Moody's Investors Service said Tuesday that China's four largest telecommunications groups all offer sound operating and financial profiles.

China Telecom, China Mobile, China Netcom and China Unicom derive their support from solid market positions, positive growth outlooks, conservative financial policies and a supportive regulatory framework, Moody's said in a new study. The analysis, authored by Moody's Vice-President Charles Macgregor, is part of a major project by the rating agency to enhance the theoretical and practical frameworks needed for the credit analysis of leading Chinese companies and their industries.

Earlier reports from the ongoing project include those for the airline industry, power generation and oil and gas. All reports, including this latest one on telecommunications, are also aimed at placing Chinese companies in a broader context by comparing them with their international peers.

Of the four major telecommunications companies, only China Mobile (Hong Kong) Limited is currently rated by Moody's, with a Baa1 result (under review for possible upgrade). However, the other three unrated companies all exhibit sound credit profiles.

"Moody's recognizes the sector's importance to China's economic development, as it provides essential communications infrastructure and is now emerging as a significant source of tax revenue," Macgregor said, referring to the key rating factors.

Furthermore, the report points to the ongoing growth potential of China's telecommunications market, which remains relatively immature and is developing with amazing speed. Both fixed-line and mobile phone penetration in China is around 20 percent.

"China's market now has roughly 300 million mobile subscribers, the world's highest number, after having grown by around 80 million in 2003 and 60 million in 2002," Macgregor explained. "Growth in the telecom sector has outstripped that of the national GDP and given significant latent demand for services, although in recent years the gap has ameliorated."

Looking ahead, a challenge for operators will be to achieve greater cost efficiency to offset the potential impact of a downward move in operating margins. To a certain degree, greater economies of scale, as subscribers and usage grow, should also alleviate price pressures.

(China Daily March 3, 2004)