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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 2 20549
 
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF
1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number 1-15028
 CHINA UNICOM (HONG KONG) LIMITED
  N/A
(Translation of Registrants Name Into English)
    
    Hong Kong
(Jurisdiction of Incorporation or Organization)
 th
 th
  Title of Each Class
    
    Name of Each Exchange On Which RegisteredOrdinary shares, par value HK$0.10 per share
    
    The New York Stock Exchange, Inc.*
 
 *
    
    Not for trading, but only in connection with the listing on The New York Stock Exchange, Inc.
of American depositary shares, or ADSs, each representing 10 ordinary shares.
  
  
   þ o
 o þ
 þ o
  o o
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o  o
 þ
 o
  o o
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TABLE OF CONTENTS
 PageNote Regarding Forward-looking Statements
    
    iiiCertain Definitions
    
    ivSpecial Note on Our Financial Information and Certain Statistical Information Presented in
This Annual
Report
    
    viPART I
    
    
    1Item 1. Identity of Directors, Senior Management and Advisers
    
    
    1Item 2. Offer Statistics and Expected Timetable
    
    
    1Item 3. Key Information
    
    
    1Item 4. Information on the Company
    
    
    19Item 4A. Unresolved Staff Comments
    
    
    55Item 5. Operating and Financial Review and Prospects
    
    
    55Item 6. Directors, Senior Management and Employees
    
    
    74Item 7. Major Shareholders and Related Party Transactions
    
    
    85Item 8. Financial Information
    
    
    106Item 9. The Offer and Listing
    
    
    106Item 10. Additional Information
    
    
    107Item 11. Quantitative and Qualitative Disclosures about Market Risks
    
    
    118Item 12. Description of Securities Other than Equity Securities
    
    
    120PART II
    
    
    120Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    120Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    120Item 15. Controls and Procedures
    
    
    120Item 16A. Audit Committee Financial Expert
    
    
    121Item 16B. Code of Ethics
    
    
    121Item 16C. Principal Accountant Fees and Services
    
    
    121Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    122
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PageItem 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    122Item 16F. Change in Registrants Certifying Accountant
    
    
    122Item 16G. Corporate Governance
    
    
    123PART III
    
    
    124Item 17. Financial Statements
    
    
    124Item 18. Financial Statements
    
    
    124Item 19. Exhibits
    
    
    124EX-1.2EX-4.16EX-4.26EX-4.27EX-4.28EX-4.29EX-4.30EX-4.31EX-4.32EX-4.33EX-4.34EX-4.35EX-4.36EX-4.37EX-4.39EX-4.40EX-4.41EX-4.42EX-4.43EX-4.44EX-4.45EX-4.46EX-4.47EX-4.48EX-4.49EX-4.50EX-8.1EX-12.1EX-12.2EX-13.1EX-13.2
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Note Regarding Forward-Looking Statements
    
    
    changes in the regulatory regime and policies for the PRC telecommunications
industry, including changes in the structure or functions of the primary industry
regulator, the Ministry of Industry and Information Technology, or the MIIT (which has
assumed the regulatory functions of the former Ministry of Information Industry), or
changes in the regulatory policies of the MIIT, the State-owned Assets Supervision and
Administration Commission, or the SASAC, and other relevant government authorities of
the PRC;
    
    results of the ongoing restructuring of the PRC telecommunications industry;
    
    changes in the PRC telecommunications industry resulting from the issuance of 3G
licenses by the central government of the PRC;
    
    effects of tariff reduction and other policy initiatives from the relevant PRC
government authorities;
    
    changes in telecommunications and related technologies and applications based on
such technologies;
    
    the level of demand for telecommunications services;
    
    competitive forces from more liberalized markets and our ability to retain market
share in the face of competition from existing telecommunications companies and
potential new market entrants;
    
    effects of competition on the demand and price of our telecommunications services;
    
    the availability, terms and deployment of capital and the impact of regulatory and
competitive developments on capital outlays;
    
    effects of our restructuring and integration following the completion of our merger
with China
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Netcom Group Corporation (Hong Kong) Limited;
    
    effects of our proposed adjustments in our business strategies relating to the
personal handyphone system, or PHS, business;
    
    effects of our acquisition from our parent companies of certain telecommunications
business and assets, including the fixed-line business in 21 provinces in southern
China, in January 2009;
    
    changes in the assumptions upon which we have prepared our projected financial
information and capital expenditure plans;
    
    changes in the political, economic, legal and social conditions in the PRC,
including the PRC Governments policies and initiatives with respect to economic
development in light of the current global economic downturn, foreign exchange
policies, foreign investment activities and policies, entry by foreign companies into
the PRC telecommunications market and structural changes in the PRC telecommunications
industry; and
    
    the potential continued slowdown of economic activities inside and outside the PRC.
  
 Certain Definitions
    
    
    references to China or PRC mean the Peoples Republic of China, excluding, for
purposes of this annual report, Hong Kong, Macau and Taiwan, and references to the
central government or the PRC Government mean the central government of the PRC;
    
    references to our fixed-line northern service region mean the 10 municipalities
and provinces where we operate fixed-line business in northern China, consisting of
Beijing and Tianjin Municipalities, and Hebei, Henan, Shandong, Liaoning, Heilongjiang,
Jilin, and Shanxi Provinces, and the Inner Mongolia Autonomous Region;
    
    references to the 21 provinces in southern China mean Shanghai Municipality,
Jiangsu Province, Zhejiang Province, Anhui Province, Fujian Province, Jiangxi Province,
Hubei Province, Hunan Province, Guangdong Province, Guangxi Zhuang Autonomous Region,
Hainan Province, Chongqing Municipality, Sichuan Province, Guizhou Province, Yunnan
Province, Tibet Autonomous Region, Shaanxi Province, Gansu Province, Qinghai Province,
Ningxia Hui Autonomous Region and Xinjiang Uygur Autonomous Region. We completed the
acquisitions of
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certain telecommunications business and assets, including the fixed-line business in
those 21 provinces in southern China, from Unicom Group and Netcom Group and/or
their respective subsidiaries and branches in January 2009. See A. History and
Development of the Company  Recent Developments  Acquisitions of Fixed-Line
Business in 21 Provinces in Southern China and Other Assets from Parent Companies
and Lease of Telecommunications Networks in 21 Provinces in Southern China under
Item 4.
    
    references to Hong Kong Stock Exchange, SEHK or HKSE mean The Stock Exchange
of Hong Kong Limited, and references to NYSE or New York Stock Exchange mean The
New York Stock Exchange, Inc; and
    
    references to Renminbi or RMB are to the currency of the PRC, references to
U.S. dollars or US$ are to the currency of the United States of America, and
references to HK dollars or HK$ are to the currency of the Hong Kong Special
Administrative Region of the PRC.
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Special Note on Our Financial Information and Certain Statistical Information Presented
in This Annual Report
     -vi-




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PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 A. Selected Financial Data
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As of or for the year ended December 312007
    
    2008
    
    2008RMB
    
    RMB
    
    US$(1)(in millions, except for per share data)Consolidated Income Statement Data:CONTINUING OPERATIONSRevenue(2)GSM mobile businessService revenue
    
    
    62,547
    
    
    
    64,704
    
    
    
    9,484Sales of GSM mobile telecommunications products
    
    
    12
    
    
    
    550
    
    
    
    81Total GSM revenue
    
    
    62,559
    
    
    
    65,254
    
    
    
    9,565Fixed-line businessService revenue(2)
    
    
    87,200
    
    
    
    82,548
    
    
    
    12,099Sales of fixed-line telecommunications products
    
    
    928
    
    
    
    1,104
    
    
    
    162Total fixed-line revenue
    
    
    88,128
    
    
    
    83,652
    
    
    
    12,261Total revenue
    
    
    150,687
    
    
    
    148,906
    
    
    
    21,826Total costs and expenses
    
    
    (123,446
    )
    
    
    (140,765
    )
    
    
    (20,633
    )Income from continuing operations before income tax
    
    
    27,241
    
    
    
    8,141
    
    
    
    1,193Income tax expenses
    
    
    (7,083
    )
    
    
    (1,801
    )
    
    
    (264
    )Income from continuing operations
    
    
    20,158
    
    
    
    6,340
    
    
    
    929DISCONTINUED OPERATIONS(3)Income from discontinued operations
    
    
    654
    
    
    
    1,438
    
    
    
    211Gain on the disposal of discontinued operations
    
    
    626
    
    
    
    26,135
    
    
    
    3,831Net income
    
    
    21,438
    
    
    
    33,913
    
    
    
    4,971Earnings per share for income attributable to the equity holders of the
Company during the year-Basic earnings per share(4)
    
    
    0.93
    
    
    
    1.43
    
    
    
    0.21-Diluted earnings per share(4)
    
    
    0.92
    
    
    
    1.42
    
    
    
    0.21-Basic earnings per ADS(5)
    
    
    9.29
    
    
    
    14.28
    
    
    
    2.09-Diluted earnings per ADS(5)
    
    
    9.19
    
    
    
    14.16
    
    
    
