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China Telecom Split in Two Entities - 2001-12-11

China is breaking up its dominant telephone company, China Telecom, into two smaller entities to increase competition. The announcement comes on China's first day as a member of the World Trade Organization.

The official Xinhua News Agency says the State Council, China's cabinet, approved plans to break the near-monopoly held by fixed-line phone company China Telecom. Xinhua said Tuesday that rival northern and southern companies will be set up to increase competition.

The move comes on the day China formally joins the World Trade Organization. It is part of a broad effort to liberalize one of the country's most promising sectors before foreign competitors are allowed in. Foreign Ministry Spokeswoman Zhang Qiyue says at a news conference Tuesday that "China's WTO entry is an inevitable result of China's economic opening and modernization." She also says "it provides a good opportunity for future market reforms." Ms. Zhang says that "at the same time, China faces a very serious and difficult task as it carries out its WTO obligations."

As a condition of its WTO membership, Beijing agreed to allow foreign operators to take up to a 50 percent share in some types of telecommunications companies two years from now. Fixed-line phone services will open more gradually to foreign competition, with foreign companies allowed a 49 percent share after six years.

Xinhua says that one of the two companies created by the break-up of China Telecom will merge with two other companies and will operate in the north.

That company will be called China Netcom. The other company keeps the name China Telecom and will operate in the south.