Telecommunications Research Project/ Centre of Asian Studies Seminar

China’s Competitiveness in ICTs, Telecom Services, Standards and IPRs 19th April 2007

John Ure Associate Professor and Director Telecoms Research Project University of Hong Kong http://www.trp.hku.hk

The Big Issues • Trade and investment issues – • China’s WTO membership and obligations – e.g.

“European firms are denied business opportunities in China worth at least 20 billion € (HK$205 billion) a year because of non-tariff trade barriers, a study published by the European Commission said.” The Standard 21 February 2007

• US/EU IPR issues with China • Yuan issues – – US trade deficit issues • Monthly deficit with Rest of World upwards of US$60 billion • Monthly deficit with PRC upwards of US$20 billion • Monthly imports from PRC well > US$20 billion • Monthly exports to PRC well < US$5 billion

– China foreign exchange reserves > US$1 trillion (world’s largest) - how to reallocate without sparking domestic inflation? • (a) reinvest overseas (in US cities?) • (b) open market operations? or development domestic derivatives market? (cf. Singapore?) • Exporting jobs (outsourcing/offshoring) B technology vs globalization debate – – Jagdish Bhagwati (Columbia) ‘Technology, not globalization, is driving down wages’ (Financial Times, 3 January 2007) – Alan S. Binder (Princeton) ‘Pain from free trade triggers second thoughts in economist’ (Wall Street Journal – Asia 29 March 2007)

1 ICT Trade & Investment Basic Statistics

• 2005: Global ICT market > US$3,000 billion – China’s ICT market = US$118 billion = 6th largest market globally, but only 10% of US market

• 2004: China overtook USA as world number one exporter of ICT goods – China: US$184 billion; USA US$149 billion

• Up to 88 per cent China’s ICT exports owned by ‘foreign- invested’ companies

• 2005: ICT-related FDI inflows into China = US$21 billion – NB. 2005: total FDI into China around US$72 billion; China outward investment around US$7 billion

Sources: OECD IT Outlook, 2005 & 2006; OECD Financial Perspectives, 2006; MII

China’s Revealed Comparative Advantage in ICTs

Balassa index: RCAj = (Xj/Xwj) / Xt/Xwt) Where:- Xj = nation’s exports of good j Xwj = world’s total exports of good j Xt = nation’s total exports Xwt = world’s total exports

• Method – Use custom’s HS (Harmonized System) categories – Determine HS categories for ICT exports – China’s % ICT (HS) exports in world ICT trade as proportion as China’s total world exports as % of total world trade • Is it rising 1991-2001? • Is it > 1 in 2001? • Is RCA confined to end products or includes intermediate products?

