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ICT Policy Making in Developing Countries: The Case of China

ICT Policy Making in Developing Countries: The Case of China. Discussion. Information and Communication Technologies in Developing Countries Seminar. Marc Laperrouza December 12, 2003 Lausanne, Switzerland.

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ICT Policy Making in Developing Countries: The Case of China

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  1. ICT Policy Making in Developing Countries:The Case of China Discussion Information and Communication Technologies in Developing Countries Seminar Marc Laperrouza December 12, 2003 Lausanne, Switzerland This presentation is solely for the use of participants. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from the author.

  2. CONTENT • Background: PhD research • Dimension: Some facts, figures and policy evolution • Issues: Divide, Control of ICT, Market access and reforms • Lessons: Role of government, applicability to other developing countries • Role play

  3. Research Question • How did China’s telecommunication policy making reforms evolve in light of its accession to the WTO? • How to bridge the WTO agreement with telecommunication policy making and the overall reform drive?

  4. Guess Who’s Coming for Dinner Next Decade? • Source: IFRI

  5. 1970’s: Taiwan and South Korea 1980’s: Singapore, Malaysia and the Philippines mid1990’s: Southern China 2000’s: Shanghai and nearby regions mid2000’s: Inland China, India or Vietnam Global IT Manufacturing Shifts to Asia/Pacific 1960’s: Japan

  6. Telecommunication Services Revenues (current prices and exchange rates) For 2003, China’s telecom revenuesare estimated at US$ Billion 54.46 CAGR29.42% CAGR8.40% • Source: ITU, MII

  7. ICT in China’s Trade • Source: WTO

  8. Telecommunications and China in the News • China Roils Computer Makers With Its Encryption Standard • Encryption Policy Worries Computer Makers, Stands to Intensify Trade Tensions • China Unicom Plans Joint CDMA-GSM Service • China Telecom Tests New IM Software with Value-Added Telecom Services • Chinese Network Equipment Vendors Push Forward Into International Markets • China Telecom Hotspots To Be Integrated into Ipass Global Network • MII Issues New Interconnection Charge Settlement Regulation • Five Telecom Manufacturers Join TD-SCDMA Union • China Netcom to Issue 5 Billion RMB in 10-year Corporate Bonds to Fund Expansion • Internet Becomes a Power Play • Source: Factiva (December 1-3, 2003)

  9. CONTENT • Background: PhD research • Dimension: Some facts, figures and policy evolution • Issues: Divide, Control of ICT, Market access and Reforms • Lessons: Role of government, applicability to other developing countries • Role play

  10. China’s Internet Evolution: Show Me the Evidence… China Daily reports that the number of Internet users in China stands at 37.55 million China Daily, May 2002 The number of Internet users: about 45.8 million CNNIC, July 2002 By the end of September this year China had 54.35 million Internet users Ministry of Information Industry, November 2002

  11. China Telecommunication Statistics According to the World BankChina could count more than300 million Internet users by 2005 Mobile phones:206’600’000 subscribers ~ 5 million more each month, 95% pre-paid • Source: MII, Merrill Lynch, World Bank

  12. China’s Changing Telecom Regulatory and Market Environment • 1978 Creation of the telecommunication monopoly • 1984 Leading Group for Revitalisation of the Electronics Industry takes responsibility for planning telecommunications sector growth as part of China's drive into the electronic age. • 1985 7th Five-Year Plan propels telecommunications as a national priority. • 1993 Registration of China Unicom, organised by then MEI, first competitor of China Telecom. • 1995 Establishment of China Telecom as an independent legal enterprise • 1998 China’s 9th NPC approves an ambitious reform of the information and telecommunications industry and merges all the information and telecommunications related regulatory institutions into one single regulator, the Ministry of Information Industry (MII). • 1999-11 Sino-US agreement to open the telecommunication market to international competition (WTO Reference Paper and commitments) • 2000-05 Sino-EU bilateral agreement • 2000-09 PRC Telecom Regulations • 2001-11 China joins the WTO • 2002 Restructuring of China Telecom and China Netcom • 2004? Telecommunication Law… 1 2 3 4

  13. Chinese Government Priorities and Trends in the Policy Making Process • Build out infrastructure massively (CCF, IPO, etc.) • Preserve state assets and generate huge revenues • Foster domestic competition and internationalisation to keep barbarians at the gate • More transparency • More involvement from the State Council less power at MII • Rise of consumer advocacy • Rise of foreign influence

