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Chairman's Statement
 

Dear Shareholders,

I am pleased to say that despite an increasing swell of challenges, China Mobile has delivered promising results in the first half of 2016, affirming that we are indeed pursuing the correct strategy. This has been driven by our ongoing focus on innovation in all aspects of operation, as well as a business transformation towards value creation. This is a laudable achievement given that we are going through a period of rapid change where the industry is witnessing further integration and layers of complexity added to the competitive landscape. It has in turn created short-term operating pressures and more risk around those developments slated for the longer-term. However, China Mobile has made steady progress in the 4G, data traffic, wireline broadband and digital services business lines, delivering an outstanding overall performance in the period.

Operating Results

China Mobile has achieved encouraging growth both in terms of revenue and profit for the first half of 2016. The downward trend in revenue growth in telecommunications services that has been seen in recent years has been corrected, and the Company has once again beaten the average industry growth, underlining our market leading position.

Compared to the same period of the year before, operating revenue increased by 7.1% to RMB370.4 billion, within which, revenue from telecommunications services accounted for RMB325.4 billion, up by 6.9%. We generated the largest operating revenue in the first half of 2016 amongst our industry peers, which is in line with our leading position in the market. EBITDA increased by 2.9% to RMB134.4 billion. Our profitability also outperformed our industry peers, with profit attributable to equity shareholders reaching RMB60.6 billion, representing an increase of 5.6%.

After considering the operating results in the first half of 2016 as well as the need for sustainable future development, the Board has declared payment of an interim dividend of HK$1.489 per share, according to the planned full year dividend payout ratio.

The Board believes that the industry-leading profitability and the ability to generate healthy cash flow will provide substantial support for the Company's future development and provide good returns for our shareholders.

Maintaining Leadership in 4G

In the first half of 2016, the Company maintained its competitive advantage in 4G business and of particular note was that we conducted the timely launch of the high quality 4G premium network, ahead of our market peers.

We continued to enhance the stability, coverage and strength of our 4G network to ensure good customer experience at the core of our services. We added over 200,000 4G base stations, increasing the total number of 4G base stations to 1.32 million. Our 4G network has now been expanded to cover more indoor areas in a larger number of places. The strength of the network was enhanced by the launch of high quality VoLTE (Voice over LTE) in nearly 300 cities across the country. The application of Carrier Aggregation has also been rolled out in over 300 cities.

Leveraging its strong existing network, China Mobile has focused its promotional efforts towards 4G upgrades and this campaign has successfully attracted a significant number of 2G/3G customers. In the first half of 2016, the monthly average net increase of 4G customers was over 19 million, pushing the total number of 4G customers to 429 million. 4G penetration rate of our mobile customers attained 51.2% while the Net Promoter Score, which measures the likelihood of customer recommendation, is industry-leading. In addition, the accelerated development of 4G capability and the level of adoption has brought growth in both data traffic and customer spending. During the period, 4G network handset data traffic as a percentage of the total handset data traffic increased to 88.0%. 4G DOU has increased by 31.9%, driving the growth in mobile ARPU. Data traffic reached a record-high level during the period.

However, we cannot rest on our laurels in this strategically important area for our customers, our Company and our industry. We are sure to see increased 4G competition as a number of rival providers are collaborating in network expansion and increasing marketing efforts. Taking all these into perspective, the Company has planned to maintain what we deem sufficient levels of marketing expense in 4G for the rest of 2016 in order to maintain our lead in the market.

Data Traffic Reaches a New Milestone

During this reporting period, wireless data traffic revenue has for the first time exceeded traditional business (including voice and SMS/MMS) and is now notably the biggest revenue source for China Mobile.

Internet access is becoming an indispensable commodity but at the same time the catalyst for economic and social development, driving up demand for a wider range of information services. For the Company, this clearly means growth opportunities, but also the need for continued service improvement and a relentless focus on customer experience. During the first half of the year the Company has been exploring this dual agenda of increasing the value of its data traffic business while meeting community and end-user needs better. This focused effort managed to successfully generate growth in both volume and revenue from data traffic.

