Summary: Zhang Chunjiang, chairman of China Netcom Group (CN-OLD) probably heads one of the most Westernized corporate governance structures among majority government-owned Chinese firms. He can thank former Goldman Sachs (NYSE:GS) president and now friend and Netcom board member John Thornton. Overseas listings such as in NY, Hong Kong, and London are encouraged by Beijing, not necessarily to raise capital, but rather to gain exposure to the demands of international investors. Zhang explains, "Of China's four big telecom companies, we are the one with the biggest difficulties. So under those circumstances, we thought, what can we do to make people feel confident about investing in Netcom?...We wanted to develop a corporate-governance system that could let investors relax." China Netcom has half as many provincial phone networks as rival China Telecom (NYSE:CHA); as a double-whammy, many are located in less affluent provinces. However, 7 of China Netcom's 13 directors are outsiders, versus only 4 of 13 for China Telecom. Zhang and Thornton have worked closely and received help from outside consultants such as McKinsey to overhaul China Netcom's board. Zhang admits that, "governance isn't the only important factor" but stresses that, "you can't compete" without a modern governance system. His firm's business challenges extend beyond larger rival China Telecom to the threat of rapid growth by wireless carriers in which consumers are bypassing fixed-lines all together in favor of cellular service.
Related links: Full WSJ article • IRG Limited: China Telecom and Netcom dominate mainland broadband with combined 87% of subscribers • IRG Limited: China Netcom 1H earnings summary • IRG Limited: Mainland mobile operators to outperform fixed-line carriers • Andrew Schmitt of Nyquist Capital: "The Future of Fiber To The Home in China" [Part 1, Part 2, Part 3, Part 4]
Potentially impacted stocks and ETFs: China Mobile (NYSE:CHL) 246.6 million mobile subscribers, China Unicom (NYSE:CHU) 127.8 million mobile subs and China Telecom (CHA) 231 million fixed-line subs. China Netcom has 126.8 million fixed-line subs.
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