PCCW, Hong Kong’s largest telecommunications company, admitted on Wednesday that regulatory uncertainty had stymied its efforts to break into mainland China’s vast telecoms market, in spite of its partnership with China Netcom, the country’s second-largest fixed-line operator.

“Some very important policy decisions have not yet been taken [by Chinese regulators], and until those policy decisions are taken, Netcom’s hands are kind of tied,” said Alex Arena, chief financial officer. China is in the middle of restructuring its telecoms sector but foreign investment in the sector remains highly restricted.

State-controlled China Netcom became the second-largest shareholder in PCCW in 2005 but has since done little to help the Hong Kong operator enter the lucrative mainland market. Relations between the two `rcompanies became strained last year when the Chinese government blocked PCCW chairman Richard Li’s plans to auction the company’s telecoms assets to foreign investors.

Earlier this year, China Netcom announced a plan to sell its half of a broadband venture with PCCW in mainland China, which, though small, was seen as one of the few tangible results of the two company’s co-operation.

Mr Arena defended the relationship between the two companies on Wednesday, saying that the original contract with China Netcom in 2005 had provisioned for the sale of its stake in the venture. “There is therefore no question of China Netcom changing its mind,” he said. “There is no setback, there is no upset, there is no problem.”

Mr Arena said last year’s unsuccessful offers from Australia’s Macquarie bank and TPG-Newbridge, the US private equity group, was an indication that PCCW’s business was favourable in spite of its lacklustre share price, which has remained flat since last December, when it resumed trading after the botched sales. The group has no current offers for any of its assets, Mr Arena added.

One banker says a sale remains possible and that a deal is expected this year.

PCCW announced on Wednesday that Mr Arena will replace Jack So as group managing director at the end of April, after Mr So resigned on the same day “for personal reasons”.

The company’s profits fell by an unexpected 22 per cent to HK$1.25bn ($160m) last year, mainly due to a drastic decrease in investment and non-recurrent gains.

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