|Beijing Scene, Volume 5, Issue 11, June 4 - 10|
U.S. Tech Firms Fear Anti-China Mood
"The potential for really screwing things up for high-tech is very high right now," says Mark Mechem, a senior analyst at the U.S. Information Technology Office, which represents the computer and high-tech industry in Beijing.
A special Congressional committee chaired by Representative Christopher Cox released a thick report alleging successful efforts by China to learn sensitive nuclear and military technology secrets from the United States.
China flatly denies the charges, attributing them to "Cold War" warriors who need an enemy now that the Soviet Union is gone. Among the U.S. report's recommendations for tightening U.S. security was a review of high-technology export licensing standards - a move some fear will lead Congress to block sales of civilian goods with the potential to benefit Beijing's military modernization.
The list of so-called "dual use" technologies could range from satellites and high performance computers to machine tools used for making engine turbines, to telecommunications equipment with encryption capability, analysts say.
"We've had restrictions for some time on high-tech machine tools," says a Beijing-based executive at a U.S. firm. "I don't think any liberalization could come in the near future, and things might get tougher for us."
Pentagon officials have frowned in the past on the export to China of U.S. mobile phone technology known as CDMA (Code Division Multiple Access), arguing the encrypted format of CDMA will make it hard for U.S. spy satellites to eavesdrop.
A move to restrict CDMA equipment exports could cost U.S. firms such as Motorola and Lucent billions. They have only just won the right from Chinese regulators to sell to domestic telecommunications carriers.
"If they screw that up, it will screw Lucent up pretty horribly," says a company executive in China. "It would really be shooting ourselves in the foot."
Lucent and its competitors will lobby hard in Washington to protect CDMA business, the executive says.
In 1998, the United States blocked the export to China of goods worth less than US$50 million. But in a sign of a tougher regime, Washington barred the export of a satellite worth US$450 million earlier this year.
But U.S. efforts to staunch the flow of speedy computer chips to China were doomed to backfire, because China could buy identical chips from "tens of thousands" of licensed dealers in third countries, a U.S. industry analyst says.
Jim Jarrett, China president for semi-conductor giant Intel, says he believes members of Congress will balance commercial interests with national security concerns.
"Don't assume the sentiment in Washington is only going one way,"
says Jarrett, who was on Capitol Hill last week to lobby for China's
membership in the World Trade Organization.
Jarrett says Congress could even move as early as next week to ease
export restrictions on micro-processors and other computer components
to allow Intel to sell its speedy 550Mhz Pentium 3 chips in China.
"This would give us the headroom we need to get us through the end
of the year," he says.
Telecom Trust Busting
China's Ministry of Railways is ready to establish the China Railway
Telecommunications and Information Group by using the existing network
and equipment of the railway industry, the state-run agency says.
The official China Securities newspaper says the plan to found the
new company has won widespread support in the Ministry of Information
Analysts say this is part of China's preparation to enter the World
Trade Organization, which will bring intense competition to the tightly
Xinhua says the Railway Telecom will "be able to do exactly what China
Telecom does... and preparations are underway."
"We have no problems in getting permission and a license from the
State Council, and once approved, the company can provide comprehensive
telecommunications services within six to eight months," it quotes Railway
Ministry official Peng Peng as saying.
Peng, head of a team preparing to set up the Railway Telecom, was
quoted as saying telecommunication services will "become a pillar" of
the money-losing railway industry.
The ministry's network, with 120,000 km (75,000 miles) of telecommunications
lines, is only second to that of China Telecom, Xinhua says.
It quotes industry analysts as saying Railway Telecom can expand rapidly
and "easily become the second largest player in China's telecommunications
China Securities says the plan could foster competition in the domestic
telecommunications market as reforms underway have not so far created
an "effective competition mechanism."
China has only three telecommunications firms - China Telecom and
the much smaller China Unicom and China Jitong.
Beijing announced earlier this year it would divide China Telecom
into four companies, each responsible for a different service: mobile,
paging, fixed-line and satellite.
Last week, Information Industry Minister Wu Jichuan was quoted by
state media as saying China will complete the split by the end of this
China Telecom has yet to announce a schedule for the restructuring,
but industry players say the mobile phone unit could be spun off as
early as July.
Xinhua says many of China's other telecommunications networks used
for specific purposes, like the railway industry's, would also be "encouraged
to move into commercial areas."
The State Administration of Radio, Film and Television(SARFT) is moving
into telecommunications businesses, it says.
Last month, SARFT announced a plan to set up the China Cable Television
Networks Corp. to operate telecommunications and cable businesses, the
Beijing has also approved the establishment of a company by the Chinese
Academy of Sciences, Ministry of Railways, SARFT and the Shanghai city
government to provide telephone and on-line services.
"China Telecom will soon find stronger competition in telecommunications
and may risk losing its monopoly as more competitors enter the market"
Unicom Takeover PLA Telecom
"The Ministry of Information Industry (MII) recently authorised China
Unicom to take over these trial systems," says a senior Unicom official.
China Great Wall Networks, a 50-50 venture owned by the PLA and the country's near-monopoly player China Telecom, have operated the CDMA trial networks in Beijing, Tianjin, Shanghai and Guangzhou.
In a push to promote domestic competition in the sector, Beijing this
year has authorised China Unicom to spend ¥7 billion (US$845 million)
on rolling out networks using the U.S.-backed CDMA (Code Division Multiple
A takeover of the Great Wall networks, which have a combined subscriber
capacity of about 60,000, would make China Unicom the country's sole
CDMA provider. European GSM (Global System for Mobile Communications)
is presently the dominant standard in China.
It is unclear whether the PLA, which was officially banned last year
from engaging in commercial business, will retain a stake in the networks.
The army controls the 800 MHz bandwidth on which CDMA operates.
New contracts to provide Unicom's planned 12 million-subscriber capacity
CDMA network will be awarded to two or three foreign equipment vendors
over the next two years.
Chinese and foreign executives said last month that U.S. firms Lucent
Technologies and Motorola are poised to split the lion's share of the
deals, with Canada's Nortel, Sweden's Ericsson and South Korea's Samsung
bidding for remaining contracts.
¥1 Trillion Served
Computer Market to Reach ¥175 Billion