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Wiring China

The world's largest telecommunications firms are looking for ways to overcome bureaucratic barriers to entering China's exploding telecommunications market. They all want a place in the colossal task of . . .


BEIJING — A brief item carried by China's official news agency recently marked a significant milestone in the international telecommunications industry.

By the end of 1996, the New China News Agency reported, more than 40 million mainland Chinese will be using pagers, surpassing the United States as the biggest users of the devices in the world. For those who live in China--where pagers have taken on the "Chinglish" slang name of call-ji--this came as no particular surprise.

The constant beeping, ringing, chiming and buzzing of pagers in public places became such a nuisance that the State Education Commission banned them from school grounds. Even the courses in Marxist-Leninist philosophy at Qinghua University in Beijing were not immune to the constant electronic interruptions.

For a country that only a few decades ago still had telephones with cranks, the pager phenomenon is remarkable enough. But for those in the telecommunications industry, it was only the first milestone among many destined to be achieved here.

By sheer weight of its huge population and steady double-digit economic growth, China in the next quarter of a century or so is expected to have more telephones, more cellular phones, more beepers, more transmission lines--more everything telecommunicatively--than any other country.

One statistic tells the story: Every two years, China adds a telephone network equal to France's national system. Under the latest "Five-Year Plan," China is committed to spending up to $90 billion before 2000 to expand its telecommunications network.

According to the Claydon Gescher Associates consulting firm in Beijing, the more realistic estimate is that "China faces a bill of some $40 billion to $52 billion (at present international costs) for planned infrastructure expansion over the next five years and the technological upgrading required to breathe life into the information superhighway."


Despite its enormous promise, however, China remains an elusive and difficult market for foreign companies hoping to connect and collect.

"Clearly, this is the biggest market in the world right now in terms of equipment," said a Western diplomat in Beijing. "They are buying tons of equipment, everything from satellites to fiber optics. But services are not open yet."

Some of the world's biggest equipment manufacturers--notably Motorola and AT&T, Canada's Northern Telecom, Nokia of Finland, Alcatel of France, Ericsson of Sweden and the German giant Siemens--have already profited handsomely from the Chinese market. Motorola, for example, peddling everything from its flip-cellular phones to two-way radios and semiconductors, counts on China for more than 12% of its total business, accounting for sales of $3.2 billion in 1995.

But companies hoping to cash in on the longer-term, potentially more profitable service and operational side of the business have had a much more difficult time.

Officially, the Chinese government prohibits foreign "investment and management in the telecom networks." Although most of the major players have tested the waters, few have made much headway.

"In China," Tobias Newland wrote recently in the magazine China Law & Practice, "the problem for telecom investors is that the meat in the sandwich of these contracts, the operation of telecom networks, is prohibited."

Only a few foreign firms--including Ameritech and McCaw International, Singapore Telecom and Siemens-Deutsche Telekom--have managed to forge joint-venture agreements in the service sector. And because of the prohibitive Chinese regulations, those companies have been forced to officially define their business relations as consultancy or engineering advisory agreements--categories that offer little or no legal protection.

Last fall, Chicago-based Ameritech became the first U.S. telecom company to sign a joint-venture service agreement in China. With a total investment of about $20 million, Ameritech has agreed to construct and supervise a 10,000-subscriber digital cellular system and switched telephone network in Taiyuan, capital of Shanxi province in north-central China.

During the 15-year term of the venture, Ameritech is supposed to reduce its 80% initial stake in the project to 49%. The company is hoping to recoup its investment in seven years.

"Because there is no telecommunications law, we are really working in some gray areas here," said Wilson S. Wang, a former IBM executive who now heads Ameritech's Beijing representative office. "Both our local partner and us have to work very carefully."

Like other telecommunications firms deciding to dive into the Chinese market, Ameritech hopes that its pioneering effort will give it an advantage later in the game, when the legal framework of investment here becomes more clear.

Foreign businesses in China often cite the example of Volkswagen, which by pioneering joint production of cars in Shanghai, the country's biggest metropolis, has built up a highly profitable business.

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