1. Does the Law Matters in Telecommunication Development: Findings from China
Presentation at Legal Framework for the Information
Society Workshop
4-5 June 2004
Rovaniemi, Finland
Ping Gao
Department of Informatics
Copenhagen Business School,Denmark

2. China’s telecommunication industry presents an interesting research topic
IT and IT infrastructure in developing countries present an interesting topic within the globalization context.
China has created a miracle in telecommunication development
China has special political and economic environments for telecommunication reform and development.
Law plays a specific role in the development of China’s telecommunication industry

3. Telecommunication development in China
In 1980 the Chinese mainland only had 4.12 million telephones, i.e. the telephone penetration rate was merely about 0.4% per capita. In contrast, Hong Kong had at the same time 2.8 million subscribers out of 6 million residents
The number of lines was 13.5 million in 1997, and China had the second largest telephone network.
In 2003, China has 260 million fixed telephone subscribers, and 260 million mobile phone users.
Now China owns that largest fixed and mobile networks in the world.

4. The role of government (1)
The government used preferential policy to support the telecommunication indusrty so as to remove its bottleneck position in economic development.
In 1991 the State Council consequently enacted the decree No. 56 allowing MPT to charge an installation fee from every subscriber equaling the construction cost of one line. In addition, MPT enjoyed a privilege in tax policies
Until 1994, more than half of MPT’s investments came from these preferential policies.

5. The role of government (2)
At this time of adopting a central planning system in the national economy, it was normal that the central government used preferential policies instead of the national budget to support a state industry. As the situation for the national economy was bad and the national budget was small, such a national policy support appeared to be an efficient and feasible solution to improve the telecommunications services

6. China’s telecommunications transformation (1)
Up to 1994: liberalization and deregulation on equipment and VAS
From 1994 to 1998: liberalization and reform on PTT system. Unicom and China Telecom were established
From 1998 to 2000: PTOs restructuring, further liberalization and reregulation. Ministry of Information Industry was formed
After 2000: liberalization to foreign competition and restructuring of market. China Telecom was divided into two parts. Schedule of foreign competition was published

7. China’s telecommunication transformation (2)

8. China’s telecommunication transformation (3)
China was officially accepted as a member of WTO in the beginning of As a condition to enter WTO, China agreed to accept 49% foreign ownership in mobile communications within five years, 49% foreign ownership in international and domestic services within six years and 50% foreign ownership in VAS within two years. The limitations on foreign share reflects China’s interests that foreigners must not control the telecommunications industry.
In December 2001, Sino Satellite Communications and China Orient Satellite were merged to ChinaSat
In May 2002, China Telecom was restructured into two sections by areas. The northern section combined eleven northern provincial networks, China Netcom and Jitong and adopted the name China Netcom. Keeping the name China Telecom, the southern section retained other provincial networks
Finally, China had formed a “national fleet” of operators composed of six “carriers”: China Telecom, China Netcom, Unicom, China Mobile, ChinaSat and China Railcom.

9. Characteristics (1)
China has adopted a stepwise, cautious transformation in telecommunication market
China has been trying to sketch its strategy according to the progress of the macro reforms, the stage of telecommunication development, and international trend of reform and technology advance. Of all, the macro reform progress and politic consideration is decisive for strategy choice. In China, telecommunication reform has been a part of macro reform and national strategy of economy and politics, like joining WTO
China has used governmental orders and directives to arrange the market change. Untill now there has been no telecommunications law to guide the reform.

10. Characteristics (2)
The socialist ideology dominating China’s economic system favors that the state controls the telecommunications industry. Hence in China the telecommunications competition has been among the state-owned operators and now limitations are set on foreign capital to ensure that the Chinese companies get a dominant share in future cooperation

11. Characteristics (3)
In the international sphere, the devolution approach has rarely been used, except the AT&T case in the USA and the NTT case in Japan. In China, devolution was adopted as a major measure and applied to the PTO, which was first divided by services and functions and later by areas. China’s telecommunications market of state competition made it easier for the government to restructure it thoroughly. The restructuring of telecommunications has been executed as part of a national policy of “strategic restructuring” and “optimizing national resources”

12. The role of law
In China, the telecommunications reform has been carried out by simple governmental orders. Although the reforms in China’s telecommunications market have lasted about two decades and a full competition market is approaching, China still lacks a “Telecommunications Law”.
Changes in the regulatory regime have always lagged behind the market transformation. This is due to the slow progress of China’s national reform of the socialist planning system, which excluded the role of economic laws in running the economy. Instead of enacting a law to direct a sweeping reform, China has adopted an “action after trial” policy to promote overall changes by first conducting pilot tests

13. Telecommunication law in expectation
”We do not need a telecommunications law: the key is that the government enact efficient regulation. It does not matter the regulation is based on law or not”.
”We need the law. But the parliment is too busy in enacting general laws like Competition Law. The law of a specific industry has not been put in its agenda”.
”As the market is openning to foreign capital, it seems a law is necessary. Yet, in fact other industries have been opened for a long time without a competition law or antitrust law etc in position. We really need a law”?
”It is expected the telecommunication law will be enacted next year”.
”Two key items: it will sanction foreign capitals to pay a universal service fund; it will clarify the concept of VAS”.
”One thing is certain: the government will remain to play a key role in the market”.

14. Welcome comments!
Thank you