This seems like scary news.
China Turns Up Heat on Foreign Firms to Exit Telecoms Ventures
By Peter Harmsen at Bloomberg News
27 October 1999
The Chinese government stepped up pressure on foreign firms to exit joint ventures with the nation's second-largest phone company, though analysts warned that pushing overseas investors out of telecommunications, including the Internet, could worsen China's reputation as an unstable place to do business.
Official English-language media today escalated their rhetoric, quoting an unnamed Ministry of Information Industry official as saying foreign companies that don't soon liquidate their ventures with China Unicom may not only lose money but find it hard to enter China - the world's biggest developing telecoms market - in future.
The statement comes amid a campaign by Information Industry Minister Wu Jichuan to keep foreign investors at bay and preserve the choicest parts of the telecoms market for local companies.
"A future with Wu and these guys at the helm is not going to be bright for these (foreign) carriers," said Duncan Clark, an industry analyst with Shanghai-based B.D. Associates. "There'll be less and less of them coming in."
Clark said talks between the government and some foreign companies had reached a stalemate and ministers who outrank Wu would have to find a political solution.
Last month, Wu caused a stir by saying foreign investment in Chinese Internet service and content providers was banned, notwithstanding existing investments by the likes of Intel Corp. and Dow Jones & Co. The ministry said it would negotiate settlements with companies that entered the industry in violation of the ban.
In the case of Unicom, foreign investors aren't sure if protectionist impulses or commercial calculations are driving policy. The government says the ownership of mobile phone partnerships with China Unicom must be clarified before foreign regulators will approve the company's much-anticipated overseas stock listing.
Beijing says Unicom's numerous "China-China-foreign" ventures used a loophole to skirt heavy restrictions on overseas participation in the phone industry. Typically, a Chinese company, usually a Unicom subsidiary, and a foreign company would form a venture that would then enter a pact with Unicom.
Foreign investors contend, however, that the joint ventures had the implicit backing of the Chinese leadership.
In August, the ministry gave Unicom and more than 30 foreign partners until late September to negotiate the dismantling of the ventures. The talks continue, and some companies at least are in no hurry to pull out.
France Telecom SA, for one, said during the summer that it wouldn't likely meet the late-September deadline for dissolving its joint venture.
In general, large foreign carriers are the least likely to give up without a fight, analysts said.
"It's quite clear China is trying to extract these guys at a low price, and it's just not going to wash," said Clark.
Some companies are more resigned, reasoning that foreign investors can do little once the government has decided on a certain course.
"We are working with China Unicom on our exit," said Rebecca Brown, assistant vice president at Hong Kong-listed First Pacific Co., another of Unicom's partners.
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