    2.08Earnings per share for income from continuing operations attributable to the
equity holders of the Company during the year-Basic earnings per share(4)
    
    
    0.87
    
    
    
    0.27
    
    
    
    0.04-Diluted earnings per share(4)
    
    
    0.86
    
    
    
    0.27
    
    
    
    0.04-Basic earnings per ADS(5)
    
    
    8.74
    
    
    
    2.67
    
    
    
    0.39-Diluted earnings per ADS(5)
    
    
    8.64
    
    
    
    2.65
    
    
    
    0.39Earnings per share for income from discontinued operations attributable to
the equity holders of the Company during the year-Basic earnings per share(4)
    
    
    0.06
    
    
    
    1.16
    
    
    
    0.17-Diluted earnings per share(4)
    
    
    0.06
    
    
    
    1.15
    
    
    
    0.17
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As of or for the year ended December 312007
    
    2008
    
    2008RMB
    
    RMB
    
    US$(1)(in millions, except for per share data)-Basic earnings per ADS(5)
    
    
    0.55
    
    
    
    11.61
    
    
    
    1.70-Diluted earnings per ADS(5)
    
    
    0.55
    
    
    
    11.52
    
    
    
    1.69-Number of shares outstanding for basic earnings per share(4)
    
    
    23,075
    
    
    
    23,751
    
    
    
    23,751-Number of shares outstanding for diluted earnings per share(4)
    
    
    23,321
    
    
    
    23,941
    
    
    
    23,941-Number of ADS outstanding for basic earnings per ADS(5)
    
    
    2,308
    
    
    
    2,375
    
    
    
    2,375-Number of ADS outstanding for diluted earnings per ADS(5)
    
    
    2,332
    
    
    
    2,394
    
    
    
    2,394Consolidated Balance Sheet Data:AssetsCash and cash equivalent and short-term bank deposits
    
    
    12,714
    
    
    
    9,476
    
    
    
    1,389Property, plant and equipment
    
    
    276,110
    
    
    
    283,912
    
    
    
    41,614Proceeds receivable for the disposal of the CDMA business
    
    
    
    
    
    
    13,140
    
    
    
    1,926Total assets
    
    
    334,087
    
    
    
    344,924
    
    
    
    50,557LiabilitiesPayables in relation to the disposal of the CDMA business
    
    
    
    
    
    
    4,232
    
    
    
    620Short-term bank loans
    
    
    11,850
    
    
    
    10,780
    
    
    
    1,580Short-term commercial paper
    
    
    20,000
    
    
    
    10,000
    
    
    
    1,466Current portion of long-term bank loans
    
    
    7,411
    
    
    
    1,216
    
    
    
    178Current portion of obligations under finance lease
    
    
    103
    
    
    
    
    
    
    
    Long-term debt
    
    
    16,086
    
    
    
    997
    
    
    
    146Corporate bonds
    
    
    2,000
    
    
    
    7,000
    
    
    
    1,026Total liabilities
    
    
    155,571
    
    
    
    138,214
    
    
    
    20,259Shareholders equity
    
    
    178,516
    
    
    
    206,710
    
    
    
    30,298Share capital
    
    
    1,437
    
    
    
    2,329
    
    
    
    341Other Financial Data:CONTINUING OPERATIONSNet cash inflow from operating activities of
continuing operations
    
    
    65,256
    
    
    
    56,674
    
    
    
    8,307Net cash outflow from investing activities of continuing operations
    
    
    (47,641
    )
    
    
    (54,490
    )
    
    
    (7,987
    )Net cash outflow from financing activities of continuing operations
    
    
    (29,805
    )
    
    
    (35,070
    )
    
    
    (5,140
    )Net cash outflow from continuing operations
    
    
    (12,190
    )
    
    
    (32,886
    )
    
    
    (4,820
    )DISCONTINUED OPERATIONS(3)Net cash inflow from operating activities of
discontinued operations
    
    
    1,225
    
    
    
    656
    
    
    
    96Net cash inflow from investing activities of discontinued operations
    
    
    3,078
    
    
    
    29,489
    
    
    
    4,322Net cash outflow from financing activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    Net cash inflow from discontinued operations
    
    
    4,303
    
    
    
    30,145
    
    
    
    4,418Net decrease in cash and cash equivalents
    
    
    (7,887
    )
    
    
    (2,741
    )
    
    
    (402
    )Dividend declared per share
    
    
    0.20
    
    
    
    0.20
    
    
    
    0.03
 
 (1)
    
    The translation of RMB into US dollars has been made at the rate of RMB6.8225 to US$1.00, the
noon buying rate in New York City for cable transfer in RMB as certified for customs purposes
by the Federal Reserve Bank of New York on December 31, 2008. The translations are solely for
the convenience of the reader.(2)
    
    Including fixed-line upfront connection fees for basic telephone access services that were
eliminated by order of the former Ministry of Information Industry in July 2001.(3)
    
    Results of the Guangdong and Shanghai service regions have been disclosed as discontinued
operations for the year ended December 31, 2007 and results of our CDMA business have been
disclosed as discontinued operations for the years ended December 31, 2007 and 2008.(4)
    
    See Note 35 to the financial statements included in this Form 20-F on how basic and diluted
earnings per share are calculated under IFRS/HKFRS.(5)
    
    Earnings per ADS is calculated by multiplying earnings per share by 10, which is the number
of shares represented by each ADS. -3-




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Exchange Rate Information
   Noon Buying Rate
 RMB per US$1.00
    
    HK$ per US$1.00High
    
    Low
    
    High
    
    LowDecember 2008
    
    
    6.8842
    
    
    
    6.8225
    
    
    
    7.7522
    
    
    
    7.7497January 2009
    
    
    6.8403
    
    
    
    6.8225
    
    
    
    7.7618
    
    
    
    7.7504February 2009
    
    
    6.8470
    
    
    
    6.8241
    
    
    
    7.7551
    
    
    
    7.7511March 2009
    
    
    6.8438
    
    
    
    6.8240
    
    
    
    7.7593
    
    
    
    7.7497April 2009
    
    
    6.8361
    
    
    
    6.8180
    
    
    
    7.7508
    
    
    
    7.7495May 2009
    
    
    6.8326
    
    
    
    6.8176
    
    
    
    7.7526
    
    
    
    7.7500June 2009 (up to June 19, 2009)
    
    
    6.8364
    
    
    
    6.8264
    
    
    
    7.7516
    
    
    
    7.7499
  Average Noon Buying Rate
 RMB per US$1.00
    
    HK$ per US$1.002004
    
    
    8.2768
    
    
    
    7.78992005
    
    
    8.1826
    
    
    
    7.77552006
    
    
    7.9579
    
    
    
    7.76852007
    
    
    7.5806
    
    
    
    7.80082008
    
    
    6.9193
    
    
    
    7.7814
 B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 Risks Relating to Our Business
 We face intense competition in all our businesses from other telecommunications service
providers, including China Mobile Limited and its affiliates, or China Mobile and China
Telecom Corporation Limited and its affiliates, or China Telecom. Such competition may
intensify and result in slower
subscriber growth, lower tariffs and higher customer acquisition costs for us, which would
materially
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adversely affect our financial condition, results of operations and growth prospects.
  Competition in Mobile Business
  Competition in Fixed-Line Business.
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We may further lose fixed-line and mobile subscribers and our doubtful debt ratios may
increase, which may materially adversely affect our financial condition, results of
operations and growth prospects.
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Competition from foreign-invested operators and other new entrants may further increase the
competition for employees, exacerbate price competition and increase our operating expenses,
thereby adversely affecting our financial condition, results of operations and growth
prospects.
   Various difficulties involved and extensive efforts required in the ongoing integration
process following our merger with China Netcom may adversely affect our financial condition,
results of operations and growth prospects.
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We may not be able to fully realize the anticipated synergies of our merger with China
Netcom as well as our acquisition of the fixed-line business in 21 provinces in southern
China due to a number of factors, some of which are beyond our control, and our future
financial condition, results of operations and growth prospects may be materially adversely
affected.
   
    
    difficulties in integrating the operations of the two companies, including unifying
their operating and accounting policies and procedures as well as their information
systems, streamlining overlapping operations, consolidating subsidiaries and branch
networks, and allocating human resources;
    
    unforeseen contingent risks or latent liabilities relating to the merger that may
not become apparent until in the future;
    
    loss of personnel, including key management members;
    
    increase in competition in the PRC telecommunications industry resulting from the
recent restructuring of the PRC telecommunications industry, which, among other things,
may require us to increase our marketing efforts;
    
    the diversion of financial or other resources from our existing businesses; and
    
    potential loss of, or harm to, relationships with customers.
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Failure to respond to technological and industry developments in a timely and effective
manner or failure to continually optimize, expand and upgrade our networks and
infrastructure could materially adversely affect our competitive position and hinder our
growth.
    
