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Hongkong Telecom aims for stronger Chinese ties

The Hong Kong rumour machine is buzzing with speculation that Hongkong Telecom will soon find a new partnership, following the collapse of merger talks between Cable & Wireless, its majority shareholder, and British Telecom.

The Hong Kong company's heavy reliance on China's goodwill, following next year's takeover of the colony, also suggests that HKT will be looking to reinforce its commercial ties with Chinese entities.

This view was reinforced last week when the British-controlled Swire Pacific ceded its regional DragonAir airline to the state-run China National Aviation Corporation and gave over a 25 per cent stake in Cathay Pacific airline to China's leading investment company, the China International Trust and Investment Corp.

Heavily reliant on Chinese regulatory decisions, Swire was seen as buying a huge amount of political insurance.

HKT is equally reliant on Peking for the continuation of its profitable international network monopoly and has already moved to buy political insurance by furnishing Citic Pacific, the locally listed arm of Citic, with a 12 per cent shareholding.

However, this may not be enough. Citic Pacific may find it difficult to raise the cash for taking an even larger share of HKT's equity but there are other Chinese entities which could be brought into the company.

C&W is already working closely with China's ministry of posts and telecommunications and they have formed a joint company, Great Eastern, to pursue telecommunications opportunities in China.

The ministry could well take a share in HKT through another corporate vehicle or C&W could pursue its links with the regional authorities in the bordering Guangdong province where there is another joint venture providing mobile services.

Should a direct link with a Chinese entity fail to materialise HKT has the option of closer co-operation with one of the three Hong Kong companies that have established rival domestic networks following partial deregulation of the industry last year.

All three companies are controlled by tycoons with close China ties.

At the moment HKT's strongest alliance is with New World. The two companies intend to co-operate in the provision of mobile services.