  14. China’s Changing Internet Environment 1 • 1988 First Chinese Internet connection established by CAS • 1990 State Planning Commission and the World Bank start a project called the National Computing Facilities of China (NCFC) – CERNET in 1993 • 1993 Premier Li Peng approves funding for the Golden Bridge Network and The National Economic Informatisation Joint Conference is set up • 1995 Establishment of ChinaNet by MPT • 1996 A National Informatisation Leadership Group is set up under the SC. • SC issues Decree 195, ‘Temporary Provisions of Internet Administration of the Computer Information Communication network • Creation of the State Council’s Steering Committee on NII. • 1997 CAS sets up the CNNIC to oversee China's Internet development • 1998 Absorption of the Steering Committee on NII gives the new MII full regulatory control over the Internet • 1999 Interim Regulations on the Connectivity of Telecommunications Networks • 2000 SC’s State Information Office issues regulations on the Internet Security Management of the Computer Information System • Regulations for the Management of Electronic Announcement Services • 2001 Deputies to the 9th National People's Congress (NPC) call for urgent legislation on Internet safety. • 2002 All Internet cafés in Beijing are closed, following a fire. 2 3

  15. A Well-Balanced Chinese Model? • China’s Internet structure as a state Intranet  model against self-regulation • Tight administration of service operation  doubt of regulatory convergence • Market competition for ISPs  doubt about fair market competition • The Chinese Government has structured its Internet regulation to control political risks through carefully designed institutional arrangements, tight control of network operations and pervasive regulation of end users. However, the attempt to regulate the Internet is seriously handicapped by its fragmented and sector-oriented regulatory regime • “How WTO will affect the Internet will be the responsibility of Ministry of Information Industry telecoms regulators” • Zhang Huisheng, MII Information Promotion Department

  16. Early Conclusions and Late Hypotheses • Since its inception, China’s ICT policy making has been (and remains) under strong domestic political competition, both from competing ministries (e.g. the Ministry of Information Industry and the Ministry of Railways) and inside the government (conservative and reformers) • Most of the legislative process surrounding ICT has been mostly crafted in a trial-and-error fashion (until the formal accession to the WTO) by the Ministry of Information Industry • Maintaining “informed ambiguity” around both sectors procures two distinct advantages: • gain time in order to understand where the technology is going (convergence) • provide room for bargaining at the WTO and fill legislative vacuum

  17. CONTENT • Background: PhD research • Dimension: Some facts, figures and policy evolution • Issues: Divide, Control of ICT, Market access and Reforms • Lessons: Role of government, applicability to other developing countries • Role play

  18. Japan PSTN MOBILE IN T E R N E T Korea China India GDP per capita 2003-03in US$ 0 500 750 1’000 2’000 3’0004’000 =< =< =< =< =< =<> 500 750 1’000 2’000 3’000 4’000 Asia Taiwan 100.0% 41.90% Hong Kong 10.12% Switzerland Digital Divide “à la Chinoise” (by Province) Source: ITU, CSFB, MFC Insight (compiled by author)

  19. GDP/CapitaUS$ 1’838 814 633 PSTNUrban 27.05% 26.81% 21.31% PSTNRural 9.73% 5.94% 3.51% East Central 100.0% 41.90% West 10.12% Digital Divide “à la Chinoise” (by Region) Mobile Subscribers (by Region) PSTN MOBILE Source: Merill Lynch, CSFB

  20. China, Internet and censorship… • …China faces the same dilemma as Singapore, but on a much greater scale… Since it is doubtful that either technical means or financial control can really work and prevent people from free communication over the Internet, the only means left to the government is intimidation. The Chinese Communists are right to fear the power of the Internet • Simon, L. D. (2000). NetPolicy.Com : public agenda for a digital world. Washington, D.C., The Woodrow Wilson Center Press. • The Chinese government is challenged by the conflicting goals of maintaining control over information entering and leaving China, and fostering the commercial potential of the Internet • Perritt, J., Henry H. and Clarke, R. R. (1998) 'Chinese economic development, rule of law, and the internet', Government Information Quarterly, 15 (4): 393-417.

