By Mike Newlands
News of an agreement that opens the door to ChinaÆs entry into the World Trade Organization will have telecoms and information technology executives from around the world penciling an early trip to Beijing into their schedules.
Exactly what was agreed has not been revealed except in its broadest detail. The US side remembers Chinese fury at the leaking of nuts and bolts details during an April round of negotiations which had almost come to a successful conclusion. Senior Chinese leaders almost certainly would like to tell the powerful protectionist faction, which includes Minister of Information Industry Wu Jichuan, just how much has been given away before they read it in the newspapers.
But there is no doubt the news is excellent for companies involved in all aspects of telecommunications services provision, including most of the top internet industry pioneers. They had already invested more than $200m in China only for Wu to declare, just a few weeks ago, their investments illegal.
What has been revealed is China will allow foreign ownership of up to 49% in telecommunications service companies, including internet companies, as soon as it joins the WTO. This could be within a few months if the US sideÆs own Congressional hardliners do not slow the process down. Within two years of ChinaÆs accession the overseas partners will be able to boost their holdings to 50%, and will also be permitted management control. Foreign control is possible in a 50:50 joint venture, US trade representative Charlene Barshefsky told reporters following the signing of the agreement on Monday night.
No longer an issue, she said in response to a question on whether foreign investment will be allowed in ChinaÆs internet industry. We have full rights of investment, she went on to say, we clearly considered internet access issues, considering what will be the dramatic growth. not only of the internet worldwide but, as you can imagine in China, to be one of the big economic issues for our country. So securing that and making the internet issues clear and secure were a top priority for us.
As yet no mention has been made of varying timetables for opening different telecoms sectors, with China having earlier held out for slower opening of certain sectors, and it is not clear if the broad details announced cover all or only selected parts of the telecommunications industry.
What has also not been mentioned is the ongoing row between some of the worldÆs largest telecommunications companies and the Ministry of Information Industry over the approximately $1.4bn in foreign investment in the countryÆs second telco, China United Telecommunications (China Unicom). The investments in mobile phone networks made via a loophole had been declared illegal by the MII, which ordered the foreign partners to disinvest immediately with only their capital and a small interest payment to show for the investment.
Some took the money coupled with assurances of future business if and when China joined the WTO and deregulated the telecoms industry. Others refused and threatened to sue as soon as Unicom went ahead with its proposed overseas listing. Wu upped the stakes by suggesting any firms that did not take the offer on the table would find it difficult to get back into China at a later date. Whether those companies that acted tough or the ones which caved in to pressure will be the main beneficiaries of the agreement when the market opens will be a matter of considerable interest.
Another far-reaching question is the affect the agreement will have on a recent Chinese government ban on the mixing of cable TV and telecommunications services, including internet access via the cable networks. ChinaÆs cable TV operators have invested heavily in the equipment necessary to provide a range of internet and multimedia services, and trying to prevent them using it to protect incumbent Telco China Telecom could well be against the terms of the WTO accord.
News of the deal after so many setbacks in the past took most observers by surprise but initial reactions were positive. Jerry Chen, president of Hewlett-Packard China, called the deal a great breakthrough and said it is very good for China and the United States.
Zhang Ligang, chief executive officer of eLong.com, an internet portal launched last week with illegal equity investment from US venture capital, said: If we say that Deng Xiaoping opened China to the world, we can say that this time China has entered the world.
Robert Mao, president and chief executive officer of Nortel Networks China, said: Accession of China to the WTO will make the China telecom markets, both in the service sector and the equipment supply side, even more dynamic. The opening of the market will intensify the service sector competition, expand the service market and enlarge the equipment supply market.
