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China trade pact boosts telecoms, Chinadotcom

China-related technology issues raced ahead Thursday after the U.S. House of Representatives' voted to normalize trade relations with China.

Under the trade pact, the U.S. will normalize trade relations and China will open a wide range of markets. One of the big components of the pact includes the telecommunications sector. Technology companies pushed hard to get the bitterly contested pact approved.

China's commitments mark its first agreement to open its telecommunications sector, both to the scope of services and to direct investment in its businesses.

Here's a look at companies that could benefit from the trade pact.

  • Telecommunications sector

    Big winners could include: Ericsson (Nasdaq: ERICY), up 9/16 to 19; Nokia (NYSE: Nokia), up 1 5/8 to 49 5/8; Alcatel (NYSE: ALA), up 2 to 46 3/8; Lucent (NYSE: LU), down 1 3/8 to 52 3/8, Cisco (Nasdaq: CSCO), up 2 1/4 to 57 3/8; Nortel (NYSE: NT), up 2 5/8 to 54 1/8 and Motorola (NYSE: MOT), even at 97.

    For companies established in China, such as newly-public UTStarcom (Nasdaq: UTSI), up 2 7/8 to 38 7/8, and AsiaInfo (Nasdaq: ASIA), up 5/8 to 35 3/4, the deal could be a double-edged sword. UTStarcom, a U.S.-based company company backed by ZDNet investor SOFTBANK, makes and sells telecommunications equipment to Chinese local telecom providers. The trade agreement paves the way U.S. competitors to enter the market.

    With U.S. trade relations set, China's entry into the World Trade Organization (WTO) is now expected by the end of the year.

    "Simply stated, more exports to China mean more opportunities for American companies and more jobs for American workers," said Christopher B. Galvin, Chairman and Chief Executive Officer of Motorola in a statement .

    After prohibiting any foreign investment in telecommunications services, China's new commitment is a big leap. China will allow 49 percent foreign investment in all services, and will allow 50 percent foreign ownership for value added in 2 years and paging services in 3 years.

    China will become a member of the Basic Telecommunications Agreement, which includes commitments to open technology to cost-based pricing, interconnection rights and independent regulatory authority.

    The agreement also includes a phasing out of geographic restrictions. The restrictions will be phased out for paging and value-added services in 2 years, mobile/cellular in 5 years and domestic wire line services in 6 years.

    China's key telecommunications services corridor in Beijing, Shanghai, and Guangzhou, which represents about 75 percent of all domestic traffic, will open immediately on accession in all telecommunications services.

  • Content and Service Providers

    China has pledged to allow 30 percent foreign ownership of Internet content and service providers upon WTO entry, rising to 50 percent after two years.

    Asian Internet firm Chinadotcom Corp. (Nasdaq: CHINA) which was up 1 1/4 to 28 1/4 after the news, said Thursday it will invest roughly $250 million in the country in the next two years.

    CEO Peter Yip said China's expected entry into the WTO was a key factor in the strategy, but the company also announced it will spend an equal amount over the period to expand its reach in other parts of Asia as well as Europe and the United States.

    Chinadotcom, which has raised about $500 million from stock offerings over the past year, is seeking to shore up its position against competitors in the China portal market; Sina.com (Nasdaq: SINA), Netease.com (Nasdaq: NTES) and Sohu.com all attract more traffic than Chinadotcom's flagship site.

    Chinadotcom is sitting on $561 million in cash, according to its first quarter report, but it is considering spinning off some of its subsidiaries and floating shares to raise more cash now that it plans on raiding the piggy bank.

    Companies that might see a 10-15 percent share issue over the next few quarters include its wholly owned subsidiary Web Connection and its Web site Chinadotcom.

    Yip said in a recent conference call following the company's first quarter report that he expects business to expand "with the likelihood of China's admisison to the WTO."

    Earnings from mainland China would account for 15-25 percent of the company's total revenue by year's end, the company said.

    Other companies that have followed the rise and fall of China buzz include Asiacontent.com (Nasdaq: IASIA), down 1/8 to 7 3/8 and Adatom.com (Nasdaq: ADTM), up 1/4 to 2 7/32, or 13 percent.

    • Summary of US China Trade Pact
    • Chinadotcom to invest $250M in China>