ICT Policy Making in Developing Countries: The Case of China

1. ICT Policy Making in Developing Countries:The Case of China Discussion Information and Communication Technologies in developing countries Seminar Marc Laperrouza November 29, 2002 Lausanne, Switzerland This presentation is solely for the use of participants. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from the author.

2. CONTENTS • Background: PhD research and theoretical underpinnings • Dimension: Some facts, figures and policy evolution • Issues: Divide, role of various players, control of ICT • Lessons: Role of government, applicability to other developing countries

3. Research Question • How did China’s ICT policy making evolve in light of its accession to the WTOWhat does ICT policy making encompass?How to bridge the WTO agreement with ICT policy making?

4. China’s ICT Policy Evolution: Literature Review • Theories on: • Communications – Dyson & Humphreys (1990) • Political economy – Keohane (1984), Gilpin (1987), Strange (1996) • International trade and telecommunications – ??? • Technological and institutional frameworks: • Policy – Melody (1996), Kahin & Wilson (1997) • International institutions and telecommunications – Cowhey (1990), Drahos & Joseph (1995), Krasner (1991), Mansell & Wehn (1998) • Empirical studies: • Telecommunications in China – Lee (1997), Mueller & Tan (1997), Mueller & Lovelock (2000), Tan (1999), Zhang & Peng (2000) • Non-telecommunications in China – Pearson (1999), Shirk (1993) • Telecommunications and economic development – Dordick & Wang (1993), Talero (1997)

5. China’s ICT Policy Evolution: Literature Review Strange on International Political EconomyThe authority of government of all states has been weakened by technological and financial change and accelerated integration of national economies into a global economyNorth on ChangeWhen there is radical change in the formal rules that makes them inconsistent with the existing informal constraints, there is an unresolved tension between them that will lead to long-run political instability.Pettigrew on ContextualismWhen applied to IS strategy, contextualism suggests tracing the dynamic interlinking among the following components of IS strategy: content, context and process.

6. Some definitions: Policy and the Making of Policy • Policy is what the government says and does about perceived problems. • Policy making is how the government decides what will be done about perceived problems • Policy making is a process of interaction among governmental and non-governmental actors • Policy is the outcome of that interaction

7. Policy-Process Theories… • Several theoretical frameworks of the policy process • Stages heuristic, or a series of stages • Institutional rational choice, or how institutional rules alter the behavior of intendedly rational individuals motivated by material self-interest • Multiple-streams framework, or three streams of actors and processes (problem, policy and politics) • Punctuated-equilibrium framework, or long periods of incremental change punctuated by brief periods of major policy change • Advocacy coalition framework, or interaction of advocacy coalitions • Policy diffusion framework, or adoption as a function of both the characteristics of the specific political system and a variety of diffusion processes • Funnel of causality, arenas of power, cultural theory, constructivists framework, policy domain framework, etc. • Who gets what, when and how? • Harold Lasswell, 1936 h

8. Public Policy and Policy-Making • Public policy should distinguish between what governments intend to do and what, in fact, they actually do • Public policy ideally involves all levels of government and is not necessarily restricted to formal actors • Public policy is pervasive and is not solely limited to legislation, executive orders, rules and regulations • Public policy is an intentional course of action with an accomplished goal as its objective • Public policy is an on-going process • Stella Z. TheodoulouThe Nature of Public Policy • The process of public policy-making includes the manner in which problems get conceptualised and brought to government for solution; governmental institutions formulate alternatives and select policy solutions; and those solutions get implemented, evaluated, and revised. • Paul A. SabatierTheories of the Policy Process

9. CONTENTS • Background: PhD research and theoretical underpinnings • Dimension: Some facts, figures and policy evolution • Issues: Divide, role of various players, control of ICT • Lessons: Role of government, applicability to other developing countries

10. China’s ICT Evolution: Show Me the Evidence… China Daily reports that the number of Internet users in China stands at 37.55 million China Daily, May 2002 The number of Internet users: about 45.8 million CNNIC, July 2002 By the end of September this year China had 54.35 million Internet users Ministry of Information Industry, November 2002

