information and communication technologies in developing countries seminar ict policy making in...

Information and Communication Technologies in Developing Countries SeminarICT Policy Making in Developing Countries:

The Case of ChinaMarc LaperrouzaDecember 12, 2003Lausanne, 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.

Discussion

UNIL Research Seminar – December 12, 2003 Marc Laperrouza – [email protected]

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


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?


Guess Who’s Coming for Dinner Next Decade?

Source: IFRI


Global IT Manufacturing Shifts to Asia/Pacific

1960’s: Japan

1980’s: Singapore, Malaysia and the Philippines

mid1990’s: Southern China

2000’s: Shanghai and nearby regions

mid2000’s: Inland China, India or Vietnam

1970’s: Taiwan and South Korea


Telecommunication Services Revenues (current prices and exchange rates)

34 6

710

1317

24.628

3744

49

0

200

400

600

800

1000

1200

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

US

$ B

illio

n

Worldwide China

Source: ITU, MII

CAGR29.42%

CAGR8.40%

For 2003, China’s telecom revenuesare estimated at US$ Billion 54.46


ICT in China’s Trade

0

10000

20000

30000

40000

50000

60000

1990 1995 1999 2000 2001

Mill

ion

US

$

0

5

10

15

20

25

%

Exports Imports Share of Trade

Source: WTO


Telecommunications and China in the News

Source: Factiva (December 1-3, 2003)

•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


CONTENT



• Issues: Divide, Control of ICT, Market access and Reforms


• Role play


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


China Telecommunication Statistics

0

5

10

15

20

25

30

1995 1997 1999 2001 2003E 2005E

%

0

200

400

600

800

1000

1200

US

$

Internet Penetration Main Line Penetration Cellular Penetration GDP/Capita

Mobile phones:206’600’000 subscribers

~ 5 million more each month, 95% pre-paid

Source: MII, Merrill Lynch, World Bank

According to the World BankChina could count more than

300 million Internet users by 2005


China’s Changing Telecom Regulatory and Market Environment

1978 Creation of the telecommunication monopoly1984 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 enterprise1998 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 agreement2000-09 PRC Telecom Regulations2001-11 China joins the WTO2002 Restructuring of China Telecom and China Netcom

2004? Telecommunication Law…

1

2

3

4


Chinese Government Priorities and Trends in the Policy Making Process

•More transparency•More involvement from the State Council less power at MII•Rise of consumer advocacy•Rise of foreign influence

•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


China’s Changing Internet Environment

1988 First Chinese Internet connection established by CAS1990 State Planning Commission and the World Bank start a project called

the National Computing Facilities of China (NCFC) – CERNET in 19931993 Premier Li Peng approves funding for the Golden Bridge Network and

The National Economic Informatisation Joint Conference is set up1995 Establishment of ChinaNet by MPT1996 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 development1998 Absorption of the Steering Committee on NII gives the new MII full

regulatory control over the Internet1999 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 SystemRegulations 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.

1

2

3


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


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


CONTENT





• Role play


Digital Divide “à la Chinoise” (by Province)

0500750

1’0002’0003’0004’000

500750

1’0002’0003’0004’000

=<=<=<=<=<=<>

GDP per capita 2003-03in US$

Source: ITU, CSFB, MFC Insight (compiled by author)

100.0%

10.12%

41.90%

PP

SS

TT

NN

IINNTTEERRNNEETT

MMOOBBIILLEE

Taiwan

Switzerland

Hong Kong

India

Asia

Korea

Japan

China


Digital Divide “à la Chinoise” (by Region)

Source: Merill Lynch, CSFB

100.0%

10.12%

41.90%

PP

SS

TT

NN

MMOOBBIILLEE

Mobile Subscribers (by Region)

East

Central

West

GDP/CapitaUS$

1’838814633

PSTNUrban

27.05%26.81%21.31%

PSTNRural

9.73%5.94%3.51%


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.


ISPs and Internet Bandwidth in 2003: A Hierarchy of Responsibility

Interconnectednetworks

International gateway

Connectednetworks

Trade NetworkCIETNet 2M

(0%)

Qinghua U.CERNET 324M

(1.74%)

CASSCSTNet 55M

(0.3%)

China NetcomCNCNet 5577M

(30%)

China TelecomChinaNet 109592M(58.92%)

Chin MobileCMNNet 247M

(1.33%)

China UnicomUniNet 693M

(7.72%)

More

than

1’0

00 IS

Ps

Regulator: Ministry of Information Industry

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

China Telecom

All others


Telecommunication opening, after WTO accession

Telecom To To+1 To+2 To+3 To+4 To+5 To+6 To+7Service 2002 2003 2004 2005 2006 2007 2008 2009

VAS, Internet 30% 49%

Mobile 25%

Fixed 35%

Beijing, Shanghai, Guangzhou14 citiesNo geographical limit

25% 49%

50%

35% 49% 49%

“Open” but nobody is investing and few are knocking at the door…


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


China’s Mobile vs Fixed Lines: Leapfrogging and Managed Competition

0

50

100

150

200

250

300

350

400

450

1990 1992 1994 1996 1998 2000 2002

Mill

ion

Su

bs

cri

be

rs

Mobile Fixed

Source: Gartner

In 2002, China Mobile still counts more than 70% of total mobile subscribers

CAGR33.24%

CAGR117.93%China Unicom

established

China Telecomsplit into 4 units

Creation of the Ministryof Information Industry

China Mobile’smonopoly ends


Market Structure of the Telecommunication Sector in China

Local

LDD

IDD

Mobile

Data

Internet

Paging

ICP, VAS

VoIP

2003 ? 2003 ?

Jitong

GSM

ChinaUnicom

GSM, CDMA

ChinaTelecom

ChinaNetcom

ChinaMobile

ChinaSatellite

ChinaRailcom

Open

Source: France Telecom

Mobile phones:What standard for 3G?


Some Actors in the ICT Policy-Making Process

Source: Based on and updated from Lovelock (1999) and Zita (1987)


CONTENT





• Role play


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.


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?


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 ageForeign 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


CONTENT





• Role play


Some of the Major Issues on the Table

•Universal service

•Internet and censorship

•WTO and market access

•Telecommunication reform


Universal Service

•Head of Vodafone •Head of Ministry of Information

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.

USO/USF is one of the key issues in the drafting of China’s telecommunication law

•…•…•…•…•…

•…•…•…•…•…


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


Internet and Censorship

•Head of AOL-Legend •Head of Public Security

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?

Government control is bound to extend to all access devices (Mobiles, WLANs, etc.)

•…•…•…•…•…

•…•…•…•…•…


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)


WTO and Market Access

•Head of USTR •Head of MOFTEC/MOFCOM

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?

There has been no foreign investment in mobile or VAS over the past 12 months

•…•…•…•…•…

•…•…•…•…•…


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


Telecommunication Reforms

•Head of State Council •Head of Ministry of Information

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.

The super-commission (SILG) has been very quiet since Premier Zhu retired

•…•…•…•…•…

•…•…•…•…•…


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

information and communication technologies in developing countries seminar ict policy making in...

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