Dual Policy Shock: China’s Three Major Carriers Face a Much Tougher 2026

Policy shock at two points

A pair of Beijing policy moves has pushed China’s three major carriers into a new operating inflection point. It has been reported that the Ministry of Finance has raised the central SOE post‑tax profit remittance ratio for wholly state‑owned telecom companies from 20% to 35% (effective from 2025), and the tax authorities have moved telecom service value‑added tax (VAT) from 6% to 9% starting 1 January 2026. Together these measures — one hitting the post‑tax dividend side, the other squeezing pre‑tax gross margin — form a “double pinch” that will reshape cash flow, investment and market valuation for China Mobile (中国移动), China Telecom (中国电信) and China Unicom (中国联通).

Cash, capex and margins under pressure

The math is stark. Post‑tax remittance rising 15 percentage points directly reduces carriers’ retained earnings, constraining funds for reinvestment and dividends. Using 2025 reported results as a base, China Mobile’s (2025) net profit attributable to parent stood at RMB 1371亿元; under a 35% remittance rule its discretionary cash pool would shrink by more than RMB 200亿元. At the same time, UBS has estimated that the VAT hike will reduce ex‑tax service revenue by roughly 1.5–2% and could cut carriers’ 2026 net profits by over 10 percentage points if prices and other costs remain unchanged. Revenue growth for the sector has already slowed — industry revenue rose from about RMB 1.61 trillion in 2021 to RMB 1.97 trillion in 2025 while annual growth rates slipped toward zero — and carriers have preemptively trimmed 2026 capex plans (China Mobile down ~9.5%, China Telecom ~9.2%, China Unicom ~8%).

Valuation and strategic consequences

This is not merely an accounting tweak. By slotting telecom SOEs into a first‑tier remittance category alongside tobacco, oil and power, regulators have signalled a different political‑economic identity for the sector: more resource‑like, with tighter expectations on fiscal contribution and potentially narrower pricing and investment autonomy. That change undermines the long‑standing “high‑dividend, defensive” equity thesis that supported telecom valuations on A‑ and H‑shares. It has been reported that market pricing has already begun to reflect this shift, with telecom stocks running behind broader indices since 2025.

Pivot to compute and AI — can it offset the squeeze?

Faced with squeezed cash and a maturing connectivity market, all three carriers are accelerating a strategic pivot from pure connectivity to “compute + services.” China Mobile says it will sharply boost算力 (compute) network investment; China Telecom and China Unicom have rolled out token‑ and AI‑service centric plans and raised the share of compute capex. That pivot dovetails with national priorities such as “East‑to‑West Compute” (东数西算) and the AI development agenda, and may secure policy support or differentiated tax/treatment for new‑economy assets. But can faster算力 deployment and higher‑margin AI services fully offset two years of fiscal tightening? The coming 12–18 months will test whether telecoms can convert policy pressure into a structural repositioning or merely suffer a prolonged earnings reset.