Sasser Writes Home About The Chinese Army



SUBJECT:  CHINA:  MILITARY AND POWERFUL TELECOM MINISTRY FORGE
          CLOSER LINKS

1.  SUMMARY.  THE PEOPLE'S LIBERATION ARMY IS FORGING CLOSE TIES
WITH CHINA'S POWERFUL MINISTRY OF POSTS AND TELECOMMUNICATIONS.
THE DEVELOPING ALLIANCE, A RESULT OF THE PLA'S CONTROL OVER A
SIZABLE PORTION OF THE RADIO FREQUENCIES USED IN CELLULAR
COMMUNICATIONS, COULD EVENTUALLY CREATE A THIRD NATIONWIDE
CELLULAR CARRIER.  ALBEIT ONE IN WHICH THE MPT WOULD PLAY A
MAJOR ROLE.  CURRENTLY, THE MPT AND CHINA UNICOM, CREATED IN
1994 IN AN ATTEMPT TO INJECT COMPETITION INTO THE
TELECOMMUNICATIONS SECTOR, ARE THE TWO NATIONAL CARRIERS.  THE
PLA AND MPT ARE CURRENTLY LAYING THE GROUNDWORK FOR A MOBILE
PHONE NETWORK THAT WILL CALLED THE GREAT WALL NETWORK, AND WILL
PROBABLY USE AND ADVANCED DIGITAL STANDARD CALLED "CODE DIVISION
MULTIPLE ACCESS" (CDMA).  BOTH THE MPT AND PLA ARE KEEPING
DETAILS OF THE PROJECT UNDER WRAPS.  THE RELATIONSHIP BETWEEN
THE TWO GIANTS HAS GROWN CLOSE AS A RESULT OF THE PLA'S CONTROL
OVER ONE THIRD OF THE FREQUENCIES USED FOR MOBILE
COMMUNICATIONS, AND BECAUSE OF THE GROWING ROLE OF PLA WORK
CREWS IN ASSISTING THE MPT TO LAY FIBER OPTIC CABLE TRUNK LINES
THROUGHOUT THE COUNTRY.  FOREIGN INVESTORS ARE ALREADY
CONSIDERING FINANCIAL BACKING FOR THE NEW ENTITY, WHICH IS
LIKELY WITHIN THE NEXT YEAR TO BECOME A MAJOR PLAYER IN THE
TELECOM SECTOR IN CHINA.  END SUMMARY.

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MPT:  PLA RELATIONSHIP:  THE BACKGROUND
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2.  THE MILITARY COMMUNICATIONS DEPARTMENT OF THE PEOPLE'S
LIBERATION ARMY HAS BEEN DEVELOPING A CLOSE RELATIONSHIP WITH
THE MINISTRY OF POSTS AND TELECOMMUNICATIONS OVER THE PAST
SEVERAL YEARS.  IN RECENT MEETINGS WITH INDUSTRY OBSERVERS AND
CHINESE OFFICIALS, ECONOFF DISCUSSED HOW THE PLA AND MPT HAVE
MOVED CLOSE ENOUGH TO CONSIDER LAUNCHING A NEW NATIONWIDE
COMMUNICATIONS NETWORK.  ORIGINALLY, THE PLA WAS PART OF THE
GROUP OF SHAREHOLDERS THAT BACKED THE FORMATION OF CHINA UNICOM,
OR LIANTONG, THE MPT'S CURRENT RIVAL IN THE LONG DISTANCE AND
MOBILE TELECOMMUNICATIONS MARKET.  CHINA'S CENTRAL MILITARY
COMMISSION VETOED THE PLA'S PARTICIPATION AS A UNICOM
SHAREHOLDER, ACCORDING TO UNICOM OFFICIALS.

