Anti-Competitive Behaviors in Managed Competition: The Case of China’s Telecommunications Industry

Abstract

The Chinese telecommunications industry has attracted considerable interest in recent years. Much of this interest has, however, focused on issues such as the growth of the industry, its structure or how it is regulated. The anticompetitive behavior of incumbents, however, has largely been overlooked. This article addresses this oversight by focusing on the incumbents' suspected anti-competitive behaviors within the Chinese broadband telecommunications market. In doing so, the key role of the June 2001 Circular in shaping operator behaviors within the broadband telecommunications market is highlighted. From the analysis it is clear that the incentive of anticompetitive behaviors exists in the Chinese broadband market structure that was created through restructuring and June 2001 Circular, and that anti-competitive strategic behaviors of the incumbents are suspected to have occurred. The Chinese government does not have at its disposal, or has not implemented, measures to counter or deter this type of behavior.

Inside China’s state-owned enterprises: Managed competition through a multi-level structure

“…During this period, industry-wide umbrella SOEs were formed to provide a degree of coordination across production units but were also seen as another unnecessary layer of bureaucracy (Li, 2015: 49–56). Another forerunner was the “group company system” (Hassard et al, 1999, 2010; Meyer and Lu, 2005; Morris et al, 2002), also known as “enterprise groups” ( qiye jituan ) (Nolan, 2001a, 2001b; Nolan and Wang, 1999; Wu, 1990), that began in the steel industry in the early 1990s. These enterprise groups consisted of a parent SOE and a set of subsidiaries that were “connected through capital” (Nolan and Wang, 1999).…”

“…In some cases, the persistent dominance of one SOE over other competitors may be the result of legacy decisions by state regulators. China Mobile's dominance in the domestic telecom market stemmed in part from its inheritance of mobile communication assets during the transition from fixed-line to cellular telecommunications services (Liu and Whalley, 2011;Zhang and Liang, 2011). In other cases, industry structure may be the result of fragmented interests among state regulators.…”

Evaluating telecommunications efficiency in China with data envelopment analysis

“…This reform put these three companies under a single regulation of MII (Li, 2009;Liu and Whalley, 2011;Zheng and Ward, 2011). The first reform period began to undertake reforms to change the monopoly structure.…”

“…Still, China telecom continued to have a near monopoly on fixed services, by far the dominant form of subscription at the time (Li, 2009;Liu and Whalley, 2011;Zheng and Ward, 2011). In the 2000 reform, a new telecommunications configuration was introduced by splitting China telecom into three state owned companies and reinvigorating China Unicom.…”

“…Interestingly, not all of these were present in all possible lines of business, with the consequence being that markets were regional near-monopolies in the fixed line market and nationwide duopolies in the mobile sector (Li, 2009;Liu and Whalley, 2011;Zheng and Ward, 2011). China Telecom was geographically separated: China Telecom Northern and China Telecom Southern were both permitted to operate mobile and fixed line services.…”