Chinese Government Gives China Mobile Revenues to China Telecom

Includes: CHA, CHL
by: STLPlace

According to Chinese news, China Mobile’s ultimate parent, the China State Asset Management Co. [CSAM], took 50 billion Chinese Yuan (about 7.30 billion USD) from China Mobile Group (the parent of China Mobile Limited) (NYSE:CHL), and gave it to China Telecom (NYSE:CHA).

For CSAM, this is merely moving money from the left pocket to the right pocket, because both China Mobile and China Telecom are majority owned by CSAM. But for CHL shareholders like me, this is merely another example of highway robbery, orchestrated in the name of “balance of power in the China telecom industry”.

China Mobile Group is the holding company of China Mobile Limited. I think one reason the government did this, is they actually don’t have much money at hand. Another reason was to put some constraints on the development of China Mobile, which currently has the dominant position in China's mobile communication industry.

But this does not come without any moral hazard.  The Chinese goverment did not rob directly from the shareholders of CHL, rather they did it in an indirect way.

China Mobile has about 4 billion shares (ADR equivalent), $7 billion divide by 4 billion, which is about $1.82 per share for CHL shareholders. In other words, China Mobile worked 6 months for the goverment for free.

On the postive side, China Mobile management and employees will see the urgency of developing the 3G, and other business.

Disclosure: Author is long shares of CHL