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| Monday, 16 July 2007 | |
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The interference of state bureaucrats who couldn’t manage a sick-bag in a bout of clear-air turbulence is bad news for China’s telecom industry. May you live in interesting times? I sure hope not.
Beijingocrats are reportedly re-shuffling top jobs in the country’s main state-led telcos. China’s four major carriers have a combined value that should breach the US$500bn mark any time now, yet the civil servants at the Ministry of Information Industries are insisting on a round of executive ‘musical chairs’. It’s an old-fashioned idea from a country which, for all its striking changes, still boasts an old-fashioned political elite and an entrenched bureaucratic mentality. Not that such structures of industrial policy are unique to China. One could point to France. Failing that, one could point to Switzerland and by turning one’s finger leftwards point to France again. Truths, veritable truths, and statists Thanks to a sustained (if not obviously sustainable) economic boom and a degree of economic liberalism, China’s telecom sector has enjoyed a meteoric rise these last few years. Forget the dogma of ‘socialism with capitalist characteristics’; this success is the direct result of moderate levels of competition harnessed to a runaway economy. And China’s great achievement (we’ll eschew the use of the term ‘leap forward’ in this context) has been to clamber up the telecom value chain in an industrial sense. The state-designated operating companies Netcom, Unicom, Telecom and Mobile are world-class in scale, if not in scope. China Mobile, for example, has seen its market capitalisation grow by US$70bn in the last year and has overtaken and left far behind Vodafone as the world’s leading mobile operator, as measured by total subscribers or market value. One year earlier, in July 2005, its value was half that of Vodafone. Some of this, but less than you’d think, is down to central planning. Restrictions on FDI and currency convertibility have served to fuel the market’s growth but both increasingly appear to be corks atop a bottle of unstoppable growth that is shaken millions or even billions of times each day with more and more vigour. The problem for Beijing stems from the fact that it alone took the decision to list the country’s network fiefdoms on world markets, notably through Hong Kong. This may have been intended by the authorities to smother itself in free market ‘facepaint’ – the companies involved did not need the money – but the result was an embarrassment of riches in every sense. Now it is those riches that are the problem. A stuffed parrot could run China Mobile at a profit; China Telecom would continue its steady progress with Forrest Gump at its helm. Beijing knows this, and for that reason its re-shuffle of second-string bureaucrats who run these companies is sort of understandable. Looked at in this way, it is merely swapping spare parts between a series of money-making engines. Plus ça change Yet there are three key subtexts here. Each strikes at the heart of China’s modern telecom policy. The first is simply that Beijing has failed to realise that, in this age, shareholders and customers drive market moves and decisions on corporate governance – not governments, be they elected or unelected. There remains a regulatory function, to be sure, but China has approved inept in that respect. Think 3G? Think again. Which brings us to the second point. China claims to have network competition but in fact it is little more than market partitioning. The process of picking and priming favourites appears to have stymied 3G plans. A hard choice? Well, dividing a market of 1.2 billion people between three operators is a tough ask. By that token, the UK would have 25 licensed national network operators in wireless. Alternatively, in proportion to China, it would have 0.4% of an operator instead of five. Call that ‘capitalism with communist characteristics’. Yet even this underpowered market appears ripe for rigging and tampering. The third point is the killer. Beijing has unleashed a set of monsters on the world’s equity markets. Its natural instincts must mean that it is sorely tempted to bring them back to heel through some form of re-nationalisation. It can just about afford to do that at present and, if it can’t afford it, it can doubtless change the rules to make it possible. In the meantime, it is content to dick around with echelons of senior management in the telcos. While that persists, regional and indeed global expansion, by now so far overdue, is kept on hold. Pathetic. Jim Chalmers |
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