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Zhou Fang Department of Political Science University of Michigan E-mail: firstname.lastname@example.org
making theory to China in a coherent and comprehensive fashion. it provides a model for the later reform in other Chinese monopolistic public-service sectors. Behind the unprecedented growth of China’s telecommunication industry is the far-reaching liberalization of Chinese telecommunications industry and the reform of Chinese telecommunications administrative system. and why progress has been achieved in such a specific manner. civil aviation and railways system. To do this. and the influence of interest groups on the reform. Being an important element of the national economy and political system. the introduction of competition in monopolistic public-service sectors. He proposes three models for analyzing a nation’s political decision making: a rational actor model which focuses on top leadership. finding the top-down “rational actor” model unsatisfying. and the resulting decision is a medley of various organizational preferences. telecommunications reform reflects the marketization process of China over the past two decades. this article firstly reviews the background and the causes of Chinese telecommunication reform. 2. Ken Lieberthal and Michel Oksenberg (1988) are among the first to apply this kind of policy. it is a good case to study the change of governmental role. It will lead to conclusions on what are the success and limitations of China’s telecommunications reform.2 Chinese Public Affairs Quarterly [Vol.making theories to a study of the Chinese energy sector. that is. 1 the total number of fixed. Moreover.line phone subscribers reached 337 million by the end of June 2005. an organizational process model that paints a picture of a governmental conglomeration of organization. the authority below the very peak of the Chinese political system is fragmented and disjointed. Introduction The telecommunications industry in China has experienced drastic change since the early 1990s. such as electric power. This means that China. They somewhat indirectly adopt the work of Allison. has become the largest market for phone service in the world. According to the Ministry of Information Industry. This article tries to elucidate the evolution of Chinese telecommunications reform from the perspectives of market restructure and regulatory reform. Institutional Context of Policy Making in Chinese Telecommunications Sector 2. Then it examines the three stages of telecommunications reforms in the past decade the roles of foreign investors in the reform. by the number of subscribers. and propose an understanding of the prospects of the further reform in this sector. (2002) . and seek to apply decision. Finally it evaluates the reform process and analyzes the objectives of the government and the influences of domestic social groups in the telecommunications reform. They propose a “fragmented authoritarianism model”. 2:1 1.1 Policy Making in a Fragmented Bureaucratic System One of the most widely read and discussed works on political decision making is done by Graham Allison (1971). In particular. while by the same time the number of mobile phone subscribers reached 363 million. and a bureaucratic politics model proposing that bureaucratic representatives bias their opinions in favor of their own organization in discussion and bargaining sessions. and the search for revenue and the tendency to expand beyond original missions through multiple activities are endemic practices 1 Source: Xin P.
The State Radio Regulatory Committee was in charge of radio administration. The State Planning Commission was involved in tariff regulations. like the Ministry of Railways (fixed network). Like some other countries. Each network owner had jurisdiction over its own domain. influenced by the planned economy employing a centralized but fragmented administrative system. a governmental institution monopolized postal services and public telecommunications.2 The Evolution of Chinese Telecommunications Policies For a long time the Chinese public telecommunications sector was a government monopoly. In China such an institution was the Ministry of Posts and Telecommunications. and to explain why the policies in Chinese telecommunications sector are shaped in a specific manner. Horizontally. In a situation like this. But the State Council’s efforts were often inefficient and did not reach desired goals. My approach seeks to build up a simple game-theoretic model to analyze the interaction of different players in Chinese bureaucratic system based on the theoretical framework of “fragmented authoritarianism model”. China did not have a complete set of . So they conclude that authority in Chinese decision making was in fact fragmented across various bureaucratic units and levels. There were contradictions between technological convergence and the fragmented regulatory regime. was responsible for the operations of public telecommunications. Film and Television had a monopoly over CATV network operations.2005] The Deregulation of Chinese Economy 3 within the bureaucratic system. The Bureau of Telecommunications. It combined the functions of a public operator and a regulator. But in China. Influenced by the sectoral system of planned economy China also had several separate “specific-purpose” telecommunications networks. Department General of Staff (fixed network for military use). the situation was somewhat different. prefecture and county). In each local tier (province. the State Economic and Trade Commission was also responsible for the administration of the Bureau of Telecommunications. the basic concern in realizing efficient regulation is to harmonize policies towards the central government's goals. a department of the Ministry. In practice. Frequent coordination by the State Council was needed. Above all these bodies. Besides. the State Council was involved in telecommunications regulations at the highest level. Ministry of Electric Power (fixed networks). But as new services appeared and their markets opened from the late 1980s. there were corresponding Posts and Telecommunications Administration Bureaus as its agencies (Gao 2000). the regulations were carried out by several bodies. 