China's latest half-hearted telecom reform

China is going through another of its occasional flirtations with telecom industry reform.

In this latest bout, the Ministry of Industry and Information Technology (MIIT) has called for pilot schemes of 100% foreign-owned data centers, ISPs and content distribution networks – all categorized as value-added telecom services because they rely on access to basic telecom infrastructure.

The ministry announced in April it would allow the trials in four locations – Beijing, Shenzhen, and the Shanghai and Hainan free trade ports. While that sounds restrictive, data centers and CDNs will be permitted to serve customers nationwide.

An opinion by law firm King & Wood Mallesons described the liberalization of data center ownership in particular as a “very strong” measure, although it cautioned that this was just the first step.

It also notes that these schemes are driven locally, so progress depends on the city or provincial regulator and the would-be participants.

Four months on, very little has happened. 

As far as we know, no foreign data center player has volunteered for the program. Data center is a hot sector, and given the scale of demand in China, it's certain that some foreign players have at least cast their eye over this.

Many uncertainties

On the other hand, given the many uncertainties about this scheme, and China's general antipathy toward non-Chinese participation in telecom, it's equally possible that no one is going to take the plunge. Not to mention that foreign investment in China overall is plumbing new depths.

In the meantime, there have been a couple more developments at the top. A major party economic planning meeting last month concluded with a call for "market-oriented reform of competitive links in industries such as energy, railways, telecommunications, water conservancy, and public utilities."

The MIIT responded with a long and non-specific statement about optimizing market access.

Two weeks ago the State Council issued a 20-step plan aimed at encouraging people to spend more in order to juice the flagging economy. Step 14 called for expanding the "opening up of the service industry and relax[ing] market access" in telecommunications and other sectors.

So there's clearly intent at the senior levels of government to open up these state-dominated markets, even if, as usual, there are no specifics.

But it's hard not to see MIIT's response as a bit of performative flag-flying.

From its point of view, and in the view of many in China – including the three giant state-owned telcos – MIIT has made China the world leader in 5G and telecom technologies generally through its model of a state-managed oligopoly. Additional competition from foreigners is nice to talk about, but not really necessary.