3.  THE PLA HAS FOR SOME TIME BEEN DISCUSSING WITH THE MPT THE
POSSIBILITY OF USING FREQUENCIES ALLOCATED TO THE PLA FOR
ESTABLISHING A MOBILE PHONE NETWORK BASED ON CODE DIVISION
MULTIPLE ACCESS (CDMA) TECHNOLOGY.  CDMA IS THE LATEST U.S.
DIGITAL STANDARD.  IT PROVIDES HIGHER CAPACITY GAINS OVER
CURRENT ANALOG SYSTEMS THAN THE GLOBAL SYSTEM FOR MOBILE
COMMUNICATIONS (GSM), THE MAIN EUROPEAN STANDARD CURRENTLY BEING
IMPLEMENTED BY THE MPT AND UNICOM.  THE ISSUE OF EFFICIENCY IS
CRUCIAL, BECAUSE THE CENTRAL GOVERNMENT HAS ALLOCATED THE
MILITARY ONE THIRD OF AVAILABLE RADIO FREQUENCIES.  ONE THIRD
PORTIONS WERE ALLOCATED TO THE CENTRAL GOVERNMENT AND LOCAL
GOVERNMENTS.  THE MPT HAS BEEN COURTING THE MILITARY BECAUSE
CENTRAL AND LOCAL ORGANIZATIONS HAVE USED UP MUCH OF THE
AVAILABLE FREQUENCIES BANDS FOR A VARIETY OF COMMUNICATIONS
SYSTEMS.  FOR EXAMPLE, MOST MPT CELLULAR CUSTOMERS USE LESS
EFFICIENT ANALOG SYSTEMS.  WHILE THE MPT BEGAN ESTABLISHING
NETWORKS USING THE GSM STANDARD AFTER UNICOM WENT WITH GSM.  THE
MINISTRY QUICKLY REALIZED THAT CDMA WILL BE THE MORE IMPORTANT
TECHNOLOGY BECAUSE IT ALLOWS FOR FEWER CELL SITES TO ACHIEVE THE
SAME COVERAGE.

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PASS OUT THE SHOVELS:  PLA ASSISTS MPT WITH CABLE LAYING
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4.  THE MILITARY ALSO HAS ASSISTED THE MPT WITH MANY
TELECOMMUNICATIONS RELATED PROJECTS.  FOR EXAMPLE, IN LAYING
LONG DISTANCE FIBER OPTIC LINES FOR THE MPT'S TELEPHONE AND
DIGITAL NETWORK, THE PLA HAS PROVIDED SOLDIERS TO DO MUCH OF THE
WORK.  THE PLA CADRES ARE CONSIDERED DISCIPLINED AND HARD
WORKING.  ONCE THE CABLE HAS BEEN LAID, THE MPT TYPICALLY
ALLOCATES SOME OF THE BANDWIDTH TO THE PLA.  THE PLA AND MPT
HAVE ALSO ESTABLISHED A NUMBER OF JOINT COOPERATIVE ENTERPRISES.
PRIOR TO THE DEVELOPMENT OF THIS CLOSE COOPERATION, THE MPT HAD
MANY REGULATIONS IN PLACE TO LIMIT PLA INVOLVEMENT IN THE
DEVELOPMENT OF PRIVATE COMMUNICATIONS NETWORKS.  THESE
REGULATIONS REMAIN IN PLACE, HENCE IT IS DIFFICULT TO DETERMINE
HOW THE PLA WILL OFFER SERVICES TO THE PUBLIC.

