again the two are under growing pressure, but this time the emphasis is upon modernization, and the ME1 is successfully promoting information technology as a weapon in the struggle to maintain Party and state discipline over the people and provinces of China.
Conclusion
“Yang, op tit, Ref 22.
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The stage seems set for radical changes of direction in China’s telecommunications industry. The regulatory functions of the MPT are to be separated from network operations, and other China players will be allowed to enter value-added network service markets and basic voice. In his speech to the ITU’s TelecomAsia ‘93 in Singapore, MPT Vice-Minister Yang Xianzu talked about ‘multi-level management and decentralization in telecommunications’, but it seems the model breakup of the Aeronautics Ministry into separate operating companies will not be applied to telecommunications. He spoke of the need to change ‘the government functions and separate government and enterprise functions’, to achieve ‘separation of posts and telecommunications’ and to ‘push them to the market to improve services’. And he spoke of the need to ‘gradually introduce competition into non-basic telecommunications services through legislative means’.44 These changes are not the result of a single pressure arising from the need to modernize. They arise from a number of agendas, from the interests of the provincial PTBs, from PLA business interests, from state enterprises as users, from ministries with network capacity to resell. Some of these agendas are being pursued discreetly, especially in radio communications and in areas far removed from Beijing. But for the major reforms to take place the political and economic agendas of the Party and state have to be fulfilled. From this perspective, and in light of China’s ability to generate very high revenues from the industry, the likelihood of a major change in state attitude towards foreign direct investment in networks is low. But equally, as provincial PTBs and second network operators develop their markets they will demand the right to enter commercial alliances which benefit them. The timetable for telecommunications reform will be set by these competing agendas.
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