China's 5-year plan lights way for West

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With foreign spending in China having risen from USD2bn to almost USD50bn since 1986 — and the coincident growth of western interest in telecoms — investment looks set to pass the USD100bn mark by the end of 2004.

Green shoots of prosperity have emerged in China, fuelled by its government's promises to invest USD120bn as part of a five year IT and Telecoms plan (2001-2005), to break up China Telecom, the incumbent monopoly, and to create a handful of new carriers, based on geographic and service lines. This activity coupled with the first international offering of shares in China Telecom has triggered a feeding frenzy by western infrastructure and systems providers.

The Chinese government's financial support coupled with ever increasing subscriber numbers means that the Chinese market will be the first market to return to some semblance of prosperity. The current market trends, however, have created somewhat of a paradox — as operators faced with an ever increasing number of subscribers, slashed their investment in infrastructure in the first six months of 2002 by more than 36%. Nevertheless, total investment is still substantial by current western standards.

This reversal of what many had seen as the start of a boom, in the Chinese market may be a result of the uncertainty caused by the restructuring of the industry and the creation of two new operators: China Telecom, and a Jitong or China Netcom based company.

The Chinese market will become incredibly strong, but not as quickly as many are hoping. In the current downturn, the western market would like nothing more than an immediate boom in Asia to help drive the demand for product, and repair some of the widespread damage.

The country's progress is testament to the national desire to get it right. They want to build state of the art optical networks based on tried and tested technology. Following that country's entry into the World Trade Organisation, there have been significant moves to encourage joint ventures between incumbent operators and western infrastructure designers. What the West must guard against is trying to pressure the Chinese market to develop more quickly than both indigenous investments can sustain, or faster than Chinese consumers demand — triggering the familiar a boom and bust.

Many western companies that invested heavily at the start of the so-called 'boom' in China in 2001, expecting it to replicate the US and European market, are now cutting back to shape their cloth to the current market conditions. Fibercore Limited has been working within the Chinese optical fibre marketplace for more than seven years, investing in local knowledge. Local knowledge is undoubtedly an important key to prosperity in China. Whilst a boom in the Chinese market would undoubtedly have a positive impact on the global telecoms marketplace, our experience tells us that it would be short-lived without support from the indigenous market.

A boom driven by the West would almost certainly not deliver what the Chinese market needs — a future-proof, high speed optical telecommunications infrastructure. Faced with heavy western pressure the market would be likely to super-heat and the long term rewards would be sacrificed for the sake of a few million dollars. A repeat of the crash in the US and Europe is not something we want to go through again.

The solution is this; rather than looking for a quick fix, US and European telecoms companies need to bank on the longer term, rather than just hoovering up the existing cash. Western operators must respect the Chinese government's five year plan for the growth of the telecoms market, and the needs of the Chinese consumers. Demand for bandwidth is on the increase and shows no sign of abating.

The Communist government was criticised by the West for its five and seven year economic plans, but this approach of steady and sustainable growth could provide the basis for the creation of a durable and prosperous global telecoms market for the 21st century.

The five year plan (2001-2005) set out by the Chinese to invest in the development of IT and telecoms infrastructure should ensure that it drives the development of the most powerful global economies and develop a thriving and prosperous telecoms market in China.

By adopting this strategic approach to the development of the market, rather than a high speed smash and grab to aide balance sheets in the next 18months, western Telecoms companies have the opportunity to avoid super-heating the Chinese market.

It is time that we look to China, not as a miracle cure, but as the start of a long term strategy to return the global telecoms market to sustainability.

Chris Emslie
Managing Director
Fibercore Ltd, Southampton, UK
chris.emslie@fibercore.com

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