U.S. Tech Firms Fear Anti-China Mood
U.S. high-tech firms are worried about losing business in China following an inflammatory Congressional report that calls for tighter export controls to combat alleged spying by Beijing, executives say.

"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 plans to set up a giant telecommunications company as part of its plan to end the virtual monopoly of China Telecom, the Xinhua news agency reports.

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 Industry (MII).

Analysts say this is part of China's preparation to enter the World Trade Organization, which will bring intense competition to the tightly protected market.

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 business."

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 year.

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 agency says.

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" Xinhua says.

Unicom Takeover PLA Telecom
Chinese regulators have given the country's second telecommunications carrier permission to take control of four mobile phone networks partly owned by the People's Liberation Army.

"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 Access) technology.

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.
Consultations between regulators, China Unicom and Great Wall "could be very complicated," the official says.

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.
"One supplier is unlikely to be able to meet such a high capacity demand, so two or three are reasonable," the Unicom official as says.

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
China's information service sector is expected to hit ¥1 trillion by next year, Xinhua News Agency reports. There are currently about 15,000 information service companies in China, with a work force of 400,000 people. Figures from the National Bureau of Statistics show that two decades ago, Chinese obtained information mainly through radio (61.45 percent), newspaper (52 percent) and television (16.24 percent) in terms of percentage of the population. By 1998, TV had taken over and became the primary source of information, while 1.7 percent of the residents in major cities had access to information via the Internet.

Computer Market to Reach ¥175 Billion
China's computer market is expected to register sales of ¥175 billion this year, or an 18.2 percent increase from last year, the Ministry of Information Industry reports.
Surging 13.9 percent over the previous year, computer-related sales reached ¥148 billion in 1998, of which sales of software products and information services increased 25 percent to ¥32.5 billion, and sales of hardware products rose 11.1 percent to ¥115.5 billion.