New Telecom Enterprise Regulations: The Door is Opened, but MII Still Keeping the Gate

By Robert Lewis, Lovells

In the past three months, the entire face of the China telecom market and regulation regime has been changed. First, in October of last year, a massive overhaul of China Telecom and several other domestic basic telecom operators was announced, purportedly to improve their competitiveness in anticipation of foreign competition following China's World Trade Organization (WTO) entry. Then with the publication in November of the WTO Working Party report on China's accession to the WTO at the Doha ministerial conference, China officially committed for the first time to open up its telecom operation sector gradually to foreign participants.  This had long been reported but never officially confirmed by China.  Following the WTO Working Party report, the Ministry of Information Industry (MII) formally rescinded the prior notices banning foreign investment in the PRC telecom sector. Most recently, on December 11 2001, the State Council approved the new Administration of Foreign-funded Telecommunications Enterprises Provisions (New Telecom FIE Regulations), which took effect on January 1 2002.

With entry into the WTO, China has committed to open its telecommunications market to foreign investment and participation on a gradual basis.  With the adoption of the New Telecom FIE Regulations, China has demonstrated that the emphasis should be on "gradual" rather than "open", as these new regulations vest the MII with substantial discretion to extend its "managed competition" model to foreign-invested telecom operations in China.