Highlights from the last week of China business news.

Eat your heart out, Adam Smith
What was that famous metaphor about the markets, something about an invisible hand? Beijing has a thing or two to say about that. Today the CSRC slashed China’s stamp duty, bringing it down to 0.1% - the same rate it was at last year before it was hiked. If you recall, when they raised the stamp duty last year, it was because the market was too high; the regulator’s move caused a dip. Now, the market is too low - the Shanghai Composite Index on Tuesday was down 50% from its October high - so the regulator reached in and lowered the duty. It works. The SCI jumped nearly 10% in early trading and was around the 3,500 mark at mid-day, AP reported. Early in the week, the regulator also implemented another rule, limiting block trades to prevent a possible flood of shares into an already low market.

China Mobile keeps raking it in
Another nice reporting season for China Mobile, which posted first-quarter profits that were 37% higher than the same period last year. By contrast, China Telecom posted a 0.5% rise in net profits, due to a shrinking fixed-line subscriber base (all those customers are getting mobile phone accounts) although its earnings were shored up by its broadband internet business, which has a growing user base. Look a little closer at China Mobile’s numbers, however, and there is one negative indicator. The cute-sounding ARPU (average revenue per user) number fell by about US$0.40. It’s a key metric for carriers, and it could indicate that China Mobile isn’t working hard enough to get cash out of its users. Oh, one more thing - that long-rumored telecom restructuring (see the current issue of CER) has been lent credence by a CDMA joint venture that could happen between Korea’s SK Telecom and China Telecom. The latter is supposed to run a CDMA network after the restructuring.

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Lots of rumors about the long-awaited telecom restructuring this month. Interestingly, it was sparked by a Credit Suisse report that cited Yang Hua, sec-gen of the TD-SCDMA Industry Alliance, as saying that the central government could announce a decision on 3G licensing “within days.” According to Reuters, the report also said the State Council would meet this week to finalize restructuring plans, and that an official announcement would be made soon.

All the I-bank analyst reports I’ve ever read have been pretty dry (Jonathan Anderson at UBS excepted!), and certainly not a source of exciting breaking news. Now, I’m interested in getting my hands on a copy of the CS report.

Then Marbridge Consulting’s daily newsletter provided a slew of Chinese-language media stories circulating the same rumor. Sina Tech regurgitated the Credit Suisse news. Tencent Tech reported on internal moves at the telcos suggestive of restructuring plans.

SCMP added fuel to the fire, with a report citing anonymous sources claiming that the plan had already been confirmed at a State Council meeting in Beijing last Friday. It said that another meeting this week would be held to work out implementation and management issues.

“The proposal is being discussed and the officials are going to decide senior management at the operators,” a source said yesterday.

Yesterday, I also noticed that Isaac Mao’s Twitter feed contained a message about a share-swap between Unicom and Netcom, although a check through HKEX and SEC filings yesterday didn’t reveal any announcements about it.

Stocks of China Telecom have risen because it’s expected to get a mobile operating license after the restructuring, while China Mobile shares dropped.

The Reuters story also said that Yang, Credit Suisse’s source, rebutted the report.

“It could be early, it could be late, but it won’t be soon,” Yang told Reuters in an email provided in response to questions.

So - the rumors continue to build. It’s worth noting, though, that this restructuring has been years in the making. Nothing may come out of it this time.

Links

Reuters: China close to telecom sector revamp, analysts say

SCMP: Telecoms carriers in play on talk of industry reform completion

Marbridge Daily: Rumor: State Council to finalize telecom restructuring plan

Marbridge Daily: Rumor: Telecom operators prepare for restructuring

Good news for Apple fans in China. According to Southern Metropolitan News (translated by Marbridge Consulting’s excellent daily news digest) Apple will release the iPhone here in the second quarter. It will be priced at RMB4,000 (US$500-odd, which is quite a bit higher than the US$400 it goes for in the US). It also says iPhone will be released “in partnership” with mobile operators, but doesn’t say who.

