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SCMP Reporter

A dismal Government economic forecast and fears about the introduction of a new billing system for China's mobile telephone operators combined to drag Hong Kong stocks to their lowest level since March 1999.

The Hang Seng Index yesterday fell through the 11,000 key technical support level, losing 1.69 per cent, or 187.84 points, to close at 10,902.64.

Analysts said that investor sentiment had been mauled by the Government's revised gross domestic product figures - released on Friday - and suggested the drop in economic activity for the second quarter could lead to a second recession in the space of four years.

Two mainland telecommunications operators contributed most of the fall on renewed fears of early implementation of the controversial calling-party-pays one-way billing system.

China Mobile and rival China Unicom, which account for 17.74 per cent of the Hang Seng Index weighting, together contributed a fall of 154.5 points.

Investors again punished the pair on news China Mobile (Hong Kong) would soon extend calling-party-pays promotional plans to Shanghai and Beijing.

China's dominant mobile operator will implement a new 'promotion' plan in Beijing and Shanghai, the mainland publication 21CN Business Herald  reported yesterday.

Only outgoing calls would be charged for those subscribers using fewer than 2,008 minutes a month, the report said.

Nomura telecoms analyst Richard Ferguson said the limit would mean just about every subscriber in China would be covered.

A China Mobile official denied the 21CN Business Herald  report, saying that 'we have no plan to launch calling-party-pays in Shanghai and Beijing'.

However, the spokesman did not rule out the possibility of promotional plans being offered in the cities.

'Occasionally our subsidiaries might launch some promotional plans, mainly by offering concessions for high-end subscribers,' the official said.

Brokers and analysts said the price war between the two mobile operators was intensifying, with the pair offering creative 'promotion' plans that were in essence one-way billing systems.

The operators had been offering 'promotional plans' in certain cities in Shandong province and Tianjin that were in fact small-scale one-way billing in a bid to boost mobile usage.

Yesterday, China Mobile shares fell 7.19 per cent to HK$22.60  - the lowest level since August 1999 - while China Unicom shed 8.21 per cent to close at HK$8.95.

China Mobile has fallen 35.05 per cent since announcing disappointing interim results on August 16, while the Hang Seng Index has shed 7.85 per cent in the same period.

China Unicom reported it had added just 685,000 mobile subscribers in July, nearly 52 per cent short of its normal average monthly additions of 1.42 million.

Hedging activities on China Mobile's equity-linked notes also contributed to the sharp fall in the stock price, brokers said.

They said a United States investment bank had last week issued a huge quantity of the notes with an exercise price of HK$22.80.

Traders were using the calling-party-pays reports as an excuse to sell down the stock in order to hedge with the notes.

'Judging from fundamentals, I think China Mobile is highly over-sold. After all this is still a growth stock despite a slowdown in earnings growth,' said Kim Eng Securities telecoms analyst Edward Fung. Meanwhile, China's Ministry of Information Industry yesterday announced it had received 1,305 complaints against domestic telecoms operators during the second quarter.

Mostly they related to charges and poor service.

However, only 92 cases had proved to be valid - 7.05 per cent of the total complaints.

Most of the complaints were against China Telecom, the dominant fixed-line operator, and China Mobile.



Market falls below 11,000 as revised Government GDP data suggests second recession in four years looms