Special report: International: Construction Begins on China's Fully

The People's Republic of China (PBC) has launched the first phase of a long-rumored, fully electronic fiber optic computer network that will effectively unify the entire Chinese economy and allow the financial community to operate like one bank.

The network, in development since 1990, is being builtoand will be owned and operatedoby the Zhong Yuan Financial Data Network Co., Ltd., a private company owned by China's Ministry of Post and Telecommunications, the PBC, and some Chinese banks. All banks and financial institutions, including intermediaries, will be on the network. The financial system is estimated by the PBC to include 213,00 offices with deposits equal in 1994 to roughly $565 billion (USD), or 107 percent of gross domestic product.

Besides the People's Bank, China has 18 commercial banks, 5 foreign banks, 5 so-called joint-venture banks, and 113 foreign bank branches in operation; the PBC itself has 2,400 branches.

When complete, the system will combine the China National Automated Payments System and the China Financial Information Data Network. According to a speech given in Hong Kong by Chen Yuan, executive deputy governor of the People's Bank of China and responsible for the project, the network will link China's High Value Payments System, a real-time gross settlement system; the Bulk Electronic Payments System, a net end-of-day settlement system; the Government securities book-entry system; the bank card authorization system; the national Financial Management Information System; and local check clearing houses.

Also operating on the network, says Ernst & Young partner Daniel Shih, who was deeply involved in the project, are the nation's shipping, manufacturing, and retailing systems, including order entry, invoice, receivables payment, bills of lading, and back order status quo systems.

When complete within five to seven years, the system will cost about $800 million and link 400 cities. The first phase, in preparation since last September, connects 35 cities; the second links 200. It is being financed mainly with loans from the World Bank and the Asian Development Bank. It was designed in cooperation with a consortium of central banks, including the Federal Reserve Bank of New York, the Bank of England, Germany's Bundesbank, the Bank of Japan, and the Swiss National Bank.

Building the system, according to the World Bank, are Nippon Telephone & Telegraph; NTT Data Corp.; the Chinese Academy of Sciences; Hitachi Corp.; Global One Communications; Hughes Network Systems; IBM; and Newbridge Networks Co. The network switches are manufactured by Cisco Systems, Inc.

The network is decentralized, designed in a sort of watertight compartment architecture intended to provide system integrity and prevent crashes, says Frankie Sun, Cisco System's general manager for Asia. "They have network management centers located at about 2,000 National Processing Centers, which are interfaced with other (bank) branches, basically (creating) bigger nodes and smaller nodes to handle all the various transaction transfers," he says. The National Processing Centers will handle most of the traffic, rather than a central facility.

This enormous network is one of the Golden Projects begun by the central government to modernize the country after Deng Xiaoping began liberalization in 1978. Called the Golden Bridge, it's also the communications roadway for another Golden Project, the Golden Card project, expected to be a chip cardocombining credit, debit and smart card applications with other bells and whistlesoto be tested initially in 22 cities. Visa International and the PBC recently issued a Memorandum of Understanding agreeing to jointly develop the necessary technical standards for the card; in about three years, says Visa, the Golden Cards are expected to be in 200 million Chinese hands. It's projects like these, however, that alarm some people. But China is still surprisingly antiquated. According to its Ministry of Post and Telecommunications, for instance, there were only 28.8 million telephone accounts in 1994.

And it doesn't hurt to remember that in the past 20 years the Saudis and the Japanese have both been cast as threats to our Pax Economica, only to get an enormous drubbing.

Further, alarmists should remember that the system is designed by the West's best experts, with the idea that China needs to be integrated into the world's economy, says a World Bank official who insisted on anonymity. So while the capabilities of the system are at least equal to any in the worldosome would argue the bestohe says it may not yet be time to man the walls.--reinbach tfn.com

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