    
    manage technology migration in an effective manner;
    
    obtain adequate financing;
    
    obtain relevant government licenses, permits and approvals;
    
    obtain adequate network equipment and software;
    
    retain experienced management and technical personnel;
    
    obtain sufficient spectrum frequencies, network numbers and other telecommunications
resources controlled by the PRC Government;
    
    gain access to the sites for network construction or upgrade; and
    
    enter into interconnection and other arrangements with other operators.
  The successful development and introduction of our 3G network and services is subject to
market demand, consumer acceptance, technological challenges, other uncertainties, expected
benefits from investments in our 3G networks and technology may not be realized and our GSM
mobile business may be adversely affected due to the competitive nature between 3G services
and 2G services in the industry.
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
    
    we will be able to gain access to sufficient sites for 3G network construction;
    
    there will be sufficient demand for 3G services for us to deliver these services
profitably;
    
    the commercial launch of our 3G services will proceed according to anticipated
schedules;
    
    our 3G network and services will deliver the quality and levels of services as
expected;
    
    we will be able to provide all planned 3G services or that we will be able to
provide such services on schedule, or that developing and providing such services will
not be more costly than expected;
    
    our 3G services will be more popular among potential subscribers than those of our
competitors;
    
    we will not encounter unexpected technological difficulties in implementing the
WCDMA technology; or
    
    our 3G services will generate an acceptable or commercially viable rate of return.
  Because we rely on arrangements with other telecommunications operators, changes to the
terms or availability of these arrangements may result in disruptions to our services and
operations and may result in customer dissatisfaction and materially adversely affect our
financial condition, results of operations and growth prospects.
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Interruptions to our networks and operating systems or to those with which we interconnect,
including those caused by natural disasters and service maintenance and upgrades, may disrupt our services and operations and may
result in customer dissatisfaction and materially adversely affect our financial condition,
results of operations and growth prospects.
  If we fail to achieve a smooth discontinuation of PHS services or retain our PHS subscribers
to use our other telecommunications services, our financial condition and results of
operations may be adversely affected.
   If we are unable to fund our capital expenditure and debt service requirements, our
financial condition, results of operations and growth prospects will be materially adversely
affected.
  
    
    our financial condition and results of operations;
 -11-




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
    
    our creditworthiness and relationship with lenders;
    
    the condition of the economy and the telecommunications industry in China;
    
    conditions in relevant financial markets in China and elsewhere in the world; and
    
    our ability to obtain any required government approvals for our financings.
 We may experience further declines in ARPU for our telecommunications services.
  If the economy of China deteriorates under the current global financial crisis, our financial
condition, results of operations and growth prospects may be materially adversely affected.
  Our controlling shareholder, Unicom Group, can exert influence on us and cause us to make
decisions that may not always be in the best interests of us or our other shareholders and may
fail to provide services and facilities that we rely on to operate our business.
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The previous internal reorganization of Unicom Group for the A Share offering created a
two-step voting mechanism that requires the approval of the minority shareholders of both
our Company and China United Telecommunications Corporation Limited, or the A Share Company,
for significant related party transactions between us and Unicom Group.
  Investor confidence and the market prices of our shares and ADSs may be materially and
adversely impacted if we are or our independent registered public accounting firm is unable
to conclude that our internal control over financial reporting is effective in future years
as required by Section 404 of the Sarbanes-Oxley Act of 2002.
    The PRC National Audit Office and other governmental or third parties may audit or
investigate our ultimate controlling shareholder and us from time to time. The outcome of
these governmental or third-party investigations may materially adversely affect our
corporate image, the reputation and credibility of our management, our business and
financial condition and the prices of our shares and ADSs.
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Risks Relating to the Telecommunications Industry in China
 Extensive government regulation of the telecommunications industry in China may restrict our
ability to respond to market conditions or competition, and may have a material adverse
effect on our financial condition, results of operations and growth prospects.
  Regulatory or policy changes relating to the PRC telecommunications industry or any future
industry restructuring may materially adversely affect our financial condition, results of
operations and growth prospects.
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New regulations, regulatory changes or changes in enforcement policies relating to
tariffs and other aspects of telecommunications services may materially adversely affect our competitiveness, business and financial
condition, results of operations and growth prospects.
   The telecommunications industry in China may not sustain its pace of rapid growth, which may
adversely affect the growth and profitability of our business.
  The PRC Government may require us, along with other telecommunications service providers in
China, to provide universal services with specified obligations, and we may not be
compensated adequately for providing such services.
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Actual or perceived health risks associated with the use of mobile devices could impair our
ability to retain and attract customers of our mobile services, reduce mobile service usage
or result in litigation.
  Risks Relating to Doing Business in China
 Our operations may be materially adversely affected by changes in Chinas economic,
political and social conditions.
  If the PRC Government revises the current regulations that allow a foreign-invested
enterprise to pay foreign exchange in current account transactions, our operating
subsidiarys ability to satisfy its foreign exchange obligations and to pay dividends to us
in foreign currencies may be restricted.
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Fluctuations in the value of the Renminbi could adversely affect the prices of our shares
and ADSs as well as our profitability.
  Uncertainties in the PRC legal system could limit the legal protections available to us and
to foreign investors and materially adversely affect our financial condition, results of
operations and growth prospects.
  -17-




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Since we are a Hong Kong company, you will not have certain investor rights as our
shareholder, such as the right to bring legal action against other shareholders on behalf of
the company.
  You may experience difficulties in effecting service of legal process and enforcing
judgments against us and our management.
  New provisions of the PRC Employment Contract Law may substantially increase our
labor-related costs in the future.
  Natural disasters and health hazards in China may severely disrupt our business and
operations and may severely restrict the level of economic activities in affected areas
which in turn may have a material adverse effect on our financial condition and results of
operations.
  -18-




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Risk Relating to our ADSs
 Holders of our ADSs will not have the same voting rights as the holders of our shares and
may not receive voting materials in time to be able to exercise their right to vote.
  
 Item 4. Information on the Company
 A. History and Development of the Company
   Restructurings of Telecommunications Industry
    -19-




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Sale of CDMA Business, Merger with China Netcom and Related Transactions
 Disposal of CDMA Business and Related Transactions
      -20-




---



##### Table of Contents



Merger with China Netcom and Related Transactions
 Merger with China Netcom
    Change of Company Name
  Related Transactions
  -21-




---



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History and Corporate Development of China Netcom
     Our Parent Company and Our Initial Public Offering
   Unicom Acquisitions and Sales
   -22-




---



##### Table of Contents



Unicom Vsens Telecommunications Company Limited
  China Unicom Mobile Network Company Limited
  Recent Developments
 3G License
  Acquisitions of Fixed-Line Business in 21 Provinces in Southern China and Other Assets from Parent
Companies and Lease of Telecommunications Networks in 21 Provinces in Southern China
  -23-




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##### Table of Contents




    
    the fixed-line business across 21 provinces in southern China operated by
Unicom Group and Netcom Group and/or their respective subsidiaries and branches (but
not the underlying fixed assets) and the local access telephone business in Tianjin
Municipality operated by Unicom Group and related fixed assets (other than land and
buildings) necessary for the operation of such local access telephone business and/or
respective subsidiaries and branches;
    
    the backbone transmission assets in 10 provinces in northern China owned by Netcom
Group and/or its subsidiaries;
    
    100% of the equity interest in Unicom Xingye, a limited liability company
incorporated under the laws of the PRC and a wholly-owned subsidiary of Unicom Group;
    
    100% of the equity interest in China Information Technology Designing & Consulting
Institute Company Limited, or CITC, a limited liability company incorporated under the
laws of the PRC and a wholly-owned subsidiary of Unicom Group; and
    
    100% of the equity interest in Unicom New Guoxin Telecommunications Corporation
Limited, or New Guoxin, a limited liability company incorporated under the laws of the
PRC and a wholly-owned subsidiary of Unicom Group.
   Our Relationship with Unicom Group
  -24-




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-25-




---



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Two-Step Voting Arrangements
   -26-




---



##### Table of Contents




    
    the closing of the initial agreement would be subject to (i) the successful transfer
of all rights and obligations of the A Share Company or Unicom BVI under the initial
agreement to us or our subsidiaries, and (ii) the approval of the further agreement by
our independent shareholders; and
    
    Unicom Group or its subsidiaries (excluding the A Share Company and its
subsidiaries) would agree and acknowledge that all rights and obligations under the
initial agreement can be transferred to us or our subsidiaries without any further
consent requirements.
  Capital Expenditures and Divestitures
  B. Business Overview
 General
  Mobile Business
 GSM Mobile Business
  -27-




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##### Table of Contents



Mobile Voice Business
   As of or forthe year ended December 31,2006(4)
    
    2007(4)
    
    2008Number of subscribers (in thousands)
    
    
    106,937
    
    
    
    120,564
    
    
    
    133,365Estimated market share in our service areas(1)
    
    
    23.2
    %
    
    
    22.0
    %
    
    
    20.8
    %Average minutes of usage per subscriber per month (MOU)(2)
    
    
    237.8
    
    
    
    249.7
    
    
    
    246.4Average revenue per subscriber per month (ARPU) (in RMB)(3)
    
    
    49.2
    
    
    
