CHINA INFORMATION TECHNOLOGY LAW NEWSLETTER
Vol. 3, No. 6 - June 6, 2002
TOPICS THIS ISSUE:
- Tightening Control on Internet Use
- Distribution Patterns in the Domestic Handset Market
- Phone Boom Expected in China
- Zhongxing Telecom Plans Stock Offer
- Bans on Mainland Handsets Imports and Mobile Safety Standards
Tightening Control on Internet Use
According to state statistics, the number of Internet cafes in China reached 200,000 in March 2002. During this positive development, certain risks have become apparent culminating in The Ministry of Culture in Beijing (MOC) announcing regulations that will tighten the use of Internet caf¨¦ s and their management. The MOC is the authority responsible for, among other things, Internet cafes and service providers who operate using Internet technology. The new regulations introduce requirements for setting up Internet cafes, certifying the character of caf¨¦ operator(s) and the entry registration for Internet cafe customers.
The new regulations appear to be especially geared towards an attempt to guard the well being of minors. Recently a man was arrested in Henan accused of raping and murdering six young girls whom he got in touch with via Internet chat rooms. This horrific incident has resulted in various sectors of the community calling for the limited use of the Internet by minors. The regulations are also set to limit Internet usage by minors, however, it is unclear if the new regulations are directly linked to the Henan case. Internet users under the age of 16 are banned from Internet cafes at all times unless accompanied by an adult or teacher.
(Source: Xinhua News Agency)
Distribution Patterns in the Domestic Handset Market
Recently, the distribution of mobile phone handsets has been an issue in China due to the current multilevel distribution process. The distribution progress has been branded inefficient and criticized for incurring extra costs, time loss and loss of control concerning sales prices and market feed back. Competition in China's hand set market is getting stronger by the day and with that the weaknesses of China's distribution system is becoming apparent.
With the entry of larger retailers in the electronics business such as Su Ning and Da Zhong, it will potentially change the distribution patterns. These larger stores will be able to offer lower prices thus causing strong competition for the entrenched handset distributors. This new distribution pattern could solve some of the problems manufacturers are now faced with and mentioned above. With the increase in competition, it is expected that the distribution system will gain more transparency and efficiency in that it will become "one-stop", directly from manufacturers to retailers and therefore cutting costs. Another advantage of the increase in competition is that the financial capability of large retailers enables them to pay manufacturers in advance, however, not all manufacturers, particularly the foreign ones, are positive as many are unwilling to break their existing distribution chains since much time and money has usually been invested in these relationships.
(Source: South China Morning Post)
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Phone Boom Expected in China
According to statistics released by the Ministry of Information Industry, by the year 2005 it is estimated that China will have half a billion phone users. The telecom industry is traditionally a highly regulated market in China and still allows only a limited numbers of foreign investors and foreign equity enterprises to enter the market. However, recent promulgations of regulations have clarified some of the issues regarding the status of foreign investors in the Chinese telecom industry as well as opening up more possibilities for foreign investment. One example of these changes is the recent launch of the first foreign invested telecom company limited by shares in China, Alcatel Shanghai Bell. The shares controlled by Alcatel in Shanghai Bell were increased to 50% plus one share, giving it the controlling majority in the company. Another example is the creation of Shanghai Symphony Telecommunications, in which AT & T controls 25%.
As one of the fastest growing telecom markets in the world, China is and will become highly competitive, which makes it even more important that the challenges in market liberalization and modernization are met. The Ministry of Information Industry proposes that following economic laws and combining technological and market development will result in the necessary changes. With this in mind, the focus at the moment is to develop mobile communications, broad-band access and 3G mobile communications. The China Mobile Communications Association is currently urging regulators to issue 3G licenses as soon as possible in order for China to catch up with international developments. The work to further develop China's telecommunications market is obviously very important as China already has an immense number of phone users and the number is expected to grow.
(Source: South China Morning Post)
Zhongxing Telecom Plans Stock Offer
Zhongxing Telecom is listed on the Shenzhen A-share Index and is one of China's top telecommunications equipment makers. They are currently planning a US$ 500 million stock offer in Hong Kong, scheduled for release by the end of the year. The stock offer is related to the development of 3G mobile phone technology mentioned above. Zhongxing plans to use the proceeds from the share offering on 3G and CDMA development. Plans are also afoot to list the company on the New York Stock Exchange, however, at a later stage. Preliminary approval from Beijing for the offering in Hong Kong has been granted and final approval is pending.
(Source: South China Morning Post)
Bans on Mainland Handsets Imports and Mobile Safety Standards
Nokia is currently prevented from selling its mobile phone handsets in Taiwan due to a ban on imports of handsets from the mainland. Despite the fact that both China and Taiwan are now members of the WTO, Taiwan maintains import bans on several goods manufactured on the mainland. It seems Nokia does not regard this as a large set back given the ban only applies to one of its particular products. The same import problem relating to good manufactured on the mainland and shipped to Taiwan applies to Philips Electronics, who must source its products from Taiwan or other countries to the exclusion of Mainland China.Generally, Philips phones offered on the Taiwan market are manufactured in Singapore. Since this is a politically issue, both Nokia and Philips have refrain from criticizing the Taiwanese Government's policy, however, mobile phone retailers are trying to let the Government know that the Taiwanese market should be opened up to mainland products. At the same time, Taiwanese officials say that the bans are there simply because the mainland gives products from Taiwan the same treatment, thus it momentarily seems that the situation is in somewhat of a deadlock.
Other regulations that may put a strain on the mobile phone market, particularly in China, are the international standards on radiation emission levels. The European Union is now urging China to comply with such standards, which is meeting with reluctance from companies such as Nokia and Ericsson since such standards are expected to increase the costs for phone design and production. China has established a committee consisting of six ministries to considering whether it should lowering the emission standards of mobile phones to more closely resemble the standards set by the US and the EU.
(Sources: AFX News)
The China Information Technology Law Newsletter is intended to be used for news purposes only. It should not be taken as comprehensive legal advice, and Lehman, Lee & Xu will not be held responsible for any such reliance on its contents.
Lehman Lee & Xu
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