Communications - Mobile Handheld Devices Application IC
Ushering in a New Era of Competition: Impact of Deregulation on China's Mobile Phone Industry
December 21, 2007 / China Research Team
5 Page, Radar


In 1999 the Chinese government adopted a licensing system for the mobile phone industry. This move spurred the development of Chinese mobile phone vendors such as TCL and Bird as well as the Chinese mobile telecommunications industry as a whole. Increasing competition and shorter product lifecycles, however, saw the policy's benefits gradually erode. In 2005, the policy was transformed into an approval system. The Chinese government in October 2007 announced that it was abolishing its approval system for the mobile phone industry, opening up the world's largest mobile phone market to more interested companies. This report analyzes the effects of the Chinese government's past policies for the mobile phone industry and the impact of the recently announced decision to further deregulate the industry.

The Chinese government adopted a strategy since the 1990s centered on exchanging market for technology. This sought to encourage major international manufacturers to form joint partnerships with local enterprises by leveraging China's low cost of labor and potentially massive domestic market. Nevertheless, the government's strategy also involved setting certain conditions for foreign enterprises looking to enter China. This approach would bring in capital, technology and management experience as well as encourage the development of peripheral component makers and service companies, realizing the Chinese goal of supercharging the development of the mobile telecommunications industry.

Looking at specific results, the policy of the Chinese government did succeed to a certain extent. By requiring foreign companies to purchase components locally and set up R&D facilities, a positive contribution was made to the cultivation of local component suppliers, R&D resources and the Chinese industry as a whole. The two following factors, however, limited the effectiveness of the policy:

The first factor was that many of the Chinese companies that received market or industry approval in the early stages were state-owned enterprises. The influence of the government's planned economy policy meant that these enterprises tended to be very bureaucratic due to a lack of sound corporate governance and management incentives. The result was poor efficiency and no long-term vision in the leadership. Chinese companies also lacked considerable experience in the ICT industry so they basically conducted no long-term planning on industry trends and on maintaining companies' competitiveness.

The second factor was that foreign companies tended to hold on to their more advanced technologies and only transferred their more mature technologies. Apart from that, in the early years, the government's eagerness to encourage joint ventures often saw Chinese companies lose management control over day-to-day operations, limiting their opportunities to study the technologies of their cooperation partners.

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