It was not so long ago the Chinese government’s five year plans were aiming at achieving 95% of telephone connectivity in all villages - the term is in fact divided in “natural” and “administrative” villages and only the latter which are bureaucratic entities are included in the statistics.

One province has leapfrogged these perennial developments plans. Jiangsu - China’s second biggest province in terms of GDP - has become the first province to provide broadband Internet service for all its 150,548 villages. This 100% broadband connectivity was achieved thanks to massive investments by China Telecom.

While impressive the achievement relfects largely the shift of Chinese netizens to broadband: according to China Internet Network Information Center (CNNIC), the number of broadband users has increased by 100 million between 2007 and 2008. This shouldn’t make us forget that the digital gap is still growing with the more remote provinces.

P.S.: CNNIC’s definition of a Netizen is “any Chinese citizen aged 6 and above who have used the Internet in the past half a year”

The combined revenue from China telecommunication operators passed the USD 100 billion bar in 2008, representing a year-on-year growth of 7%. Revenue from mobile services increased 15.1% (to USD 65 billion) while fixed local and long-distance dropped by 8.5% and 15.8% respectively.

Now that China Telecom acquired a mobile licence, one can expect the switch-or-leapfrog to mobile to happen even faster!

Despite having more than 550 million subscribers, the Chinese mobile market still has a lot of room to grow. Except that it won’t take place where you’d expect it: penetration in rural areas is still around 20% compared to 40% in cities.

Thanks to a 3-year project backed by Ericsson and the United Nations Development Programme (UNDP), lower-income farmers in remote villages are expected to be able to use their mobile phones soon to gain access to rural financial services - financing SME in China is one of the growth bottleneck. The project aims to overcome geographical isolation in the countryside, which has made access to rural financial services such as getting credit, sending remittances or making deposits expensive and difficult for people in rural China. China Mobile already offers an agricultural information service with advice on how to raise crops and animals, weather forecasts, news, and information on market prices for various products - for USD 0.25 per month per information category. 

Developing a mobile rural bank system will also allow Chinese banks to save a lot of money in comparison with having to create a physical infrastructure. The success of catering to lower-income population has already proven a success - bith for operators and for the citizen - in a number of developing countries (like Grameen Phone in Bangladesh).

So, the future is in the countryside!

Here we go again… Every five years, China’s government agency in charge of economic development - the National Development and Reform Commission (NDRC) - publishes a five-year plan which reads a bit like a Christmas wishlist. This time, the 11th “Five-Year Plan for High-Tech Industrialization”, which covers the 2010-2015 period, includes 16 high-tech industrialization projects.

Among them, one can find integrated circuit, the next-generation Internet, new-generation mobile communication, digital audio-video frequency, information safety, bio-medicine, bio-medical engineering, satellite application as well as modern traditional Chinese drugs! The plan suggests fostering a number of backbone enterprises (aka national champions) to industrialize these products. In other words, the Chinese government puts its money where its mouth is.

Sceptics may wonder whether a top-down, government-led approach is the best way to come up with technological innovation. Be it for the roll-out of telecommunication networks or the launch of a taikonaut, Chinese government agencies (granted, with a little help of statistical creativity) have often reached, if not gone beyond, planned objectives.

What really differs this time is that the success (or failure) of the technological projects will have a strong impact on technological innovation in the West. China has now emerged from the catching up mode: it intends to set trends and create its own intellectual property.

At least, that’s what a city located 400km west of Shanghai wants to become by 2020.
The government of Hefei, the capital of Anhui province, aims at turning the city into a major centre for global technology companies. To this end, it has already invested USD 2 billion.

In itself, Hefei’s strategy is hardly surprising, given the ideological importance given to science and education in the reforms that started 30 years ago. In fact, it complements policies taken at the central government level: the Chinese State recently earmarked USD 800 million for 12 major scientific and technological developments in the period between 2006 and 2010. Another USD 600 million were earmarked for innovation-oriented projects in the Chinese Academy of Sciences. An additional USD 300 million will be used to finance the establishment of 100 State-level engineering labs, update 50 State-level engineering centers and help set up 300 corporate technology centers…

Can Hefei succeed? Costs are of course much lower and the software engineers are well-trained. But, the success of the Silicon Valley can hardly be attributed to a labour cost advantage - they probably come far behind a long list of factors including the organization of production, entrepreneurship, labor market flows, etc.

Don’t discard the plan all together. With close to 100 corporate and engineering technology centers the city of Shenzhen,  which used to be farmland not so long ago, has become the largest production base of communication terminal devices in the world, taking half of China’s market share and one third of the world’s.

Techno-nationalism redux or sound planning?