2 China Revealed Comparative Advantage 1991-2001

SITC Description 1991 2001

751 Office machines

75121 Electronic without external source of power 7.46 6.70

75122 Other calculating machines 5.75 2.43

75132 Electrostatic photocopy, apparatus, indirect process 0.02 2.11

75199 Office machines, n.e.s. 0.80 2.05

7591 Parts, accessories of the apparatus of heading 7513 0.02 1.25

75995 Parts, accessories of the machines of sub-group 7512

764 Telecom products

76411 Telephone sets 6.90 7.07

76419 Other telephonic or telegraphic apparatus 0.30 1.15

76421 Microphones and stands therefore 1.36 2.23

76422 Loudspeakers, mounted in their enclosures 0.37 4.91

76423 Loudspeakers, not mounted in their enclosures 0.99 4.60

76424 Headphones, earphones & combined microphone/speaker 5.02 10.05

76425 Audio-frequency electric amplifiers 0.80 1.41

76426 Electric sound amplifier sets 0.45 1.89

76431 Transmission apparatus 0.30 1.00

76432 Transmission apparatus with reception apparatus 2.38 4.27

76491 Parts and accessories for apparatus of heading 7641 0.12 1.68

76492 Parts and accessories for apparatus of heading 7642 0.44 2.03

76493 Parts and accessories of 761, 762, 7643, 7648 0.39 2.11

76499 Parts and accessories for apparatus of heading 763 1.18 3.66

752 IT products

7526 Input or output units, whether or not with storage 0.23 3.56

7527 Storage units, with the rest of the system or not 0.01 1.54

75997 Parts, accessories of the machine of group 752 0.14 2.06

772 Semiconductors

7722 Printed circuits 0.11 1.20

77253 Other apparatus for protecting electrical circuits 0.87 4.18

77257 Lampholders, voltage < 1000 volts 2.20 1.56

77258 Plugs & sockets, voltage < 1000 volts 0.85 2.18

77259 Other apparatus for electrical circuits < 1000 volts 0.31 0.98

77629 Parts of the tubes, valves of the sub-groups 7761, 7762 0.05 1.22

77631 Diodes, not photosensitive nor light emitting diodes 0.08 1.01

77632 Transistors, dissipation rate < 1 w 0.18 1.24

77681 Piezo-electric crystals, mounted 0.15 3.38

Source: Amighini (2005) ‘China in the international fragmentation of production: Evidence from the ICT industry’ The European Journal of Comparative Economics, v.2.2, pp.203-219.Table 3; http://eaces.liuc.it/

3 China’s RCAs - Conclusions • Highest numbers and gains in RCAs in telecom products and parts thereof (intermediate products) – China now has a comparative advantage in all intermediate telecom products

• RCAs also gained in parts for IT products, for Office machines and for Semiconductors

• Overall China has RCAs in 30% of ICT intermediary goods, almost all during 1990s

“This indicates a switch from being mainly an assembler to being a producer of skill- and technology-intensive products” Alessia Amighini (2005) ‘China in the international fragmentation of production: Evidence from the ICT industry’ The European Journal of Comparative Economics, v.2.2, pp 203-219 http://eaces.liuc.it/

Trade Competitiveness as Alternative Measure

NET index: CAj = (Xj - Mj)) / (Xt + Mj) Where:- (Xj – Mj) = country’s NET exports of good j (Xj + Mj) = country’s total trade in good j CAj = 1 = highest comparative advantage CAj = 0 = balanced trade CAj = -1= highest comparative disadvantage

• ‘Trade Competitiveness’ data shows mixed results – Cong Cao measures ‘High Tech’ industries, confirms results for ‘Office and Computing Machinery’ but finds decline in ‘Communications Equipment’ after 1990! (‘Challenges for Technological Development in China’s Industry..’ China Perspectives v.54 July-August 2004)

– Amighini - Results confirm Balassa index results: • Office machines overall slight increase, but major increases in some segments, e.g. word-processors, photo-copiers, teleprinters, TV image converters • IT products strong swing from negative to positive • Telecom products strong swing from negative to positive • Semiconductors no change since 1990s

4 ICT & Telecoms Equipment Sectors: Semiconductors and ICs

• 2005: China consumed 21% of global production of ICs – Up from 6% in 2000 – About US$40 billion; by 2010 ~ US$124 billion driven by 3G and digital TV (Source: CCID Consulting of MII)

• > 130 manufacturing companies, but Chinese IC production focused on low-end, lack IP… – Low-end = diodes, discretes (eg. light emitting diode indicators on electronic products) and analogue chips vs – High-end = microprocessors, digital signal processors and ASICs (application specific integrated circuits) – Government is making major push in this sector – e.g SIMC (Semiconductor Mfg Intn. Corp., Shanghai) produces chips with circuitry 180 nanometres

– NEC encouraged to open in Shanghai 2001, partner of Shougang

– Intel’s plans for US$2.5 billion ‘wafer fab’ factory in Dalian approved March 2007 – chip circuitry 90 nanometres (one thousandth the width of human hair, but still two generations behind Intel’s US operations)

Top Chinese IC producers

Sales US$ million Products

Company 2004 2005

Foundry 1. SMIC 975 1,160

ICs, ASICs 2. Hua Hong/NEC 324 375

Foundry 3. He-Jian 230 250

Foundry 4. ASMC/Philips 175 200

Standard ICs, Foundry 5 Shougang/NEC 140 160

Foundry 6 Grace 145 100

Foundry 7 CSMC 80 70

Consumer ICs 8. Shanghai Belling/Alcatel 65 70

Source: ‘Industry in Infancy’, Purchasing, May 18, 2006

5 ICT & Telecoms Equipment Sectors: Other Electronic Components

• China’s RCA is strong

• But China frequently stuck at the low value end – EXAMPLE – TCL took over Thompson’s TV business; set up JV manufacturing in Shenzen 2004 – TCL got stuck in CRT (Cathode Ray Tube) production – The market turned to plasma and then to LDC (Liquid Crystal Display) flat screens

• 25% world output of LCDs from China – Hisense, BOE/Hynix (Korea) partner, SVA Group/NEC (Japan) partner – Lots of off-shoring by overseas companies = OEM (‘original engineering’); little ODM (‘own design’), little OBM (‘own brand’) – but low end stuff; high end in Korea, Japan, Taiwan

• Low margin business

ICT & Telecoms Equipment Sectors: Computers • Shares of domestic market (2006) • Lenovo = 38% (acquired IBM’s PC business) • Founder = 14% • Tongfang < 10 % • Dell + HP < 12 % • TCL + Great Wall = 4.5% Source: Analysis International 2006 • Share of global market (2007) •HP >18% • Dell >14% • Lenovo >7% •Acer > 7% • Toshiba <4% Source: IDC – WSJ-Asia 5 April 2007 • Low margin business – why IBM exited!

