Chinese Government Gives China Mobile Revenues to China Telecom

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) (CHL), and gave it to China Telecom (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

Comments

[HKI:]

i don't get it. so how are you harmed indirectly?

2008 Oct 03 08:40 AM

[valuechaser:]

??? China Mobile Group is owned by the Chinese goverment. So the owner can do whatever they like with the cashflow of a company they own. That doesn't affect CHL.
Does the regular dividend of Berkshire Hathaway "robs" the shareholders of GS??

2008 Oct 03 12:19 PM

[omanmike:]

How do shareholders oweing ADRs in CHL, stop this sort of highway robbery? We at least should receive shares in CHU equivalent to the money transferred from CHL to CHU. I think the SEC should look into this because when Chinese shares are listed on the NYSE, they are subject to NYSE rules and regulations. I believe only Cuomo can do something to protect American shareholders

2008 Oct 03 12:59 PM

[anonemouse:]

This is exactly why you need to take care in owning stocks in Chinese SOEs. I would rather take my chances with small caps with a high degree of insider ownership and a good track record of corporate governance.

A.

2008 Oct 03 09:15 PM

[STLPlace:]

To clarify some doubts regarding "why this matters to CHL shareholders".

Suppose a grandfather wanted give $500 to his elder son, but he does not have any money. So he asked younger son for $500. According to the tribal tradition, son can not say no to father. So the younger son agreed, but he does not have any money either. He knows his son (CHL) has $500 at bank. So he asked CHL...

2008 Oct 04 09:02 PM

[rlirph:]

I do not know any reason why CHL shareholders should complain. The only reason that China Mobile is growing so fast is because the government allows it. What the father gives the father takes it away.
I would still invest in CHL because every one knows the government actions in the past have benefited the company greatly. Remember several years ago they exchange the senior management of China Mobile with China Unicom? Many actions like this are politically motivated to appease other factions in the government.

2008 Oct 06 01:58 AM