Get up and dance: China Mobile, a state-owned giant, is having to reinvent itself

Get up and dance: China Mobile, a state-owned giant, is having to reinvent itself

May 31st 2014 | From the print edition

THROUGH THE SMOG in Beijing’s Financial Street you can see the glass-and-steel headquarters of many of China’s giant state-owned-enterprises (SOEs). The flash buildings are a statement of might, but inside them the mood is more of anxious self-reinvention. Most SOEs are in fast-changing industries, and since last year China’s government has made clear that it wants them to become more market-orientated and more competitive. As a result, some of these organisations now face the largest transformation in corporate history.

Top of the list is China Mobile, the world’s biggest mobile-phone company both by customers and by profits. One of the first SOEs to list, in 1997, it has three-quarters of a billion subscribers, about 200,000 staff and the 11th-largest capital expenditure of any firm globally. Yet times are tough. Competition from other telecoms firms has increased, and China’s booming internet firms offer messaging and voice services that cannibalise its core business. In the first quarter of this year the volume of voice calls and text messages was 5-7% down on the previous quarter. Profits dropped by 9% on the previous year.

“The blow has been big and has not come to an end,” says Xi Guohua, China Mobile’s chairman. “Given this new age, we must transform.” His plan has two planks. To regain the initiative over its conventional competitors, the company is investing heavily in its 4G network. Second, it is adapting to the internet age, for example by stocking up its mobile-app store and launching new services. Jego, an app for international calls and messaging, is a rival to Skype.

Behind the scenes Mr Xi is making momentous changes. “Our old organisation will restrict our development and stand in our way, and we are fully aware of the urgency with which we have to change,” he says. “And the party has given a very clear direction for reforms.” He is introducing performance-related pay and may allow fast-growing divisions to raise outside capital and award shares in these new units to their staff. Mr Xi is diplomatic about the need for job cuts, saying he is reallocating staff from shrinking divisions to growing ones.

A good balance-sheet helps. China Mobile has $67 billion of net cash. But return on equity will suffer as the company invests even as profits decline. Mr Xi says this is in China’s wider interests and will benefit shareholders in the long run. How much money China Mobile will eventually make depends partly on regulators, who can control the terms governing network access and the number of carriers. Mr Xi hopes China will evolve like America, with big, healthy telecoms firms, not Europe, which is fragmented and less profitable.

He is an admirer of American innovation, too. “If you look at technology innovation, business innovation and core technologies, I believe that for a very long time in the future the US will have the leading position.” Still, for China the big prize from all that reform and investment in China Mobile is the development of its 4G technology base. This will include a supply chain of equipment vendors and low-cost smartphones that could be used globally. “All of the world is looking at how we roll out 4G technology,” says Mr Xi. He was previously a government minister and thinks that the rotation of managers between government and SOEs helps both sides understand each other better. “We might have a different way of doing business. But together we share the same goal, which is economic development.”