2. there is only one regulator and public operator. It also directed and approved fixed-asset investment of the Ministry of Posts and Telecommunications. this was realized through the State Council’s involvement in regulatory routine. etc. this fragmented regime became more and more problematic. The Ministry of Electronic Industry had the authority over electronic manufacturing. Through ministries that directly monitored different industries. For most countries with the monopolies. and it intervened to coordinate different authorities when necessary. and the Ministry of Posts and Telecommunications did not have exclusive power in regulating the whole telecommunications field. The Ministry of Broadcast. such as some European countries before the 1980s. China Academy of Science and State Education Commission (data networks). These state-owned telecommunications networks were controlled by different governmental branches for their interior uses.
During the planned economy period. it ranged from 3. Zhang. the Bureau of Telecommunication could charge an “installation fee” from every subscriber that corresponded to the construction cost of one line. The establishment of China Unicom in 1994 was the result of struggles between the Ministry of Posts and Telecommunications and several other sectors. Therefore. the Bureau of Telecommunications only needed to submit 10% of its profit to the government (Gao. these preferential policies had met with more and more complaints from society. The telecommunications tariffs were set at a very low level by the government and therefore the Bureau of Telecommunications was a money-losing institution and the government had to subsidize it from the governmental budget each year. the Bureau of Telecommunications was granted a privilege in advancing fixed-asset depreciation. Instead. By 1993. more than half of the whole of telecommunications investment had been obtained via the installation fee (Li. and meanwhile the prices had been high. In many cases a negotiated compromise was the only feasible outcome. Meantime. and the service quality had not improved satisfactorily.000 to 5.000 RMB for each telephone line in different regions of China . The tremendous rising demand of telecommunications service and the partial deregulation of its price made telecommunications a very lucrative industry. 2000). the telecommunications service could not meet the drastic increase of demand and became a bottleneck of economic development. Instead. it was pressed by outside sectors which were eager to enter this lucrative market. the government no longer subsidized the Bureau of Telecommunications. the government did not have enough fiscal resources to accelerate the investment in telecommunications sector. The charge of “installation fee” 2 implied that the government actually loosened the price regulation in telecommunications service.4 Chinese Public Affairs Quarterly [Vol. the State Council granted some “preferential” policies to the Ministry of Posts and Telecommunications. Also. and was the first tentative step of reform in opening up the public telecommunications market. To give incentives to the Bureau of Telecommunications. 2 In the early 1990s. Thus numerous efforts were made by various sectors to enter the market of public telecommunications service. The initial reform of telecommunications was not proposed by the Ministry of Posts and Telecommunications. But the expansion of telecommunications capacity still could not catch up with the rapidly increasing demand. But as the economy grew faster after 1978. other sectors claimed the inefficiency and non-equality of exclusively granting such a strong preference to the Ministry of Posts and Telecommunications. 1998). Second. According to this policy. the coordination was carried out through administrative measures and by negotiation. in the early 1990s residents in cities usually had to wait for one or two years to have their telephones installed after they paid the installation fee. 1996). But such a compromise was often reacted to inactively and boycotted by some concerned parties because the negotiated results damaged their interests (S. 2:1 necessary laws or decrees to support regulation. It aroused great interest of other governmental bodies that had the capability to open their own telecommunications networks to public service. Third. and it became an institution assuming sole responsibility for its profits or losses. Chinese telecommunications operation and development were controlled by the central government. due to its budget constraints. Therefore. These preferential policies promoted fast development in telecommunications and brought huge profits to the telecommunications monopoly. First. a policy concerning the telecommunications development was made in 1980. For examples.