    45.7
    
    
    
    42.3SMS volume (in billions)
    
    
    59.26
    
    
    
    72.94
    
    
    
    76.33
 
 (1)
    
    Market share in a given area is determined by dividing the number of our GSM subscribers in
the area by the total number of mobile subscribers in the area. Source: MIIT.(2)
    
    MOU is calculated by dividing the total minutes of usage during the period by the average
number of our GSM subscribers during the period, and dividing the result by the number of
months in the relevant period.(3)
    
    ARPU is calculated by dividing the sum of GSM revenue during the relevant period by the
average number of our GSM subscribers during the period, and dividing the result by the number
of months in the period.(4)
    
    Includes Unicom Guizhou, which merged into CUCL on December 31, 2007. Subscriber Increase.
 -28-




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MOU and ARPU
 Churn Rate
 Payment Delinquency.
 Tariffs
  Post-paid Services
    
    Pre-paid ServicesRMB
    
    RMBBasic monthly fee
    
    45-50
    
    0Local usage charge (per minute)
    
    0.36-0.40
    
    0.54-0.60Domestic roaming charge (per minute)
    
    0.6 for caller
    
    0.6 for caller0.4 for receiver
    
    0.4 for receiver
 
 Source:
    
    MIIT.    -29-




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Mobile Value-Added Services
     3G Mobile Business
  Fixed-Line Business
   -30-




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
    
    fixed-line voice services (including PHS services), including local, domestic long
distance and international long distance services;
    
    fixed-line value-added services;
    
    fixed-line broadband services, including XDSL, LAN, broadband content and
applications services; and
    
    data communications services, including managed data, leased line services and ICT
services.
    Fixed-Line Voice Business
     -31-




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As of December 31,2006
    
    2007
    
    2008(in thousands, except percentages)Number of fixed-line
subscribers(1)Residential
    
    
    68,803
    
    
    
    67,162
    
    
    
    61,246Business
    
    
    10,946
    
    
    
    10,575
    
    
    
    10,599PHS
    
    
    27,316
    
    
    
    26,189
    
    
    
    21,851Public telephones
    
    
    6,907
    
    
    
    6,894
    
    
    
    6,450Total
    
    
    113,972
    
    
    
    110,820
    
    
    
    100,146Market share(2)
    
    
    91.5
    %
    
    
    90.4
    %
    
    
    89.1
    %
 
 (1)
    
    Fixed-line subscribers consist of all access lines in service as well as PHS subscribers. We
calculate PHS subscribers based on the number of active telephone numbers for our PHS
services. In cases where a PHS subscriber uses the same telephone number as an access line in
service, the designation as a PHS subscriber or access line in service depends on which
service is first activated. We increase our total number of fixed-line subscribers as soon as
practicable after activation of the service. We remove a fixed-line subscriber from the total
number of fixed-line subscribers as soon as practicable after the fixed-line subscriber
deactivates the service voluntarily or three months after the date on which the fixed-line
subscribers bill becomes overdue. Prepaid and postpaid telephone card customers are not
counted toward our fixed-line subscribers.(2)
    
    Calculated by dividing the number of our fixed-line subscribers by the total number of
fixed-line subscribers in our fixed-line northern service region published by the provincial
telecommunications administrations or the MIIT, as the case may be, as of each of December 31,
2006, 2007 and 2008, and March 31, 2009. Local Telephone Services
  -32-




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For the Years Ended December 31,2006
    
    2007
    
    2008Total usage (pulses in millions)(1)
    
    
    214,474
    
    
    
    202,547
    
    
    
    187,836Internet dial-up usage (pulses in millions)(1)
    
    
    5,251
    
    
    
    3,660
    
    
    
    2,936Total usage excluding Internet dial-up usage (pulses in
millions)
    
    
    209,223
    
    
    
    198,887
    
    
    
    184,900
 
 (1)
    
    Pulses are the billing units for calculating local telephone usage fees. See B. Business
Overview  Regulatory and Related Matters  Tariff Setting and Price Controls under Item 4
for a discussion of pulses.  Domestic Long Distance Services
  For the Years Ended December 31,2006
    
    
    2007
    
    
    2008Total minutes of domestic
long distance calls (minutes
in millions)(1)Traditional
    
    
    17,327
    
    
    
    18,482
    
    
    
    17,519VoIP
    
    
    11,482
    
    
    
    10,315
    
    
    
    8,051Total
    
    
    28,809
    
    
    
    28,797
    
    
    
    25,570
 
 (1)
    
    Includes calls originated by prepaid phone cards users and VoIP subscribers that are carried
over our long distance networks.  Tariffs
 International Long Distance Services
  For the Years Ended December 31,2006
    
    2007
    
    2008International long distance
outbound call minutes
(minutes in
millions)(1)(2)Traditional
    
    
    144
    
    
    
    155
    
    
    
    145VoIP
    
    
    180
    
    
    
    189
    
    
    
    171Total
    
    
    324
    
    
    
    344
    
    
    
    316
 -33-




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(1)
    
    Includes calls originated by prepaid phone cards users and VoIP subscribers that are carried
over our international long distance networks.(2)
    
    Includes long distance outbound calls made to Hong Kong, Macau and Taiwan.   Fixed-Line Value-Added Services
    Tariffs
 Fixed-Line Broadband Services
  -34-




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##### Table of Contents



As of and for the Years EndedDecember 31,2006
    
    
    2007
    
    
    2008Fixed-line broadband services:(1)DSL subscribers (in thousands)
    
    
    11,288
    
    
    
    15,777
    
    
    
    20,508LAN subscribers (in thousands)
    
    
    3,141
    
    
    
    3,985
    
    
    
    4,789Others (in thousands)
    
    
    0
    
    
    
    6
    
    
    
    119Total
    
    
    14,429
    
    
    
    19,768
    
    
    
    25,416Market share(2)
    
    
    87.5
    %
    
    
    80.7
    %(3)
    
    
    82.1
    %
 
 (1)
    
    We calculate DSL subscribers based on the number of active accounts. LAN subscribers consist
of end-users and dedicated line users. We calculate LAN end-users based on the number of ports
subscribed for. The number of LAN dedicated line users equals total monthly fees paid by such
users divided by set average revenue per unit. The current set revenue per unit is RMB 90. We
consider an account active or a service subscribed for as soon as practicable after activation
of the applicable service. We remove a subscriber from the total number of subscribers as soon
as practicable after that subscriber deactivates the service voluntarily or three months after
the date on which that subscribers bill becomes overdue.(2)
    
    Calculated by dividing the number of our own broadband subscribers by the total number of
broadband subscribers in our fixed-line northern service region, as published by the
provincial telecommunications administrations or the MIIT, as the case may be, as of each of
December 31, 2006, 2007 and 2008, and March 31, 2009.(3)
    
    Our market share of 2007 was adjusted to reflect a restated number of fixed-line broadband
users in 2007 published by the MIIT. DSL Services
 LAN Services
 Tariffs
 Broadband Content and Applications Services
  -35-




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Data Communications Services
   Managed Data Services
  DDN Services
 Frame Relay and ATM Services
 IP-VPN
 -36-




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Leased Line Services
   ICT Services
  Interconnection and Roaming Arrangements
 Interconnection
     Roaming
  -37-




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##### Table of Contents




    
    equalize domestic roaming charges with charges for long distance calls made during
domestic roaming;
    
    equalize the charges for pre-paid and post-paid mobile subscribers;
    
    set different tariff caps for callers and receivers in the context of domestic
mobile roaming, with the tariff cap for callers being set at RMB0.6 per minute and the
tariff cap for receivers being set at RMB0.4 per minute; and
    
    abolish the additional charge for use of the long distance network in the context of
domestic roaming.
   Networks
   GSM Mobile Networks
  -38-




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##### Table of Contents




    
    cell sites, which are physical locations, each equipped with a base station that
houses transmitters, receivers and other equipment used to communicate through radio
channels with subscribers mobile handsets within the range of a cell;
    
    base station controllers, which connect to, and control, the base stations;
    
    mobile switching centers, which control the base station controllers and the routing
of telephone calls; and
    
    a transmission network, which links the mobile switching centers, base station
controllers, base stations and the public switched telephone network.
    Fixed-Line Networks
    -39-




---



##### Table of Contents



Marketing, Sales and Distribution
 Marketing and Sales
  Distribution
  Customer Service
   -40-




---



##### Table of Contents



Information Systems
  Billing, Collection and Bad Debt Controls
 Billing and Collection
    Bad Debt Controls
 Mobile Services
  -41-




---



##### Table of Contents



Fixed-Line Services
  Research and Development
   Competition
  -42-




---



##### Table of Contents



Competition in Mobile Service Market
   Competition in Fixed-Line Service Market
   Strategic Alliances
 Strategic Alliance with Telefónica.
 -43-




