WASHINGTON-The Clinton administration may have misled American telecom firms by suggesting that problems created by Beijing’s ouster of wireless and wireline investors in China Unicom could be ironed out by year’s end as part of negotiations over China’s membership in the World Trade Organization.
But U.S. officials have long acknowledged that Chinese WTO entry this year is an iffy proposition. Indeed, most indications are that it will not happen in 1999. In the meantime, U.S. and foreign investors in Unicom find themselves dangling in the wind.
The Clinton administration, despite questionable efforts by Commerce Secretary William Daley and others, appears powerless to reverse a course of action by Communist China that likely will cost American investors hundreds of millions of dollars.
Foreign investors are feeling the pinch as well.
Wireless Electronique Ltd., Metromedia International, Sprint Corp., Nextel Communications Inc., France Telecom, Bell Canada International Inc., Deutsche Telekom and Siemens AG are among those with investments in China Unicom via China-China-Foreign joint ventures.
All told, foreign investors have risked $1.4 billion in capital on China Unicom. The investment is possibly even greater when the value of the networks is calculated.
CCF partnerships were put together in the mid-1990s with the blessing of Chinese government officials (and apparently without objections from the U.S. government) to skirt a ban on foreign ownership in Chinese telecom carriers. CCF investors received revenue generated from mobile phone and wireline networks.
All that stopped Oct. 1, following last year’s decision by Chinese regulators that CCF joint ventures were illegal.
Now Unicom is negotiating agreements that would give CCF joint ventures a return on investment that has been described as no better than the stingy interest given on bank accounts.
Some firms, like Wireless Electronique (WelCom), are contemplating litigation in hopes it can gain bargaining leverage in negotiations with China Unicom as Unicom prepares to go public on the New York and Hong Kong stock exchanges early next year.
“WelCom will not be bullied into making a deal with Unicom for less than WelCom is entitled to,” said Joseph Gebhardt, chief executive officer of WelCom.
Gebhardt said Morgan Stanley, a China Unicom underwriter, was stunned when it first learned of the unraveling of CCF joint ventures.
One Commerce Department analyst, speaking on background, said telecom firms should have known there were risks associated with CCFs. At the same time, the analyst said China’s forced divestiture of CCFs appears to be a clear breach of contract. He added that U.S. officials are warning China that it risks scaring off investors by its actions.
“There was no gray area,” insists Gebhardt. “They [the Chinese government] had never done anything like this before” to foreign telecom investors.
Some CCF investors are trying to work out the best deal possible with Unicom to avoid causing trouble that could hurt future business opportunities in the giant Asian emerging market of 1.2 billion people.
The Clinton administration, according to interviews and documents obtained by RCR, has been aware for many months of the perils faced by U.S. telecom investors in Unicom. At times, U.S. officials even offered suggestions on how to protect China Unicom investments.
The administration, assuming it gets all the trade concessions it seeks from China, would like a deal on China WTO before the WTO ministerial meeting in Seattle that begins Sept. 30.
Earlier this year, Chinese Premier Zhu Rongji agreed to substantially open China’s wireless services and equipment markets in exchange for U.S. backing of China WTO membership.
What is unclear, judging from how the administration has handled the CCF-China Unicom matter, is whether the delicacy of U.S.-Sino trade negotiations-made even more fragile by spy charges, technology transfers and NATO’s bombing of the Chinese Embassy in Yugoslavia-prevented U.S. officials from taking a strong stand on the shabby treatment given U.S. investors in China.
WelCom’s Gebhardt said he is not convinced the Clinton administration has done enough to help U.S. telecom companies.
The administration’s response to calls for help have tended to be vague and highly bureaucratic.
“The United States is currently engaged in negotiations with China regarding the telecommunications services commitments it must offer to gain United States support for its accession to the World Trade Organization. Let me assure you that we have put the interests of firms involved in joint ventures with China Unicom in the forefront of these talks,” said U.S. Trade Representative Charlene Barshefsky in an April 20 letter to Douglas C. MacLellan, chairman of WelCom.
In the same letter, Barshefsky advised WelCom to work with the U.S. Embassy in Beijing to safeguard its investments in China Unicom.
WelCom, based in Las Vegas, has invested $50 million in Chinese Unicom mobile phone systems that operate in Inner Mongolia, Yunnan and Ningxia.
In June, when MacLellan met with USTR staff, USTR staff recommended WelCom close on a $1 million bridge loan to safeguard existing and future business projects. It also was suggested that-once a China WTO agreement was in hand-WelCom could petition USTR for help in resolving problems with CCF joint ventures.
Since then, USTR has stepped aside to let the Commerce Department take the lead on the CCF-China Unicom matter.
Commerce Secretary Daley brought the matter up in the Asia-Pacific trade summit several weeks ago in Aukland, New Zealand, and sent a letter on the same subject to Chinese Vice Premier Wu Bangguo last month.