  21. China Telecom ChinaNet 109592M (58.92%) China Unicom UniNet 693M (7.72%) Trade Network CIETNet 2M (0%) Qinghua U. CERNET 324M (1.74%) CASS CSTNet 55M (0.3%) China Netcom CNCNet 5577M (30%) Chin Mobile CMNNet 247M (1.33%) ISPs and Internet Bandwidth in 2003: A Hierarchy of Responsibility All others Regulator: Ministry of Information Industry China Telecom International gateway Interconnectednetworks Connectednetworks More than 1’000 ISPs State Council Order 195 Some competition allowed to develop between ISPs but infrastructure under control: principle of promoting economic development and maintaining political and economic control • Source: CNNIC – July 2003

  22. Telecommunication opening, after WTO accession Telecom To To+1 To+2 To+3 To+4 To+5 To+6 To+7 Service 2002 2003 2004 2005 2006 2007 2008 2009 50% VAS, Internet 30% 49% 35% 49% 49% Mobile 25% 25% 49% Fixed 35% Beijing, Shanghai, Guangzhou 14 cities No geographical limit “Open” but nobody is investing and few are knocking at the door…

  23. Supranational Telecommunication Policymaking: Not Happening in a Vacuum • WTO: Basic Telecommunication Agreement or BTA (including the reference paper) and the Information Technology Agreement (ITA) • APEC: Shanghai Declaration (including e-APEC Strategy) • ITU: Settlement of international traffic/payments and government regulations on technical standards; the revised International Telecommunication Regulations • Regional FTAs: China-ASEAN FTA initiative in November 2000

  24. China’s Mobile vs Fixed Lines: Leapfrogging and Managed Competition In 2002, China Mobile still counts more than 70% of total mobile subscribers China Telecom split into 4 units CAGR33.24% China Mobile’smonopoly ends Creation of the Ministryof Information Industry CAGR117.93% China Unicomestablished • Source: Gartner

  25. China Telecom China Netcom China Mobile China Unicom China Railcom China Satellite Open Local LDD IDD VoIP Jitong Mobile 2003 ? GSM GSM, CDMA 2003 ? Data Internet Paging ICP, VAS Market Structure of the Telecommunication Sector in China Mobile phones:What standard for 3G? • Source: France Telecom

  26. Some Actors in the ICT Policy-Making Process • Source: Based on and updated from Lovelock (1999) and Zita (1987)

  27. CONTENT • Background: PhD research • Dimension: Some facts, figures and policy evolution • Issues: Divide, Control of ICT, Market access and Reforms • Lessons: Role of government, applicability to other developing countries • Role play

  28. Why Was China Actually Able to Develop and Implement an ICT framework? • Two inter-related aspects of the policy-making process: • A bargaining framework that is employed in lieu of a legislative framework • A mechanism for administrative co-ordination • Together, these two components provide an institutional approach that explains the Chinese policy-making processes. • Under a framework of 'co-ordinated competition' the government's objective has been to encompass new opportunities as they arise, not marginalise them and that this has been the defining element in China's NII policy process.

  29. China’s ICT Policy: Some Early Conclusions on Internet • In comparison with neighbouring countries, no explicit National Information Infrastructure policy (except for 1996 creation of the State Council’s Steering Committee on NII) • The Chinese government benefits from the Internet in at least four ways: re-centralisation of authority, infrastructure boom, help for the state sector and boost to consumer spending: from academia users (CERNET, etc.), it has been extended to individual users (ChinaNet), to government users (Government Online) and to enterprises (Enterprise Online) • Will China succeed in “commercialising” the Internet without “politicising” it? • Will the power shifts wrought by the Internet surface during an economic or political crisis? • Will the WTO agreement prepare the space for a new and converging regulatory regime to accommodate the Internet era?

  30. Mind the Gap… • “The modernists of 1910 and the 1970s were right about the direction of change but simplistic about its consequences. Like pundits on the information revolution, they moved too directly from technology to political consequences without sufficiently considering the continuity of beliefs, the persistence of institutions, or the strategic options available to statesmen.” • R. Keohane and J. Nye Power and interdependence in the information age • Foreign Affairs(1998) • Will the Chinese government manage policy leapfrogging while: • Managing the digital divide • Preventing techno-nationalism • Implementing its WTO commitments • Avoiding politics as usual

  31. CONTENT • Background: PhD research • Dimension: Some facts, figures and policy evolution • Issues: Divide, Control of ICT, Market access and Reforms • Lessons: Role of government, applicability to other developing countries • Role play

  32. Some of the Major Issues on the Table • Universal service • Internet and censorship • WTO and market access • Telecommunication reform

