Announcement of the World Bank's First Telecommunications Project to China to Increase Competition in its Telecommunications Sector on December 22, 1993

FOR IMMEDIATE RELEASE _oWorld Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.* Telephone: (202) 477-1234 News Release No. 4/48EAP Contact: Erin Burns (202)458-2210 External Affairs EAPVP China to Increase Competition in its Telecommunications Sector Washington, D.C., December 22, 1993 ---A Chinese policy action plan to restructure the telecommunications sector will make it more competitive and market-oriented. The reforms are designed to help meet the country's telecommunications needs, which are overwhelming current growth of over 20 percent a year in the system. A World Bank loan of $250 million will help finance a $623 million telecommunications project. The project will support the Government's policy reform initiatives in the sector and help finance investments to increase long distance and local telephone capacity in selected parts of the country. China's telephone system grew Local Telephone Lines in China at about 12 percent a year through the 1980s and accelerated to over 20 percent a year in the 1990s. According to Peter Wright, a World Bank telecommunications engineer 2 . . 5 working on the project "China has 5 9.23- shown dramatic, unprecedented N.fi4hs -7.iLi growth in telecommunications which, 1988 1989 1990 1991 1992 1993 1995 1997 if it continues, will make the sector a case study in growth by the year (Note: 1988-92 repmntw actualfigures 1993-97 ar Govemment argets) 2000." Yet this growth has not been able to keep pace with demand. The number of long distance calls in the country grew by 42.4 percent from 1989 through 1992. And even given the relatively high cost of telephone installation in China, there are 1.6 million people who have applied for service, but not yet received it. According to Alberto Cruzat, telecommunications finance specialist at the World Bank, "China is, right now, by far the largest telecommunications market in the world." Recognizing the strategic importance of telecommunications to development, the Chinese Government is embarked on a program to expand and improve telecommunications in the country. The government has planned investments of about $25 billion for the sector between now and 1997. Central to this program, which has been ongoing since 1988, is the restructuring of the Ministry of Posts & Telecommunications (MPT) and developing competition in the sector. The just approved project includes "practical steps to create a more competitive, market- oriented telecommunications sector," Mr. Cruzat said. These include reform of the accounting and pricing systems and the establishment of a legal and regulatory framework to guide competition and investment in the sector. Policy Improvements will be Nation-wide The new accounting system will follow international accounting principles and practices "suitable to'a market-oriented economy," according to Mr. Cruzat. "They will more accurately reflect the enterprises' financial position and performance." Country-wide implementation of the new system will begin with a one year pilot phase in Jiangsu and Liaoning Provinces. In all, about 25,000 Post & Telecommunications Enterprise (P&T) employees will be trained to implement the system. China is bearing the full cost of employee training, which is not reflected in project cost estimates. At the same time, MPT will review the country's telecommunications pricing system and prepare a plan and timetable to change prices and price management. The project will finance access to experts in the areas of cost analysis, price management and telecommunications pricing. MPT will also prepare a draft telecommunications law and regulatory framework to determine aspects of competition and ownership in the sector. An investment component of the project will expand long distance service and local phone service in parts of the country. A 2,084 km fiber optic cable in the north will link Beijing, Hebei, Inner Mongolia, Ningxia and Gansu. While in the south, a second cable of 4,461 km will link the Provinces of Zhejiang, Fujian, Jiangxi, Hunan, Guizhou and Sichuan. Local telephone lines will also be provided to the Provinces of Heilongjiang, Liaoning and Jiangsu. Altogether, about 920,000 lines will be added to service these three provinces. According to Mr. Wright, "China's provinces recognize the need for telecommunications in order to attract manufacturing and service industry investments." This is the Bank's first telecommunications Project Financing Plan project in China, although certain railway projects in MPT and the past have involved telecommunications PTAs components. The total cost of the project is $623 million. MPT and the Posts and Telecommunication Administration (PTA) are providing $371.7 million in project financing, while the Swedish Board for World Bank Investments and Technical Support (BITS) is Swedish BITS providing $1.3 million to support the policy reform .2% aspects of the project. The Bank loan is extended for 20 years, including five years of grace, at the Bank's standard variable interest rate, currently 7.43 percent. IMoney figures are expressed in U.S. dollar equivalent. 2/.