The Effects of Market Liberalization and Privatization on Chinese Telecommunications

The Chinese telecommunications sector is undergoing fundamental changes as it moves towards liberalization. This paper examines how liberalization and privatization have affected the performance of Chinese telecommunications industry. We identify greater liberalization with increases competition as measured by reductions in industrial concentration and privatization with deceases in state equity-ownership in firms. With a new panel dataset of thirty-one Chinese provinces from 1998 through 2007, we examine the effects of reforms on prices and subscription levels of both of mobile and fixed line telecommunications operators within both the mobile and fixed line platforms. We find large gains in market performance from decreased concentration among mobile providers not for fixed-line service. The evidence on the effects of state-ownership is similarly mixed. We then estimate substitution patterns between these telecommunications platforms and find evidence of consumer substitution between the fixed and mobile platforms for subscription, but not usage