Leveraging our innovative operating model, offering a bigger range of products and supplying our data services to an ever-expanding customer base, China Mobile has been able to find a balance between charging lower fees, generating higher traffic volumes and still keeping the value of our services. The data traffic business performed strongly in the first half of 2016. Handset data traffic increased by 133.9% year-on-year, while wireless data traffic revenue increased by 39.7%, rising to 43.3% of the total telecommunications services revenue.

There will be some challenges in data services that we are very aware of, in particular traffic profitability and growth bottleneck. Our future strategy will be a continued focus on data traffic business through enriching our service offerings and maximising the value of our services in order to boost revenue as far as possible from information services. Sustaining the success in data services will be a bedrock for China Mobile, while at the same time allowing the Company to transform to higher-value business areas in the future.

High Quality Wireline Broadband

China's goal of becoming a "Cyberpower" has created huge development potential in the communications industry. The Company is exploring ways of sharpening its edge in wireline broadband that provides synergies with the other business lines, and improving our full service capacity. In the first half of 2016, China Mobile has seen a satisfactory level of growth in the number of wireline broadband customers, with a net increase of 10.81 million and the total number of customers reaching 65.84 million. The broadband business line is starting to show its value potential.

China Mobile adopted the high-end approach to the development of its wireline broadband business, with an aim to grow our capability in household digital services. Emphasising our brand values, our key products will provide a minimum bandwidth of over 50M as standard, giving premium quality to our customers. We truly believe that our approach will promote strong and sustainable development of the wireline broadband business, hence benefiting the industry as a whole.

In the second half of 2016, the Company will work on developing a smart home gateway under the China Mobile brand. This will be a crucial step in structuring our household digital service offerings and smart home product development plan. We see that there is significant potential in this area and China Mobile should work on obtaining a market leading position.

Proactively Expanding Digital Services

The Chinese government's "Internet+" initiative, which aims to integrate the Internet with a range of traditional businesses in order to generate new opportunities, is another area of potential development for the communications industry. The Company has focused on building connections with corporate customers in the ICT (information and communication technology) market. We supported the growth of the businesses by helping them build out their information systems and facilitating the application of these developments in their industries. In the first half of 2016, we served over 3 million corporate customers. Telecommunications and informatisation services saw high growth in revenue, with IDC (Internet Data Centres) and data dedicated line revenue growing by 65.9% and 47.7% respectively. Revenue from corporate telecommunications and informatisation services equates to approximately one-third of the total market in China.

Our digital services are still at an early stage of development and more effort will be needed to drive new products and further strengthen our capabilities. Our business arms that are specialising in the development of designated professional services and emerging innovations have been making progress in the areas of mobile Internet, IoT (Internet of Things), cloud computing and big data. This is with a view to creating more synergy between our cloud resources and existing applications, while deepening our strength in data analytics and big data applications in order to uncover new sources of revenue growth. In the first half of 2016 we had over 80 million connections to the IoT. We would expect to see this number grow further during the rest of the year.

We understand the importance of building up our own capability and streamlining our own systems. In response to the government's policy in promoting mass entrepreneurship and innovation, the Company encourages employees to participate in internal innovation incubators. Our professional business arms mentioned above and R&D centres are the core elements of this innovative drive, which will be focused on enhancing our core capabilities and product range. We will continue to implement necessary organisational and system reforms to promote technology and business innovation that is driven by market needs.

We recognised the huge potential, both now and in the future, of mobile Internet and industrial IoT businesses and planned to establish an open source platform for external developers from different industries to share their innovation with end users. Internally this will benefit us as it will pool substantial industry resources on our platform, and enable vertical integration of technology developers and end customers to create a well-balanced business ecosystem.

Regulatory Policies

The Company has rolled out a number of measures since the second half of 2015 in response to the "speed upgrade and tariff reduction" regulatory initiative. Some of the key considerations expressed by the government when formulating regulatory policies are the lowering of tariffs and upgrade of networks. This will be carried out primarily through promoting healthy market competition while working to encourage industry players to improve their efficiency, all with the ultimate result of driving economic growth.

