As China continues its massive economic expansion, the country is in a continuous state of flux. According to the New York Times, China has requested its six telecommunication firms to consolidate their assets, effectively paving the way for fixed-line operators to get into the mobile arena.

According to the same Times article, "the parent of China Telecom will buy a mobile phone network from the parent of China Unicom (NYSE: CHU), which in turn will merge with the company that controls the China Netcom Group (NYSE: CN) ... China will issue three third-generation wireless licenses after the overhaul is completed."

The big short-term loser of this directive appears to be China Mobile (NYSE: CHL). The stock was down about 7% Monday off the news. The firm's stronghold on the mobile telecom market in China is now effectively weakened as China Telecom and Netcom can gear up to compete against China Mobile.

Why should this interest investors? Again, according to the Times, China had almost 600 million mobile phone users at the end of April, exceeding the combined populations of the United States and Japan. In the world's largest mobile market in terms of users, the $100 billion market is poised to ramp up given that just over half of all Chinese own mobile phones and a lot less than that have Internet connections.

Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC., the managing editor of IsraelNewsletter.com an d a former equity analyst for a leading multinational hedge fund.

In a reorganization of China's telecom industry, which will change the face of the wireless industry, the country plans to merge two of its largest mobile companies, China Netcom (NYSE: CN) and China Unicom (NYSE: CHU). The new firm will be issued on of the three high-speed wireless licenses that the government plans to grant.

China's two largest phone companies, China Mobile (NYSE: CHL) and China Telecom, will receive the other two contracts.

According to Reuters, the 3G development will "unleash billions of dollars in spending for network gearmakers." Those companies would include Nokia (NYSE: NOK), Nortel (NYSE: NT), Ericsson (NASDAQ: ERIC),and Motorola (NYSE: MOT).

The news may also be a benefit to handset makers as they rush to offer products for the new 3G networks. Apple (NASDAQ: AAPL) has still not found a home for the iPhone in China.

More competition among carriers will give it a greater chance to strike a good deal. A new market could also give some aid to Motorola's flagging handset sales and to rivals Samsung and Sony Ericsson.

Douglas A. McIntyre is an editor at 247wallst.com.

MOST NOTEWORTHY: Fluor, Forward Air and McDermott were today's noteworthy upgrades:

• Citigroup upgraded shares of Fluor (NYSE: FLR) to Buy from Hold to reflect the company's strong performance and backlog in Q4 and raised their target to $190.50 from $158.
  
• Baird upgraded Forward Air (NASDAQ: FWRD) to Outperform from Neutral citing near-term growth initiatives that are gaining traction.
  
• Citigroup also upgraded shares of McDermott (NYSE: MDR) to Buy from Hold to reflect the company's strong Q4 performance and rising commodity prices.

OTHER UPGRADES:

• RBC Capital upgraded Digital Realty (NYSE: DLR) and ProLogis (NYSE: PLD) to Top Pick from Outperform.
  
• Credit Suisse raised China Unicom (NYSE: CHU) to Outperform from Neutral.
  
• Tyson Foods (NYSE: TSN) and Oracle (NASDAQ: ORCL) were upgraded to Buy from Neutral at Merrill Lynch.

MAJOR PAPERS:

• According to the Wall Street Journal's "Heard on the Street," bears believe it may be too early to bargain hunt among financial stocks, as they think there may be more bad news to come after Citigroup Incorporated (NYSE: C) announced it took an $18B write down in Q4.
• Analysts who follow China's telecom sector believe there are a few prime picks, including China Unicom Limited (NYSE: CHU) and China Mobile Limited (NYSE: CHL), but are advising investors to think long term, the Wall Street Journal reported.

OTHER PAPERS:

• Iron ore talks with China's Baosteel have come to a halt after the company and its peers said price demands from miners BHP Billiton Limited (NYSE: BHP), Rio Tinto PLC (NYSE: RTP) and Companhia Vale do Rio Doce (NYSE: RIO) were "far too high," the Australian Financial Review said.

WEB SITES:

• MiningMx.com reported that BHP Billiton has reached an "impasse" with South Africa's government over the conversion of the company's exploration leases to new order mining rights.

MOST NOTEWORTHY: Penske Automotive, CarMax, Towerstream, Solera and Northstar were today's noteworthy initiations:

• Kevin Dann initiated shares of Penske Automotive Group Inc (NYSE: PAG) with a Buy rating and $25 target. The firm believes shares deserve a higher multiple given the company's reduced exposure to slower growing domestic brands combined with the increased penetration o luxury as a percentage of industry sales.
  
• CarMax Inc (NYSE: KMX) was also initiated at Kevin Dann with a Buy rating and $28 target, as they expect the multiple expansion to continue as confidence builds in the company's sales and expense strategy.
  
• Think Equities started shares of Towerstream Corporation (NASDAQ: TWER) with a Buy rating and $5 target and said the company is rapidly growing given robust demand fro high bandwidth services, market expansion, sales force growth, and higher ARPU services.
  
• Barrington believes Solera Holdings Inc (NYSE: SLH) is positioned to capture growth through technology adoption in claims processing by insurance companies, starting shares off with an Outperform rating and $27 target.
  
• Jefferies resumed coverage of Northstar Neuroscience Inc (NASDAQ: NSTR) with a Buy rating and $21 target, as they expect the company's Phase III EVEREST trial to yield positive positives, setting the stage for an FDA approval by Q109.

OTHER INITIATIONS:

• Friedman Billings started shares of IPG Photonics Corporation (NASDAQ: IPGP) with an Outperform rating and $28 target and added shares to its Top Picks List.
  
• The firm also resumed coverage of Rofin-Sinar Technologies Inc (NASDAQ: RSTI) with an Outperform rating and $92 target.
  
• ABN Amro started China Netcom Group Corporation (NYSE: CN) with a Hold rating and China Mobile Limited (NYSE: CHL) and China Unicom Limited (NYSE: CHU) with Buy ratings.
  
• UBS started RSC Holdings Inc (NYSE: RRR) with a Neutral rating.

By limiting its investment selections to stocks trading on US exchanges, Jim Trippon seeks to benefit from the growth in China without the risks associated with buying shares listed on Chinese exchanges. For example, his China Stock Digest recommends China's two largest wireless telecom stocks – both of which trade as ADRs on the New York exchange.

The first is China Mobile (NYSE:CHL ), which he notes has risen sharply as the company adds subscribers at a record-setting rate. Its total number of subscribers is now 291 million.

This fast growth, he explains, is due to its aggressive push into rural areas this year. He notes that during the first half of 2006, China Mobile added nearly 26 million customers and more than half of them came from underserved rural areas. Although the stock has already risen 80% this year, he says, "China Mobile remains among our top portfolio favorites."

He also recommends China's second largest wireless phone company, China Unicom (NYSE:CHU ). He says, "The firm is growing at a rate that would make any American firm jealous."

And while it still lags in growth and size behind China Telecom, he notes that China Unicom remains "a giant" with 139 million customers. Importantly, some 104 million of these customers use GSM cellular services and almost 35 million use CDMA services, giving the firm a "foothold in the next generation of wireless technology with the continuing rollout of 3G services."

The stock recently rose to a 52-week high after a Morgan Stanley analyst upgraded the stock based on the assumption that the company could sell off some of its parts. Despite its strong performance to date he says, "We continue to see it as a solid performer for the coming year."

Steven Halpern is the editor of TheStockAdvisors.com, a free daily overview of the latest investment ideas from the financial newsletter community.