the US networking equipment giant, has woken up to China's potential
and has spent $50m on its largest single investment in the PRC.

The US networking giant has acquired a “strategic stake” in China Communications Services, a telecoms services company that had a highly successful flotation on the HK stock exchange last week.

China Comservice, the former engineering unit of China Telecom,
raised $365m from the flotation of 25% of its capital and the shares
soared 85% on the first day of trading, the biggest first-day “pop” for
a new listing in HK in over nine years. Investors clearly expect
Comservice to be one of the principal beneficiaries of China's
long-awaited roll-out of new 3G services — see this story.

Comservice supplies China's five main state-controlled telephone
companies — China Telecom, China Mobile, China Unicom, China Netcom
and China Railcom — with telecommunications engineering and technical
services, much of which are presumably for Cisco's kit — which
explains the US company's interest.

As part of the re-organisation of China's telecoms sector,
Comservice was spun off as a separate business with China Telecom,
China Mobile, China Unicom and, now, Cisco as significant shareholders.

Under the terms of their agreement, Cisco and Comservice will
jointly provide managed telecommunications services, such as network
operation and administration, to enterprise customers in China and help
build their networks.

Cisco's stake in Comservice — it claims to be the largest foreign
shareholder — would probably be frowned on in the west as it
potentially compromises the freedom of Comservice to provide services
for hardware from rival suppliers, not least Huawei, Cisco's biggest
competitor in China.

More on Huawei and Cisco in this story.

Cisco has to date invested $700m in venture funding to help launch
nearly 30 Chinese start-ups, including e-learning company Ambow and
gaming company Shanda. But its investment in China Comservice is a
significant departure as it is a large business operating in a
well-etablished market.

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