18 January 2020


Telecom industry in China, which houses the world’s largest number of cellphone users, is said to see a potential upheaval. China Mobile Ltd. (00941.HK) is likely to emerge as the biggest loser in the sector revamp, which may include policy adjustment on the calculation of mobile voice termination rate, and the 4G launch. The Ministry of Industry and Information Technology (MIIT) is said to be looking into the possibility of reducing the mobile voice termination rate that China Unicom Ltd. (00762.HK) and China Telecom Ltd. (00728.HK) are paying to China Mobile from the current 6 fen a minute to as little as three fen a minute, while China Mobile continues to pay the two rivals 6 fen a minute. Such speculation has sparked concerns about the negative earnings impact on China Mobile, as the policy change may cost billions of yuan on the telecom company’s bottom line, prompting brokerages such as Bank of America to cut their investment recommendations on mainland’s largest mobile carrier. Investors have already begun to offload some of their holdings in China Mobile and switch their bets to its rivals, helping China Telecom and China Unicom shares jump about 8 percent in Thursday’s trading, while China Mobile closed 0.7 percent lower. We believe more details of the industry revamp are likely to emerge after the week-long National Day holiday and the overhaul may take place by the end of this year. With such policy change, in addition to huge 4G investment, China Mobile’s profitability in next two years is likely to come under huge pressure, as also its share price performance.

Economic data: A six-month high figure for the purchasing managers’ index (PMI) for the non-manufacturing sector in September offers new evidence of the initial success of Chinese leaders’ efforts to sustain growth for Asia’s biggest economy. That said, some market observers argue the rebound could be fragile as the economy is still in a transformation phase and yet to find a new growth driver. The economic outlook for the remainder of the year will become clearer after upcoming data, including GDP for the third quarter, and monthly retail sales and consumer price index figures. A firmer economic recovery will give more flexibility for policy makers in mapping out their next steps.

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