Philosophy

HKU024

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The China Telecom (Hong Kong) IPO:

Money for Nothing?

“Telecoms … is a good piece of meat and everyone wants to have a bite.”

- State Development Planning Commission official Zheng Xinli1

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When China Telecom (Hong Kong) (CTHK) went public in October 1997 it was Hong Kong’s

largest ever initial public offering (IPO). Amidst a turbulent economic environment, CTHK’s

listing was oversubscribed by an impressive 30 times and raised almost US$4 billion. The listing

of CTHK was “sold” to the international community as a China “telecoms play” and the start of

China’s privatisation programme. But neither of these positions was accurate. Despite being in

the midst of one of the world’s largest telecommunications programmes, China retained a

complete ban on foreign direct investment in the telecom services sector. Foreigners were not

allowed to either own or operate public networks of any kind in China. So what then had they

bought with US$4 billion of investment? How had China Telecom managed to sell a minority

stake in one of its operational companies without actually selling any control?

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The Telecommunications Market in China

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Through the 1990s, China undertook a huge telecommunication market expansion unlike

anything the world had previously seen. China’s Eighth Five Year Plan (1991-95) set forth

extremely ambitious goals for the telecommunications sector [see Exhibit 1]. The total exchange

capacity was expected to increase from 10 million mainlines to 35.5 million mainlines, and the

number of telephone sets from 15 million to 23.8 million. This would have made for a national

teledensity of two per cent (two telephones per 100 persons) by 1995, and 10 per cent density in

provincial capitals. If this rate of growth was maintained, it was predicted that China would have

the third largest telecommunications network in the world by the turn of the century.2 Already

James Kynge, “Telecoms minister hangs...