---



##### Table of Contents



Strategic Alliance with SKT
 Trademarks
 
 Regulatory and Related Matters
   
    
    formulating and enforcing industry policies and regulations, as well as technical
standards;
    
    granting telecommunications service licenses;
    
    supervising the operations and quality of services of telecommunications service
providers;
    
    allocating and administering telecommunications resources such as spectrum and
number resources;
    
    together with other relevant regulatory authorities, formulating tariff standards
for telecommunications services;
    
    formulating interconnection and settlement policies between telecommunications
networks; and
    
    maintaining fair and orderly market competition among service providers.
 -44-




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##### Table of Contents



Telecommunications Regulations
  Licensing
  
    
    basic telecommunications services are classified into Category I basic
telecommunications services and Category II basic telecommunications services. Category
I basic telecommunications services include fixed-line telecommunications services
(including fixed-line local, domestic long distance, international long distance and
IP telephone services and services related to maintaining international
telecommunications facilities), mobile telecommunications services (including
900/1800MHz GSM 2G, 800MHz CDMA 2G and 3G digital cellular mobile telecommunications
services), Category I satellite telecommunications services (including satellite mobile
telecommunications and international satellite private-line services) and Category I
data communications services (including Internet data transmission, international data
telecommunications, public telegraph and telex services). Category II basic
telecommunications services include trunking telecommunications services (including
analogue trunking telecommunications and digital trunking telecommunications services),
wireless paging services, Category II satellite telecommunications services (including
lease and sales of satellite transponders and very-small-aperture-terminal, or VSAT,
telecommunications services), Category II data telecommunications services (including
fixed-line domestic and wireless data transmission services), network access services
(including wireless network access services and network services from customer
premises), services related to maintaining domestic telecommunications facilities and
network hosting services.
 -45-




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##### Table of Contents




    
    value-added telecommunications services are classified into Category I value-added
telecommunications services and Category II value-added telecommunications services.
Category I value-added telecommunications services include on-line data processing and
interchange, domestic multi-party telecommunications, IP-VPN and Internet data center,
or IDC, services. Category II value-added telecommunications services include
store-and-forward, call center, Internet access and information services.
    
    
    for fixed-line services, there is no longer any geographic restriction and foreign
ownership may be no more than 49%;
    
    for mobile voice and data services, there is no longer any geographic restriction
and foreign ownership may be no more than 49%; and
    
    for value-added telecommunications services, there is no longer any geographic
restriction and foreign ownership may be no more than 50%.
 Spectrum and Network Number Resources
   -46-




---



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Tariff Setting and Price Controls
    -47-




---



##### Table of Contents




    
    equalize domestic roaming charges with charges for long distance calls made during
domestic roaming;
    
    equalize the charges for pre-paid and post-paid mobile subscribers;
    
    set different tariff caps for callers and receivers in the context of domestic
mobile roaming, with the tariff cap for callers being set at RMB0.6 per minute and the
tariff cap for receivers being set at RMB0.4 per minute; and
    
    abolish the additional charge for use of the long distance network in the context of
domestic roaming.
   -48-




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##### Table of Contents



Mobile Services
  Post-paid Services
    
    Pre-paid ServicesRMB
    
    RMBBasic monthly fee
    
    45-50
    
    0Local usage charge (per minute)
    
    0.36-0.40
    
    0.54-0.6Domestic roaming charge (per minute)
    
    0.6 for caller
    
    0.6 for caller0.4 for receiver
    
    0.4 for receiver
 Local Telephone Services
  Tariff (in RMB)Monthly fee:Residential subscribers in:Provincial capitals
    
    20.00 to 25.00Other cities and counties
    
    12.00 to 18.00Rural areas
    
    10.00 to 15.00Business subscribers
    
    25.00 to 35.00Usage fee:Intra-district
    
    0.18 to 0.22 for the first two pulses (first threeminutes or less) and 0.09 to 0.11 for each additionalpulse (one minute intervals)Inter-district
    
    up to 0.30 per pulse (one minute intervals)(1)Communication fee:Internet dial-up
    
    0.02 per pulse (one minute intervals)
 
 (1)
    
    Prior to January 1, 2008, inter-district usage fee was up to 0.40 per pulse (one minute
intervals). -49-




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##### Table of Contents



Domestic Long Distance Services
  Tariff (in RMB)Domestic long distance services on our traditional network(1)
    
    0.07 per six seconds
 
 (1)
    
    Subject to filing with the provincial telecommunications administrations, our provincial
level headquarters may apply a 10% to 50% discount rate to calls made during off-peak hours. International Long Distance Services
  Tariff (in RMB)International long distance services on our traditional network(1):To Hong Kong, Macau and Taiwan
    
    0.20 per six secondsTo all international destinations
    
    0.80 per six seconds
 
 (1)
    
    Subject to filing with the provincial telecommunications administrations, our provincial
level headquarters may apply a 10% to 50% discount rate to calls made during off-peak hours. Managed Data Services
  DDN services .
 Monthly Fee64kbps
    
    128kbps
    
    512kbps
    
    1Mbps(RMB)Intra-district
    
    
    1,500
    
    
    
    2,000
    
    
    
    3,800
    
    
    
    5,000Inter-district
    
    
    2,000
    
    
    
    2,500
    
    
    
    5,200
    
    
    
    7,500Domestic long distance
    
    
    3,500
    
    
    
    5,000
    
    
    
    7,000
    
    
    
    9,000
 Frame relay services . (1)
 Monthly Fee64kbps
    
    256kbps
    
    512kbps
    
    1Mbps(RMB)Port accessMonthly fees
    
    
    260
    
    
    
    400
    
    
    
    500
    
    
    
    750PVCIntra-district
    
    
    550
    
    
    
    800
    
    
    
    1,000
    
    
    
    1,250Inter-district
    
    
    800
    
    
    
    1,150
    
    
    
    1,450
    
    
    
    2,000Domestic long distance
    
    
    1,700
    
    
    
    2,200
    
    
    
    2,500
    
    
    
    3000
 
 (1)
    
    One-way tariff for PVCs frame relay services. -50-




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##### Table of Contents



Leased Line Services
   Monthly Fee2Mbps
    
    
    8Mbps
    
    
    34Mbps
    
    
    155Mbps(RMB)Intra-district
    
    
    2,000
    
    
    
    6,000
    
    
    
    16,000
    
    
    
    44,000Inter-district
    
    
    4,000
    
    
    
    11,000
    
    
    
    31,000
    
    
    
    88,000Domestic long distance(1)
    
    
    6,000
    
    
    
    17,000
    
    
    
    47,000
    
    
    
    132,000
 
 (1)
    
    Does not include the tariffs for local digital circuits and access lines. Interconnection Arrangements
      Operator from WhoseNetwork Calls are
    
    Operator at Whose Network
    
    Current Main SettlementOriginated
    
    Calls are Terminated
    
    ArrangementMobile operator
    
    Local fixed-line operator
    
    (1) Mobile operator collects the
usage fees from its subscribers;(2) Mobile operator pays RMB0.06
per minute to local fixed-line
operator.Local fixed-line operator
    
    Mobile operator
    
    No revenue sharing or settlement.Local fixed-line operator A
    
    Local fixed-line operator B
    
    (1) Operator A collects the
usage fees from its subscribers;(2) In the case of
Intra-district calls, operator A
pays operator B 50% of the
intra-district usage fees;(3) (i) In the case of local
inter-district calls from
operator A using operator Bs
local inter-district
 -51-




---



##### Table of Contents



Operator from WhoseNetwork Calls are
    
    Operator at Whose Network
    
    Current Main SettlementOriginated
    
    Calls are Terminated
    
    Arrangementtrunk
circuit, operator A collects the
usage charge from its
subscribers and pay RMB0.15 per
minute to operator B; (ii) In
the case of local inter-district
calls from operator A not using
operator Bs local
inter-district
trunk circuit,
operator A collects the usage
charge from its subscribers and
pays operator B 50% of the
intra-district usage fees
  Operator at Whose
    
    Operator at Whose
    
    Current MainNetwork Calls are
    
    Network Calls are
    
    SettlementOriginated
    
    Terminated
    
    ArrangementLocal fixed-line or
mobile operator A
(through the long
distance network of
operator A)
    
    Local fixed-line or
mobile operator B
    
    Operator A pays
RMB0.06 per minute to
operator B
  Operator at Whose
    
    Operator at Whose
    
    Current MainNetwork Calls are
    
    Network Calls are
    
    SettlementOriginated
    
    Terminated
    
    ArrangementLocal fixed-line or 
mobile operator A
    
    Without using the
carrier identity code
of operator B,
through the domestic
and international
long distance network of operator B
    
    (1) Operator A
collects the tariff
from the subscribers;(2) If operator B is
a fixed-line
operator, operator A
retains RMB0.06 per
minute;if operator B is a
mobile operator,
operator A retains
local usage fee and
RMB0.06 per minute;(3) Operator B
receives the rest of
the international
long distance tariff.Using the carrier
identity code of
operator B, through
the domestic and
international long
distance network of
operator B
    
    (1) Operator B
collects the tariff
from the subscribers;
(2) Operator B pays
operator A RMB0.06
per minute, and
operator B retains
the rest of the
international long
distance tariff.Local fixed-line or 
mobile operator A
    
    Without using the
carrier identity code
of operator, through
domestic long
distance network of
operator A and
international gateway
of domestic operator
B to international
end users.
    
