China OKs the Issuing of 3G Licenses

On the last day of 2008, China finally agreed to grant telecom operators licenses to offer the third-generation (3G) services using WCDMA, CDMA 2000, and China's home-grown TD-SCDMA standards. The licensees are  China Mobile ,  China Unicom , and  China Telecom .

We think the fact that China is in urgent need of infrastructure projects worthy of massive public spending has expedited the decision to issue the 3G licenses. Amid growing skepticism that some of the $600 billion stimulus money might go to useless projects, the government has decided that investing into a better digital future does not sound like a bad idea. Over the next several years, we expect the three mobile operators to spend tens of billions of dollars (part of it from the government) in building and upgrading base stations and wireless network for the 3G services. These investments will help drive economic growth and create new jobs, exactly what China needs now that exports have slowed down and demand has cooled in overseas markets.

Another big winner is China Telecom, formerly a fixed-line operator with defecting customers and dwindling sales. The 3G license comes as a shot in the arm, because China Telecom can now tap into the more profitable mobile market, which has over 500 million users and is still growing. If all goes well, we think Chinese consumers may emerge as another winner, as competition from the other two 3G licensees chips away China Mobile's monopoly on mobile services.

As a prelude to the 3G license issue, the China government had reshuffled the telecom industry in 2008, in order to realign some key network assets and to avoid duplicate investment in new infrastructure. To learn more about the restructuring, please read an earlier Stock Strategist article published by my colleague Lun Lu.

Market Recap
The Chinese stock market continued to slide in the last trading week of 2008. Over the three trading days before the New Year's holiday, the Shanghai Composite declined by 1.6% to 1,821. For the year of 2008, the index dropped by a whopping 65%. The Shenzhen Composite Index did not fare better, down 3.2% for the week to end at 6,485 and down 63.4% for the whole year.  

Financial
 UBS (UBS) Sells Its Stakes in Bank of China
UBS sold 3.4 billion shares of Bank of China in Hong Kong, for an estimated profit of over $300 million. The three-year lockup period ended in 2008 for UBS, which acquired Bank of China shares prior to its public listing.

 Credit Suisse   Enters China through Joint Venture with Local Firm
The Beijing-based joint venture, founded in June 2008 and 33.3%-owned by Credit Suisse, recently received an official license from the Chinese regulators. With the license, the Swiss firm can enter the stock and bond underwriting business in the fast-growing China market, which is slowly opening up to foreign banks in recent years.