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China Embraces the World Market

Case Studies - Specialist Boxes

Recent Reforms and Developments in the chinese Telecommunications Sector

Mr Zhang, a Beijing resident, recalls how in the early 1990s he had to go to the post office to make an international call, paying 25 yuan per minute. These days, Mr Zhang has a telephone on his bedside, a mobile phone in his pocket and a desktop personal computer with email and internet access in his study. He pays 5 yuan per minute for international calls and with the help a phone card can even pay under 3 yuan per minute. Mr Zhang's story demonstrates the dramatic changes and consumer benefits of deregulation and reforms in China's telecommunications sector over the past decade.

Structure of the industry

The government owned China Telecom was for a long time the only telecommunications provider. As an experiment, in 1994, the Government established a second national carrier, China United Telecommunications Corporation, Unicom. Unicom has, however, experienced major problems in interconnection with China Telecom and as a new entrant Unicom was too small to compete with the incumbent.

However, following central government administrative restructuring in 1998, the organisational structure of China's telecommunications sector changed. One of the main initiatives in the late 1990s was breaking up China Telecom's four services divisions into four separate and independent entities responsible for fixed line, mobile, paging and satellite communication services. The fixed line services maintained the name China Telecom and were officially incorporated in May 2000. In early 2002, authorities further split the fixed line services into two. These services in ten northern provinces merged with China Netcom, a rapidly growing provider. China Telecom maintains the rest of the fixed line services. Those changes have promoted competition and prepared the telecommunications sector to meet China's WTO commitments.

Reforms also stimulated growth in the sector. By the end of July 2002, the number of telephone subscribers in China reached 380 million, the largest in the world. The market is now dominated by four large companies and two small players (Table 1).

Table 1
Market Share of China's Telecommunications Providers
(End of June 2002)
China Mobile           38.27 per cent
China Telecom         32.60 per cent
China Netcom         16.80 per cent
Unicom                    11.20 per cent
Railcom                     1.10 per cent
ChinaSat                    0.03 per cent

Both China Telecom and China Netcom were newly incorporated in May 2002. Together with Railcom and Unicom, they will compete for fixed line services. The paging service sector, the largest in the world, is the most competitive area in the telecommunications industry. The provision of paging services was deregulated in 1993; currently over 2 000 licensed providers compete in this sector. In mobile services, the market is divided between the two main players, China Mobile and Unicom. China Mobile has a nationwide Global System for Mobile, GSM, network. Currently, Unicom is building a nationwide Code Division Multiple Access, CDMA, network. By the end of July 2002, the total number of mobile phone users in China reached about 180 million, the largest in the world. Although China Mobile and Unicom have dominated the market, competition between them has already lowered the cost of services considerably.

In Internet telephony, five companies are licensed - Unicom, Netcom, Jitong, China Mobile and China Telecom. Unicom has a market share of 50 per cent. Netcom, as a new entrant, is leading the development of broadband network for data communications. By the end of July 2002, China had about 45 million registered Internet users. The figure is expected to reach 100 million in five years. Reports indicate about one third of China's long distance calls are now made through IP telephony.

China's telecommunications sector has moved away from state ownership and monopoly to state control through shareholding and competition. The main carriers are partially privatised. Though value added services of more than 4 000 providers were deregulated internally, participation of offshore investors has to date been limited due to government regulations. However, as WTO commitments are implemented, China will allow foreign companies to hold shares up to 50 per cent in some telecommunications services.

Looking ahead

Although already one of the largest in the world, China's telecommunications sector will continue to expand in the coming decades. China's level of economic development is still far behind the developed world. Though great in aggregate, China's telecommunications sector is still small on a per capita base, which implies the huge growth potential for China's telecommunications sector. The current trend of robust economic growth will remain at least for another decade. Growth driven demand for telecommunications services will increase continuously. Analysts forecast the number of telephone lines in China will reach 370 million in 2010 and 1 billion in 2020 and that the number of mobile phone subscribers will reach 250 million by 2004. At present, development in China's telecommunications sector is uneven with both regional and urban-rural imbalances. Reforms and China's WTO membership will lead to further deregulation and hence increasing competition in the telecommunications sector. 

Author: Dr Yanrui Wu, Senior Lecturer, School of Economics, University of Western Australia, Perth.

This page last modified: Tuesday, 10 December 2002 11:42:35 AM

Local Date: Sunday, 25 January 2015 09:14:12 PM