6 ICT & Telecoms Equipment Sectors: Consumer Electronics

• Intensely competitive – key growth markets will be: • Mobile handsets, IPTV equipment, DTV, video and musical terminals, etc

• DVD market saturated = many unlicensed ‘pirates’ • China Audio Industry Association ~ 70 manufacturers, including Konka, Better Life, Shinco, Malata, Desay, Amoi, SVA, Nintaus, etc • China Chamber of Commerce for Import & Export of Machinery negotiating with MPEG LA over royalties (~ US$2.50 per player)

• These are low margin businesses

• Home, Office and Public Networking – Huawei, ZTE, TCL, Konka, etc members of the Digital Living Network Alliance (previously the Digital Home Networking Group, includes Microsoft, Sony, Intel, Philips, HP, etc) – Also members of China’s Intelligent Grouping and Resource Sharing IGRS) industry alliance

2005 Electronic Communications Industry Note changes in revenues and profits

Revenue (million RMB) - Year % change Profit (million RMB) – Year ended % change Commodity ended

Table 2: 2005 Electronic Communications Industry 2005 2004 2005 2004

Computers 1,064,400 874,900 21.7 20,900 15,900 31.7

Radio communications equipment 613,200 47,270 29.7 24,400 28,800 -15.4

Electronic components 573,500 409,200 40.2 30,900 23,200 32.7

Home entertainment equipment 376,200 343,300 9.6 6,400 1,400 361.7

Broadcasting and TV equipment 30,700 15,800 94.9 1,100 400 140.7

Source: Ministry of Information Industry http://www.mii.gov.cn/art/2006/02/28/art_941_7107.html

7 ICT & Telecoms Equipment Sectors: Consumer Electronics

• Intensely competitive – key growth markets will be: • Mobile handsets, IPTV equipment, DTV, video and musical terminals, etc

• These are low margin businesses

ICT & Telecoms Equipment Sectors: Telecom Equipment • The big success story, driven by • Large captive market (Huawei and ZTE usually account for 60-70% of equipment purchases of China Telecom)

• State support for R&D and bank funding, EXIM support, etc., e.g. Datang and TD-SCDMA 3G

• Huawei and ZTE can often offer 30-60% lower prices than international competitors in overseas markets • Good quality reliable equipment, but without some of the frills and top-end functionality = a value proposition

• Especially strong in competing in developing country markets, supported by EXIM

8 ICT & Telecoms Equipment Sectors: Business Market

• China’s structural and cultural weakness is low level enterprise inter-networking

• ‘Command and control’ economy = hierarchy vs. distributed responsibility, decision-making and initiative B not conducive to IT networked systems

• Market reforms and WTO-induced/globalization-induced withdrawal of the state from day-to-day enterprise decision- making is slowly changing the face of enterprise management

• Chinese companies more willing to pay for hardware than software and services = consulting and systems integration margins very thin

ICTs and Intellectual Property in China

• 99% Chinese companies have no patents – Science & Technology Minister, Xu Guanhua • Minister Xu complained that “domestic companies had to pay 20-40% of the price of every mobile phone or computer they produced to overseas patent holders.” (China Daily 15 May 2006)

• 2003: patent applications from Chinese companies (57,000) > foreign companies (49,000) for 1st time – SIPO (State Intellectual Property Office) • 3 types of patent: ‘invention’, ‘utility’, ‘design’ • Actual patents issued to China companies (11,000) < to foreign companies (26,000) • Quality of patents is often low and mostly utility patents • 2004: China overtook Europe to become the 4th largest country for patent applications after Japan, US and Korea – WIPO (World Intellectual Property Organization)

