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Published on: 3/31/2002
Last Visited: 3/31/2002
People like Max Sun, the 38-year old Malaysian-born chairman of Celestial Based Communications or CBcom."The benefits of WTO membership are not immediate but the implications are enormous," says the Los Angeles-based entrepreneur."This is a fascinating time to be building a business in China."
Anticipating the liberalisation of foreign investment and ownership laws that would coincide with WTO membership, Sun moved to Beijing in 1997 and began his search for strategic partners.His goal was to become China's largest private Internet Service Provider (ISP) but at the time government-owned China Telecommunications monopolised all telecoms. A major breakthrough occurred, however, in November 1999 when Beijing announced it would permit 30 percent foreign ownership of ISPs once it joined the WTO and allow the ownership stake to rise to 50 percent within two years of its entry.
That was all the encouragement Sun needed.Last year, he formed a partnership with Beijing Chinet Information Technology and earlier this year entered into a second partnership with Shanghai Orient Data Broadcasting Co.Ltd.In return for his $7 million investment, Sun acquired 400,000 internet subscribers in Beijing and Shanghai.He expects the number to grow to one million by the end of this year, at which point he will break even.
Indeed, chances are good that CBcom actually will end the year with two million subscribers.Since 1999, China has experienced a 300 percent growth rate in internet use.The number of internet users, which currently stands at 22.5 million according to CNNIC, the sole government-sanctioned internet research organisation, doubles every six months.In dollar terms, the market for paying ISP accounts now estimated at $1.5 billion is expected to reach $4 billion by 2005.So why are the big players like AOL, Earthlink and UUNet still waiting outside the gate?
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"Because the 'contradictions' between socialism and capitalism to which Deng used to refer have not been resolved," says Sun."One official told me that at least 5,000 laws will have to be revised before China becomes fully compliant with WTO regulations.For the moment, the legal situation in China remains messy."Under the rules of its WTO entry, China has until 2005 to lower tariffs, adopt anti-dumping regulations, curtail the piracy of intellectual property and bring uniformity to provincial regulations that inhibit, and often prevent, national distribution networks.Under the WTO, the import duties on automobiles will drop to 25 percent, but this means little if provinces and municipalities don't eliminate the barriers they have erected to protect locally made cars.Shanghai's municipal government, for example, has an equity position in a local joint venture making Volkswagen Santanas.So it levies enormous licensing fees on Citroens produced in nearby Hubei.
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Says Sun: "It's definitely the end of the iron rice bowl."Certainly this was the case when CBcom formed its partnership with Chinet.Before consolidation, the two companies required a combined staff of 140 persons to operate efficiently.After the merger, the combined workforce was reduced to 80 employees.
China's leaders are preparing as best they can for massive short-term unemployment.Last year Beijing announced that 10 percent of the revenue coming from new listings on China's stock exchanges will be deposited into a social security fund.
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While Nair and Sun don't pose direct competition for each other, the mass migration of US companies to China could threaten some industries.
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Sun thinks the eventual influx of foreigners will mean a bonanza for overseas Chinese who arrived early."China is confusing because every official has his own interpretation of existing law," the Kelantan native explains."Large companies will flock to the country once everybody knows what to do, but by that time the companies that started early will have become very valuable."
For foreign governments, Chinese membership in the WTO translates into a more favourable balance of trade.The US shipped products worth $19 billion to China in 1998.Some economists in the Department of Commerce in Washington are hopeful that US exports to China could soar to $44 billion by 2009.
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