By DING WENXIN

WERE it not for the WTO, the year 2001 would have had no special significance for the Chinese economy, which saw no turning point and few new reform measures that year.

However, 2001 was indeed a special year -- one of suspense amid stability, and all due to the WTO.

Only when the terms for entering the WTO were finally made known did the public come to know exactly "what China will gain and lose." Those who try to look beyond to the "post-WTO" era with help of various data, however, forget or intentionally ignore the fact that China's entry into the WTO was a comprehensive decision, and not one limited to economic factors. If the consequences of China's entry were to be judged solely according to changes in the market share it occupies, this would have obviated the need for the decade or so China has taken to accomplish this goal.

The sounding of the hammer in Doha does not signal the ending, but rather the beginning of the "suspense of entering the WTO." It will take three to five years to see the exact consequences of this move. Will the WTO prove to be of great advantage to China, or will we be defeated by it? Many Chinese enterprises and trades are faced with this seesaw of possibility.

Structural Reorganization

The idea that China first began to deal with the challenges posed by the WTO in 2001 is a misconception. Several years previously, certain reform measures had already been taken, particularly within certain major industries, such as agriculture, finance (banking, insurance, securities), the automobile industry, and telecommunications.

The significance of announcing the plan to segment and reorganize China's telecommunications industry is not, therefore, the ultimate realization of a long-drawn reform. In my opinion, it heralds a whole series of reform plans. These plans have the common characteristic of cultivating vigorous market competition through readjustment within industry, and their purpose is to promote the development of various industries, as well as to help absorb the inevitable economic impact that will occur when overseas firms enter the Chinese market. In the coming years, the terms "segmentation" and "reorganization" will be the most frequently used and closely associated with the "WTO."

Disappearance of a "Dinosaur"

On December 11, 2001, the first day of China's entry into the WTO, the plan to segment China Telecom was announced. This was the second plan of its kind since 2000, and even more stringent. It entails China Telecom's capital and equipment in 10 northern provinces merging with two other Chinese telecommunications enterprises (China Netcom Corporation Ltd., and China Jitong Netcom Corporation Ltd.), to form the China Network Communications Group Company (China Netcom). China Telecom's southern entities will be reorganized into a new company that will retain the name "China Telecom Group Company." This means that six powerful telecommunications enterprises (the other four being China Mobile, China Unicom, China Railcom and ChinaSat) will form a new competitive matrix, and a large proportion of capital and equipment will be reallocated from the original China Telecom to other telecom enterprises.

The Ministry of the Information Industry is carrying out the segmenting operation, and since February, the reorganized companies have begun to appear one by one.

Within this operation, two principles are followed. First, 30 percent of the national long-distance telecommunication network will be reallocated from the original China Telecom to China Netcom. Second, the local telecommunications network in ten northern provinces will also be reallocated from the original China Telecom to China Netwcom. The new China Telecom is to retain local networks in 21 provinces in the south and the west.

After the reorganization, China will have four telecommunications enterprises providing comprehensive telecom services. It is predicted that two years from now they will have obtained licenses for various kinds of telecom services. Moreover, the advantage China Telecom had over other companies will be greatly reduced, so that fair competition can be conducted among the various telecom enterprises.

Like China Telecom, some other "dinosaurs" -- super-large enterprises lacking vitality and competitive power -- will gradually disappear, and be subdivided into smaller enterprises that will compete with one another.

Segmentation Brings Prosperity

When recalling the changes of the past few years, the determination of the Chinese government to transform the telecommunications industry is plain to see, as are the results it has achieved. In 1998, the segmentation of China Telecom, known as the "dinosaur," began to be discussed. At that time, this company monopolized almost all telecommunications business, such as fixed and mobile telephones, satellite communications and paging services. Consequently there were frequent complaints of poor service and inadequate supplies.

In 2000, after due preparation, the first segmentation of China Telecom was successfully accomplished. Mobile and satellite communications and paging services were separated from China Telecom, and after the establishment and development of several new telecommunications enterprises, a more competitive atmosphere became apparent in the industry.