The leading candidate is, of course, China Mobile. In November, China Mobile boss Wang Jianzhou said he was talking to Apple about selling the phones in China. “Our customers like this kind of fashionable product,” he reportedly told an audience in Macau. If you remember the hoopla surrounding the iPhone’s release, Apple said it would launch the handsets in Asia sometime in 2008, without giving any details. My theory at the time was that it would be sold in places like Japan, Singapore, Hong Kong and Taiwan way before Apple could hash out a deal with China Mobile. Apple, after all, likes to be in control, and it doesn’t have much leverage with China Mobile, the world’s biggest telco. Either Apple is desperate to get its phone into China or China Mobile’s pretty flexible at the negotiating table. Either way, if the news is correct, you should hold off on buying one of those hacked iPhones from the cybermall down the street.

The folks at Analysys International (not to be confused with Analysys - although both are tech and telecom consultancies) in Beijing send us interesting info-snippets from time to time. Today, they sent us their figures for China’s handset market in the third quarter.

They say that sales volume of mobile phones reached 37.43 million units in the third quarter, growing 7.4% over the last quarter. Then there’s a breakdown by brand.

Nokia has a whopping 35.1% of the market, more than double its closest rival, Motorola, with 13.6%. Samsung is third with about 11.6%. Interestingly, the only Chinese handset maker to break the top five is Lenovo, surely better known for their desktops and laptops, with a rather paltry 6.1%.

Low-cost local handset maker Bird has slightly more than half Lenovo’s share, with 3.7%, while Haier has 1.2%. Chinese brands certainly seem to be struggling based on the absolute numbers, although I’m not sure what the trends are like.

Shockingly, Sony Ericsson is way down the list, with about 4%, while LG has 2.7%. With the amount of advertising those companies seem to spend (at least in Shanghai), you might think they’d have more share. But again, they may only be interested in the rich, urban areas, which would account for their poor numbers on the national level.

Those figures are for both GSM and CDMA handsets combined. When you break out just CDMA handsets, Huawei is neck and neck with Samsung, with 24.4% and 25.6% of the market respectively.

Towards the end of June, China’s Mobile’s Hong Kong-listed stock hit HK$80 for the first time. It passed HK$90 in July before slipping back to around the HK$80 mark in August when investors started panicking about the US subprime crisis. Since then it is has been pretty much one-way traffic and, right now, China Mobile is close to HK$160.

So far this year, its stock has gained over 130%, boosting the company’s market capitalization by US$240 billion so it is now worth more than US$400 billion. It has become the fourth-largest listed company in the world by market cap after ExxonMobil, PetroChina and General Electric. [Incidentally, China now accounts for six of the world’s 12 largest listed firms - a sign of a strong equities market if ever there was one.]

Citi - which, like a number of other investment banks, now backs China Mobile to pass US$190 - published some figures yesterday that put the telecom operator’s sheer power in perspective:

- China Mobile accounts for nearly 50% of the total market cap of all Asian telecoms companies
- Its market cap is US$155 billion more than second-placed global telecoms operator AT&T
- It is singlehandedly responsible for the MSCI Asia Pacific ex-Japan telecom index rising 59% so far this year while the broader MSCI Asia Pacific ex-Japan index has risen 48%

Citi also make the case for the stock rising even further due to: positive investor sentiment attached to an impending A-share listing (although no exact date has been set); it has RMB cash and the RMB is appreciating against the dollar (it is, of course, in the same boat as many other Chinese companies - and right now the rising tide is floating all boats); it’s a consumer play and these are tipped to do well out of Beijing 2008.

Highlights from the last week of business news in China: A-share action, laws under review and the National Audit Office’s latest findings (more…)

About this time last year, China Economic Review was planning a telecom story to roughly coincide with the issue of the next generation 3G mobile licenses.

“They’ll come in the first quarter of 2006,” people were saying, sending the Hong Kong share prices of Chinas Mobile, Unicom, Telecom and Netcom into a frenzy.

Needless to say, the licenses were not forthcoming and the peak and trough in the telecom stock prices was merely the first in a series of expectation-followed-by-disappointment fluctuations.

