By JONAH GREENBERG
(Washington DC -- May 17) Officials from China's Ministry for Information Industry MII, which oversees the country's Internet and telecommunications industries, are accorded VIP status these days by executives and investors in those sectors, in much the same way members of U.S. financial markets bow down to U.S. Federal Reserve chief Alan Greenspan.
Just as Greenspan can bring markets tumbling down with a single utterance, so can Wu Jichuan, China's Minister of Information Industry, and his minions single-handedly thrash China tech stocks on the NASDAQ and Hong Kong stock markets.
The Beijing government has latched onto the notion that next-generation mobile communications technology and the Internet are the cornerstones of China's shot at succeeding in the increasingly high-tech global economy.
"Most Market Share"
Not only are China's leaders prepared to funnel billions of dollars from state coffers into communications networks, but they have designated the MII as the policy-makers for their development. So,when Lei Zhenzhou, the director of a research branch of the MII, earlier this week kicked off a telecommunications conference in Washington D.C. with a keynote address, we listened carefully.
Lei, director of the Science and Technology Information Center at the China Academy of Telecommunications Research at the MII, spoke at China Telecom 2000: China at the Crossroads, organized by Information Gatekeepers Inc. He said he "knows" Wu Jichuan -- but "not well."
"A couple of years ago, most switching systems were imported from outside the country," Lei said in an interview with Virtual China after his speech. "Now we can manufacture them ourselves, and we occupy most of the market share."
Guaranteed Markets
"The same thing will happen in other fields," Lei said, referring to GSM (Global System for Mobile Communications) and ATM network equipment. ATM (Asynchronous Transfer Mode) is a network technology used for data transfer that can transmit video, audio, and computer data over the same network. Lucent Technologies secured an ATM equipment and service contract in March with Chinese government-funded network developers for upwards of US$100 million.
Heads turned in the audience when Lei said that Chinese cellular equipment manufacturers will enjoy steady and dramatic increase in market share. His statement implied the MII plans to implement policies that will protect companies and guarantee markets in those areas.
Domestically produced mobile switches are targeted for an increase from 40 percent of the market in 2001 to 70 percent in 2003, Lei said. Chinese-made base stations, which broadcast cellular signals, will enjoy a twofold increase in market share over the same period, and domestic handset producers will capture 30 percent of the market as opposed to the 10 to 15 percent they expect to have next year.
Dramatic Drops
Upon closer look, these are extremely optimistic projections. Even Lei himself said in the interview that China's entry into the World Trade Organization represents as many challenges as it does opportunities for Chinese enterprises.
The MII's paramount goal is to protect China's domestic manufacturers of high-tech communications equipment, like Huawei, Datang, Zhongxing, and Julong; and telecommunications operators, namely China Telecom (with its Hong Kong-listed arm), China Mobile, China Unicom, China Netcom, and Jitong Communications.
As Beijing seeks to close a deal with the European Union that would insure China's entry into the World Trade Organization (WTO), the MII's task will become increasingly difficult.
Lei, who worked at the AT&T Bell Labs in the U.S. between 1993 and 1995, said that China's main producers will have to dramatically drop their prices if they want to compete with Nortel, Alcatel, Lucent, and other western giants.
Short Competitive History
"Competition should be fair," said Lei, conceding that Beijing cannot continue to block imports through hard and fast policies. "So you have to reduce the cost and improve the quality of the product and of post-sales service."
Domestic Chinese manufacturers of high-tech communications equipment -- currently protected by tariffs well over 10 percent on U.S. imports -- could be facing eradication of all trade barriers by 2005.
So what are Lei's "hockey stick"-shaped sales and market-sized projections for Chinese telecom and high-tech companies based on?
"The Government will ask domestic manufacturers to prepare for competition with foreign companies -- warn them," he said.
"The history of China's telecommunications industry is not very long," he said, expressing concern for the success of China's telecoms operators once China joins the global trade body. "When it comes to competing, their experience is quite limited."
China Telecom is the undisputed king of the market in China right now, he said, "but their operating cost is high." The company has almost half a million employees, he pointed out.
Positives, Negatives
Lei's main concern is that the companies "might not have enough time to reorganize and reform" before the flood of foreign competition rushes in. The work of restructuring has been ongoing ever since the MII in 1998 established China Unicom to compete with incumbent China Telecom.
The MII has submitted proposed regulations of the telecommunications industry that would determine what kind of access foreign operators will have to the Internet service, cable service, and mobile service markets. The State Council is currently reviewing the draft, which includes research that Lei himself provided to his superiors in the MII. He declined to share any details.
WTO entry is not exactly anathema to China's telecommunications industry, Lei conceded. It would bring more investment from abroad, advanced technologies, and managerial experience, he said. There will be a double impact, both positive and negative, Lei said.
"It will bring opportunities and challenges."
