China Mobile dispute points to regulatory confusion, lawyers say

The regulatory ambiguities that arise when subsidiaries of state-owned enterprises make deals, especially less strictly supervised overseas ones, have been highlighted by the dispute that has embroiled China Mobile.

State-owned China Mobile Communications Corp said at the weekend it would look into a HK$142 million deal between its Hong Kong unit and Ricky Wong Wai-kay's Hong Kong Television Network, saying it might have violated the State-owned Assets Supervision and Administration Commission's rules on overseas asset and share transactions by SOEs and their subsidiaries.

"Sasac sometimes grants the power of approving a deal that takes place overseas to the enterprise itself, especially when the party involved is a subsidiary, or subsidiary of a subsidiary," said Zheng Zhigang, a lawyer at Dacheng Law Offices in Beijing.

When the shareholding structure of an "important subsidiary" of a state-controlled enterprise is changed overseas - to controlling ownership from single ownership, or to minority ownership from controlling ownership - the deal must to be reported to Sasac, Zheng said.

A source close to Sasac said the key to the dispute was to find out whether China Mobile Hong Kong Corp (CMHKC), the unit sold by Hong Kong-listed China Mobile, was defined as an "important unit".

An important unit is classified as having assets and profits equivalent to more than 60 per cent of those of the parent firm.