  33. Universal Service USO/USF is one of the key issues in the drafting of China’s telecommunication law With a teledensity below 20% (up from 5% at the beginning of the 90’s), China might have a hard time leapfrogging into the knowledge economy. The last five years have witnessed an increase in the digital divide between the “rich” Eastern provinces and the “underdeveloped” West. • Head of Vodafone • Head of Ministry of Information • … • … • … • … • … • … • … • … • … • …

  34. Universal Service • Head of Vodafone • China Telecom is the incumbent and has been using cross-subsidies until now • The development of the telecommunication is not far advanced enough for USO • There is little incentive for Vodafone and other operators • Tariffs need to be unified first • No way can a USF be managed if there is no independent regulator • Head of Ministry of Information Industry • All operators, regardless of the type of services should contribute to the fund • USO will make sure that universal access is a reality in China by 2010 • Does Vodafone want to stay outside of the Chinese market? • One has to reduce the urban-rural gap and coastal-inland gap • USO will require to shift from operators’ fiscal support to end-users’ subsidies • Under WTO, all operators should obey the same rules • Operators will only chose the money-making routes

  35. Internet and Censorship Government control is bound to extend to all access devices (Mobiles, WLANs, etc.) In the middle of August 2002, Google was down in China… Server failure, DOS attack? The rumor at the Forbidden City has it that the government was upgrading its software at the international gateway. Will AOL, with headquarters in the country of free speech, tolerate such infringements? • Head of AOL-Legend • Head of Public Security • … • … • … • … • … • … • … • … • … • …

  36. Internet and Censorship • Head of AOL-Legend • All AOL users worldwide should have equal access to AOL services • Why let AOL enter a JV with China’s leading computer manufacturer if AOL isn’t allowed to provide services afterwards • A vibrant and open Internet in China would create many opportunities for domestic VAS providers too • Soon the number of different devices and the amount of data will make control over the Internet impossible • Head of Public Security • China is different: if you want to operate here you have to follow China’s rules • Maybe the partner wasn’t the right one in the first place • Internet endangers national security: state secrets should not be exported • Sina.com, Sohu.com are doing fine, thanks • The government has investigated many ways to make sure that only the best of Internet develops in China – no 3Gs (Girls, Games and Gambling)

  37. WTO and Market Access There has been no foreign investment in mobile or VAS over the past 12 months With 25% market access for mobile telephony upon accession and 49% access for fixed-line services by 2008, China’s WTO commitment fits in the usual developing countries market access concessions. Domestic customers would like to see better service quality and foreign multinational companies (MNCs) would like to get a return on their representative offices in China. Is the industry ready for more opening? • Head of USTR • Head of MOFTEC/MOFCOM • … • … • … • … • … • … • … • … • … • …

  38. WTO and Market Access • Head of USTR • WTO talk is different from business talk – it hasn’t materialised on the ground • OK to have fixed business closed till 2008 but why not open value-added services (VAS) • More (foreign) competition means more investment and better service quality • Foreign competition will also mean transfer of know-how and of technology • All the other services have been open with success • Head of MOFTEC/MOFCOM • China needs time to adjust to the new WTO environment • China’s telecommunication industry is in the transition period and even domestic VAS providers are not mature enough to fight foreign competitors • All the domestic service providers have launched quality of service programs • Domestic equipment manufacturers don’t need know-how transfer anymore and domestic service providers don’t want to share the revenues • Telecommunication is a special sector: it is a question of national security

  39. Telecommunication Reforms The super-commission (SILG) has been very quiet since Premier Zhu retired From one monopoly to five monopolies, China’s telecom sector could get a helping hand to keep growing and improving service quality. And, thanks to the WTO foreign investors aren’t far behind. • Head of State Council • Head of Ministry of Information • … • … • … • … • … • … • … • … • … • …

  40. Telecommunication Reforms • Head of State Council • Separation of government from enterprise to ensure the governmental organs implement independent industrial regulation • Do away with “niche” monopoly and eliminate low efficiency due to monopoly • Protect competition and promote telecommunication service providers • Keep abreast of market economic system • Keep up WTO promises • Head of Ministry of Information Industry • Separation has been institutionalised in 1998 with the creation of the MII • Telecommunication is a natural monopoly and the “niche” monopolers are the biggest contributors to the State coffers • Few developed countries, not to mention developing countries, have managed such reforms in such limited time • Unless property rights and competition laws are enacted, the regulator has to ensure fair competition • China is a socialist market economy – capitalism with Chinese characteristics • A lot of training needs to be done to implement WTO commitments at all levels

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