2. requesting opening the military telecommunications networks to public service. other sectors in principle should not be approved to establish their own long-distance telecommunications networks. The Ministry of Posts and Telecommunications successfully prevented other sectors from entering the market of public telecommunications service and kept its monopolistic status for several more years. was established. 1996). two senior telecommunications experts. After several rounds of debates. 1994). Under his instruction. 3. In September 1992. Only through the introduction of competition to this market could the development of telecommunications be stimulated. 3. The “specific-purpose” telecommunications networks should be only for internal use and in principle should not be opened to the public. however. Telecommunications development required huge investment. The key points of this report were that: 1. Ye Peida and Zhang Xun.2005] The Deregulation of Chinese Economy 5 As early as 1988. opening up telecommunications market to other domestic sectors. 3. 4. the Department General of Staff submitted a report. Duplicate construction of networks was a waste of resources and therefore should be avoided. by 1993 the State Council was inclined to approve the initiative of establishing a new telecommunication company. the Ministry of Electric Power. The quality of telecommunications service provided by other sectors could not be guaranteed (S. The telecommunications supply capacity lagged far behind the demand in the market. 1996). wrote a report entitled Suggestions on the Reform of Telecommunications Administrative System to the State Council. China Unicom. In this report. Telecommunications were related to the state security and sovereignty and should not be opened other sectors. In September 1990. who were both members of China Science Academy. the Ministry of Posts and Telecommunications articulated in various occasions why it disapproved of the setup of a new telecommunications company. a new telecommunications company. The surplus capacity of those “specific-purpose” telecommunications networks had not been fully utilized. . who was the standing vice premier of State Council at that time. and the Ministry of Railways jointly submitted a report to the State Council. the Ministry of Posts and Telecommunications submitted a report to the State Council. Telecommunications networks had the characteristic of natural monopoly. In particular. This report was believed to be influential on the telecommunication reforms in the 1990s (S. The Ministry of Posts and Telecommunications had the overall responsibility for the administration of telecommunication service. and eventually opening up the market to foreign investment. Foreign investment should not be allowed to participate in the operation of domestic telecommunications service (S. requesting the establishment of a new telecommunications company. which reflected that at that time the central government had not made a final resolution to open up the telecommunications market to other domestic sectors. 2. they suggested the separation of government and enterprise in the telecommunications sector. Zhang. But the reaction from the Ministry of Posts and Telecommunications was strong. In 1989. The basic points in this report were: 1. with the acceleration of reform and marketization process after Deng Xiaoping’s “Southern Tour”. This report was approved by the State Council. The main reasons were: 1. Except for some special sectors such as military and railroad systems. 2. China Unicom. the Ministry of Electronic Industry. Zhang 1996). Government sho uld allow the resources from various social sectors to participate in its development (Chang. 4. the joint report of the three ministries gained strong support from Zhu Rongji. Zhang. With regard to this report.
