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VI-3 Question: Some foreign investors have complained that China has fallen behind schedule in opening the telecommunications industry. Why has this happened? What are the opportunities for foreign investors in this sector?

A: Such complaints are not just. Early on December 11, 2004, China allowed foreign investors to enter the basic telecommunications service market in Beijing, Shanghai and Guangzhou through joint ventures with Chinese firms. In fact, investors from Great Britain, the United States and South Korea have set up three joint venture telecom companies with their Chinese counterparts. However, two of the three joint ventures were not very successful because of management problems.

Telecommunications is a sensitive industry in terms of its implication to national security and Internet and information security. Most developing countries are conservative in the opening of their telecommunications markets. Several factors may explain the difficulty for foreign investors to perform well in China's telecommunications market. First, China began to regulate its telecommunications industry from the 1980s, yet so far, an efficient management system has not been established. Further improvements are necessary., For instance, legislations and standards should be timely, and the country should further improve the quality of facilities and services. Moreover, some ambiguities exist in the WTO accession agreement regarding the opening of the telecommunications sector that might have confused foreign investors, and increased the potential market risk. For instance, the agreement has not clearly specified what kind of telecommunications service providers can qualify for a business license, or how the value-added telecommunications service is defined.

Despite these uncertainties, few can afford to ignore the opportunities in the largest telecommunications market in the world. Therefore, despite the difficulties they have encountered in providing basic telecommunications services in China, foreign investors have never stopped making strategic plans to expand into the market. Now, some foreign investors have entered China telecommunications service market by buying stocks of Chinese telecommunications service providers listed in foreign stock exchanges. According to statistics, up to September 2006, China's telecommunications regulatory agency had received 29 applications from foreign investors interested in operating value-added telecommunications services in China. Among the 29 applications, 14 have been approved and five have obtained operation licenses. So far, no foreign investors have applied to partner with Chinese firms to provide voice or digital telecommunications services.

It is predicted that four years from now the number of telephone subscribers in China will reach 1 billion and the number of Internet user will reach 200 million. China will overtake the United States to become the largest telecommunications market. According to the WTO schedule, by the end of 2007, China shall open its mobile and digital data service, fixed telephone and international calling markets, eliminate restrictions on the geographical areas covered by basic telecommunications service providers, and allow foreign investors to hold up to 49 percent of ownership of a joint venture. This promises more opportunities to foreign investors interested in China's telecommunications market.


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