    (1) If operator A is
a fixed-line
operator, operator A
retains a maximum
amount of RMB0.54 per
minute, and operator
B receives the rest
of the international
long distance tariff;
(2) If operator A is
a mobile operator,
operator A retains
local call tariff and
RMB0.54 per minute.
 -52-




---



##### Table of Contents



Operator at Whose
    
    Current MainOperator from Whose Network
    
    Network Calls are
    
    SettlementCalls are Originated
    
    Terminated
    
    ArrangementFixed-line or mobile operator A
    
    Fixed-line or
mobile operator B
through the VoIP
network of operator
C
    
    (1) Operator C
collects the VoIP
long distance usage
fees from its
subscribers;(2) Operator C pays
RMB0.06 per minute
to operator B on
the terminating
end;(3) No settlement
between operator C
and operator A on
the originating
end;(4) Operator A
collects local
usage fees.
 Technical Standards
   Quality of Service
  Universal Services
  -53-




---



##### Table of Contents



Capital Investment
  
    
    domestic backbone transmission networks (including broadcasting and television
networks);
    
    international telecommunications transmission circuits;
    
    international gateways;
    
    international telecommunications facilities for dedicated telecommunications
networks; and
    
    other telecommunications infrastructure projects involving information security.
 Others
  -54-




---



##### Table of Contents



C. Organizational Structure
  Name of Subsidiary
    
    Country of Incorporation
    
    Ownership InterestChina United Network
Communications Corporation Limited
    
    China
    
    
    100
    %China Netcom Group Corporation
(Hong Kong) Limited
    
    Hong Kong
    
    
    100
    %China Unicom International Limited
    
    Hong Kong
    
    
    100
    %
 D. Properties
  
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
  Merger with China Netcom, Acquisitions of Unicom Guizhou and Design Institute, and Disposal of CDMA
Business and Fixed-Line Business and Assets in Shanghai and Guangdong
  -55-




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##### Table of Contents



Overview
   For the Year Ended December 31,2007
    
    2008RMB in millions
    
    As % of Total
    
    RMB in millions
    
    As % of TotalContinuing OperationsTotal revenue (excluding fixed-line
upfront connection fees)*
    
    
    149,170
    
    
    
    100.0
    
    
    
    148,020
    
    
    
    100.0Total service revenue (excluding
fixed-line upfront connection fees)
    
    
    148,230
    
    
    
    99.4
    
    
    
    146,366
    
    
    
    98.9Include: GSM mobile business
    
    
    62,547
    
    
    
    41.9
    
    
    
    64,704
    
    
    
    43.7Fixed-line business
    
    
    85,683
    
    
    
    57.5
    
    
    
    81,662
    
    
    
    55.2Out of which:
 -56-




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For the Year Ended December 31,2007
    
    2008RMB in millions
    
    As % of Total
    
    RMB in millions
    
    As % of TotalContinuing OperationsBroadband service
    
    
    14,273
    
    
    
    9.6
    
    
    
    18,114
    
    
    
    12.2Total sales of telecommunications products
    
    
    940
    
    
    
    0.6
    
    
    
    1,654
    
    
    
    1.1
 
 *
    
    Fixed-line upfront connection fees represent the amortization of deferred upfront connection
fees received from the customers before July 1, 2001. No upfront connection fee was received
from the customers since then. Therefore, we consider that analyses of our operating results
excluding upfront connection fees are more relevant to the readers of this report.  
    
    usage fees and monthly fees for our GSM mobile and fixed-line telephone services,
which are recognized when we render the service to our customers;
    
    revenue from the provision of value-added services, which is recognized when we
render the services to our customers;
    
    revenue from the provision of broadband and other
Internet-related services, mainly consisting of Internet access
services, and
managed data services, which is recognized when we render the service to our customers;
    
    revenue from interconnection with other telecommunications operators, including
Unicom Group, for calls made from their networks to our networks. We recognize
interconnection revenue when the relevant calls are made by subscribers;
    
    revenue from ICT services, which is recognized when goods are delivered to the
customers (which generally coincides with the time when the customers have accepted the
goods and the related risks and rewards of ownership have been transferred to the
customers) or when services are rendered to the customers using the percentage of
completion method when the outcome of the services provide can be estimated reliably;
If the outcome of the services provided cannot be estimated reliably, the treatment should be as follows:
(i) if it is probable that the costs incurred for the services provided is recoverable, service revenue should be
recognized only to the extent of recoverable costs incurred, and costs should be recognized as current expenses in the
period in which they are incurred; (ii) if it is probable that costs incurred will not be recoverable, costs should be recognized
as current expenses immediately and service revenue should not be recognized; and
    
    rental income from leases of customer-end equipment and transmission lines on our networks to Unicom Group, business customers and other telecommunications
carriers in China. We recognize leased line rental revenue on a straight-line basis
over the relevant lease term.
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For the Year Ended December 31,2007
    
    2008RMB in millions
    
    % of Total
    
    RMB in millions
    
    % of TotalContinuing OperationsTotal revenue (excluding fixed-line upfront
connection fees)*
    
    
    149,170
    
    
    
    100.0
    
    
    
    148,020
    
    
    
    100.0Costs and expenses
    
    
    123,446
    
    
    
    82.8
    
    
    
    140,765
    
    
    
    95.1Interconnection charges
    
    
    11,214
    
    
    
    7.5
    
    
    
    12,011
    
    
    
    8.1Depreciation and amortization
    
    
    47,369
    
    
    
    31.8
    
    
    
    47,678
    
    
    
    32.2Networks, operations and support expenses
    
    
    16,022
    
    
    
    10.7
    
    
    
    16,577
    
    
    
    11.2Employee benefit expenses
    
    
    17,540
    
    
    
    11.8
    
    
    
    18,902
    
    
    
    12.8Selling and marketing
    
    
    17,562
    
    
    
    11.8
    
    
    
    17,384
    
    
    
    11.7General, administrative and other Expenses
    
    
    13,981
    
    
    
    9.4
    
    
    
    14,131
    
    
    
    9.6Cost of
telecommunications products sold
    
    
    1,233
    
    
    
    0.8
    
    
    
    2,067
    
    
    
    1.4Finance costs, net of interest income
    
    
    2,946
    
    
    
    2.0
    
    
    
    2,172
    
    
    
    1.5Impairment loss on property, plant and
equipment
    
    
    
    
    
    
    
    
    
    
    11,837
    
    
    
    8.0Realized loss on changes in fair value of
derivative component of the convertible
bonds
    
    
    569
    
    
    
    0.4
    
    
    
    
    
    
    
    Other income-net
    
    
    (4,990
    )
    
    
    (3.4
    )
    
    
    (1,994
    )
    
    
    (1.4
    )
 
 *
    
    Fixed-line upfront connection fees represent the amortization of deferred upfront connection
fees received from the customers before July 1, 2001. No upfront connection fee was received
from the customers since then. Therefore, we consider that analyses of our operating results
excluding upfront connection fees are more relevant to the readers of this report.  
    
    interconnection expenses, representing amounts paid to other operators, including
Unicom Group and Netcom Group, for calls from our networks to their networks and for
calls made by our subscribers roaming in their networks;
    
    depreciation and amortization expenses, mainly relating to our property, plant and
equipment and other assets;
    
    networks, operations and support expenses, mainly relating to repair, maintenance
and operations of our networks;
    
    employee benefit expenses, representing staff salaries and wages, bonuses and
medical benefits, contributions to defined contribution pension schemes, housing
benefits and share-based compensation costs amortized over the vesting period of share
options;
    
    selling and marketing expenses, including commissions, promotion and advertising
expenses, amortization of direct incremental costs for activating subscriber services and customer
retention costs; and
    
    general, administrative and other expenses, primarily including provision for
doubtful debts, utilities, general office expenses and travel expenses.
  -58-




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Critical Accounting Policies
  Significant Accounting Policies
 Revenue Recognition
   -59-




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##### Table of Contents



Sales of services and goods
 
    
    Usage fees and monthly fees are recognized when the services are rendered;
    
    Revenues from the provision of broadband and other Internet-related services and
managed data services are recognized when the services are provided to customers;
    
    Revenue from telephone cards, which represents service fees received from customers
for telephone services, is recognized when the related service is rendered upon actual
usage of the telephone cards by customers;
    
    Lease income from leasing of lines and customer-end equipment are treated as
operating leases with rental income recognized on a straight-line basis over the lease
term;
    
    Value-added services revenue, which mainly represents revenue from the provision of
services such as short message, cool ringtone, personalized ring, wireless data
services, caller number display and secretarial services to subscribers, is recognized
when service is rendered;
    
    Standalone sales of telecommunications products, which mainly represent handsets and
accessories, are recognized when title has been passed to the buyers;
    
    For CDMA promotional packages where CDMA handsets are provided to subscribers for
their use during a specified contract period (see Note 4.2(a) to our consolidated
financial statements included in this annual report), since the commercial substance of
the transaction is to develop new contractual subscribers by offering handsets, the two
elements of CDMA cellular services and handsets are considered as a linked transaction.
Service revenues from such promotional packages are recognized based upon the actual
usage of cellular services at the tariff set out in the contracts.
    
