Deal opens door on lucrative market

Yvonne Chan

Concessions by the mainland in one of its most closely guarded markets will see foreign investors taking controlling stakes in the mainland's telecommunications sector and also open the door for investments in the Internet sector.

The mainland is to allow up to 50 per cent foreign ownership and control in its telecoms and Internet markets sooner than previously agreed.

Once the mainland has completed entry into the World Trade Organisation, foreign companies will be allowed to take a 49 per cent stake in mainland telecoms ventures rising to 50 per cent after two years, said US Trade Representative Charlene Barshefsky.

'Foreign control is possible in a 50-50 joint venture,' she said.

Foreign companies would have 'full investment rights' in the mainland's rapidly growing Internet market, an area off-limits until now.

Foreign investors have pumped at least US$200 million into mainland Internet companies, but the industry has been jolted by recent announcements by government officials who said such investments were barred.

Details have not yet been announced on the allowed foreign ownership in each telecoms sector, but Beijing appeared to have softened its previous stance, agreeing to a more advanced timetable for liberalisation than negotiated in April.

The timetable had called for 25 per cent maximum foreign ownership in value-added services such as the Internet by next year in Shanghai, Beijing and Guangzhou, expanded to 51 per cent of nationwide services by 2004.

Mobile services were to have 25 per cent allowed foreign ownership in the three areas by 2001, extending to 49 per cent of nationwide services by 2005.

Fixed-line businesses in the three key areas would be allowed 25 per cent foreign ownership by 2002, growing to 49 per cent of nationwide networks by 2006.

During last Friday's talks, US negotiators reportedly insisted on 51 per cent foreign ownership rights in the mainland's telecoms sector but Beijing refused to go beyond allowing minority holdings for foreign investors.

The government has spent more than a year restructuring dominant carrier China Telecom and preparing it for competition by breaking down its operations into separate divisions and forcing it to reduce tariffs.

Fledgling competitor China Unicom has been promised a more competitive market with China Telecom and is likely to be allowed to expand its Code Division Multiple Access mobile network and to gain interconnect rights into China Telecom's network.

Analysts predict mobile operator China Telecom (Hong Kong), the SAR-listed arm of China Telecom, may initially see its share price drop due to the threat of increased competition from Unicom.