especially after the China Telecom was publicly listed in the stock market. 2001). From the formation process of China Unicom. Zhang. Registered as “China Telecom”3 . investment. An example is that the MPT became less willing to provide universal telecommunication services to remote rural areas because they were not profitable. The market structure could thus be described as a duopoly. and its business was mainly limited to the wireless market. Soon after the establishment of China Unicom. and Unicom and China Telecom had a great disparity in strength. 3. Some new problems emerged as the Ministry of Posts and Telecommunications had to undertake dual roles. 1998). This was an important step of progress in the separation of governmental functions from enterprise by the Ministry of Posts and Telecommunications. It was allowed to build and operate nationwide cellular networks and in areas where the coverage or capacity of fixed line network was limited. but it increasingly became a commercial organization seeking profits under the name of China Telecom.cn/t-corp/index01. the Ministry of had its organizational structure adjusted. As a result. this change had obvious limitations. Unicom's income was about 1. the leaders of the Ministry of Posts and Telecommunications suddenly recognized that it was inappropriate to use the brand of the “Bureau of Telecommunications” to compete with China Unicom.6 Chinese Public Affairs Quarterly [Vol. China Telecom took its advantages in fixed networks in cities and refused to connect Unicom’s local telecommunications networks to its own using the excuse of “technical difficulties” (B.chinatelecom. and the Ministry of Posts and Telecommunications was not a “pure” regulatory authority either. Hence China Telecom was not a real enterprise. the emergence of a competitor in the telecommunications market directly resulted in the separation of enterprise and government in the Ministry of Posts and Telecommunications. while promotion of competition might comparatively be a secondary consideration.6 billion RMB. only 1/112 of China Telecom’s (Li.1 Defining Players 3 For the details of the establishment and transformation of China Telecom. fixed local and domestic toll networks. As a governmental organization. see the website: http://www.html (in Chinese) . In 1997. It was an unreasonable market situation in view of fair competition and needed to be improved. its original goal should be the overall growth of Chinese telecommunication service. So far only limited competitive elements were introduced. A Game Theory Model of Policy Making 3. we can see the direct reasons of the breakup of monopoly in telecommunications were the governmental budget constraints and the influence of interest groups. Thus basically Unicom failed to enter the local or long-distance fixed-line phone call service markets in any cities. However.com. and in other areas approved by the Ministry of Posts and Telecommunications. Moreover. The Bureau of Telecommunications was changed from a functional department of the Ministry to an enterprise responsible for operating and managing the Ministry’s fixed and mobile networks. Nevertheless. But originally this duopoly was seriously unbalanced. 2:1 China Unicom was formally established in July 1994 and was affiliated with the State Economic and Trade Commission. personnel. etc. China Telecom and Unicom were the only two comprehensive public operators. China Telecom was still directly under the Ministry’s control without independent rights in finance.
3. But once the market is opened and competition is introduced. the MPT is the governmental branch which originally monopolized public telecommunications service. those ministries always have incentives to enter the market to compete with the MPT. GM -. Based on the preference assumptions we discussed above. To sum up. so it is more likely to be reoriented toward profitable revenue sources and less emphasis on growth. its payoffs primarily come from meeting state development targets and becoming more important and more powerful within the government hierarchy. it is useful to simplify the story and define the entities in this sector in three distinct groups: the Sate Council. and its investments and service offerings are driven more by market demand than by state targets. The State Council has staked its legitimacy and survival upon its ability to deliver stable economic growth and prosperity to the country.The MPT pursues the growth strategy and monopolizes the market. which are: Ø Ø Ø Ø GC -. we can rank the preferences of the three players respectively and give them numerical payoffs according to their preference ranking. The MPT has two strategic orientations: growth (G) and profit (P). The State Council is often described as China's “Cabinet” and is under the Communist Party leadership. With respect to the telecommunications sector. As the telecommunications service is lucrative. Meanwhile.2 The Interests and Strategies of the Players Having identified the key players.The MPT pursues the profit strategy and monopolizes the market. we now attempt to define their interests and strategies. and the other ministries here are the other governmental branches which have their own telecommunications networks and are capable of entering China's telecommunications services markets. The verbal descriptions are intended to provide the conceptual basis for the specification of payoffs and strategies in the game. there are four possible strategy combinations. the State Council wants to maximize the sector's contribution to overall economic development while minimizing its fiscal burden in this sector. it increasingly become a commercial organization. ² The State Council: GC (4) – PC (3) – GM (2) – PM (1) . So competition ( C ) is a dominant strategy for them. Meanwhile. it will give them some competitive advantages if the MPT has to undertake the governmental responsibility of universal service and growth strategy.2005] The Deregulation of Chinese Economy 7 In applying a game theoretic framework to policy making in Chinese telecommunication industry. PM -.The MPT pursues the profit strategy and there is competition in the market. As a governmental branch. So opening market is always the best strategy to achieve its goals. especially providing service in less profitable rural areas. The other ministries with telecommunications service capabilities face two choices when the market is opened: competing with the MPT ( C ) or not competing with the MPT and having the market monopolized by the MPT ( M ). the State Council’s secondary preference is to have the MPT undertake growth strategy. PC -. especially when the services are not proftable.The MPT pursues the growth strategy and there is competition in the market. the MPT. and Other Ministries. It is not profit-motivated organization when it monopolizes telecommunications service.
