CIAO DATE: 04/01

The Diffusion of the Internet in China

William Foster
Seymour E. Goodman

The Center for International Security and Cooperation

November 2000

 

Executive Summary

China and the United States share a new and rapidly expanding border—the Internet. It is a border that neither country fully understands. The possibility for misunderstanding is great because the Internet is not only transforming the relationship between the two countries, it is also transforming the countries themselves. It could be argued that China is going through the greater change. Unlike the past where information was mediated by the State, the mass media, and the work unit, Chinese citizens with Internet connections and a command of English have unprecedented direct and immediate access to information and people around the world. Because of abundance of Chinese language content, Chinese who can only read Chinese still have access to a wealth of information. The Chinese government has imposed its own unique regime on the networks in China that connect to the Internet. Though the United States and China both participate in the Internet, the regimes that they use to govern their networks are very different.

The Internet is diffusing rapidly and extensively throughout China. Five thousand users in 1994 grew to over eight million by the end of 1999. Between January and July of 2000, that number grew from 8.9 million to 16.9 million. ₁ Although it is unlikely that the number of users will continue to nearly double every six months, if growth can be sustained at anywhere near half that level — a big “if” — in several years China will have more Internet users than any other country on earth. China’s leaders have chosen to accept and welcome the Internet because they see it as part of the path to becoming competitive in the global economy. Chinese President Jiang Zemin in a March 2000 speech urged Communist Party cadres to embrace the Net. Pointing to the Internet as the site of the Party’s next struggle, Jiang urged Party members to keep up with the technology. “Internet technology is going to change the international situation, military combat, production, culture, and economic aspects of our daily life significantly,” Jiang reportedly said. ₂

The question facing China is how to insure that the Chinese Communist Party (CCP) and the government stay in control of the Internet even as they use it to pursue the path of economic prosperity. Though the Ministry of Information Industry has continued to strengthen its position as the primary policy maker over the Internet, there are more than 20 Party and government organizations that see the Internet touching on their bureaucratic “turf”. In addition, there are interested government bodies at the provincial and local levels with complex relationships to the national Ministries. To further complicate matters, many of these bodies at the national as well as local level have economic interests in ventures directly related to the Internet. Over the past five years, various bodies of the Chinese government have issued many regulations as the government has sought to develop a regime for ordering the Internet.

The State Council decided in 1996 to allow only a few selected Ministries to be Interconnecting Networks with the capability of directly connecting to the global Internet. ₃ The Interconnecting Network regime allowed for competition between ISPs while imposing a hierarchical structure on what had the potential of being a more distributed network. The regime had its roots in the struggle between the former Ministry of Electronics Industries (MEI) and the Ministry of Posts and Telecommunications(MPT) for control over the Internet. Though MEI and MPT were ultimately merged into the Ministry of Information Industry (MII) in 1998, the Interconnecting Network regime survived and evolved. So far, China Telecom, the national telephone company, has used this regime and its control over both the local loop and long distance circuits to maintain its dominant position over Internet infrastructure.

During the late nineties, there was significant discussion both within MII and within other bodies such as the National Peoples Congress and the State Council about the merits of having more competition in the telecom sector. There were some who argued that China would best be served by having a strong China Telecom that could compete with the impending onslaught of foreign competitors. It was also argued that multiple backbones were inefficient. However, under a strategy known as “letting the sons compete,” MII and the State Council agreed to give Uninet and ChinaNetcom Interconnecting Network status. It also allowed them to join the State Owned Enterprise JiTong Corporation, operator of the China Golden Bridge Network, in competing with China Telecom in the provision of Voice Over Internet Protocol (VOIP) services. Under the WTO accession agreement negotiated with the United States, China agreed to open its telecommunications sector to foreign investment. However, MII Minister Wu Jichuan has made it clear that any investment must be in keeping with China’s regulatory environment for Internet Service Providers (ISPs) and Internet Content Providers (ICPs). Though the US Trade Representative believes that the provisions regarding international packet switching networks will allow ISPs to bypass the Interconnecting Networks, this is probably not Minister Wu’s position. The Interconnecting Network regime and the requirement that all international traffic transit an Interconnecting Network router may be so central to Chinese efforts to control the Internet that the West may not be able to negotiate around it. The Chinese government is setting up a hierarchy where only corporations in which the PRC government has a controlling interest are allowed into the top tier. Under this model foreigners are allowed to invest in these corporations but in a way that the Chinese government maintains the majority stakeholder position. MII points to China Telecom (Hong Kong) as an example of how they would like to see foreigners participate in telecommunications ventures. Unicom had a successful Initial Public Offering (IPO) on NASDAQ in June 2000 and China Netcom may follow in the fall. China Netcom, from the technology it has chosen to the way it rewards its management, has been set up in the hope of making it an ideal “state—owned” vehicle for Wall Street investment.

Foreign investment is introducing a wild card into the Chinese Internet game. On one hand, individuals and even government Ministries are captivated by this opportunity to use the US markets to fund deployment. On the other hand, many Chinese have an ambiguous attitude toward foreign ownership and control of infrastructure organizations dating to well before the days of gunboat diplomacy. American investors will inevitably push the US government to try and “level the playing field” in Chinese telecommunications as quickly as possible. Given the internal and security concerns of the Chinese government, the field will be leveled at best gradually.

 

Full Text of Paper (pdf)

 

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Endnotes

Note 1:   China Network Information Center, Semi—Annual Survey Report on Internet Development in China (2000.1 and 2000.7). Back.

Note 2:  Peter Lovelock, “MFC Internet Update — March 13, 2000,” Made for China available at http://www.madeforchina.com/update. Back.

Note 3:  The term Interconnecting Network” or hulian wangluo is used in the 1996 regulations. There is no widespread agreement on how to refer to these Chinese networks that have permission to connect to the global Internet. Sometimes the term is translated “InterLinked Networks”. Other times the term backbone networks is used. Others use the term Network Service Provider (NSP) as differentiated from an Internet Service Provider (ISP). Back.