China's Ministry of Information Industry (MII) is blocking foreign operators from participating in areas of the country's telecommunications sector that are technically open to foreign investment, according to the Telecommunications Industry Association (TIA)
"Chinese regulators seem to believe that foreign involvement will not benefit Chinese telecom companies and therefore should be excluded," the TIA said in a December 2005 letter to the Office of the U.S. Trade Representative (USTR). TIA is an industry group based in the U.S.
The letter, signed by TIA President Matthew Flanigan, was made public on Thursday with USTR's release of its 2006 Section 1377 Review of Telecommunication Trade Agreements. The letter underscores the difficulties that foreign carriers face trying to establish a toehold in China's fast-growing market for telecommunication services.
An MII spokesman said he had not yet seen the TIA letter or USTR report and could not immediately comment on them.
On paper, Chinese regulations permit foreign carriers to offer some value-added services in China by setting up joint ventures with local operators. The range of services open to foreign operators include domestic Internet access services, Internet content services and online transaction management services, among others.
"To date, MII has effectively blocked actual participation by foreign companies in these areas by implementing high entry barriers, both through its licensing authority and its ability to narrowly define the scope of services included in each value-added category," TIA said.
When regulators do give approval for a foreign company to offer these services, they are bound by "onerous restrictions," such as limiting the geographical scope of these services to a single district within a city, the group said. In addition, these joint-venture companies do not have the authority to bill customers for the services they provide, it said.
In the Section 1377 Review released Thursday, the USTR questioned China's commitment to its World Trade Organization (WTO) obligations, which require the country to gradually open its telecommunications market to foreign companies.
The USTR cited China's failure to address high capitalization requirements placed on foreign operators. Under those requirements, which USTR called "a significant market barrier," the Chinese units of foreign operators must have assets of US$240 million to be eligible for a license to provide regional services. Most other markets have a capitalization requirement of less than $1 million, it said.
In addition, USTR expressed concerns over China's plans to issue 3G (third-generation) mobile licenses, saying the process lacks transparency. Chinese regulators appear to have given preference to a homegrown technology, called TD-SCDMA (Time Division Synchronous Code Division Multiple Access), raising questions about their impartiality, it said.
"USTR will monitor the process by which China issues 3G licenses to ensure that all standards are given an equal chance to compete in the marketplace," the report said.