Market Restructure after 1998 As a whole. The Ministry of Information Industry was organized into departments responsible for policymaking. Within the telecommunications sector the goal of this round of reform was to separate the functions of government and enterprise.2) 4.1. etc. and internal affairs. Figure 1 Game Tree C Other ministries M G MPT P C Other ministries Y State Council M PM (1. we can find the equilibrium outcome is PC.4. the Ministry of Information Industry was established. Zhu Rongji became the premier of the State Council and launched a new round of reform in governmental structure. administration. The Ministry of Information Industry became the overall regulator of the telecommunications industry. Two important parts of the Ministry of Information Industry are the Telecommunications Administration Bureau and the Radio Regulatory Bureau.3. Ministry of Electronic Industry. As an outcome of this reform. and increase competition. eliminate monopoly.3) GM (2.1) PC(3. In 1998. Three striking measures for restructuring China's telecommunications industry were taken immediately after the creation of Ministry of Information Industry.2) GC (4. 2000). market regulation. Using backward induction.2. which together regulate telecommunications (Gao. taking over the regulatory functions of Ministry of Posts and Telecommunications.4) N GM (2. the success of 1994 reform was limited.8 ² ² Chinese Public Affairs Quarterly MPT: GM (4) – PM (3) – PC (2) – GC (1) Other ministries: GC(4) – PC (3) – GM (2) – PM (1) [Vol. 2:1 The game can be illustrated in a game tree.4. as shown in Figure 1. The first measure was . State Radio Regulatory Committee.
For instance. China Unicom also went for a US$5. the mobile phone service segment of the original China Telecom (which is now China Mobile) listed IPOs in Hong Kong and New York. public listing presents an important means for investing in China's telecommunications service markets because the chances for foreign carriers to compete 4 See the website of China Netcom: http://www.55 million subscribers. into independent companies responsible for fixed. In addition. Further.html . Relative to the Ministry of Posts and Telecommunications. This company was initiated by Jiang Mianheng (Jiang Zemin’s son) and Edward Tian. Before that.net.2 billion in capital. focusing on local. Internet and other value-added/information services). The most noticeable company is China Netcom. There are at least two important benefits associated with the current wave of public listings. In November 2000.5 billion in capital. First. in 1999 the Ministry initiated and completed a merger between Unicom and Guomai.2005] The Deregulation of Chinese Economy 9 to split the postal service sector from telecommunications. In June 2000. the Ministry of Information Industry made a priority of facilitating the rapid growth of Unicom.6 billion IPO in New York and Hong Kong4 . some new players from other sectors were allowed to enter the telecommunications markets. the Ministry of Railways. an US-educated manager who assumed the position of CEO. The second step was to break up China Telecom. which is jointed established by four entities: the Chinese Academy of Sciences. paging (Guomai). the company raised another US$2. and the Shanghai Municipal Government. Zhang. In addition. there are two other companies: China Railcom established by the Ministry of Railways and Jitong which evolved from the Golden Bridge Project designed primarily to serve the financial sectors. Another important achievement in this step of reform was that foreign investment indirectly entered the Chinese telecommunications market through stock markets. wireless (China Mobile). and satellite communications service (China Satellite). it is a necessary and effective measure to obtain experience in modern enterprise management.cnc. the telecommunications sector heavily subsidized postal services. Second. domestic carriers can raise capital to compensate for recent reductions in tariffs.cn/english/telecom/environment. 60% of the radio paging market. and international basic voice services.line services (China Telecom. the Ministry of Information Industry granted a license for CDMA (Code Division Multiple Access) exclusively to Unicom considering that this measure would greatly boost growth in the wireless market. raising US$4. total assets of RMB 13 billion. China Mobile is a member of the HK Heng Seng Index and one of the largest publicly traded companies in non-Japan Asia. In October 1999. Film and Television. Today.6 billion from a secondary offering and bond issuance. long-distance.453 billion (B. a competitor to China Telecom. Instead of limiting its development. the Ministry of Information Industry promptly granted an operational license to Unicom for Internet Protocol (IP) telephone service in April 1999. the State Administration of Radio. and a profit of RM1. For foreign investors. The third measure was to foster the growth of Unicom. the reconstituted telecommunications component of Ministry of Posts and Telecommunications. the largest national radio paging company with 39. data. 2001). the Ministry of Information Industry’s attitude toward China Unicom constituted a sudden U-turn because China Unicom was no longer affiliated to the State Economic and Trade Commission but a part of the Ministry of Information Industry. Meanwhile. the company raised another US$7. In October 1997. Separating these two sectors paved the way for the government to treat them different ly based on their specific industrial characteristics and needs.
