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Mark O'Neill

Beijing, in a bid to cut dependence on foreign funds, may ban a formula under which 40 foreign companies have invested US$1.4 billion in telecommunications ventures operated by China Unicom.

 Foreign firms are angered at the suggestion, fearing barriers to entry into the thriving telecoms sector.

 China Unicom is the only competitor to China Telecom and offers pager and mobile-telephone services and a fixed-line service in Tianjin, with others to follow in Chengdu and Chongqing.

  Unicom set up joint ventures with foreign firms to fund network expansion, with the ventures being paid from the revenue, a method known as CCF (China-China-Foreign). This formula enabled Unicom to get round a ban on foreign investment in telecoms services.

 Diplomats said that, under pressure from the Ministry of Information Industry (MII), Premier Zhu Rongji had issued an internal decree banning the CCF formula.

 But debate continues within the government, with different opinions held by different ministries.

 It is not clear whether, if the ban were enforced, it would be retroactive or it would apply only to new investment. If it were retroactive, Unicom or the government would have to pay back the investors or find another formula, the diplomats said.

 Mr Zhu wants Unicom to raise capital from the stock market, bonds or from bank loans - and not be dependent on foreign capital, they said.

 The decision has alarmed the foreign firms, from 11 countries, and their governments, which see access to the mainland's lucrative telecoms market closing. Access to this market is one of the main foreign conditions for the country's entry into the World Trade Organisation.

 The companies are angry they have invested in good faith during the past 3.5 years in a formula well-known to the leadership, often with promises of further investment to expand Unicom's network. They include such heavyweights as France Telecom, Deutsche Telekom and Sprint.

 If the decision is implemented, it could have wider negative implications for the foreign-investment community in the mainland.

 The official media has not mentioned the decree. MII officials were not immediately available for comment.



Beijing may scrap Unicom foreign-investment formula