The Planned Economy of Mobile Phone Manufacturing

A Time Warp in the Telecommunications Industry?

In November 2000, a senior minister at the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) told a meeting of domestic manufacturers: "Although China is now beginning to implement a 'market economy', the mobile phone industry may still be run as a planned economy."

At the same gathering, an official from the General Planning Bureau of the Ministry of Information Industry (MII) explained what this would mean for foreign-invested manufacturers:

a) no new foreign investment will be permitted in China's mobile phone manufacturing industry, either in the form of joint venture or wholly foreign owned enterprises;

b) all existing foreign-invested manufacturers will have to export at least 60% of their output; and

c) all mobile phones manufactured in China will be required to ensure that at least 50% of the total value of their phones comes from locally produced components.

Ringing in the Changes

Clearly, the officials would appear to have overlooked an interesting legislative development at the end of October, which resulted in amendments to China's PRC Wholly Foreign-owned Enterprise Law (中华人民共和国外资企业法) and PRC Sino-foreign Cooperative Joint Venture Law (中华人民共和国中外合作经营企业法). The amended provisions in the two laws were enacted in order to ensure that China would be in compliance with the WTO's Agreement on Trade-Related Investment Measures (TRIMS). The amendments eliminate provisions that set out export requirements for foreign-invested enterprises (FIEs) and relax the previous requirement for FIEs to source the majority of their raw materials from domestic suppliers.

Expectations are that, in March this year, the National People's Congress will introduce similar amendments to the PRC, Policy on Pilot Sino-foreign Foreign Trading Equity Joint Ventures Provisions. Given such changes to China's domestic laws and the requirements under TRIMS, it would seem that certain factions in MOFTEC and the MII may find it very difficult to maintain the traditional policies of the planned economy and to continue to protect domestic manufacturers.