The Ministry of Information Industry (MII) reiterated on Friday that to ensure the healthy development of the mobile phone manufacturing sector, restrictions on the issuing of new licenses would remain.

"We will not abolish the approval system for the issuance of new licenses for mobile phone manufacturing this year," said a senior official with the MII, who declined to be named.

Mobile phone manufacturing licenses will continue to be issued according to the December 31, 1998 regulation, he added.

It had been widely speculated that the ministry would loosen its license controls for mobile phone manufacturing this year as the existing regulation is set to expire at the end of December.

The rumor had been mounting since the start of the month as the State Council issued a regulation, which came into effect on July 1, stating that mobile telecommunication products would no longer need to gain its approvals.

Up until Friday, many analysts and handset manufacturers had believed that approvals for investing in mobile handset manufacturing were no longer needed.

"They just misunderstood the regulation," the official said. "The MII still has to be approached for new handset manufacturing licenses."

He stressed that the existing regulation would continue.

Under the regulation, the MII stopped issuing new mobile handset manufacturing licenses to foreign firms in 1999.

Besides restricting the imports of foreign mobile telecommunication products, the regulation also requires that 60 percent of the mobile phones produced by foreign firms in China have to be exported.

And only by meeting the requirement can the foreign joint ventures get quotas for import-related products and components.

"We are modifying some parts of the regulation as they go against WTO (World Trade Organization) rules and are no longer getting along well with market situations," the official said.

He says the ministry is working to try to adjust the approval system in line with the market before the end of the year.

"The modification is to ensure the healthy development of the industry," the official said.

On the other hand, he pointed out that with years of development, the market for handset manufacturing has become fairly open in China.

The ministry had granted 29 GSM mobile phone manufacturing licenses and 20 CDMA licenses to 37 manufacturers by the end of last month, its figures show.

A total of 26 out of the 37 manufacturers are foreign players and 8 are privately-owned domestic enterprises.

Additional information showed that 180 million handsets were produced in China, accounting for about 40 percent of the world's total. Nevertheless, the domestic demand was less than 60 million sets last year.

Lu Tingjie, president of the Economics and Management School at Beijing University of Posts and Telecommunications, called for the lifting of restrictions on handset manufacturing licenses as the market was becoming increasingly open.

It is also part of the country's WTO commitments to gradually open the market, he said.

Attracted by the lucrative market, both domestic and foreign handset makers are enhancing their investment and promotions in China.

Sources say there are about 20 manufacturers which are presently applying for new licenses.

"The lifting of restrictions will also be beneficial for mobile subscribers as they may have more choices for low-priced handsets and differentiated services to meet their demands," Lu said.

Lu said he also believed that domestic handset makers were now optimistic compared to their foreign counterparts.

It is predicted that by the end of the year, domestic handset makers will have captured more than 60 percent of the Chinese market.

(China Daily July 24, 2004)