Peter Lovelock
Cover by Benjamin A. Hurd
| Peter Lovelock is director of the Insight Division at MadeforChina.com, a Beijing based Internet and consulting company. |
A look at the latest PRC Internet developments
After months of delay, draft telecom regulations finally emerged from MII's dungeons in June, and have been making the rounds of foreign telecom and Internet companies. The proposed rules essentially divide China's telecommunications firms into those that operate networks and those that provide services over those networks, including paging services.
However, in a moment of unusual frankness, the Ministry of Information Industry (MII) Bureau of Telecommunications Administration Deputy Director Zhang Xiaobin admitted that the super-agency could no longer manage the growth of the Internet alone. Zhang suggested that MII would therefore be looking to receive help from other government departments. (Of course, the Internet actually ran fine for quite a few years without MII guidance.)
Regulatory follies
Nevertheless, MII's admission seems to have encouraged and increased the momentum with which other government bodies have been drafting various bits of rules and regulations for the still inherently undefined Internet environment in China. These cover the Internet overall, content, e-commerce, e-commerce tax, and online reporting, and also include the much-fabled and -heralded telecommunications regulations. In May, the Beijing Administration for Industry and Commerce proposed "standardizing" guidelines--that do not yet exist--for websites engaged in online advertising, an effort that will require companies to apply for permits (see The CBR, July-August 2000, p.34). And guess which body will accept the applications for permits?
Not to be left out, China's State Copyright Bureau began drafting laws addressing online copyright protection. They will have their work cut out for them: in May the Business Software Alliance awarded China a cracking 91 percent mark in software piracy, thereby allowing China to grab the No. 2 position worldwide after Vietnam.
MII's Department of Information Technology Advancement submitted draft e-commerce regulations to the State Information Technology Leadership Group for review in April. (Please note: this is different from the E-Commerce Leadership Group and MII's China E-Commerce Association--both launched this year.) The Draft Guidelines for China's E-Commerce Development allegedly include rules governing the participation of foreign companies in the sector. Even better, they are said to define the sector in which foreign companies would be participating. As telecom companies in the China market will tell you, "defining the market" represents a radical method of regulating access. Indeed, the Chinese authorities have never defined what the telecoms sector is. They have only ever defined what it isn't. This is not exclusive to telecoms or the Internet; it is a fairly classic Chinese bureaucratic approach to regulation.
After months of delay, draft telecom regulations finally emerged from MII's dungeons in June, and have been making the rounds of foreign telecom and Internet companies. The proposed rules essentially divide China's telecommunications firms into those that operate networks and those that provide services over those networks, including paging services. Under these rules, network operators would have to put up with the Chinese government as a controlling shareholder and possess a "complete, reasonable, and feasible" business plan. Service providers need not have any state ownership and need only a "feasible" business plan--however incomplete or unreasonable.
Who will preside over all the new regulatory strictures? The State Council's "telecom authority." What, or rather who, is this mysterious telecom authority? Surely it is MII, no? Apparently, MII's push to get these regulations through the system means that it must disguise its intentions. Earlier drafts named the independent regulator as MII; this draft refers only to a "telecom authority."
What it all may mean for foreign firms
Under the terms of various World Trade Organization (WTO) accession agreements, China is to open up its telecom mark et to foreign competition (see The CBR, May-June 2000, p.12). But just in case foreign telecom-equipment manufacturers were expecting life to get easier following China's WTO accession, MII researcher Lei Zhenzhou is helping to set them straight. During a speech before a US audience, Lei confided that domestic equipment manufacturers would, by 2003, capture 70 percent of the mobile switching market, 50 percent of the base station market, and 30 percent of the handset market. Given Lei's speech, may we point out that Adam Smith looks likely to be left on the shelf a little while longer?
Meanwhile, on the services side, the draft regulations on foreign investment now circulating make the task ahead look even tougher. Foreign companies seeking to engage in the operation of telecom networks must have booked at least $10 billion in revenue each year in the two years prior to application. The rare few that leap this hurdle must then find a state-owned partner that has at least $360 million in revenues. This narrows the field down to about a dozen serious contenders on one side of the equation and three on the other--the names of which all begin with "China." The Chinese partner has the power to pick the chairman of the joint venture and to "recommend" the general manager. We're not quite sure that that's what the telecoms trade negotiators had in mind!
Commenting on the draft regulations, Beijing Universi ty's Guanghua Management Institute Deputy Director Zhang Weiyang reportedly took a less charitable view, complaining that MII had issued "strange rules and random regulations to boost [its] own power." Zhang, however, did not see this as a new problem. Evoking a great new economy image, he likened the ministry's penchant for regulation to the cravings of a drug addict.
Taxation: a new threat?
Unlike their American counterparts, Chinese officials don't get squeamish when talking about taxing Internet commerce. Just vague. Zhang Yunqing of MII informed the China Internet Venture 2000 audience that the government was drafting rules on Internet taxation, noting that rigorous enforcement of these rules would prevent "tax evasion on the Internet." We're wondering if the rules on Internet taxation will be out before or after the still breathlessly anticipated Internet regulations....
More recently, State Administration of Taxation Director Jin Renqing disclosed that China will likely impose taxes on online transactions--a decision that runs against the collective vision of leading developed nations. "If I were to attend an international conference on e-commerce, as the minister of a developing country, I would have to disagree" with tax exemptions for e-commerce, Jin said.
However, government beancounters probably shouldn't plan on streams of cash flowing into the coffers just yet. Accord ing to disappointed tax collectors in Beijing's Xicheng District, of the 67 Internet companies located in their jurisdiction, only 3 have scored a profit. Combined income of these companies totaled a less-than-revolutionary $5.5 million.
All Rights Reserved.