BEIJING -- China markets rose Thursday, shrugging off worries about Wednesday's North Korean missile launch and the potential for more monetary tightening in the U.S.The Hang Seng gained 1.1% to close at 16,441, while the Shanghai Composite was up 1.3% to 1741. Wednesday in New York, unexpectedly strong employment data resuscitated jitters about looming interest rate hikes. The major averages headed south, dragging a broad swathe of China stocks along with them. Baidu ( BIDU) was off 2.2% to $83.99, Yanzhou Coal ( YZC) was down 2.4% to $35.93 and China Life ( LFC) slid 3.9% to $61.65. On the geopolitical front, ING Asia economist Tim Condon called Wednesday's provocative missile firings by North Korea "a setback to the recovery of risk appetites" in the region. Starting in mid-May, investors concerned about an economic slowdown in the U.S. began cycling out of Asian equities in a bid to pare risk. To be sure, stocks have weathered similar crises in the past. North Korean-sponsored missile launches in 1998 and 2003, which were likewise intended to be confrontational, proved not to have any lasting effect on the South Korean equities, noted J.P. Morgan analyst Jiwon Lim. Within the region, Chinese markets are probably less likely to react to nuclear grandstanding by North Korea since the mainland is perceived as a relative ally and has historically had ties with the Communist regime there. Still, it doesn't bode well that on Thursday, a bellicose Pyongyang said more missile launches could be in the offing. Separately in mainland news, Nokia ( NOK) announced it had won a $150 million deal from a China Mobile subsidiary to expand GSM and GPRS networks in central Henan province. Gearmakers stand to land more such deals in the provinces over the next couple quarters, since in May, China Mobile headquarters wrapped up a round of purchasing negotiations with suppliers. That clears the way for provincial subsidiaries to ink equipment contracts at the agreed-on prices.
Nokia is already well-positioned in the $6.6 billion GSM equipment market, ranking second with 19.4% of share in 2005, according to telecom research firm Norson. Lead player Ericsson ( ERICY) owned a third of the market and Alcatel Shanghai Bell is in third place with 13.2%. But despite their big share positions, the foreign equipment outfits still struggle with state policies that favor domestic companies. According to Norson, China Mobile's current policy holds that if domestic network equipment vendors control less than 20% of the market in a given province, international vendors have to undersell them by 10% in order to win a contract. The terms are intended to boost domestic players (read: Huawei and ZTE) that are still perceived to offer lower-quality gear than the likes of Nokia and Ericsson. "If domestic vendors sold at an identical price, they wouldn't have any advantage" and operators might not want to buy their equipment, explained Norson analyst Jacky Yang. Surprisingly, despite Huawei and ZTE's ambitious moves into telecom in other emerging markets, they each look relatively weak on their home turf. Last year Huawei accounted for just 6.5% of the GSM equipment market in China. ZTE didn't rank among the top seven vendors. Both domestic firms are expected to gain share after Beijing grants 3G licenses, which is now considered likely in the first quarter of 2007. "The government wants domestic vendors to get more market share," said Yang. "The domestic vendors have strong R&D capacity in the 3G market, and Huawei and ZTE have built a considerable number of 3G networks overseas." But Yang added that even though Nokia is a foreign firm, its large installed base of equipment on China Mobile's existing GSM network could help it win 3G deals in the future, along with local players Huawei, ZTE and Alcatel Shanghai Bell. "If China Mobile wanted to upgrade, the existing vendor has priority to get the upgrade deal," he said.