Obviously. many economists and telecommunication experts argue that the best way to break up China Telecom’s monopoly in local and long-distance fixed-line market is to allow the entities in the broadcasting and television sector to enter the telecommunications because only in this sector are there complete local and long-distance networks that do not rely on the networks of China Telecom (D. the Leadership Small Group of Information was established in 2001. the entities affiliated with the State Administration of Radio. such as China Telecom and China Mobile. Moreover. but the Ministry of Information Industry initially refused their entrance and later proposed “mutual market access”. the news was revealed and the value of the shares of China Mobile in HK stock market dropped drastically. First. In spite of the progress. A noticeable phenomenon is that since the late 1990s the discussion on telecommunications policies has become more and more open. 2:1 with China Telecom head-to-head in full. The key point of this report was to keep the current status of China Telecom with merely some minor adjustments. Film and Television because no other sectors were allowed to enter their own field (Wan. Zhu Rongji was not satisfied with this report and did not approve it (He. In fact. In 2000. But this suggestion was rebuffed by leaders in the State Administration of Radio.line and other core service sectors. The original aim of the reform was to make it a detached regulator. that is. Zhu Rongji and Hu Jintao assumed the positions of Head and Deputy Head.services immediately after China's entry into the WTO. Zhang. In order to stabilize market value of China Mobile shares. In academic circles. 2001). which implied that the central government strengthened its influence on the . 2000). are very slim. losing over 20% of its market value in two days. especially in fixed. A well-known case was that when a proposal of a new reform scheme to encourage more competition in the telecommunications market was discussed internally in the Ministry. Due to China Telecom’s huge advantages in local fixed networks. Instead it is just a means of raising finance to help fund network expansion and expose it to the disciplines of modern enterprise management. Zhang. had to fly to Hong Kong and explain to the funds managers in person that the news about the reform scheme was just “rumor” (D. However.making and academic circles. Zhu Rongji instructed the Ministry of Information Industry to make a proposal for further reform.10 Chinese Public Affairs Quarterly [Vol. It not only is debated in policy. but also has become a hot topic in the mass media. But as the owner (or the largest shares holder) of the most important Chinese telecommunications enterprises. 2001). respectively. The second problem is the functions of Ministry of Information Industry. the Ministry submitted a report on proposed future telecommunications reform to the State Council. the limitations in this step of reform are obvious. it actually plays dual roles of referee and player and frequently encounters dilemmas.line market there is almost no competition at all (Xin. but in the fixed. Minister of Information Industry. Unicom and Railcom are not able to enter this market although they have been granted the licenses of local phone call service in some cities. The monopoly of China Telecom is widely criticized by common people as well as media reporters. 2002). to allow entities affiliated with telecommunication system and broadcasting and television system to enter each other’s markets. But like its predecessor (Ministry of Posts and Telecommunications). public listing would not necessarily result in full privatization of the telecommunications sector. the Ministry of Information Industry was reluctant to have China Telecom split further. in the wireless market Unicom has made significant progress in market share (about 20-30%). Wu Jichuan. Film and Television are indeed eager to enter the telecommunications market. 2001). Soon after its establishment.