And now we discover that China has launched the world’s first 4G standard while its 3G counterpart still sits in the blocks. Apparently, the 4G “FuTURE Project” - which allows data transmission at 100 megabytes per second - will soon start trials running to 2010.

And then what? Will this standard eventually see the light of a commercial day?

By most accounts, 3G has been delayed due to problems with TD-SCDMA, China’s homegrown version of the telecom standard. Apparently the kinks are now ironed out and it is ready for deployment - and it can compete with the established 3G standards WCDMA and CDMA2000.

But is this really the point? China cannot allow TD-SCDMA to fail due to the political and financial capital that has been shoved behind it. White elephant or not, someone is going to be landed with the dubious honor of carrying this national technological torch.

It’s quite possible that the continued delays in the issuing of licenses is not so much driven by system hiccups as fierce lobbying by the telecom operators over who doesn’t get TD-SCDMA.

What does this mean for 4G? The risk is it will simply be a repeat performance of 3G - a standard that came to the market hopelessly late because it was developed behind closed doors, away from the commercial forces that should direct its evolution.

So it is back to - what we hope will be - normal service, following the cyber-isolation of the past week. Services are still patchy, and, according to the China Telecom official cited in this report, will continue to be until mid-January.

For those without access to a satellite link - and it has been claimed that the mass market service providers in Hong Kong were unwilling to make this expensive switch - it has been a frustrating period.

Special mention should perhaps go to Google and its Gmail service for being one of the few sites that remained open for business. A combination of Gmail, SCMP.com, BBC Online and Cricinfo (to keep tabs on England’s cricketing humiliation) were sufficient to keep this writer ticking over in Hong Kong during a week when, thankfully, most people were out of the office anyway.

It is interesting to point out that the earthquake which hit Taiwan on December 26 was stronger than the one that triggered the Southeast Asia tsunami exactly two years earlier. While the tsunami took around 230,000 lives, the death toll in Taiwan last week was just two.

As for the economic cost of damaging the undersea cables that connect much of the region with America and beyond, no one has named a price.

The flow of financial data to some countries was halted, which affected trading, but obviously the impact stretches much further. Anyone financially dependent on the passage of information - be it pizza delivery or freight delivery - along those cables has, in theory, lost out.

Those wanting to make contact with friends or family (some IDD services were also down) were left without the prop on which they have become so socially reliant that they take it for granted.

Questions will continue to be asked about our ever-growing dependency on the internet and why suitable back-up systems were not in place. Ultimately, the need for a reliable telecommunications infrastructure goes way beyond the service providers’ profit margins.

Richard Li’s sale of his 23% stake in Hong Kong telecoms operator PCCW was plunged into political intrigue when claims emerged that shareholder China Netcom vetoed foreign bids on nationalistic grounds. Now the story seems to have taken another, somewhat Oedipal, twist.

Li has said he wants minority shareholders in Singapore-listed Pacific Century Regional Developments (PCRD), through which he holds his PCCW stake, to reject the sale. The reason: the involvement of his father Li Ka-shing, Asia’s richest man, in the bid put together by banker Francis Leung.

Li junior said he was “very unhappy” that two of his father’s charitable organizations were set to take 12% of PCCW. Spain’s Telefonica will take 8% - and plans to unite this with Netcom’s stake of around 20% in a deal that will eventually see its shares exchanged for Netcom shares - while Leung holds the remainder.

Li junior, who can’t participate in the PCRD vote because of his father’s involvement in the deal, said he would now rather retain control of PCCW.

“It’s obvious that the father tried to help the son and the son didn’t appreciate it,” AFP quoted one analyst as saying. “But he shouldn’t put his personal problems on the table like this and use the minority shareholders as a chip.”

He is also guilty of knocking back fully-funded offers in favor of selling to a long-term friend who had neither the personal wealth nor, at the time, the financial backing to meet the US$1.17 billion price. Is it really so surprising that Leung ended up, cap in hand, at Li Ka-shing’s door?

As Li junior is discovering, it’s difficult to escape daddy’s shadow when the man in question has US$18.8 billion to throw around.