• R&D rarely reaches > 5% revenue except among industry leaders such as Huawei – owns ~ 1,000 patents, mostly ‘invention’ (See Cao, China Perspectives v.54 July-August 2004) • Similarly ZTE, LG Electronic/Tianjin Electrical Appliances, Beijour Harbour Network, Lenovo + several universities and research institutes

9 ICTs and Technology Standards in China

• Double-edged swords • China has signed up to WTO, WIPO, etc – National standards as Non-Tariff Barriers to Trade (NTBs) vs WTO rules? – ‘Techno-nationalism’? (Richard Suttmeier for a US-centric view)

• China is engaged in international Standards Setting Organizations (SSOs) – China has raised issues over rules of disclosure of IPRs and role of FRAND (Fair, Reasonable and Non-Discriminatory) within SSOs – Heated arguments at IEEE around WAPI (see Table below)

• National standards a hindrance to Chinese companies in global economy? – No carrier wants the burden of TD-SCDMA (3G)! – Cf. Japan’s i-Mode – failed to travel? (Japan now since embraced W-CDMA for 3G)

Table 4: Selected ICT Standards

International China Notes Technology

Video Disk Digital Versatile Disk (DVD). MPEG-1 Enhanced Versatile Disk (EVD) Chinese manufacturers produce 70-80% of the world’s DVD used for CD (VCD); MPEG-2 for DVD; based on MPEG-2; approved by players, but can pay royalties of 40% or more of production MPEG-4 for web video and 3G streaming MII and SAC costs;[i] EVD format licences are pegged at 1 RMB per device (US$0.12) compared with UD$2.50 agreed with the MPEG (Moving Picture Experts Group) Licensing Authority (pooled agreement April 2006).[ii] EVD is being further enhanced by Versatile Multilayer Disk (VMD) tech based upon red laser optical storage of up to 40GB, potentially 100GB being developed in China by JV between NME and Beijing E-World Technology

High Definition Audio- HD-DVD (Toshiba-led consortium, Audio-Visual Standards (AVS) MPEG-4 and H.264 standards products which are suitable for Visual Compression includes Microsoft)[iii] vs Blue-Ray codec designed to replace HDTV and IPTV charge royalties on equipment (US$0.20 per (Sony-led consortium, with Philips); MPEG-2 and offer an alternative unit above 100,000 units falling to US$0.10 per unit above 5 based on blue laser ISO/IEC JTC1 to MPEG-4 and H.264 standards million units) and content (US$0.02 per title);[iv] AVS charges MPEG-4 and ITU H.264 video and G.7 royalties only on equipment (thought to be US$0.12);[v] AVS audio standards standards are widely used in DVDs, TV sets, TV station equipment, online and satellite broadcasting

DTV, HDTV, USA: Advanced TV Systems Committee For DTV in 2005 CCTV In 2005, AVS was not yet an established national standard. Its IPTV, MTV (ATSC); Europe: MPEG2/Digital Video announced adoption of MPEG- adoption for DTV, HDTV and IPTV will be crucial for its Broadcast (DVB)-T (terrestrial) or 2/DVB not AVS; 49 DTV trials success, but China is also experimenting with Digital -C (cable) or ordered by SARFT to shift to Multimedia Broadcasting (DMB) based on MPEG-4 which can -S (satellite) or DTV by June 2006; for China transmit by terrestrial (DMB-T) or satellite (DMB-S) and can be -M (mobile); Standard Definition TV developing Digital Multimedia accessed by mobile phone. DVB-T royalties on receiver (SDTV) Broadcasting Terrestrial (DMB- products range from €0.50 to €0.75 (US$0.60 to US$1)[vi] T) HDTV

Home Wireless Digital Living Network Alliance (DLNA), Intelligent Grouping and IGRS under the Science & Technology Dept of MII with over 20 Networking includes Sony, Intel, Microsoft, Philips Resource Sharing (IGRS) 3C- local companies and several foreign companies such Intel, and HP Convergence Standard Microsoft, Sony, Samsung. But several Chinese companies, Ubiquitous Open Platform Forum e.g. Huawei, ZTE, TCL and Konka, have also joined the DLNA (UOPF) in Japan (previously the Digital Home Working Group[vii])

10 3G Mobile Telephony Wideband-Code Division Multiple Access W-CDMA (tba); CDMA-2000 TD-SCDMA became a recognised ITU (IMT-2000) 3G standard W-CDMA (Europe) and Code Division (tba); Time Division-Synchronous for Universal Mobile Telecom System (UMTS). Developed by Multiple Access CDMA-2000 (USA) TD-SCDMA (tba). Postponed 3G Datang Telecom Technology Company (the China Academy of licensing announcements Telecom Technology under MII is the parent) in collaboration suggest TD-SCDMA trials found with Siemens. Qualcomm and Nokia hold many of the CDMA problems. patents.[i] Chinese vendors are prepared to produce dual-band handsets, but service providers face an uncertain business case for TD- SCDMA

