Zhang Chunjiang, vice-minister of Information Industry, said at a recent seminar that the government is encouraging small companies to enter the business of value-added telecom.

The detailed preferential rules are under final discussion by the ministry and will be issued soon, the official said.

The rules are expected to give the emerging companies a more friendly environment in which to operate and use overseas capital, according to sources close to the policy-makers.

Compared to the basic telecom services, which mainly refer to fixed-line and mobile phone calls, network construction and resource leasing, the value-added services are more suited for small firms that have relatively limited capital capability, Zhang said.

Value-added services, which include e-mail, online databases, Internet access and content providing, reported rapid growth recently under government encouragement.

China has seven basic telecom carriers, but the value-added operators have surpassed 1,000, according to the ministry.

Unlike the basic telecom services, which the government tightly controls to ensure that State-owned companies hold at least 51 per cent of the shares, the value-added services welcome money from any legalized companies, including those overseas once China enters the World Trade Organization, the official said.

Allowing more operators in the value-added business would attract more investment, talents and advanced technology to China, he said.

Industry insiders said this is a prelude for the opening up of the country's basic telecom sector.

Now the world's largest mobile and second-largest fixed-line telecom market, China is an ideal place for overseas equipment vendors and telecom operators.

But because of bureaucratic policies, they can only enter the Chinese telecom market in a roundabout way.

The market capacity of the basic telecom is much larger than that of the value-added business today. But soon, the value-added sector is expected to surpass the basic telecom, said Yang Peifang, a researcher with the China Academy of Telecommunications.

Yang said the coverage of the value-added telecom service would also be enlarged, with more former basic telecom services classified into the value-added sector like the wireless paging business.

The Ministry of Information Industry would encourage carriers to adopt more new technology and new businesses, according to Zhang.

The ministry recently opened the Internet access business in 13 cities for a free trial operation. That business will soon be launched in more Chinese cities to encourage competition in Internet access services.

The industry regulator also will ensure that the major basic telecom carriers providing equal services for the minor value-added providers are guaranteed a fair competitive marketplace, Zhang said.

At the same time, the official warned of the potential risk of unwise investments.

"The loosening control in the value-added business does not mean rich feedback is guaranteed,'' the official said.

Investors should avoid following others' steps by duplicating investment, he said.

(People's Daily 09/26/2001)