DOES foreign equity participation in the telecommunications sector compromise a country's sovereignty? This is a question China must seriously address as it embarks on the largest expansion in the history of telecommunications. It requires at least US$100 billion to beef up the industry by the end of the decade, needs foreign funds desperately and yet does not allow foreign equity because of concern over the security of sensitive information. Are the concerns valid? Yes and no. As the Chinese Government, army and other public institutions begin to store vast amounts of information electronically, there is a possibility that foreign telecommunications companies will be able to tap in to data files and send them across national borders without consent for purposes unrelated to the original objectives. This fear is not peculiar to China, although Beijing tends to classify as secret many categories of information which are generally publicly available in many market-oriented economies. India, Pakistan, Thailand, the Philippines and Indonesia faced similar fears before opening their telecommunications industries to foreign investors. Their experiences suggest that a modern telecommunications network built with the help of foreign expertise and capital need not jeopardise sovereignty. On the contrary, outside investment offers the best opportunity for a country to maintain sovereignty by expanding its influence on the world stage. The real question China should address urgently is how it can work out a policy and regulatory regime which allows infusion of foreign equity capital without losing control of the industry. There are several ways of doing this. A revenue-sharing build-operate-transfer scheme may be feasible for less sensitive local, long-distance, international and mobile telephone services. But China could restrict foreign ownership in more sensitive areas such as broadcasting, satellite and cable services. China is on the threshold of unparalleled telecommunications growth. Foreign investors with advanced technology and capital will fall over one another to enter the market - just as soon as the ban on equity participation is lifted. Many developing countries have demonstrated that they have benefitted immensely from foreign participation. There is no reason why this should not be the case for China. What it needs to do is to work out a policy which balances foreign competition and regulation. To continue the ban on foreign equity can only mean missing the target of 140 million telephone lines within a decade.