Consumers soon became aware of the benefits of market competition. They saw the price of mobile and fixed communications, and access to the Internet steadily drop. In 2001, a price war was waged among various enterprises, and discount telephone cards and telecommunications advertising became a common phenomenon. That year, there were news reports every now and then of certain enterprises criticizing their counterparts for their ruthlessly competitive price-cutting tactics, which was a matter for mediation by the relevant government department, something hitherto unheard of.

Some analysts predict that once the reorganization of telecommunications enterprises is complete, the prices of various telecommunications services will fall even faster, and in the wake of such reductions, the rate of development in China's telecommunications industry will redouble.

Meeting the Challenge

China's entry into the WTO has brought both opportunities and pressure, and to China's telecommunications industry, pressure is currently the overriding factor. According to experts, China must make detailed preparation if it is to reduce the impact of a huge influx of foreign capital. One requirement is to do away with monopolies, and revitalize Chinese enterprises through market competition; the other is to make Chinese enterprises as powerful as their foreign counterparts.

The reorganization of China's telecommunications industry has been carried out according to this train of thought. After China Telecom, with fixed assets of 600 billion yuan, was segmented, its assets and resources were shifted to other weaker enterprises, killing two birds with one stone.

This reorganization has also paved the way for absorption of foreign capital. A lack of funds has always been the main obstacle to the development of China's telecommunications industry, but owing to its sensitivity, the Chinese government has exercised caution in absorbing foreign capital into this industry. There is now a way to solve this conflict, as China's entry into the WTO signals the Chinese government's assent to foreign capital entering China's telecommunications industry. Furthermore, the increased clout of the smaller telecommunications enterprises has reduced the risks involved in absorbing foreign capital, and thus created a "win-win" situation, as both foreign and Chinese enterprises have gained a broader capacity for development. Currently two Chinese telecommunications enterprises, China Unicom and China Mobile, have been listed on the overseas stock market. On December 11, 2001, the Ministry of Information Industry announced the abolition of two statutes that restricted the entry of foreign capital into Chinese telecommunications industry. A few days later, the new Regulations on the Management of Foreign Investment in Telecommunications Enterprises were issued -- the first batch of revised statutes to accord with the articles of the WTO.

This speed of change is beyond the expectations of the majority of people. It signifies that the Chinese government has kept its promise to open the telecommunications market to foreign firms, and indicates the readiness of the Chinese telecom enterprises for the WTO.

In the Name of the WTO

In China, it is not only the telecommunications industry that faces a huge impact from the country's entry into WTO, and neither is it the only industry that is changing.

For a number of years, many economic reform measures have been incorporated into China's WTO entry. One widely held opinion has been, "Without reform, it is impossible for China to enter into the WTO," its implication being that reforms have been purely for the purpose of entering the WTO. This is ill conceived. Although China's entry into the WTO will bring great challenges to the Chinese economy, they can and will be met. In the process of reform and opening over the past two decades, great changes have taken place. Foreign-funded enterprises and the non-public sector each occupy one third of the market share, and the road to the market economy is now irreversible. It is therefore evident that these reforms have not merely been for purposes of entering the WTO.

In recent years, China's economic reform has deepened, and some sensitive industries, such as finance, telecommunications and core manufacturing, have opened to non-public enterprises and foreign capital. The Chinese economy is now geared to international norms as a matter of necessity. Whether or not China joins the WTO, these economic reforms are essential, but the WTO has nonetheless constituted motivation for them. In order to meet the coming challenges, various sectors have accelerated their pace of reform, and obstacles have been smoothed away.

For example, there was concern in some areas that the splitting of China Telecom would be to its detriment, especially in view of the practice in other countries, where enterprises are being expanded through merger. If not for the WTO entry, this point of view could well have become predominant.

The reality is that China Telecom is a dinosaur, huge but without vitality. Its segmentation will help cultivate the concept of market competition, which in its original state would have been impossible in the international market, as it would have wasted market resources, and obstructed the development of other enterprises.

This is the role the WTO plays. In the years to come, it will be not only the telecommunications industry that enters a new stage, but also, through reform and development, the entire Chinese economy.