China's online-video site Youku.com has received its long-awaited licence from China's State Administration of Radio, Film and Television. This may indicate that China's government will not take as tough a line on privately owned online-video companies as some had feared. By coincidence, last week China Daily looked at how China's telecoms sector would benefit (or otherwise) from injections of foreign capital. If liberalisation of content is increasing, will this mean a liberalisation of restrictions on ownership and investment?
These questions have to be answered against the backdrop of the recent massive reorganisation of Chinese telecoms: China Telecom buying China Unicom's CDMA network, China Unicom incorporating China Netcom, and China Mobile buying China Tietong. One can all too easily conclude that China's restructuring of its own telecoms industry will automatically open the door for foreign companies to enter the world's largest telecom market. Is this really the case? Overhauls to the world's largest individual market will also mean the need for expertise in accurate injections of capital, for technical expertise in areas such as design, and for sales and marketing, to name just a few crucial areas.
One individual who does welcome foreign involvement is Daiwa Institute of Research's Marvin Lo: "There's never been a better time for foreigners to get into the industry...And on the Chinese side, they want the capital and know-how that global firms will bring to the table." At present, foreign telecom operators such as Britain's Vodafone (which has 3.3% of China Mobile) and Spain's Telefonica (with 7.2% of China Netcom), are confined to tiny stakes in the largest operators.
Incentives to invest in China at present are strong, not least through falling demand in developed markets. A list of potential investors in the near future includes:
Qualcomm, SK Telecom and Singapore Telecom, all courting China Telecom, the larger of China's two fixed-line players;
Telefonica, reportedly interested in buying 10% of wireless operator China Unicom;
Verizon Communications, AT&T (currently confined to Shanghai), KDDI and Softbank, all keen on China with its nearly 600 million mobile users; and
equipment makers such as Ericsson, Nokia Siemens Networks, Nortel and Motorola.
China Daily believes that there will be a period of absorption when it comes to increased foreign investment. What is more, for those who want to see a rapid increase in foreign ownership and management, the Chinese government remains cautious when it comes to strategic areas of activity. The official mindset is one of conservatism and caution.
One analyst sharing the view that progress will be slow is Bank of China International's Allan Ng: "Foreign investors can do little in China's telecom industry except be financial investors. This will remain the case for at least a short while." Mr Ng believes that the full potential of the Chinese market will not be apparent until the government of China clarifies its position on investment from outside.
For that reason, investors are in a dilemma. They have to predict to the best of their (or their analysts') ability how China will change its rules - if she does at all. And yet doing nothing and waiting to see what will happen is not regarded as an option: Chinese companies may end up favouring the existing links with those who have remained loyal, no matter how small those investments have been.
As if the question of restructure is not important enough, there is still the technical problem - and long drawn-out question of 3G - in China. One analysis is that Beijing may grant foreign entrants more leeway - but they will have to wait. One development which is certain is that each of the three new giants of Chinese telecoms will receive a 3G licence. The country's three new telecom carriers will then have to contend with the various unfamiliar types of international 3G mobile technologies such as WCDMA and CDMA2000.
Complicated it may be but the 3G market is attracting foreign interest. Mina Ryu of SK Telecom believes 3G: "...could offer an opportunity for us. We are open to and looking at various options." Duncan Clark, chairman of BDA, a Beijing-based consultancy to firms and government agencies, declares that foreign firms "...cannot afford to miss out on China in their global expansion roadmap." Indeed, any market expanding by more than 8 million mobile customers every month simply can not be ignored.