We will maintain regular communications with the regulators on the anticipated cancellation of long-distance and roaming tariffs. We will be proactive in meeting public expectation by migrating voice call tariff plans to flat rate packages and adjusting the tariffs in a balanced and orderly manner to satisfy market demand. This will also serve to enhance our competitiveness and speed up our transformation further up the value chain. We are keen to share our technology and network advancement with our customers and find the sweet spot between their needs and our short and long-term development plans.

In addition, we are fully aware of the recent regulatory developments including the license granted to China Broadcasting Network, and the permissions to refarm the 2G/3G spectrums provided to some operators. We will closely monitor these ongoing developments and ensure that we grow in accordance with the industry regulations as well as meeting our responsibility to actively cultivate a sustainable ecosystem for the entire industry to prosper.

Corporate Governance and Social Responsibility

Good corporate governance is one of the key elements of our continuing success. We endeavour to establish a sound and transparent governance system and continue to improve it to ensure consistent high levels of corporate governance throughout the business. We value effective two-way communications with the investment community to ensure clarity and mutual understanding. Our effort and commitment towards corporate governance and quality management has earned us a rise in the Forbes Global 2000 list this year from 20th to 18th position.

We are fully committed to our social responsibility while continuing to provide quality products and services for all of our customers. China Mobile has been proudly involved with a range of social initiatives that include working towards narrowing the digital gap, safeguarding emergency communications, caring for the underprivileged, enhancing information security, as well as energy saving and emission reduction. Our efforts in the community have been widely recognised.

Full Year Outlook

This is a milestone year for the implementation of our Big Connectivity strategy that sees the Company expanding its connection to the Internet of Everything, and is therefore crucial in our fundamental shift of business focus to capturing future growth. We remain committed to expanding our network, furthering connectivity scale, optimising services and strengthening applications within our network as we lay the foundations for the next stage of development of China Mobile.

The results show that we have experienced a good first half of 2016. However, competition around 4G business, the continued expansion of Internet companies into the communications industry, new regulatory policies and our change of business focus will all pose risks to our existing operations. The management knows that they must concentrate efforts on these areas by speeding up the business transformation in order to capture first-mover advantage in the emerging areas and always be on the front foot when it comes to the development of the Company.

Our current strategy has the dual aspects of consolidation and future growth. For consolidation, we will be further building on our 4G advantages and increasing our 4G customers proportion. Our high-end approach with regards to wireline broadband will be maintained. We will challenge ourselves to obtain a one-third market share in the ICT business through expansion of our corporate customer base. In terms of future growth, we will take a longer-term perspective, looking towards our digital services and increasing the revenue by understanding the important role that this business line will play for the Company in the future.

As we have always done, we will take a level-headed approach to market competition. We truly believe that reasonable competition benefits the wider development of the industry, and that the sustainable growth of individual companies relies on the health of the whole. We will mainly compete through enhancing the value of our existing customers and maintaining our focus on the furthering of the communications industry for mutual benefit. Our ultimate goal is to strike a balance between the interests of our customers, our shareholders and the public, as well as regulatory requirements when we are striving to meet our short-term goals and formulating long-term plans.

For the rest of 2016, we remain committed to creating value for our shareholders and strengthening our market position to ensure that we maintain our lead in terms of profitability when compared to our peers.

Dr. Lo Ka Shui resigned from the position of independent non-executive director in May 2016 after serving the Board for 15 years. On behalf of the Board, I would like to express our heartfelt gratitude to Dr. Lo for his invaluable contribution to the Company over the years.

Finally, I would like to thank my fellow Board members and colleagues for their remarkable dedication. We have achieved encouraging results in the first half of 2016 and I look forward to working closely with all of them to create more success for our customers, shareholders and community in the period ahead.

Shang Bing
Chairman
Hong Kong, 11 August 2016



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