BEIJING (TheStreet) -- Between the lines of an otherwise dull announcement about building mobile phone towers was an assurance for investors that China's telecom operators expect to weather the storm of a new tax regime.
That assurance in the face of a tough VAT regime announced this week by the government helped China Mobile (CHL), China Telecom (CHA - Get Report) and China Unicom (CHU - Get Report) survive a tumultuous trading session Friday on the Hong Kong Stock Exchange.
Shares in each of the state-run carriers opened sharply lower following the May 1 holiday after the Beijing government unveiled the tax plan late Wednesday. Telecom services will be taxed starting June 1 in a way that, according to the companies, could slash annual earnings up to 36%.
On the tax announcement, telecom share prices slipped as much as 3.5% during the trading day before rebounding. China Mobile closed 0.8% lower at HK$73.10 per share, China Unicom finished down 1.8% at HK$11.68, and China Telecom ended the day unchanged at HK$3.98.Investors apparently found solace in separate China Mobile and state media announcements Friday that the three carriers had formed a joint venture to build towers nationwide -- perhaps 750,000 units this year alone -- to carry fourth-generation (4G) Internet and mobile phone signals. The investment project is expected to offset at least some of the higher taxes because, according to VAT rules imposed by the government's State Administration of Taxation, capital expenditures will be deductible under the new regime. And the joint venture, tentatively named "State Tower," has a massive and expensive job ahead.