yet reinforces the importance of good regulation in making a genuinely competitive market work. Besides. After the split. including those delivered over the Internet. the need to restructure government agencies and state enterprises. such as macroeconomic instability. and any future reform scheme for this sector will be made by this Small Leadership Group instead of the Ministry of Information Industry. will control the networks in 10 provinces in the north. It therefore demands of its national telecommunications enterprises rapid infrastructure built-out. Evaluation of Telecommunications Reform The Chinese government led by the Chinese Communist Party has staked its legitimacy upon its ability to deliver stable economic growth and prosperity to the country. China Satellite Telecom Group and China Railcom. The larger operator will retain the China Telecom name and control networks in 21 provinces in the south and west. On May 2002 the State Council finally announced the scheme of the breakup of China Telecom.2005] The Deregulation of Chinese Economy 11 telecommunications sector. However. It shows how official visions of an industry's evolution are rarely right. With respect to the telecommunication sector. Edward Tian. The government believes that information infrastructure makes a substantial contribution to development and to its own ability to harness economic forces. This present it with the general problem of fostering economic development while dealing with the contradictions of a reforming socialist economy. and unemployment. Another operator. will also become part of China Netcom. welfare. China Netcom. which will compete with each other in the sectors they are allowed to operate in. the government wants to maximize the sector’s contribution to overall economic development while minimizing its fiscal burden (in the form of direct appropriation or tax breaks in this sector). the latest step in the effort to create a competitive climate for telecommunications in the world’s fastest growing market. China Telecom has been split into one large and one small operator. this scheme is not applauded by experts in academic circle s. 5. China will have six major telecom companies: the two new firms plus China Unicom. will become a subsidiary of China Netcom Group but continue to operate independently. The government also demands that the sector achieve higher leve ls . including the most prosperous mainland regions such as greater Shanghai. the firm's United States-educated chief executive. Zhejiang and Jiangsu provinces as well as Fujian and Guangdong. In particular. Many of them argue that overseas liberalization experience offers cautionary lessons. they point out that the split of China Telecom by region can hardly solve the problem of monopoly in fixed.line markets. including the three "rust-belt" provinces in the northeast and poverty-stricken Henan province. highlighting the power wielded by well-capitalized incumbent frms in attacking new entrants and defending market i share. Jitong Communications. corruption. will keep his job and become a vice-president of the group. also state-owned and to be called China Netcom Group. providing high-speed network services to corporate clients. The small operator. China Mobile. Initial competition will be in long-distance and data services. the costs of inter-network phone calls may rise (Xin 2002). A third operator. by dividing the national network into two.
an important component of the government ’s desire to reform this sector is to reduce its own fiscal burdens and make telecommunications development financially self-sustaining. 2:1 of efficiency. The top leaders’ judgment and political will also have strong impact on the reform process. Although they are not organized interest groups. we can see that this process is shaped by different groups within the state. opening the market and deregulating price control ease its budget constraints. Therefore it weans its telecommunication enterprises away from subsidies and policy loans. the influence of the opinions of experts in academic circles and even common consumers has increased. The government therefore carries out structure reforms by promoting efficiency-enhancing competition and separating enterprise and business functions. thus increasing the government’s legitimacy. From the evolution of the telecommunications reform. the unprecedented development of the telecommunications industry has promoted economic growth and people’s life quality. 6. The State Council plays a role of “final arbitrator” in this process. and in the long run it will determined by the progress of overall political and economic reform. which is affected by domestic policy constraints. but it is also a beneficiary of the reform. In the case of telecommunications reform. and encourages these enterprises to channel investment from international and domestic capital markets. First. there have been increasing number of channels and forms for them to express their opinions. Newly emerged interest groups sometimes play an important and positive role in breaking those existing monopolies which impede efficiency when an economy is in transition. counter-competitive forces. Prospects of the Telecommunications Reform How far and how fast China will go along the current regulatory and industrial restructuring route in the future will largely depend on the institutional stances taken by China's government.making process in China becomes more and more open. Second and more importantly. . as we can see from the case of the establishment of China Unicom and China Netcom. It wants to cut the amount of its own capital investment in telecommunication enterprises (both direct and indirect). every step of reform was actually pushed by Zhu Rongji.12 Chinese Public Affairs Quarterly [Vol. and the impact of FDI after joining WTO in the next few years. As the policy. In addition to the objectives of growth and efficiency.
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