knowledge diffusion and exchange which involved R&D, production, sub-contracting, marketing,
after-sales services, and local human resource training. China’s domestic entrepreneurs,
designers, workers, and engineers quickly grasped the opportunity to develop competitive local
products. Since a local company, Kejian, produced the first GSM handset in 1998, local
manufacturers’ production of handsets gained rapid growth built on the diffusion of technologies
into China through various foreign investment and technology transfers and augmented them by
local R&D efforts.
China’s ultimate goal is to enable its local firms to compete with multinational companies,
both in the Chinese market and in the global market. The Chinese government shifted its role
from supporter of joint ventures in the mobile communications manufacturing industry,
including the handset sector, to a role of protector when domestic firms began to compete with
those foreign investment controlled firms. The State Council adopted policies designed to allow
Chinese firms to increase technological capacity and occupy the domestic market, to attract more
investment and to collect special program funds to improve the technological competency of
domestic mobile communications equipment producers (Network Weekly, 2004). The State
Council financially supported R&D for mobile technologies by (1) transferring 5% of fixed-line
telephone installation fees as a special grant from 1999 to 2003 and (2) the MII invested 1.4
billion Yuan ($169.7 million) from mobile connection fees. In addition, it stopped issuing
licenses for joint ventures in mobile handset manufacturing after 1999.
Further, when GSM handset technology was becoming obsolete and CDMA technologies
were maturing, the government established preferential policies toward domestic CDMA
manufacturers. These policies limited domestic licenses for foreign competitors, restricted the
19
China's Mobile Handsets FINAL DRAFT 2006.sph ERSA2006 Greece
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