Wireless Local Area 802.11 security standards: Service Set Wireless LAN Authentication and Xidian University National Key Lab and its company Networks (WLANS) Identifier (SSID); Media Access Control Privacy Infrastructure (WAPI) IWNCOMM developed the WAPI encryption algorithm. From – uses ‘contention’ method (MAC); Wired Equivalent Privacy 2001, ChinaBWIPS working group steered it, [ii] and in 2003 MAC (media access control) (WEP)for WiFi (Wireless Fidelity) SEMC and SAC declared it the national standard.[iii] It was networks declared mandatory as a security issue in 2004 and foreign companies required to partner with licensed Chinese companies,[iv] but China relented after international protest from the WiFi industry and US Government. China has been battling for the IEEE to accept the standard

Worldwide IEEE 802.16 fixed led by Intel, Nokia and CCSA submitted 802.1d CCSA’s 2006 submission suggests China is developing Interoperability for Motorola; Korea agreed to harmonise its interface, equipment and testing patentable technologies within the IEEE international standards Microwave Access or WiBro standard with WiMax in the standards framework. Companies involved include the MII Telecom Wireless MAN 802.16e mobile version using modulation Research Institute, ZTE, Alcatel Shanghai Bell, Huawei, CAS (WiMax) – uses Orthogonal Frequency Division Multiple Institute of Computing, and the Shanghai Centre for Wireless scheduled method MAC Access (OFDM)[v] Communications. (media access control)

Radio Frequency Electronic Product Code (EPC) Network MOST and 14 other ministries China has established a working group to develop its own RFID Identification (RFID) tags issued White Papers in June standard, but many WOFEs such as Walmart already use the 2006 declaring that China would EPC standard; RFID is also part of the China-Japan-Korea ICT develop its own standard; both research agenda. RFID is used for ID cards, pioneered by the EPC and local standards would ‘Golden Card Project’ of the early 1990s. The most successful be in use industry application is the MOR’s Automatic Train Information System begun mid-1990s[vi].

Source: Compiled from various sources by John Ure, TRP, University of Hong Kong

11th 5-Year Plan

• Abandons the singular role of state planning in favour of objectives or “indicative planning” • Targets are either (i) anticipated, or (ii) obligatory

• ICTs (Information & communications technologies) figure throughout

11 11th 5-Year Plan • Stress on enterprise innovation to raise efficiency • Create demand for telecom platforms and services?

• Creation of IP and IPRs to strengthen China’s entry into the world trading system • National standards = double-edged sword for service providers?

• The initiative for productivity and innovation and business development shifts from state planning to market-led enterprise initiatives. • Decentralized decision-making and fewer tie-ins making for more competitive service supply markets?

ICTs and 11th 5 Year Plan

1. Building a new socialist countryside • MII aims to connect every rural village to the telecommunications network by 2010 • Initiatives include (i) Web-based distance learning (ii) e- Government has been a priority since 1990s (iii) e-Health just starting

2. Accelerating economic restructuring and reducing the social costs of economic growth • The Outline Programme identifies innovation and improving management information systems and demonstration Golden Projects • ICTs to help in conservation of resources, such as energy, forests and fresh water supplies, and improving the environment

3. Promoting development among the regions • ICTs involved through the continuing role of technology and special economic zones (SEZs)

12 ICTs and 11th 5 Year Plan

4. Increasing the capacity for independent innovation • The Outline Programme identifies five main sectors for special attention: information technology, biotechnology, hi-tech materials, energy and aerospace.

5. Deepening market reforms and opening to the global economy • “We will support the export of service products and high value- added products with Chinese intellectual property rights and trademarks…We will further open the services sector to foreign competition. We will support qualified enterprises going global, making overseas investments, conducting international business in conformance with general international practices, and establishing processing centres, marketing and service networks and R&D centres in other countries.”

6. Building a harmonious society. • ICTs in providing access to services and opportunities • ICTs in building up military capacity

Implications for Telecoms & ICTs

• Telecoms occupy a central place within ICTs = strategically important industry • Does this make Govt/MII reluctant to open up to FDI? • MII vs. SARFT vs. Provincial Govts vs. etc…= turf battles • Independent Telecoms regulator – role of MII? Converged regulator?

