Chinese Telecom Industry Experiments with Foreign Investment

Last week, China’s minister for information industry, Wu Jichuan, said that the country would experiment with foreign investment in its telecom infrastructure in the Pudong New Area of Shanghai.

The Shanghai Posts and Telecommunications Administration Bureau has already signed a deal with AT&T to jointly offer telecom services in Pudong.

Moreover, the government plans to break up the major access provider, China Telecom, into three companies in order to bring down the cost of access.

How will this impact China’s Internet industry?

China has already experienced growing foreign investment among content providers and an American company has reportedly purchased a major ISP China Infohighway for a cool US$80 million (being a telecom related service, the move is technically illegal in China but the Ministry of Information Industry has looked the other way).

Significant foreign investment in the telecom access infrastructure should ideally lead the way to greater foreign investment in China’s Internet industry.

However, the breakup of China Telecom will not necessarily stimulate a more competitive industry if the new companies are State-owned; neither will piecemeal foreign investment in the telecom infrastructure.

Many industry observers believe that China will further liberalize the telecom market when and if it is allowed to enter the World Trade Organization.

During Premier Zhu Rongji’s visit to the United States, it is rumored that China will offer concessions and even encourage more foreign investment in technology industries – particularly the Internet market.

Nevertheless, both sides have said that, while Zhu visits the US, a breakthrough on the WTO issue is slim.