Is China Mobile dangling the ultimate cookie in Beijing’s face?

China Mobile might be on its way home. The rumors have been around for a few weeks. On Sunday, Forbes and several other financial news outlets published an AFX story claiming “China Mobile Ltd is expected to start procedures to launch an A-share initial public offering on the mainland in the first half of 2007”. The report was based on an earlier story published by 21st Century Business Herald, a popular Chinese business magazine.

The original 21st CBH story stated that China Mobile, currently listed in Hong Kong and New York, has already chosen underwriters and is likely to launch an initial public offering in the Yuan-denominated A-share market in Shanghai.

Xinhua, the Chinese Government’s news agency, republished the story with a little twist, reporting that “The booming Chinese mainland stock market will lure the country’s largest mobile operator back from overseas bourses in the first half of next year…”.

On Tuesday, China Mobile spokesperson Rainie Lei denied and confirmed the rumors: “I have not heard of any report regarding the A-shares listing application, but our management has previously said the company will go back to the China [stock] market for the listing.”

The Standard today reports most analysts are skeptical about the rumors’ validity, claiming the company does not need any cash and that operating through a Chinese company will increase costs. Analysts also add that such a move would require rarely seen flexibility from local regulators.

At face value, the move does not seem necessary or beneficial. Might there be another reason behind China Mobile’s flirting with this idea?

How’s this for a theory:

The Chinese government is currently “encouraging” more than a 130 state-owned companies who are listed abroad to come home. Shao Ning, vice director of the State-owned Assets Supervision and Administration Commission of the State Council, told Xinhua that “By returning to the mainland stock market, State-owned companies would make the domestic capital market more valuable to investors and set examples of standard operation and corporate governance improvements for other home-listed firms”.

China Mobile is the world’s largest mobile carrier by subscriber. It has a market cap in excess of US$170 billion. It is bigger than Google. Bringing China mobile home could fuel a slow but steady wave of Chinese companies that will choose to go public in China, in RMB. At a second stage, we can expect China to encourage companies from neighboring countries to raise capital in this side of the Pacific. This has strategic importance for Beijing, especially bearing in mind that Asia is the world’s most populated continent and is the centre of the World Economy’s growth for the past and next ten years.

OK, so we know what’s in it for Beijing, but what’s in it for China Mobile?

Wang Xudong, China’s Information Industry Minister, told CCTV last week that the policy framework for third generation mobile operations will be completed in 2007. The Chinese Government will “introduce policies covering 3G access, tariffs, supervision and bandwidth”. In the same report, CCTV stressed that China is expected to push its home-grown 3G standard, TD-SCDMA, when issuing 3G licenses.

On the same day, Xinhua quoted “Experts” that believe that the Chinese Government will take this opportunity to “regroup domestic telecommunication operators through 3G license issuance.”

TD-SCDMA is co-developed by China’s Datang Technologies and Siemens. It will compete with W-CDMA and CDMA 2000 for supremacy in the Chinese market. Currently, the government is leaning towards giving the TD-SCDMA 3G license to China Mobile. China Mobile prefers W-CDMA, as it will be simpler to integrate with its existing GSM network, and require a significantly smaller investment in infrastructure, personnel, and more.

Last month, Dai Zhong, China Mobile Deputy General Manager, told Xinhua the following: “We think that W-CDMA is better for China Mobile. TD is a Chinese 3G standard, so we should support this network, but we have the largest GSM network in China.”

David at Silicon Hutong points out that:

“Despite suggestions elsewhere that China Mobile has caved-in to government pressure, the world’s mobile giant still appears to be fighting a rearguard action against having the unproven, un-finalized, problem-ridden, politically-driven TD-SCDMA shoved down its throat.

Money is power everywhere, and Beijing is no longer an exception to that rule. China Mobile is that rara avis: a very large state-owned enterprise that is listed offshore, leads the local market, and is spinning cash. It would be a huge mistake to underestimate the implicit clout CMCC carries as it pleads its case at the MII, the Ministry of Commerce, the National Development Reform Commission and elsewhere in town. TD-SCDMA developer Datang just doesn’t punch that kind of weight.

China Mobile wants W-CDMA, and it will fight to the burger to get it. In China’s 3G evolution, bet on that, not on the whims of a coalition of techno-nationalists at the MII.”

Fair enough. So how can China Mobile achieve that? Imagine a deal between China Mobile and the Chinese Government. A deal, which will help the carrier secure and enhance its position in the market while helping Beijing boost the local economy, facilitate sharing the wealth generated by this boost with the Chinese people, and cementing China’s status as an economic superpower (and ultimately as the world’s ultimate economic superpower ). Muhahaha.

Can you imagine such a deal? I find it difficult, but I’m sure someone can.

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