• Government policy to promote patents and home grown standards • TD-SCDMA, WAPI, AVS, EVD, IGRS, RFID, etc • Problems with WTO Non-Tariff Barriers to Trade • Problems of inter-operability • Problems of going global

13 Implications for Telecoms & ICTs • Going global – • ICT equipment companies like telecoms equipment co’s Huawei, ZTE,

• Strategic objectives • Win portfolio of contracts in third country markets (developing countries) • Enhance IP portfolio through R&D/innovation – e.g. 4G, IPv6, NFC, etc. • Enter the heartland of top tier carrier markets

Implications for Telecoms & ICTs • Going global – • Telecom service providers cash-rich China Telecom and China Mobile (owns Peoples Phone in HK) looking for overseas investments

• Two strategic objectives • Serve business or high-value customers when they go overseas • Invest in overseas markets

• Serving international customers • China Telecom and China Netcom too inexperienced to compete effectively against AT&T, BT, DT, FT, NTT, etc • Need foreign partners to break into third country markets – could this lead to alliances that work backwards into the China market?

14 Trying to Go Global • China Telecom • Cash rich incumbent but with Universal Service Obligation • Following IPO in 2002, launched CN2 (NGN) in the US and Canada (HQ in Virginia and 4 regional offices in US) – competitive in IPLCs • Unsuccessful bid in 2003 by Shanghai Telecom via local company Optis (ST owns 6%) to get operating license in South Africa • CT withdrew from bid in 2004 for Indonesia’s cellular operator Excelcomindo • CT leased trans-Atlantic capacity from BT and DT in 2003 and opened London office to serve overseas Chinese business

• China Mobile • Highly profitable and cash rich and in line for 3G • 2000 IPO in Hong Kong – Vodafone buys 3.3% • Series of unsuccessful overseas investment bids, e.g.. Uzbekistan Telecom in 2004, share of Pakistan Telecom in 2005, Reliance Telecom (cellular operator in India) in 2005 • 2006 CM buys People’s Phone (HK) – already owned by Mainland China interests (China Resources) • 2006 just missed buying Millicom International Cellular – would have opened IndoChina market • 2006 acquired 19.9% of Phoenix Satellite TV from STAR TV

Trying to Go Global

• China Netcom • CNC and Softbank (Japan) purchased Asia Global Crossing as a distressed asset, renamed ANC • 2004 CNC IPO • 2005 CNC acquired 20% PCCW (HK) and formed alliance with PCCW’s Cascade to market IT and SI services in Mainland China • 2005 sold shareholding in loss-making ANC and folded its international operations back into CNC • 2005 Telefonica (Spain) bought 5% CNC (increased to c.10% 2006) due to CNC in line for a 3G licence?

• China Unicom • Too small and insufficient cash to venture overseas? • 1990s > 20 China-China-Foreign JVs (Zhong-Zhong-Wai) closed down by MII pressure • 2000-2002 various collaborations with SK Telecom around CDMA and wireless Internet service JV “UNISK” • 2006 SKT to buy US$1 billion convertible bonds equivalent to 6.7% of CU • 2003 Unicom-BREW Wireless Technologies JV with Qualcomm • 2004 CU consulting agreement with POSTelecom of Romania • Warner Music agreement to sell music to cellphone users in China • 2006 CU awarded 3G in Macau and invests US$12.5 m in CDMA network

15 Conclusions • China is genuinely in transition, but most evidently through a relatively small number of potentially global companies • State support is never far removed – but going global will reduce influence of the state? • Larger companies are encountering their own IPRs problems • Role of national technology standards is ambiguous, but will build up R&D competence

• China’s consumer markets (home construction + consumerism) are booming (follows policy shifts of mid-1990s under Zhu Rongji) • Feeds demand for consumer electronics and telecom services, but scale economies B thin margins and consolidation (adds to the NPL problem?) • Foreign brands (e.g. mobile phones) remain more sophisticated • Telecom services markets especially remain mostly closed to foreign participation – e.g. foreign owned backhaul to serve multinational clients not possible

• China’s business markets are mostly under-developed • Large potential market for networked products, but is likely generally to be long slow growth • If new generation of management effectively challenge hierarchical practices, 11th 5-Year Plan directives to innovate may be realized – but what role does this leave for the Party? (Recruit/create the new managerial class?)