11. China Telecommunication Statistics Mobile phones:149’500’000 subscribers 5 million more each month, 95% pre-paid • Source: MII, Merrill Lynch

12. China Telecom China Netcom China Mobile China Unicom China Railcom China Satellite Open Local LDD IDD VoIP Jitong Mobile 2003 ? GSM GSM, CDMA 2003 ? Data Internet Paging ICP, VAS Market Structure of the Telecommunication Sector in China Mobile phones:What standard for 3G? • Source: France Telecom

13. ICT Expenditures in China • Source: World Bank

14. ICT in China’s Trade • Source: WTO

15. 1970’s: Taiwan and South Korea 1980’s: Singapore, Malaysia and the Philippines mid1990’s: Southern China 2000’s: Shanghai and nearby regions mid2000’s: Inland China, India or Vietnam But Where are the Goods? Global Manufacturing Shifts to Asia/Pacific 1960’s: Japan

16. Tectonic Shift? • The most notable development in the last decade has been the migration of production capacity in the industry from elsewhere in Asia to China. The migration of Taiwan firms has been particularly important. • By 2000, China actually displaced Taiwan to become the world’s third largest producer of IT hardware, after only the USA and Japan. • Lardy, N. R. (2002). Integrating China into the global economy, Brookings Institution Press. Nicholas Lardy, Senior Fellow, The Brookings Institution

17. Supranational ICT Policymaking: Not Happening in a Vacuum • WTO: Basic Telecommunication Agreement or BTA (including the reference paper) and the Information Technology Agreement (ITA) • APEC: Shanghai Declaration (including e-APEC Strategy) • ITU: Settlement of international traffic/payments and government regulations on technical standards; the revised International Telecommunication Regulations • Regional FTAs: China-ASEAN FTA initiative in November 2000

18. China’s Changing Telecom Regulatory and Market Environment • 1978 Creation of the telecommunication monopoly • 1984 Leading Group for Revitalisation of the Electronics Industry takes responsibility for planning telecommunications sector growth as part of China's drive into the electronic age. • 1985 7th Five-Year Plan propels telecommunications as a national priority. • 1993 Registration of China Unicom, organised by then MEI, first competitor of China Telecom. • 1995 Establishment of China Telecom as an independent legal enterprise • 1998 China’s 9th NPC approves an ambitious reform of the information and telecommunications industry and merges all the information and telecommunications related regulatory institutions into one single regulator, the Ministry of Information Industry (MII). • 1999-11 Sino-US agreement to open the telecommunication market to international competition (WTO Reference Paper and commitments) • 2000-05 Sino-EU bilateral agreement • 2000-09 PRC Telecom Regulations • 2001-11 China joins the WTO • 2002 Restructuring of China Telecom and China Netcom • 2003 Telecommunication Law… 1 2 3 4

19. Telecommunication opening, after WTO accession Telecom To To+1 To+2 To+3 To+4 To+5 To+6 To+7 Service 2002 2003 2004 2005 2006 2007 2008 2009 50% VAS, Internet 30% 49% 35% 49% 49% Mobile 25% 25% 49% Fixed 35% Beijing, Shanghai, Guangzhou 14 cities No geographical limit

20. Priorities of the Chinese Government and Trends in the Policy Making Process • Build out infrastructure (CCF, IPO, etc.) • Preserve state assets and generate revenues • Foster domestic competition and internationalisation to keep barbarians at the gate • More transparency • More involvement from the State Council less power at MII • Rise of consumer advocacy • Rise of foreign influence

21. China’s Changing Internet Environment 1 • 1988 First Chinese Internet connection established by CAS • 1990 State Planning Commission and the World Bank start a project called the National Computing Facilities of China (NCFC) – CERNET in 1993 • 1993 Premier Li Peng approves funding for the Golden Bridge Network and The National Economic Informatisation Joint Conference is set up • 1995 Establishment of ChinaNet by MPT • 1996 A National Informatisation Leadership Group is set up under the SC. • SC issues Decree 195, ‘Temporary Provisions of Internet Administration of the Computer Information Communication network • Creation of the State Council’s Steering Committee on NII. • 1997 CAS sets up the CNNIC to oversee China's Internet development • 1998 Absorption of the Steering Committee on NII gives the new MII full regulatory control over the Internet • 1999 Interim Regulations on the Connectivity of Telecommunications Networks • 2000 SC’s State Information Office issues regulations on the Internet Security Management of the Computer Information System • Regulations for the Management of Electronic Announcement Services • 2001 Deputies to the 9th National People's Congress (NPC) call for urgent legislation on Internet safety. • 2002 All Internet cafés in Beijing are closed, following a fire. 2 3

22. A Well-Balanced Chinese Model? • China’s Internet structure as a state Intranet  model against self-regulation • Tight administration of service operation  doubt of regulatory convergence • Market competition for ISPs  doubt about fair market competition • The Chinese Government has structured its Internet regulation to control political risks through carefully designed institutional arrangements, tight control of network operations and pervasive regulation of end users. However, the attempt to regulate the Internet is seriously handicapped by its fragmented and sector-oriented regulatory regime • “How WTO will affect the Internet will be the responsibility of Ministry of Information Industry telecoms regulators” • Zhang Huisheng, MII Information Promotion Department

23. What the World Bank thinks about ICT Policy Making in China… • The telecom legal and regulatory environment has not kept up with the major changes in ICT sectors since the current telecommunications law was enacted in 1987. This has created uncertainty for new entrants and investors. Telecommunications regulation has been based on fragmented administrative • decrees dealing mainly with technical standards and service tariffs. The overall • framework for increasing competition has lacked transparency and inhibited • entry of new players and the quick development and adoption of advanced technologies. • Regulating China’s ICTs • Upgrade China’s ICT legislation, increase competition in ICT sectors. create an effective ICT regulatory environment, allow private and foreign investments • Developing network infrastructure and information content • Establish universal access, enrich Chinese information content • Developing effective e-commerce • Upgrading payment and delivery systems Source: Dahlman, C. J. and J.-E. Aubert (2001). China and the knowledge economy - seizing the 21st century, World Bank: 200

24. Early Conclusions and Late Hypotheses • Since its inception, China’s ICT policy making has been (and remains) under strong domestic political competition, both from competing ministries (e.g. the Ministry of Information Industry and the Ministry of Railways) and inside the government (conservative and reformers) • Most of the legislative process surrounding ICT has been mostly crafted in a trial-and-error fashion (until the formal accession to the WTO) by the Ministry of Information Industry • Maintaining “informed ambiguity” around both sectors procures two distinct advantages: • gain time in order to understand where the technology is going (convergence) • provide room for bargaining at the WTO and fill legislative vacuum

25. CONTENTS • Background: PhD research and theoretical underpinnings • Dimension: Some facts, figures and policy evolution • Issues: Divide, role of various players, control of ICT • Lessons: Role of government, applicability to other developing countries

26. Japan PSTN Internet Korea China India GDP per capita 2002Ein Yuan RMB 0 2’500 5’000 10’000 15’000 30’00035’000 =< =< =< =< =< =<> 2’500 5’000 10’000 15’000 30’000 35’000 Asia Taiwan 36.27% 21.90% 10.12% Hong Kong Digital Divide “à la Chinoise” Source: ITU, MFC Insight (compiled by author)

27. Some Actors in the ICT Policy-Making Process • Source: Based on and updated from Lovelock (1999) and Zita (1987)

28. Regulatory Policy-making • The study of regulatory policymaking is dominated by two perspectives: • Regulatory agencies are vested with vast discretion and are the major force in regulatory policy (Wilson, Katzman) • Regulatory agencies are dominated by their environment – Interest groups, legislative committees, economic forces and technological change are among the determinants of policy (Stigler, Lowi, Sabatier)

29. China Telecom ChinaNet 6452M (61%) China Unicom UniNet 693M (7%) Trade Network CIETNet 2M (0%) Qinghua U. CERNET 257M (2%) CASS CSTNet 55M (1%) China Netcom CNCNet 2870M (27%) Chin Mobile CMNNet 247M (2%) ISPs and Internet Bandwidth in 2002: A Hierarchy of Responsibility Regulator: Ministry of Information Industry International gateway Interconnectednetworks Connectednetworks More than 1’000 ISPs State Council Order 195 Some competition allowed to develop between ISPs but infrastructure under control: principle of promoting economic development and maintaining political and economic control • Source: CNNIC - 2002

30. China’s ICT Policy Evolution: Anecdotes… • …China faces the same dilemma as Singapore, but on a much greater scale… Since it is doubtful that either technical means or financial control can really work and prevent people from free communication over the Internet, the only means left to the government is intimidation. The Chinese Communists are right to fear the power of the Internet • Simon, L. D. (2000). NetPolicy.Com : public agenda for a digital world. Washington, D.C., The Woodrow Wilson Center Press.

31. A Well-Balanced Chinese Model? • China’s Internet structure as a state Intranet  model against self-regulation • Tight administration of service operation  doubt of regulatory convergence • Market competition for ISPs  doubt about fair market competition • The Chinese Government has structured its Internet regulation to control political risks through carefully designed institutional arrangements, tight control of network operations and pervasive regulation of end users. However, the attempt to regulate the Internet is seriously handicapped by its fragmented and sector-oriented regulatory regime

32. China’s ICT Policy: View from the Top • The application of modern electronic information technology will result in significant progress in the field of national economy and society; the diffusion of information technology will promote advances in production, working and living conditions; the National Information Infrastructure (NII) will be primarily supported by wide-band ISDN technology; and the national economic informatisation level will be remarkably enhanced • 9th 5-year plan and long-range objective outline in 2010 of China’s national and economic development, passed by the 4th section of the 8th People’s Standard Congress (1996) • The guideline for the development of a NII is to have an overall plan, to put the State in the forefront, to unify the standards, to construct by joint efforts, to carry out mutual connection, and to share common resources • Zhu Jiahua, former Vice Premier of the State Council

33. China’s ICT Policy: View from the Top • None of the four modernizations can be achieved without the application of information. • Jiang Zemin, President • Networking does not mean that all information will be allowed to flow in. As a sovereign nation, China must strengthen information management • Wu Jichuan, Minister of Information Industry

34. More is less… • “The present focus is to establish an efficient and orderly competitive environment to encourage qualified enterprises to list overseas and attract more investors into China’s communications market based on China’s commitment to the WTO”. • Wu Jichuan, MII (2001) • “In order to develop our information industry and increase the content of information technology in the national economic and social growth, we should draw upon experience from other countries while considering our own specific conditions to find a development path with our own characteristics”. • Wu Jichuan, MII (2001)

35. CONTENTS • Background: PhD research and theoretical underpinnings • Dimension: Some facts, figures and policy evolution • Issues: Divide, role of various players, control of ICT • Lessons: Role of government, applicability to other developing countries

36. Why Was China Actually Able to Develop and Implement an ICT framework? • Two inter-related aspects of the policy-making process: • A bargaining framework that is employed in lieu of a legislative framework • A mechanism for administrative co-ordination • Together, these two components provide an institutional approach that explains the Chinese policy-making processes in this sector-specific study. The approach was labelled 'co-ordinated competition'. What is demonstrated is that under a framework of 'co-ordinated competition' the government's objective has been to encompass new opportunities as they arise, not marginalise them and that this has been the defining element in China's NII policy process.

37. Mind the Gap… • “The modernists of 1910 and the 1970s were right about the direction of change but simplistic about its consequences. Like pundits on the information revolution, they moved too directly from technology to political consequences without sufficiently considering the continuity of beliefs, the persistence of institutions, or the strategic options available to statesmen.” • R. Keohane and J. Nye Power and interdependence in the information age • Foreign Affairs(1998) • Will the Chinese government manage policy leapfrogging? • Digital divide • Techno-nationalism • Implementation of WTO commitments • Politics as usual

38. Quotes… • “In today’s institutional governance system any country that tries to strengthen its national information infrastructure must do so in close interdependence with the global environment”.   • Mansell and Wehn (1998), Knowledge Societies • “A leapfrog development of the information industry requires an open, law-based and competitive external environment”. • Wu Jichuan, MII (2001)