China Protects Its Turf In the Telephone Business

TELECOMMUNICATIONS may be the most lucrative window of opportunity for foreign business in China. But Chinese telephone monopolists are determined not to open the market too far too fast.

In May, the Ministry of Posts and Telecommunications warned 12 international companies here to steer clear of call-back services, which allow Chinese subscribers to get access to the United States for up to half the price of a regular call at government rates.

The ban is the latest block by Chinese officials to protect their turf and hold off Western firms hankering for a bigger piece of the market.

Although the US pushes for more openness, only a few Western firms are allowed to advise, supply, or make transmission and switching equipment here. They are banned from owning and operating phone networks.

The stodgy telecommunications ministry is resisting high-level orders to break up its monopoly and commercialize service operations. Playing on the government's penchant for secrecy, telecommunications officials warn that allowing foreigners to sell phone services would further loosen official controls and endanger national security. "Foreign investors can help build networks and recoup their investment with a portion of the profits," ministry official Wang Jianrong said recently. "But they can't hold an equity stake and receive dividends, though, because that would mean they would have a part in operations."

An Asian diplomat predicts: "Government worries about military security will slow down this whole process."

Fractious decisionmaking, poor coordination, and conflicts of interest among regional officials could result in a national telecommunications system that can't interact smoothly, experts warn.

But China is on the brink of a telecommunications boom. It plans to raise its low density from two to 10 lines per 100 people by 2000. That goal will cost hundreds of billions of dollars and require financing and technical help from overseas.

This year alone, authorities plan to pump almost $10 billion into telecommunications - doubling the reach of long-distance service and expanding the number of personal pagers by 60 percent to 12 million, reports the China Daily.

Plans are also under way for an information superhighway, and state institutions are pressuring China's communications monopolists to penetrate the booming phone-services market.

Leading the challenge are two new phone networks established under the Ministry of Electronic Industries' guidance.

Jitong Communications, the first alternative public network sponsored by the People's Liberation Army, will develop the superhighway.

The first phase, the "Golden Bridge" project, will establish high-speed satellite and fibre-optic connections for data, voice, and video among government ministries and other groups. Transmission and E-mail services are planned for two dozen cities by year's end.

To follow are "Golden Customs," to upgrade the customs network, and "Golden Card," to distribute debit cards to accountholders by 2000.

Jitong has teamed up with the International Business Machines Corporation to create a research and development (R&D) joint venture and with US-based Hughes Network Systems for customs streamlining. Jitong plans to spend $150 billion in 25 years to build the information network. US, French, and German firms are the front-running contenders for helping that network project.

"Jitong wants to open the door further to foreign companies to gain a technical edge and give [them] access to services now out of their reach," says a Western economist in Beijing.

The second network, Liantong Communications, was set up last July in Beijing, Shanghai, and Tianjin and is backed by 26 state institutions. The company, which is linked with GTE Corporation on R&D, will initially offer area long-distance and cordless services in these cities; it hopes to carry 10 percent of China's long-distance calls and 30 percent of its mobile calls by 2000.

With the government planning to add up to 20 million phone lines yearly through this decade and hoping to attract $7 billion in overseas capital, foreign firms rush to expand in China.

* British-funded Hong Kong Telecommunications Ltd. and the US firm BellSouth Corporation will develop a fibre-optics project and mobile telecommunications system for Beijing.

* US giant Motorola Inc. is expanding production of pagers, which number 6 million subscribers - more than five times the 1990 number.

* Sweden's Ericsson, China's largest supplier of mobile-phone equipment, targets China as its prime market. Cellular-phone subscriptions have jumped to 700,000, four times the 1991 number.