China Mobile (中国移动) Faces Challenges Amid Tax Reforms: Will Dividend Policy Change?

China Mobile (中国移动), a leading telecommunications provider in China, has reported its 2025 annual and fourth-quarter earnings, revealing a mixed performance as it navigates the implications of new tax reforms. With total revenue reaching 255.5 billion yuan (approximately $39 billion) in the fourth quarter, the company saw a modest growth of 2.5% year-on-year. However, the impact of an impending increase in value-added tax (VAT) starting January 1, 2026, raises questions about its long-term strategy and dividend policy.

Financial Performance Insights

The fourth-quarter earnings show that while operating profit rose 8% to 25.6 billion yuan, the overall net profit plunged by 21% largely due to other losses. The company’s core communication services, which account for over 80% of its revenue, are facing pressure with a notable decline in mobile data pricing—down 13% year-on-year, despite a 10% increase in data usage. This "lower price to attract users" strategy has led to a decrease in revenue from mobile services, which dropped to 173.6 billion yuan.

In contrast, the broadband segment showed resilience, growing 8.6% in revenue thanks to increased user numbers and higher average monthly fees. The report suggests that while China Mobile continues to invest in its core services, it is also redirecting capital towards expanding computing power networks, reflecting a shift in focus as the high-investment phase of 5G technology begins to wane.

The Dividend Dilemma

As the company prepares for the VAT hike, which could impact its revenue by 1-2%, analysts are closely monitoring its dividend policy. Currently, China Mobile maintains a robust dividend payout ratio of over 72%, having returned approximately 104.2 billion yuan to shareholders in the past year. However, with the expected rise in operational costs, including the increased VAT rate from 6% to 9% on key services, the sustainability of this dividend may come under scrutiny.

The market anticipates that these tax adjustments could lead to a reduction in net profit margins, with estimates suggesting an impact of around 5-7%. Investors are left to ponder: Will the company prioritize shareholder returns at the expense of long-term growth, or will it adapt its strategy to navigate the new tax landscape?

Conclusion

China Mobile's steady revenue growth in a challenging environment highlights its resilience as a market leader. As it prepares to adapt to the new VAT regulations, the company must balance maintaining its attractive dividend policy with the need for strategic investments in new technological fronts. With the telecommunications industry facing a period of significant change, how China Mobile responds could set the tone for its future performance and investor sentiment in the tech-heavy landscape of China's economy.