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MPT HOPING TO PLAY PLA CARD
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5.  PRIOR TO THE ESTABLISHMENT OF UNICOM, THE MPT HOPED TO
ESTABLISH COOPERATIVE RELATIONSHIPS WITH THE MAJOR BACKERS OF
THE NEW CORPORATION:  THE MINISTRY OF RAILWAYS (MOR) AND THE
MINISTRY OF ELECTRIC POWER (MOEP).  BECAUSE BOTH OF THESE
MINISTRIES HAVE THEIR OWN EXTENSIVE TELECOMMUNICATIONS NETWORKS.
BY COOPERATING WITH THE MILITARY, THE MPT WANTS TO DEMONSTRATE
TO THE MOR AND MOEP THAT IT CAN COOPERATE WITH OTHER GOVERNMENT
DEPARTMENTS.  ACCORDING TO UNICOM OFFICIALS, ONLY THE MORE AND
MOEP HAVE NETWORKS THAT COVER THE WHOLE NATION.  THERE ARE A
TOTAL OF AROUND 30 PRIVATE NETWORKS, MOST OF WHICH COVER ONLY
THE AREAS FOR WHICH A PARTICULAR MINISTRY IS RESPONSIBLE.  FOR
EXAMPLE, THE MINISTRY OF COAL'S NETWORK COVERS ONLY AREAS WITH
SUBSTANTIAL COAL RESERVES, AND THE CHINA NATIONAL PETROLEUM
CORPORATION (CNPC) HAS A NETWORK THAT PRIMARILY COVER THE
NORTHEASTERN AND COASTAL PROVINCES, WHERE MOST OF ITS OIL
RESERVES ARE FOUND.

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COMMENT
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6.  WHILE AN MPT OFFICIAL DID ACKNOWLEDGE IN MAY THAT THE PLA IS
WORKING TO ESTABLISH THE SO-CALLED GREAT WALL NETWORK WITH THE
MINISTRY, THE NATURE OF THIS ENTITY IS THE SUBJECT OF SOME
DEBATE WITHIN TELECOMMUNICATIONS CIRCLES.  IT IS POSSIBLE THAT
THE MILITARY COULD OPERATE A NETWORK AND PROVIDE SERVICES UNDER
THE MPT SIGN BOARD.  THE PLA IS ALREADY INVOLVED IN
TELECOMMUNICATIONS IN A NUMBER OF OTHER AREAS, SUCH AS EQUIPMENT
MANUFACTURING.  IN ADDITION, THE PLA IS PROBABLY INVOLVED IN
OPERATION OF SOME NETWORKS, PARTICULARLY IN SOUTHERN CHINA.

7.  THE FORMATION OF THE NEW CELLULAR COMPANY MAY ALSO HAVE TO
BE PUT OFF UNTIL THE DRAFTING OF THE NEW TELECOMMUNICATIONS LAW,
WHICH SOME CHINESE OFFICIALS HAVE INDICATED IS NOW ON A FAST
TRACK.  ONE REASON THE LAW HAS BEEN SO LONG IN THE DRAFTING
STAGE  -- WORK WAS BEGUN IN 1986 -- IS THAT THE MPT DID THE
FIRST DRAFT.  MANY GOVERNMENT DEPARTMENTS REJECTED THE MPT'S
INITIAL WORK ON THE LAW.  NOW, WITH MANY NEW PLAYERS EMERGING IN
THE BASIC TELECOMMUNICATIONS AND VALUE-ADDED COMMUNICATIONS
SECTOR, INCLUDING ORGANIZATIONS SUCH AS UNICOM AND THE PLA, THE
TASK OF DRAFTING A LAW HAS BECOME MUCH MORE COMPLEX.

8.  ALREADY, FOREIGN COMPANIES ARE INTERESTED IN THE NEW
PLA-BACKED ENTITY THAT IS LIKELY TO EMERGE OVER THE NEXT YEAR.
RECENT PRESS REPORTS INDICATE THAT HUTCHINSON WAMPOA MAY BE
INVOLVED IN DISCUSSIONS WITH THE PLA ABOUT POSSIBLE FUNDING
OPTIONS.  THE PLA'S CONTROL OF SUCH A LARGE CHUNK OF UNUSED
RADIO FREQUENCIES AND ITS ALLIANCE WITH THE MPT ENSURE THAT
WHATEVER ENTITY IS FORMED WILL BE A MAJOR PLAYER IN THE TELECOM
SECTOR.  

SASSER


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