China Mobile has agreed to pay Rmb39.8bn ($5.8bn) for a 20 per cent stake in Pudong Development Bank, closing a deal that unsettled investors when news of it started leaking two weeks ago.

In an attempt to calm jittery investors after China Mobile shares were hammered over the past week, the world's largest mobile operator said the investment would increase its earnings per share by 2 per cent immediately on completion of the deal.

But Wang Jianzhou, China Mobile chairman and chief executive, insisted that taking a stake in the regional lender was not just a financial investment but a strategic move to enhance its mobile payments business, which the carrier has identified as a core area in value-added services.

China Mobile said it would work with Pudong Development on mobile phone payments, mobile bank cards, mobile fund transfer and other forms of mobile finance.

The deal comes as Beijing is preparing to allow cable network companies and broadcasters to enter telecoms services, raising the pressure on telecom operators to generate revenues with value-added services.

Mr Wang said the stake in the lender would give China Mobile a bigger share of eventual profits from lucrative mobile payments. He also said the deal would be a new growth engine and increase users' loyalty.

“Consumers often stick to the same phone operator after they subscribe to mobile payment services. This will help us to retain users,” said Mr Wang.

China Mobile is looking for ways to drive growth as competition in the telecoms sector is intensifying.

The company started offering some mobile payment services last year, hoping to tap into the country's Rmb180bn online payment market.

But it is facing a dominant rival – Alipay, the online payment subsidiary of Alibaba.com, the world's largest internet trading platform for businesses.

Mr Wang said China Mobile did not intend to diversify into broader e-commerce and become another Alibaba.com, and would remain focused on its core telecoms service.