    Certain PHS bundled service contracts comprise the provision of PHS services and
handsets to customers, under which customers either prepay a certain amount of service
fee or commit to spend a minimum monthly service fee for a designated period in order
to receive a free handset. When all of the following criteria are met, PHS handsets and
related services are separately recognized as revenues according to their relative fair
values. When any one of the following criteria is not met, total revenues from PHS
bundled service contracts are recognized on a systematic basis to match the shorter of
the pattern of usage of the PHS services by customers and the minimum non-cancellable
contractual period.
 (i)
    
    PHS handsets and related services have value on a stand-alone basis;(ii)
    
    Reliable estimate for fair value of PHS handsets and related services
exists; and(iii)
    
    In arrangements that include a general right of refund for the
delivered item, performance of the undelivered item is considered probable and
substantially in our control.
 
    
    Revenue from information communications technology services are recognized when
goods are delivered to the customers (which generally coincides with the time when the
customers have accepted the goods and the related risks and rewards of ownership have
been transferred to the customers) or when services are rendered to the customers using
the percentage of completion method when the outcome of the services provided can be
estimated reliably. If the outcome of the services provided cannot be estimated
reliably, the treatment should be as follows: (i) if it is probable that the costs
incurred for the services provided is recoverable, services revenue should be
recognized only to the extent of recoverable costs incurred, and costs should be
recognized as current expenses in the period in which they are incurred; (ii) if it is
probable that costs incurred will not be recoverable, costs should be recognized as
current expenses immediately and services revenue should not be recognized.
 Deferred Revenue, Advances from Customers and Subscriber Points Reward Program
 Deferred revenue
  Advances from customers
  Subscriber points reward program
  -60-




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##### Table of Contents



Interest income
  Dividend income
  Critical Accounting Estimates and Judgments
 Recognition of Upfront Non-Refundable Revenue and Direct Incremental Costs
 Mobile Telecommunications Services
   Fixed-Line Telecommunications Services
   Depreciation on Property, Plant and Equipment
  -61-




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Revaluation of Property, Plant and Equipment
  Impairment of Non-Current Assets
    Provision for Doubtful Debts
   -62-




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##### Table of Contents



Income Tax and Deferred Taxation
    Equity-Settled Share Options
  Recently Issued International Financial Reporting Standards
   Effective foraccounting periodbeginning on orafterIAS/HKAS 1 (Revised) Presentation of Financial Statements
    
    January 1, 2009IAS/HKAS 23 (Revised) Borrowing Costs
    
    January 1, 2009
 -63-




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##### Table of Contents



Effective foraccounting periodbeginning on orafterIAS/HKAS 27 (Revised) Consolidated and Separate Financial Statements
    
    July 1, 2009IFRS/HKFRS 2 (Amendment) Share-based Payment
    
    January 1, 2009IFRS/HKFRS 3 (Revised) Business Combination
    
    July 1, 2009IFRS/HKFRS 8 Operating Segments
    
    January 1, 2009IASBs improvements to IFRS/HKICPAs improvements to HKFRS:IAS/HKAS 1 (Amendment) Presentation of Financial Statements
    
    January 1, 2009IAS/HKAS 19 (Amendment) Employee Benefits
    
    January 1, 2009IAS/HKAS 23 (Amendment) Borrowing Costs
    
    January 1, 2009IAS/HKAS 27 (Amendment) Consolidated and Separate Financial Statements
    
    January 1, 2009IAS/HKAS 36 (Amendment) Impairment of Assets
    
    January 1, 2009IAS/HKAS 40 (Amendment) Investment Property (and consequential
amendments to IAS/HKAS 16 Property, Plant and Equipment)
    
    January 1, 2009IFRS/HKFRS 5 (Amendment) Non-current Assets Held for Sale and
Discontinued Operations (and consequential amendments to IAS/HKAS 1
First-time Adoption)
    
    July 1, 2009
    Operating Results
 Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Revenue
  Mobile Business Revenue
  -64-




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2007
    
    2008RMB in million
    
    As % of total
    
    RMB in million
    
    As % of totalTotal revenue from GSM services
    
    
    62,559
    
    
    
    100.0
    %
    
    
    65,254
    
    
    
    100.0
    %Service revenue
    
    
    62,547
    
    
    
    100.0
    %
    
    
    64,704
    
    
    
    99.2
    %Usage fees and monthly fees
    
    
    42,077
    
    
    
    67.3
    %
    
    
    40,464
    
    
    
    62.0
    %Value-added service revenue
    
    
    13,528
    
    
    
    21.6
    %
    
    
    16,263
    
    
    
    24.9
    %Interconnection revenue
    
    
    5,851
    
    
    
    9.4
    %
    
    
    6,858
    
    
    
    10.5
    %Others
    
    
    1,091
    
    
    
    1.7
    %
    
    
    1,119
    
    
    
    1.8
    %Sales of GSM mobile
telecommunications products
    
    
    12
    
    
    
    0.0
    %
    
    
    550
    
    
    
    0.8
    %
 Usage Fees and Monthly Fees
 Value-Added Service Revenue
 Interconnection Revenue
 Sales of Telecommunications Products
 -65-




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Fixed-Line Business Revenue
   For the Years Ended December 31,2007
    
    2008RMB in Million
    
    As % of Total
    
    RMB in Million
    
    As % of TotalTotal revenue from fixed-line business
(excluding fixed-line upfront
connection fees)*
    
    
    86,611
    
    
    
    100.0
    
    
    
    82,766
    
    
    
    100.0Service revenue (excluding fixed-line
upfront connection fees)*
    
    
    85,683
    
    
    
    98.9
    
    
    
    81,662
    
    
    
    98.7Usage fee and monthly fee
    
    
    44,227
    
    
    
    51.1
    
    
    
    37,324
    
    
    
    45.1Fixed-line broadband service revenue
    
    
    14,273
    
    
    
    16.5
    
    
    
    18,114
    
    
    
    21.9Interconnection revenue
    
    
    7,911
    
    
    
    9.1
    
    
    
    7,500
    
    
    
    9.1Value-added service revenue
    
    
    6,758
    
    
    
    7.8
    
    
    
    6,591
    
    
    
    8.0Leased line service revenue
    
    
    3,741
    
    
    
    4.3
    
    
    
    4,597
    
    
    
    5.6Managed data, other
internet-related service revenue
    
    
    1,835
    
    
    
    2.1
    
    
    
    1,673
    
    
    
    2.0Others
    
    
    6,938
    
    
    
    8.0
    
    
    
    5,863
    
    
    
    7.0Sales of fixed-line
telecommunications products
    
    
    928
    
    
    
    1.1
    
    
    
    1,104
    
    
    
    1.3
 
 *
    
    Fixed-line upfront connection fees represent the amortization of deferred upfront connection
fees received from the customers before July 1, 2001. No upfront connection fee was received
from the customers since then. Therefore, we consider that analyses of our operating results
excluding upfront connection fees are more relevant to the readers of this report. Usage Fees and Monthly Fees.
  Fixed-Line Broadband Service Revenue.
 -66-




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Interconnection Revenue
 Value-Added Service Revenue
 Leased Line Service Revenue
 Managed Data Service and Other Internet-Related Service Revenue
 Others
 Sales of Telecommunications Products
 Costs and Expenses
  -67-




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For the Year Ended December 31,2007
    
    2008RMB in millions
    
    % of Total
    
    RMB in millions
    
    % of TotalContinuing OperationsTotal revenue (excluding fixed-line upfront
connection fees)*
    
    
    149,170
    
    
    
    100.0
    
    
    
    148,020
    
    
    
    100.0Costs and expenses
    
    
    123,446
    
    
    
    82.8
    
    
    
    140,765
    
    
    
    95.1Interconnection charges
    
    
    11,214
    
    
    
    7.5
    
    
    
    12,011
    
    
    
    8.1Depreciation and amortization
    
    
    47,369
    
    
    
    31.8
    
    
    
    47,678
    
    
    
    32.2Networks, operations and support expenses
    
    
    16,022
    
    
    
    10.7
    
    
    
    16,577
    
    
    
    11.2Employee benefit expenses
    
    
    17,540
    
    
    
    11.8
    
    
    
    18,902
    
    
    
    12.8Selling and marketing
    
    
    17,562
    
    
    
    11.8
    
    
    
    17,384
    
    
    
    11.7General, administrative and other expenses
    
    
    13,981
    
    
    
    9.4
    
    
    
    14,131
    
    
    
    9.6Cost of telecommunications products sold
    
    
    1,233
    
    
    
    0.8
    
    
    
    2,067
    
    
    
    1.4Finance costs, net of interest income
    
    
    2,946
    
    
    
    2.0
    
    
    
    2,172
    
    
    
    1.5Impairment loss on property, plant and
equipment
    
    
    
