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To: TheSlowLane who wrote (193)	9/22/1998 3:44:00 PM
From: TheSlowLane	Read Replies (1) \| Respond to of 353

China puts squeeze on telecom firms SHANGHAI, Sept 22 -China may be about to disconnect some foreign telecommunications firms in its domestic market in a move that could have broad repercussions for badly needed investment from abroad. In a policy shift that apparently has the blessing of Premier Zhu Rongji, China is considering shutting the door on joint ventures with upstart network operator China Unicom that have been used to sidestep tough restrictions on foreign companies. "There is a very black mood in the telecommunications sector," said a foreign analyst who asked not to be named. China has informally told companies with such ventures - most of them in the mobile telephone sector - that no new projects would be allowed and that existing ones might even have to be bought out. Officials at the Ministry of Information Industry - which regulates the telecommunications sector - had no comment. China Unicom said it could not speculate on any possible policy shifts until it had seen written notification of any change. China Unicom, formally known as China United Telecommunications Corp, was set up in 1994 to break what was then the monopoly of the telecommunications ministry. It is still the junior member of the industry but Chinese officials see the company as the source of a loophole in regulations barring foreign companies from operating a domestic telephone network, foreign analysts said. The China Unicom formula, referred to as the "zhong-zhong-wai" model (China, China-foreign) creates a joint venture to invest in network infrastructure. China Unicom operates the network but the joint venture with the foreign partner receives a "consulting fee" in return. "It's a well-known story within the industry that Zhu Rongji is not in favor of the model that China Unicom has been using with foreign investors," said an industry source. So far, the policy change is in the review stage but the early indications have alarmed some companies. "All the foreign companies are coordinating and working through their embassies in trying to submit something to the government to try to influence the government before an official document is issued," the industry source said. This policy shift is emerging as China struggles to boost flagging foreign investment amid the Asian financial crisis and tries to push ahead with its long stalled admission to the World Trade Organization where telecommunications have been a major stumbling block. Whenever a new policy is formally announced it could affect a long list of companies. China Unicom says it has 43 joint venture projects though analysts say about 20 are active. "Many of these were formed as a way to get a foot in the door in the Chinese market and they are not yet profitable," said one analyst. "They need to expand to eventually recover costs." Among the companies with China Unicom ties are Bell Canada International with a project in east China's Shandong province and Telesystem International Wireless, also of Canada, with a project in the southern province of Hunan. Sprint of the United States has one of the few fixed line projects in Tianjin in north China while Lion Teck Chiang Ltd of Singapore said only this week it wanted to move ahead with its mobile telephone projects with China Unicom. Analysts said the target of the policy shift may be China Unicom itself which has been viewed as poorly managed and unable to capture much market share. "Zhu Rongji wants to cut them off at the knees," said an analyst. China Unicom's old rival Wu Jichuan, former head of the Ministry of Posts and Telecommunication, and now boss of its sucessor organization the Ministry of Information Industry, is believed to be behind the effort to force foreign companies out of the Unicom camp. "There's no official document from the government yet, but everyone is saying that the best scenario would be that the current investors get to maintain their investment and still get the current profit split," said a foreign source. c 1998 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters.