E.1
Data communications services in China are provided by China Telecom, Ji Tong Communications Company, China Unicom and other Ministries. China Telecom is the major provider of public data communication services. Ji Tong and China Unicom are newcomers as public datacom service providers. In addition, numerous Ministries, such as the Ministry of Railways, the former Ministry of Power (now the State Power Corp.), the Ministry of Water Resources and the People's Bank of China, are also building data networks for their internal uses.
China's public data communications market has gained momentum over the last three years. In 1993, there were fewer than 3,000 subscribers to datacom services. That number increased to 14,000 and 60,000 in 1994 and 1995. By the end of 1996, the number of subscribers increased to 160,000. The public datacom service users reached 400,000 and 1.54 million at the end of 1997 and 1998 respectively.
The public data communication networks have provided a platform on which other government agencies and industry groups develop their specialized networks and applications. At present, the major public datacom service users are government ministries and departments, the financial community, industry enterprises, research institutions and universities.
The major users include the People's Bank of China, major commercial and specialized banks, the National Foreign Currency Administrative Bureau, the National Foreign Currency Regulatory Center, the Debt Department of the Ministry of Finance, the People's Insurance Corporation, the Safety Insurance Corp. and all major stock exchanges in China. These users have used ChinaPAC or ChinaDDN to build their own computer management information systems and real-time information process systems.
One area of rapid growth in China during the last several years has been the Internet and Intranet markets. China opened its first official Internet link in May 1995. Since 1996, China’s Internet market has begun to growth rapidly. The number of Internet users totaled 2.1 million as of December 31, 1998, which more than tripled the number for 1997. The Internet users hit 4 million in June 1999 according to statistics from the official China Internet Network Information Center (CNNIC). Currently, there are 1.46 million computers with Internet access. The number of Internet users is expected to reach 7 million by the end of this year. IGI forecasts the total number of Internet users in China can reach 77 million by the year 2005.
E.2.0 The Organizational Structure of China's Telecom Industry before 1998 Reorganization
China's telecommunications industry operated and still operates under a hierarchical structure with the State Council at the top, the commissions, ministries and provincial governments in the middle, and some 2,500 post and telecom administrations and enterprises at the provincial, municipal and county levels making up the base. The agencies are divided in policy, planning, manufacturing and services, but often their functions are overlapping. The former Ministry of Posts and Telecommunications (MPT) served as the central pillar of this structure, with the authority from the State Council to oversee and manage the day-to-day workings of this sector. The telecommunications sector includes an aggregation of around 2,500 posts and telecom administrations and enterprises with 55,000 offices, some 16,000 town-village enterprises and user-owned dedicated networks.
The Ministry of Posts and Telecommunications (MPT) was a functional department under the State Council governing China's posts and telecommunications industry. It was responsible for the macro control of the nation's P&T communication industry, making overall plans, coordinating projects, and supervising operations. It exercised centralized control over the nation's public communication networks and communications market. By regulating the public communication network, the MPT ensured the integrity of the nation's networks.
E.3.0 The Organizational Structure of China's Telecom Industry after 1998 Reorganization
During the Ninth National People's Congress held in March 1998, the supreme legislative body of China authorized a bold plan to shake up the State Council by axing 11 ministries and slashing the number of government officials in half. This has been the most drastic institutional restructuring plan since the beginning of the Deng era in 1978.
After the reorganization, the number of ministries had been reduced from 40 to 29. Fifteen former ministries and commissions have been removed and four new bodies have been formed. Government agencies which have been completely dissolved are the Ministries of Power, Coal, Metallurgy, Machine-Building, Electronics, Chemistry, Internal Trade, Posts and Telecommunications, Radio, Film and Television, Geology and Mineral Resources, and Forestry.
Most of these ministries have been turned into bureaus directly under the State Economic and Trade Commission. The National Councils of Light Industry and the Textile Industry have also become bureaus of the State Economic and Trade Commission. Shedding its power of managing the television network, the Ministry of Radio, Film and Television (MFRT) has been turned into an administration under the State Council.
The Super Ministry - Ministry of Information Industry (MII)
The MII was established in Beijing in March 1998 on the basis of the Ministry of Posts and Telecommunications and Ministry of Electronics Industry. The Ministry is responsible for invigorating the manufacture business of information products, telecommunications and software industries, formulating sectoral programs, policies and laws codes, mapping out overall plan for telecommunications trunk networks (including local and long-distance telecommunications networks), broadcast and television networks (including radio and cable television networks), and special-use telecommunications networks for military departments and other departments. It exercises sectoral management, allocation of resources rationally, avoid overlapping projects and ensures information security. The government functions for information and network management in the Ministry of Radio, Film and Television, China Aerospace Industry Corporation and the China Aviation Industry Corporation are incorporated into the Ministry of Information Industry. It also takes charge of the State Postal Bureau which was founded in March 1998.
By the end of 1998, the Ministry of Information Industry (MII) had completed its merging of the former Ministry of Posts and Telecommunications and the Ministry of Electronics Industry. Thirteen departments have been established and personnel has been severely downsized. The following table shows the 13 functional departments of the MII.
E.4.0 Datacom Market Policy and Development
E.4.1 The DCB of MII
The Data Communications Bureau (DCB) of the MII is mainly responsible for the planning, construction, operation and management of China’s public data communications networks and related services. To exercise the above functions, the DCB has established a number of departments responsible for general administration, business development, network management, technological development as well as a National Network Management Center and a National Technical Support and Training Center. Data communications offices have been set up in all of the provinces, autonomous regions, and municipalities; data communications branch offices have been set up in provincial capitals (prefectures and cities).
At present, there are over 2000 experts and staff members responsible for the operation of data communications services, network management and technological development. They are making great efforts for the development of data communications in China.
E.4.2 China's Public Data Networks
Over the last five years, China Telecom constructed public data communications networks covering all of China. These public data networks include the China Public Packet Switched Data Network (ChinaPAC), the China Public Digital Data Network (ChinaDDN), the China Public Frame Relay Broadband Network (ChinaFRN), the China Public Computer Network (ChinaNet), the China Public Electronic Mail Services Network (ChinaMail), the China Public Fax Messaging Services Network (ChinaFax) and the China Public Electronic Data Interchange Network (ChinaEDI). The China Public Multimedia Information Network and Wireless Data Network are currently under construction. By the end of 1998, the number of users of public data communication services had exceeded 1.54 million. One million of these users were recruited in 1998 alone. The China Public Multimedia Network has been interconnected within 28 provinces and cities.
E.4.3 Ji Tong and the "Golden Projects"
In order to introduce competition in China's telecom sector, Ji Tong Communications Company was established in September 1993, after gaining approval from the State Economic and Trade Commission. China will build a series of specialized national data communications networks through what is called "the Golden Projects." These projects include the Golden Bridge, the Golden Customs (Gate), the Golden Cards, the Golden Tax, the Golden Agriculture, the Golden Macro, the Golden Intelligence and others. Ji Tong is the owner and operator of the Golden Bridge and the Golden Customs (Gate) projects. It is also a participant in the Golden Card project.
Ji Tong has completed the first phase of a nationwide VSAT network and has begun offering Internet services to the public. Ji Tong has obtained a license from the MII to offer IP telephony services in 12 Chinese cities. It will become a serious competitor to China Telecom in the data communications services sector.
E.4.4 China Unicom's Datacom Ambitions
China Unicom has great potential to be a strong data service provider in the future market in China. According to Dr. Li Zhengmao, Director General and Chief Engineer of the technology department of China Unicom, the data network of China Unicom should be an important part of the China National Information Infrastructure.
China Unicom has built satellite Earth stations in 12 cities, and 7 more Earth stations are under construction. On May 17, 1997, China Unicom's first local data network was launched in Tianjin, which provides frame-relay service with DDN leased lines and Internet/intranet services.
China Unicom has set the following targets for its future data network development:
- First Phase (1997-1998): Starting data network development in several economically advanced large cities
- Second Phase (1998-1999): Deploying networks in the economically more advanced cities in China east and the middle regions
- Third Phase (1999-2000): Expanding the networks to the main cities in the east and middle regions and the provincial cities in the west
In May 1999, China Unicom received a license for IP telephony services in 14 Chinese cities. VoIP services became operational in June 1999.
E.4.5 Private Networks
In China, private networks are simply those not operated by the China Telecom or China Unicom, which include other ministries and Ji Tong. It can be argued that Ji Tong's network has a quasi-public nature since Ji Tong offers services directly to the public, such as commercial Internet services.
The networks of the Ministry of Railways, the former Ministry of Power, and the military are the largest. Most of the networks were built by the users because the former MPT could not provide needed service. There are networks for water transportation, the power industry, the oil industry, aviation, the mining industry, flood monitoring, weather forecasting service, the coal industry, police, security forces, banking, the chemical industry, the national travel agency, the national earthquake observation network, and others.
China's relatively strong private networks are mainly the result of institutional fragmentation and its historically underdeveloped public telecommunications networks. Today, over thirty large private communications networks with national coverage and three thousand local private networks of various capacity and sizes are currently operating. Most of these private networks are built for internal use or data transmission. Together the private networks have 2-3 times more transmission lines and more data transmission capacity than the China Telecom network. However, private networks hold only approximately 10% of capacity of China Telecom.
E.5.0 The Internet in China
E.5.1 Market Development
One area of rapid growth in China during the last several years has been the Internet and Intranet markets. China opened its first official Internet link in May 1995. Since 1996, China’s Internet market has begun to growth rapidly. The number of Internet users totaled 2.1 million as of December 31, 1998, which more than tripled the number for 1997. The Internet users hit 4 million in June 1999 according to statistics from the official China Internet Network Information Center (CNNIC). Currently, there are 1.46 million computers with Internet access. The number of Internet users is expected to reach 7 million by the end of this year. IGI forecasts the total number of Internet users in China can reach 77 million by the year 2005.
To accommodate the growing number of users, China will invest RMB140 billion (US$16.9 billion) per year over the next three years to construct broadband networks to provide more people with access to the Internet.
E.5.2 A Survey of Internet Market
The China Internet Network Information Center (CNNIC) released a survey in January 1999 on the Internet market in China. The survey provides a comprehensive description of the Internet market development in China. The survey shows by the end of 1998:
o The number of computers with Internet access in China: 747,000. Of these, 117,000 computers were connected to the Internet via dedicated lines, 630,000 through dial up.
o China had a total of 2.1 million Internet users by December 31, 1998. Of the total Internet users, 400,000 surfing the Internet via dedicated lines, 1.49 million via dial up access, and 210,000 use both. The number of Internet users represents a three-fold increase over 1997 when there were 670,000 Internet customers.
o China’s total international Internet connectivity bandwidth: 143.256 Mbps.
Countries and regions connected: USA, Canada, UK, Germany, France, Japan, and Hong Kong.
1. Internet Service Providers (ISPs)
The Internet market is very competitive. Statistics from the government-run China Internet Network Information Center (CNNIC) show that by early 1998 there were over 200 ISPs in China. Only a few, however, dominate in the Internet service market. ChinaNet is the most dominant player, but there are some other ISPs whose presence in the marketplace is growing. Among them are ChinaOnline, Net China, Strait Information Network, Information Highway (IHW) and Century Internet (CENPOK). The trend of ISPs providing content or ISPs becoming Internet Content Providers (ICPs) started around the second of half of 1998. Chinese ISPs have noticed that simply providing Internet access is not a viable business. Most ISPs agree content provision is critical to their survival.
In Beijing alone, there are now more than 70 ISPs which gained permission from the Beijing Telecom Administration. However, because of the high cost of leased lines and low customer base, many of these ISPs are losing money. Another cost to the ISPs is the cost of call-in modem pools, which need to be upgraded with the ever faster new models coming on line.
E.5.4 IP Telephony in China
Despite a low teledensity, China fully favors new technology deployment. China has become an early adopter of IP Telephony. It is currently conducting approximately 30 IP Telephony trials throughout the country through China Telecom, China Unicom, and Ji Tong. China’s telecom market is ripe for the deployment of such advanced services since phone tariffs remain high due to the lack of competition and new operators are able to provide IP-based telephony services.
China Telecom is conducting trials in 25 cities: Beijing, Shanghai, Guangzhou, Wuhan, Xi’an, Shenyang, Nanjing, Chengdu, Tianjin, Chongqing, Hangzhou, Fuzhou, Jinan, Changsha, Kunming, Harbin, Changchun, Zhengzhou, Shenzhen, Dongguan, Suzhou, Dalian, Qingdao, Xiamen, and Zhuhai. The equipment for China Telecom’s trials was provided by VocalTec and NetTrue (supplied gateways only).
China Unicom has also started its IP Telephone service in 12 cities. On June 18, 1999 China Unicom’s IP telephone trial networks were operational in all 12 cities as authorized by the MII. The 12 cities with the China Unicom IP phone services include Beijing, Shanghai, Guangzhou, Tianjin, Chongqing, Nanjing, Chengdu, Fuzhou, Xiamen, Shenzhen, Hangzhou and Dalian. Cisco’s networking equipment is used in the project.
Ji Tong Communications has also conducted trials in a dozen Chinese cities. Equipment from Clarent Corporation of the US, a vendor of carrier-grade, phone-to-phone IP telephony solutions, was selected by Ji Tong to be their premier supplier of VoIP technology. NetTrue also supplied IP telephony gateways. As this is still the early stages of IP-based technology development, we believe the equipment market opportunity remains open to all the major vendors.
E.5.5 Forecast of Internet Growth
Based on our knowledge on the Internet and telecom markets in China and other relevant government and market information, IGI has made the following observations and forecasts concerning China’s Internet market.
- In the next two years (1999 and 2000), the average annual growth rate should be about 150 percent as China is still at the taking-off stage in the Internet market.
- The Internet market growth rates should slow down as the market matures in the first few years of the 21st century. IGI estimates that the average Internet subscriber growth rate should be about 50 percent between the year 2000 and 2005.
- The number of Internet users in China should reach 77 million by the year 2005, which is only 5.9 percent of the expected population (1.3 billion).
The areas and applications will gain repaid growth in the next few years in China:
- Web Browsing
- Email
- IP Telephone
- Government Online
- Electronic Commerce
- Distance Learning
- Tele-medicine
- Virtual Private Network (VPN)
E.5.6 Factors Stimulate Internet Growth
In the next several years, the following factors will stimulate the growth of the Internet in China.
- Continued economic growth – expected to be over 7 % for the next few years
- Large population base – 1.3 billion in early 21st century
- The emergence of a large middle income urban consumer base
- Emphasis on education by Chinese families
- Expected increased competition in the Chinese telecom market place
- Competition from Ji Tong and Unicom
- CATV companies will enter the Internet market soon
- Price Declines for Leased Lines
- The Growth of Computer Sales
- WTO
E.5.7 Obstacles to Growth
Although the potential Internet market in China is huge, there are many obstacles to growth. Some of the factors are political, others are technical. The following is a list of these factors:
- Government regulations on content
- Government prohibition on foreign participation in telecom services
- Lack of Chinese language content on the Web
- Weak financial results of the ISPs
- ISPs’ lack of technical expertise
- Bandwidth crunch
E.6.0 Data Markets in Major Provinces
There is large disparities in the Internet development in China among the 31 provinces, municipalities and autonomous regions. The online service subscribers are mainly concentrated in the eastern coastal cities. The following graphs show the Beijing Telecom Multimedia Information Platform, the Shanghai Online Network Structure and the Guangdong Super Shi Ling Tong Network Planning.
