Political Regulation and High Technology Development in China: the Case of Telecommunications and the Internet Network

Chair: Richard P Suttmeier, University of Oregon

Organizer: Eric Harwit, University of Hawaii

Discussant: Richard P Suttmeier, University of Oregon

Since China’s political and economic reform period began in the late 1970s, the telecommunications sector has been one of the country’s fasting changing industrial areas. Today, China leads the world with more than 300 million fixed-line telephones, nearly 400 million mobile phones, and is second only to the US in Internet users, with about 100 million. The papers in this panel examine the Chinese government policies that have shaped these trends. How did the government harness technologies and lead companies to build the network infrastructure? What roles did foreign corporations play in building the industry? And can the Chinese now move to the cutting edge of these technologies and set international standards other countries must meet? Eric Harwit’s paper examines the companies that built the networks for telephone, mobile phone, and Internet communication. The paper assesses the ways the government harnessed foreign technology, and encouraged market competition and technology transfer at domestic companies, to deploy first-rate tools at all levels of the communications system. Zixiang (Alex) Tan and Scott Kennedy both expand the argument on government involvement, and consider the ways China can become a world-class technology leader by setting communications and Internet technology standards. Tan assesses the ways Chinese regulators are developing a new "third generation" of Internet-capable mobile phones, and how the massive Chinese market will shape the technology’s standards that even developed country corporations may have to meet. Kennedy takes a contrary viewpoint, and asks why Chinese companies have not yet become the top leaders in this high-technology sector. He considers political as well as corporate governance factors in his assessment of China’s telecommunications technology trajectory.

Building China’s Telecommunications Network: Market Competition and Technology Transfer
Eric Harwit, University of Hawaii

This paper analyzes the rapid growth of China’s telecommunications and Internet industry over the past 20 years. It highlights the role of the Chinese government in shaping the sector and promoting advanced technologies. Significantly, the government encouraged dynamic market competition among companies, and made technology transfer a major goal for advancing domestic corporations. The paper first chronicles the way the Chinese government in the 1980s engaged high-technology companies from Japan, the US, France, and Germany, and thereby set foreign companies against each other to compete for China’s telecommunications and Internet infrastructure markets. This strategy also ensured no one foreign nation could dominate the economically and strategically vital industry. By the late 1990s, Chinese domestic companies had come to absorb many of the most advanced technologies. The paper analyzes the technology-transfer process, and examines how the state-owned Chinese enterprises ZTE and Putian, and private company Huawei , succeeded to sell vast numbers of mobile phones and Internet gear both in China and even to foreign nations. The government prevented one "domestic champion" company from dominating the construction of China’s mobile phone and Internet networks, thereby strengthening the competitive desire for improved quality products. The paper, based on case study archival fieldwork and interviews done in China in 2004 and 2005, concludes that the government’s regulatory polices, though at some points uneven, were generally successful. In spreading telephones to all parts of the nation and the Internet to virtually all major cities, the government oversaw the building of a modern communications network, while at the same time encouraging domestic companies to reach high levels of technological sophistication.

Alex Zixiang Tan, Syracuse University

While standardization has long been a strategic and significant issue for both collaboration and competition in the global high-tech industry, it has recently become an extremely relevant topic to China’s high-tech industry both in the Chinese and the global markets as China is trying to emerge as a significant player in the global high-tech market. Under this general environment, this study first aims at a comparison of standard-setting and relevant government policy among China and Western countries such as the U.S. in the high-tech sector. Using the standard setting for current 3G (third generation) cellular phone systems in China as a case, this study then analyzes the challenges and dilemmas facing China’s policy makers. It also looks at the institutional re-structuring among both domestic and overseas players, which often reflects many dynamic and significant regrouping and repositioning activities to adopt the changing political and market conditions regarding standards setting in China and in the world. This detailed analysis contributes to the existing literature on standardization in light of the dynamic competition and collaborations in international trade and technology innovation and development.

Scott Kennedy, University of Indiana

This paper investigates efforts over the past decade by Chinese firms and their government to set technical standards in information technology. Although developing countries have been minimally involved in this area in the past, China's large stock of scientists and engineers, its market size, and the existence of an authoritarian government that closely regulates business makes China one of the most likely candidates among developing countries to successfully set international standards. However, Chinese efforts so far have borne little fruit, as it has established few international standards, and none that have been of economic benefit to Chinese industry. This paper examines various explanations for China's lack of success that focus on its internal political institutions, the growing political activism of firms, and China's location in the global market. Data for this paper comes primarily from interviews with Chinese and foreign government officials, company executives, association representatives, and industry analysts, all of which is supplemented by primary and secondary written and electronic sources in China and elsewhere.