This paper explores the closing of the gap in competitive capacity by decomposing the
aggregate process and looking at one sector - telecommunications - in one developing economy
- China.

II. INTRODUCTION

China has the world’s largest population. More than 60% live in the countryside. In
2003 approximately 20% of the population had fixed line telephone access; approximately 21%
had cell phones. Less than 10% of the mobile phone subscribers live in the countryside. (MII,
2004).

Telecommunications development in China was highly rigid and a low priority for thirty
years (1949-1979). A series of reforms followed during the next twelve years and mobile phone
communications were introduced into China in 1987. The mid-to late 1990s saw rapid
development, competition and explosive growth (Figure 1). Mobile phone communications
grew at an astounding rate, reaching 10 million users by 1997. The number of mobile
subscribers exceeded fixed-line users seven years later. Since 2000 there has been full
competition in value added services and new technologies have been introduced (Network
Weekly, 2004).

China's Mobile Handsets FINAL DRAFT 2006.sph ERSA2006 Greece

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