China, the world's largest telecom market
China, the world's largest telecom market
Huawei Technologies Co. Ltd, China's largest producer of
telecommunications equipment, invited journalists from India,
Malaysia and Indonesia, including Vincent Lingga from The Jakarta
Post, to observe its operations in Beijing, Shanghai and Shenzhen
from Oct. 17 to Oct. 22.
The visit also coincided with PT/Wireless & Networks Comm
China 2005, considered Asia's biggest industry event in Asia, and
a series of workshops on the telecom industry in Beijing. The
following is his report.
Theoretically, differences in countries' wages should be
reflected in differences in their productivity levels and that
any misalignment will be corrected over time.
However, this economic theory will not likely apply in China,
with its population of 1.3 billion, at least within the
foreseeable future, as the country will still be able to out-
compete other developing economies in the manufacturing of almost
anything that is labor-intensive.
Millions of people are still moving from the countryside to
the cities. According to China's National Bureau of Statistics
estimate, from 150 to 200 million surplus rural workers are
adrift between the villages and the cities.
This huge pool of surplus labor explains why China's wages
have been rising less quickly than productivity and why the
country will remain a highly competitive factory of the world for
some time.
It could take at least two decades for them to be absorbed by
industry and, as this process takes place, it will continue to
subdue wage growth and global inflation, further strengthening
China's important role as a factory of the world and a huge
market.
China, however, does not stop at labor-intensive
manufacturing; a factory of the world. It is rapidly turning its
manufacturing leadership into technological strength, as the
astonishing growth in its information and communication
technology (ICT) has shown.
China's early decision to deregulate the ICT sector and break
up the state telecommunications monopoly into four competing
firms has now turned the country into the world's largest telecom
market.
China's 1.3 billion-population may overstate its true consumer
demand -- it is still classified as a poor country in terms of
gross domestic product (GDP), which totaled US$1.65 trillion last
year.
However, measured on purchasing power parity (PPP), China's
economy stood as the second-largest in the world, after the
United States, with a per capita income of $5,600 last year.
China's rapidly growing middle class, generated by an annual
economic expansion of over 9 percent, has been snapping up
consumer electronics, mobile phones and other sophisticated
telecom gadgets, including third-generation (3G) wireless phone
devices.
The latest annual reports of China's National Bureau of
Statistics showed that fixed-line phone penetration in China last
year reached 25 percent (of total population) and mobile
penetration 27 percent (GSM and Code Division Multiple Access).
The number of Internet users exceeded 100 million and
broadband subscribers 45 million.
Telecoms operators
Telecom operators in China are entirely domestic and comprise
two big fixed-line operators with nationwide licenses (China
Telecom and China Netcom), two small players (China Satcom and
China Railcom) and two mobile carriers (China Unicom and China
Mobile).
China Mobile operated a GSM network with 222 million
subscribers as of last year and China Unicom also offers both GSM
and CDMA with 84 million and 28 million subscribers,
respectively, as of last year.
However, foreign ITC equipment vendors are well entrenched in
China thanks to the opening early on the domestic market to
foreign competition.
According to a study report released last March by the
International Finance Corporation, the World Bank's private-
sector arm, such foreign equipment manufacturers as Motorola,
Nokia, Intel, IBM and Dell are among the largest foreign
investors in China and the largest exporters from China.
A recent survey on China made by the Organization for
Economic Cooperation and Development (OECD) showered great praise
on China's bold reforms over the past 25 years, which have
allowed market forces a much bigger role in the economy and
opened up its market wide to foreign competition and investment.
Over the past decade alone, China has restructured or closed
thousands of state companies every year with millions of workers
thrown out of jobs each year.
After two decades of reforms and privatization, only about a
third of China's economy is still directly controlled by the
government through state companies concentrated in key sectors as
utilities.
The biggest positive impact of this open market competition
can easily be noted in the industry of ITC equipment, which links
the Internet, telephone systems and computer databases together.
"Right from the outset, the domestic market has been opened
wide to international competition," Ms. Zhang Qi, a director-
general at the Information and Communications Ministry, noted at
a seminar in Beijing recently.
The manufacture of such high-tech products as telecom-
equipment also has greatly been bolstered by multinational
companies, which moved their research and development (R&D)
activities to China.
China and India have been the most favored destinations for
transnational companies moving their R&D centers overseas, the
United Nations Conference on Trade and Development (UNCTAD) said
in its latest annual Investment Report issued last month.
In China alone, the number of foreign R&D units increased from
zero to 700 over the past 10 years, the UNCTAD report added.
For example, giant telecom company Motorola set up its R&D
center in Beijing and Lucent technologies in Nanjing.
Even though domestic ITC equipment makers emerged from the
shadow of foreign market leaders, they have won significant
shares in important segments within both domestic and
international markets.
Domestic makers have now gained about 50 percent of the mobile
handset market, which was previously dominated completely by
foreign vendors.
Huawei, China's largest telecom equipment manufacturer, held
almost 45 percent of the ADSL market, while state-owned ZTE and
Harbour Networks, two other domestic makers, held 16 percent and
9 percent, respectively.
Moreover, Huawei and ZTE have developed mature 3G products and
are set to win a significant portion of operators' capital
investment in 3G networks.
Fully supported by the Chinese government, which wants to see
Chinese companies have global competitiveness, domestic vendors
have steadily improved and expanded their research and
development work and established partnerships with foreign
suppliers.
Take for example, Lenovo's recent US$1.25 billion purchase of
IBM's PC business in cash and stocks. TCL, China's second-largest
handset maker, set up a joint venture with Alcatel in 2004 in the
handset business, while Huawei tied up with 3Com in 2003.
Software industry
The software industry also has grown rapidly along with the
telecom equipment industry. The IFC report estimated the Chinese
software industry at almost $20 billion in 2003, growing at an
annual rate of over 25 percent.
Currently, Japan and the United States dominate the software
market, as Chinese companies still work to qualify for
international standards
China's software exports, including software outsourcing, were
estimated at $3.2 billion in 2004, up from $2 billion in 2003 and
a mere $250 million in 1999. The rapid expansion of software
outsourcing in China is the result of government support, the
shifting of foreign companies' R & D centers to China.
Unlike India, where large Indian companies dominate the
software outsourcing market, foreign firms moving their own
software development operations to China, represent key drivers
in China's outsourcing market.
These developments will, however, greatly benefit China
because expertise developed at these centers will eventually
diffuse into the Chinese market, thereby improving the
capabilities of Chinese software outsourcing firms.
Even though Indian and Western companies have been expanding
in China, Japan will likely remain China's largest software
export market for the foreseeable future due to the geographic
proximity of the two countries, low-cost labor in China and
cultural or linguistic reasons.