Prior to the Open Door policy in 1979, the telecommunications industry was a typical industry under the socially planned system in China. Over the past 20 years, all industries in China have gone through dramatic changes. In the past, under the heavy protection domestically and internationally, the telecom industry was mainly served by a monopoly – China Telecom. The poor quality but high fees services have triggered the reformation. Since the 1990s, the Chinese government has induced competition into the local telecom market and reduced China Telecom’s monopoly power and the reform pace has sped up in late 1990s prior to China’ accession to the WTO.

Currently China has four major players in the telecommunications sector, namely China Mobile, China Unicom, China Telecom and China Netcom. Besides these four major operators, there are also two minor operators which are China Railcom and China Sat. At present, these are the six companies in China that have licenses to provide basic telecommunication services. It is common to call them the “4+2”. Table below summarizes the type of telecom services that these telecom companies can provide.

The market shares of these six players are not equal. Figure below shows the domestic telecom companies’ share of total revenue in China’s Telecom Industry (2002).

With entry to the WTO, China has committed to releasing its control of the local telecom market and allowing for some degree of foreign competition, which was “a mission impossible” in the past. Many foreign telecom companies have keen interest in entering China even under the high barriers such as policy, financial scale barriers. Competition in China’s telecom market is expected to further intensify and services are expected to be greatly improved.

Perhaps one of the fastest growing markets in China is the mobile phone market. China’s mobile phone subscribers have increased rapidly, as shown in the table below, since the mid 1990s.

Source: China Statistical Yearbook (2003)

The strong demand stimulated the expansion of the telecom market. The growth of mobile phone users exceeded the government’s predictions. The number of mobile phone subscribers exceeded 200 million in 2002. This rapid growth in mobile phone demand resulted in an increase in the length of mobile phone numbers to 11 digits since 1999. As a result, the capacity of mobile phone numbers increased from 50 million to 500 million.

This rapid growth and improvements of the post and telecom infrastructure provide China the largest telephone subscriber base. In 1985, China’s telephone network was ranked 17th in the world, but it had risen to the first in 1997. In 2001, China had 145 million mobile phone subscribers and surpassed the U.S. as the world’s largest mobile phone market. In 2002 China replaced the U.S. as the world’s largest telephone network in terms of capacity and user base. China had 214.42 million fixed line subscribers and 206.62 million mobile phone subscribers in 2002.

Another aspect of showing China is the largest market for telecom services is the development of the internet market. The number of Internet users increased rapidly from 6,000 people in 1995 to 15.35 million in 2000 and then to 49.7 million by the end of 2002 (see Table below).

Source: Lu and Wong (2003)

The growth is more than triple each year on average. Note that these numbers are registered users only. As Internet account sharing is common in China and a lot of Internet bars serve a huge number of unregistered Internet users, the total number of Internet users in China is far greater than the numbers given in the table. By the end of 2005, China is the world’s second largest Internet using countries which has 111 million Internet users only behind America (197.8 million).

To summarize, in the past decade, Chinese telecommunication industry maintains a rapid growth rate as high as more than 20% annually. Now the mobile market is facing a turning point from 2G to 3G which brings along an opportunity for newly entered handset manufacturers to change its market positioning and give potential foreign entrants to enter into the market. Even though the only two players in this market, China Unicom and China Mobile, will act together against giving new licenses to new entrants, the introduction of 3G will bring in intensive competition which will enhance the quality of services provided and boost the growth of this industry again.  

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