Foreign investors slow to enter China
By Li Weitao (China Business Weekly)
Updated: 2004-09-22 10:19

The Chinese Government has largely eased restrictions on foreign investment in one of the world's most-enticing telecoms markets since the country entered the World Trade Organization (WTO) in 2001.

However, foreign investors appear to be dragging their feet rather than marching into China's market.

Foreign investors are now allowed to set up foreign-invested telecoms service companies in China, through mergers and acquisitions, said Wang Jianchao, an official in charge of foreign economic and trade co-operation at the Ministry of Information Industry (MII).

Sino-foreign joint ventures, which are already established, can also directly apply to telecoms regulators for permission to conduct telecoms business.

Foreign investors are also allowed to take a stake -- less than 25 per cent -- in a telecoms service joint venture, Wang said.

Previously, if foreigners held less than 25 per cent in such a venture, they would not be treated as "foreign investors."

If the projects in which they invest involve more than US$50 million, they must also receive National Development and Reform Commission (NDRC) approval, Wang added.

Previously, the threshold was US$30 million.

Despite the eased restrictions, most foreign investors are adopting "wait-and-see" attitude.

Almost three years after China's WTO accession, "few foreign investors are applying to form telecoms joint ventures in China," said an MII official, on condition of anonymity.

MII has received just 14 applications to date.

Since December 2001, China has approved only two foreign-invested companies to conduct telecoms services.

A Hong Kong firm has received permission to buy a 45-per-cent stake in 95Art Home Beijing Co Ltd for 36.1 million yuan (US$4.35 million). That means the latter has been transformed into a foreign-invested telecoms firm.

The joint venture is now operating an Internet data centre, call centre and Internet access and information services across the Chinese mainland.

South Korea's SK Telecom in April launched a 49-51 joint venture with China Unicom, the country's No 2 cellular operator.

The venture, with US$6 million in registered capital, is reportedly the first telecoms value-added service joint venture in China.

Insiders said bureaucracy is dampening foreign investors' enthusiasm for establishing foreign-invested telecoms firms.

For example, China Unicom and SK Telecom inked preliminary agreements in March 2003 to set up the venture. It took the firms nearly a year to launch the joint venture.

Wang said MII should approve or reject an application -- to form a foreign-invested value-added telecoms companies -- within 90 days.

For basic telecoms service joint ventures, MII must make its decision within 180 days.

The launch of the joint venture between SK and Unicom was delayed several times.

Industry observers expect the Chinese Government will face greater pressure to further liberalize the domestic telecoms market.

Compared with other sectors, China's telecoms industry has been tightly controlled, and it has been a target of foreign criticism.

Before China's WTO entry, foreign investment was prohibited in the nation's telecoms sector.

Even after the WTO accession, foreign companies were not allowed to hold more than 50 per cent of their joint ventures with Chinese partners.

Global telecoms firms -- including US-based AT&T Corp and MCI Inc, Britain-based BT Group PLC and Cable & Wireless PLC, and T-Systems, a unit of Germany's Deutsche Telekom AG -- are banding together to form an industry association to promote the opening of Asia's telecoms market, The Wall Street Journal reported last week.

The association, called the Asia-Pacific Carriers Coalition (APCC), is expected to voice concerns about the restrictions on foreign investment in less-developed markets such as China, the report said.

The same companies successfully lobbied regulators in Singapore last year for a significant reduction in the so-called "last-mile fees" charged by state-linked Singapore Telecommunications Ltd, the country's former phone monopoly.

Industry observers expect APCC will step up pressure on China to further liberalize its telecoms market, considered by many to be a gold mine in the world's communications industry.

China has more than 600 million telephone subscribers, and the number is growing rapidly.

Edward Yu, president of Analysys International, said the worldwide downturn of the telecoms and capital markets is the major reason foreigners have been slow to enter China's market.

Chen Jinqiao, a research fellow with the China Academy of Telecommunications Research under MII, said the major reason foreign investors' have not been enthusiastic to enter China is they cannot find suitable partners.

"China's telecoms market is facing a dillema: Foreign operators are reluctant to enter the Chinese market, while domestic operators are not bold enough to expand overseas," Chen said.

China Telecom recently took a tentative step when it established an office in London. In 2002, it opened a branch in the United States.

Yet, Chinese operators have a long way to go before they gain significant clout overseas, analysts said.

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