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A 21st century Chinese puzzle: how to hear a billion people

The Chinese government has unveiled grand plans to take the telephone to every village by 2010. The majority already have fixed land-line telephones, but the cost of connecting the remaining ten per cent – most of them in remote areas – will be huge.

"A telephone in every village?" Chen Guangming, a 60-year-old government chronicler of events in Taoyuan county, central China, sounded somewhat unimpressed. For him, this is old news – seven years old in fact.

As Chen points out, nearly 90 per cent of Chinese villages are already connected by telephone – including those in Taoyuan.

Taoyuan has come a long way since becoming the subject of a famous prose-poem book – Peach Blossom Shangri-la – by the poet Tao Yuanming (365-427 AD). Then it was described as a tiny, concealed village only connected to the rest of China by a long and narrow tunnel that had been discovered accidentally by a wandering fisherman.

These days Taoyuan is a fully-fledged county with a population of close to a million – rather better connected to the world outside, courtesy of telephones.

"The target of power grid into every village was achieved in 1996, and the move was followed by telephone and TV in 1997," Chen reeled off when reached by Panos Features (by telephone, of course), citing them as the milestones in China's social development.

What Chen did not mention is that the remaining 10 per cent add up to a whopping 80,000 villages that are yet to be connected by phone in the world's most populous country. These villages are spread all over this vast country, but western China – the poorest region in China – alone accounts for 60 per cent.

Worried by the gap the government launched a 'Telephone Into Every Village' campaign in March. The idea is to raise fixed-line telephone coverage from 90 to 95 per cent by the end of 2005, and achieve total coverage (or universal service) by 2010, when – in theory at least – an astonishing 1.3 billion people could be reached by telephone.

The project itself is a part of a package of services – including post, power, road and telecommunication – for farmers and other rural inhabitants, aimed at narrowing a social and economic gap that is opening up between villages and cities across China.

Average annual earnings in the more advanced coastal areas such as the Yangtze River Delta around the bustling city of Shanghai top US$2,070, but in impoverished central and western China, the figure can drop to $720 or less. The free flow of information and goods, which spurred the development of television channels, telecommunications and road-building in the late 1990s, is seen as the first step towards helping correct this imbalance.

With farmers accounting for nearly 62 per cent of the population, this issue has become a priority for the ruling Communist Party – poor rural IT services are an obstacle to former President Jiang Zemin's stated goal of building "a well-off society in an all-round way".

No one doubts the enormity of the task. With many villages located in difficult terrain, the task of providing connectivity to every village comes with a ridiculously high price tag: analysts say billions of dollars in government subsidy may have to be forked out for infrastructure development and maintenance.

However, the goal of fostering social equity has wide support – one reason why the debate on universal service has focused more on how to make it work rather than challenging the very concept of it. As in many other countries, discussions in China today centre around who has the primary responsibility of providing telecommunication services in villages: the state, private companies or both. The challenge is to deliver an egalitarian idea in a competitive market-driven environment.

So far, the common practice has been to promote universal service through 'cross subsidy' – siphoning off monopoly profits from the more developed regions and investing them in poorer areas with a little bit of government prodding. Taoyuan was one such underdeveloped area to benefit.

"The first telephone in my office was installed in 1985 with a 3,200 yuan ($390) one-off connection fee," Chen recalled. The first residential telephone in his town – also called Taoyuan – was installed in 1995 at cost to the household of 2,200 yuan ($265). The second one in 1999 cost 1,000 yuan ($120).

"Now," Chen said proudly, "… no entrance fee. You just pay 300 yuan ($36) for the service and you get a free telephone." Approximately half the population in the town today owns a telephone – the same as the national average.

The rapid development of the Chinese economy has seen the number of telephone subscribers jump from 100 million in 1998 to some 600 million in August 2004 (for both fixed-line and mobile phones), according to the information industry ministry.

Some analysts argue universal service is not incompatible with the market. First, there is the growing rural market itself. Although surveys show that information exchange within villages is limited (villagers tend to make only emergency calls), a growing agricultural economy is netting more and more business. Access to the internet, for instance, has made the Chinese agriculture ministry's website the second most popular farming viewing in the world after the US Department of Agriculture website.

Secondly, there is a growing market that, paradoxically, has spun out of the rural-urban divide: the vast movement of people migrating from villages to towns and cities has created a spurt in demand for telecom services.

With the easy availability of telephones in towns migrants no longer have to depend on cumbersome telegrams to send messages back to the village (one that became a popular national joke some years ago went: "Foolish people, easy money, just come"). Now such invites are presumably relayed by telephone.

None of this, analysts say, could have happened without the process of reform that was set in motion in the late 1990s – aimed at increasing efficiency through competition and tapping the overseas financial market for more capital for IT development.

Before the reforms, the market was monopolised by China Telecom, a private company headed by a deputy minister, which took the responsibility of universal service. The company was broken up in 1999 and by the end of 2001, six operators were at play – China Telecom, China Netcom, China Mobile, China Unicom, China Satellite and China Railcom.

All six are state-controlled stock companies, but none has a market share of over 50 per cent – a sign of how competitive the market is today.

While an obvious advantage to consumers has been low charges, (among the lowest in the world at less than 1.5 pence for the first three minutes), the downside of competition is that firms tend to ignore rural areas, viewing them as unprofitable. As a result, the government has decided to step in more directly and given each of the six operators a province in which to implement a pilot universal service project.

Some minimum standards have been set: at least two telephones in every village, one of which must be a public service phone with someone on duty at all times; the tariff must be competitive in order to make the service affordable to poor farmers.

If the experiment works, all 31 provinces of China will be included. But already, some experts are expressing doubts. "This is just a show – any breakthrough will be difficult," IT market analyst Li Lina said, questioning the effectiveness of state intervention.

"Commercial companies, whose main motive is to make profits, would rather seek out more consumers to join their current networks than invest billions to extend the network or build new ones," Li added.

The government says that this is just a temporary step, the long-term goal being to set up a universal service fund. But economist Hu Angan, a government adviser on economic and social development issues, says the government is going about it the wrong way – it should first establish the fund.

He suggests imposing a levy on companies and thinks the money won't be hard to find: even if companies only pool in only 1.5 per cent of their revenues into the fund, it will translate to 50 billion yuan (more than $6 b) from 2004-2008. And as the telecoms industry takes in high profits, he thinks the minimum contribution should be 5 per cent of revenues, going up to 10 per cent for the high earners.

Totting up the cost of networking remote rural areas, setting a definite objective and defining the service range are the three issues that the government is grappling with at the moment.

Equally important, some analysts say, is the question of who will end up taking control of a universal service: a long-running turf battle between the finance ministry and the information industry ministry (which controls IT) has made the universal service project something of a political hot potato. At the same time China cannot afford to wait indefinitely for ministries to sort out their wrangles: the stage-one deadline of 2005 looms large.

Lin Wei is a former Xinhua News Agency journalist and Chen Min works for Internet Weekly, a business magazine.

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11/03/2004

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