In the past decade most countries have had to face the wave of telecommunication liberalisation that swept across the world. On the surface, China is no exception to the worldwide transformation of telecommunication markets. Over the past 15 years, nationwide teledensity grew from 1.11% to more than 40%1. China ranks today as the largest telecommunication market in the world in terms of mobile and fixed-line subscribers. This phenomenal growth has been accompanied by a number of remarkable structural changes, which seemed to share the characteristics of the market-oriented reforms carried out worldwide. By-and-large, the “pro forma” liberalisation programme consists of three elements (see Table 1). Despite claims of developing a telecommunication market with Chinese characteristics, it appeared that some of the early elements of the regulatory reforms process bore strong resemblance with those found in other countries. China’s postal sector was separated from the telecommunication sector, operators were detached from government agencies and new entrants started to challenge the incumbent. Institutional changes were carried out through then merger of archrival Ministries (the Ministry of Post) and defined here as the combined fixed and mobile subscribers per hundred inhabitants. In 2005, a proposal was made to reform China's postal system by separating government functions from enterprise management, enhancing government supervision, completing market structure, securing universal and special services, reorganising the State Post Bureau to act as a state supervision institution, and accelerating the foundation of postal saving banks (Xinhua, 2005). Telecommunications or MPT and the Ministry of Electronics Industry or MEI) and the establishment of a regulatory body to supervise the sector (the Ministry of Information Industry or MII). New companies were allowed to challenge the incumbent both in fixedline and mobile segments. In reality, growth took place in spite of the failure to successfully implement the liberalisation trinity consisting of deregulation, competition and privatisation. On the contrary, the Chinese government failed by-and-large both to create an independent regulator and to introduce significant competition, and maintained majority ownership in the operators while restricting market access to private and international operators. Has the government deliberately refrained from adopting the liberalisation programme usually prescribed by multilateral lending agencies or has it simply failed to do so? In other words, are we witnessing a case of policy transfer failure or of policy divergence? By answering this question, the paper seeks to explain the stalled reform process of China’s telecommunication sector. It argues that we are faced both with failure and divergence. On the one hand, the government has not been able to establish an independent regulatory authority capable of enforcing the regulatory package adopted in 2000. In addition, competition, both in fixed-line and mobile markets, remains weak and dominated by the incumbent operators. On the other hand, when it comes to privatisation the government has managed to squeeze important financial resources from the listing of China Mobile and China Telecom on the Hong Kong Stock Exchange while maintaining control over the companies. The paper seeks to explain the stalled reform process of China’s telecommunication sector. It is organised as follows: the first section provides the theoretical framework – historical institutionalism – and reviews the literature of policy diffusion and convergence. The next section presents the history of China’s telecommunication reforms and illustrates the difference between policy output and outcome. To do so, it examines two critical aspects of the reforms – the introduction of competition and the “privatisation” of operators. The third section seeks to explain the stalled reform process of China’s telecommunication sector