    
    
    
    
    
    
    
    11,837
    
    
    
    8.0Realized loss on changes in fair value of
derivative component of the convertible
bonds
    
    
    569
    
    
    
    0.4
    
    
    
    
    
    
    
    Other income-net
    
    
    (4,990
    )
    
    
    (3.4
    )
    
    
    (1,994
    )
    
    
    (1.4
    )
 
 *
    
    Fixed-line upfront connection fees represent the amortization of deferred upfront connection
fees received from the customers before July 1, 2001. No upfront connection fee was received
from the customers since then. Therefore, we consider that analyses of our operating results
excluding upfront connection fees are more relevant to the readers of this report. Interconnection Charges
 Depreciation and Amortization
 Networks, Operations and Support Expenses
 -68-




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##### Table of Contents



Employee Benefit Expenses
 Selling and Marketing Expenses
 General, Administrative and Other Expenses
 Cost of Telecommunications Products Sold
 Finance Costs, Net of Interest Income
 Other Income-Net
 Impairment Loss on the PHS Business-Related Assets
   -69-




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Income From Continuing Operations Before Income Tax
   Income Tax
   Income from Continuing Operations
  Income from Discontinued Operations
  Net Income for the Year
  Liquidity and Capital Resources
 Working Capital and Cash Flows
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For the Year Ended December 31,2007
    
    2008RMB in millions
    
    RMB in millionsNet cash inflow from operating activities of continuing operations
    
    
    65,256
    
    
    
    56,674Net cash outflow from investing activities of continuing operations
    
    
    (47,641
    )
    
    
    (54,490
    )Net cash outflow from financing activities of continuing operations
    
    
    (29,805
    )
    
    
    (35,070
    )Net cash outflow from continuing operations
    
    
    (12,190
    )
    
    
    (32,886
    )Net cash inflow from discontinued operations
    
    
    4,303
    
    
    
    30,145Net decrease in cash and cash equivalents
    
    
    (7,887
    )
    
    
    (2,741
    )
     Indebtedness and Capital Structure
  As of December 31,2007
    
    2008(RMB in millions, except percentages)Cash and cash equivalent and short-term bank deposits
    
    
    12,714
    
    
    
    9,476
 -71-




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As of December 31,2007
    
    2008(RMB in millions, except percentages)Total assets
    
    
    334,087
    
    
    
    344,924Short-term debt
    
    
    47,390
    
    
    
    21,996Short-term bank loans
    
    
    11,850
    
    
    
    10,780Short-term commercial paper
    
    
    20,000
    
    
    
    10,000Current portion of long-term bank loans
    
    
    7,411
    
    
    
    1,216Amounts due
to related parties (interest-bearing)
    
    
    8,129
    
    
    
    Long-term debt
    
    
    18,086
    
    
    
    7,997Corporate bonds
    
    
    2,000
    
    
    
    7,000Non current portion of long-term bank loans
    
    
    16,086
    
    
    
    997Shareholders equity
    
    
    178,516
    
    
    
    206,710Debt-to-capitalization ratio(1)
    
    
    26.8
    %
    
    
    12.7
    %Debt-to-equity ratio(2)
    
    
    36.7
    %
    
    
    14.5
    %
 
 (1)
    
    Debt-to-capitalization ratio = (long-term interest-bearing debt + short-term interest-bearing
debt)/(long-term interest-bearing debt + short-term interest-bearing debt + shareholders
equity).(2)
    
    Debt-to-equity ratio = (long-term interest-bearing debt + short-term interest-bearing
debt)/shareholders equity.     -72-




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Less than 1
    
    Between 1 and
    
    Between 3 andTotal
    
    year
    
    3 years
    
    5 years
    
    Over 5 yearsShort-term bank loans (1)*
    
    
    11,013
    
    
    
    11,013
    
    
    
    
    
    
    
    
    
    
    
    Short-term commercial paper (2)*
    
    
    10,447
    
    
    
    10,447
    
    
    
    
    
    
    
    
    
    
    
    Long-term bank loans (3)*
    
    
    2,357
    
    
    
    1,299
    
    
    
    215
    
    
    
    208
    
    
    
    635Corporate bonds (4)*
    
    
    9,134
    
    
    
    355
    
    
    
    709
    
    
    
    5,710
    
    
    
    2,360Other
obligations
    
    
    2,804
    
    
    
    510
    
    
    
    727
    
    
    
    701
    
    
    
    866Capital commitments (5)
    
    
    13,014
    
    
    
    11,181
    
    
    
    1,663
    
    
    
    32
    
    
    
    138Operating
leases commitments (5)
    
    
    8,356
    
    
    
    1,828
    
    
    
    2,754
    
    
    
    1,817
    
    
    
    1,957Total obligations
    
    
    57,125
    
    
    
    36,633
    
    
    
    6,068
    
    
    
    8,468
    
    
    
    5,956
 
 *
    
    interest included(1)
    
    See Note 25 Short-Term Bank Loans  Group to our consolidated financial statements.(2)
    
    See Note 24 Short-Term Commercial Paper  Group to our consolidated financial statements.(3)
    
    See Note 19 Long-Term Bank Loans to our consolidated financial statements.(4)
    
    See Note 20 Corporate Bonds to our consolidated financial statements.(5)
    
    See Note 38 Contingencies and Commitments to our consolidated financial statements. Off-Balance Sheet Arrangements
   -73-




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Capital Expenditures
  For the Years Ended December 31,2008
    
    2009(RMB in billions)
    
    As percentage
    
    (RMB in billions)
    
    As percentage3G mobile
    
    
    
    
    
    
    
    
    
    
    38.70
    
    
    
    35.2
    %GSM mobile (1)
    
    
    32.95
    
    
    
    46.7
    %
    
    
    23.70
    
    
    
    21.5
    %Fixed-line broadband and data services
    
    
    9.05
    
    
    
    12.8
    %
    
    
    18.00
    
    
    
    16.4
    %Fixed-line business
    
    
    0.73
    
    
    
    1.0
    %
    
    
    0.70
    
    
    
    0.6
    %Innovation and value-added platform
    
    
    4.13
    
    
    
    5.9
    %
    
    
    3.00
    
    
    
    2.7
    %IT system
    
    
    2.40
    
    
    
    3.4
    %
    
    
    4.00
    
    
    
    3.6
    %Infrastructure and transmission network
    
    
    18.18
    
    
    
    25.8
    %
    
    
    19.70
    
    
    
    17.9
    %Others (2)
    
    
    3.05
    
    
    
    4.4
    %
    
    
    2.20
    
    
    
    2.1
    %Total
    
    
    70.49
    
    
    
    100.0
    %
    
    
    110.00
    
    
    
    100.0
    %
 
 (1)
    
    Including the capital expenditure attributable to the initial preparation relating to the
development of the 3G business.(2)
    
    Other expenditures consist of procurement of miscellaneous assets, equipment and spare parts.    
 Item 6. Directors, Senior Management and Employees
 A.
    
    Directors and Senior Management
 (1)
 Name
    
    Age
    
    PositionChang Xiaobing
    
    
    52
    
    
    Chairman of the Board of Directors and Chief Executive OfficerLu Yimin(2)
    
    
    45
    
    
    Executive Director and PresidentZuo Xunsheng(3)
    
    
    58
    
    
    Executive Director and Senior Vice PresidentTong Jilu
    
    
    51
    
    
    Executive Director and Chief Financial OfficerCesareo Alierta Izuel(4)
    
    
    64
    
    
    Non-Executive DirectorJung Man Won(5)
    
    
    57
    
    
    Non-Executive DirectorWu Jinglian
    
    
    79
    
    
    Independent Non-Executive Director
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Name
    
    Age
    
    PositionLinus Cheung Wing Lam
    
    
    61
    
    
    Independent Non-Executive DirectorWong Wai Ming
    
    
    51
    
    
    Independent Non-Executive DirectorJohn Lawson Thornton(6)
    
    
    55
    
    
    Independent Non-Executive DirectorTimpson Chung Shui Ming(7)
    
    
    57
    
    
    Independent Non-Executive DirectorLi Jianguo
    
    
    55
    
    
    Senior Vice PresidentPei Aihua
    
    
    58
    
    
    Senior Vice PresidentZhao Jidong
    
    
    58
    
    
    Senior Vice PresidentLi Fushen
    
    
    46
    
    
    Senior Vice PresidentLi Gang
    
    
    51
    
    
    Senior Vice PresidentZhang Junan
    
    
    52
    
    
    Senior Vice PresidentJiang Zhengxin
    
    
    52
    
    
    Senior Vice President
 
 (1)
    
    Mr. Shang Bing, Mr. Yang Xiaowei, Mr. Li Zhengmao and Mr. Miao Jianhua resigned as Executive
Directors of our company on May 23, 2008. Mr. Li Gang and Mr. Zhang Junan resigned as
Executive Directors of our company on October 15, 2008. Mr. Lu Jianguo and Mr. Lee Suk Hwan
resigned as Non-Executive Directors of our company on October 15, 2008. Mr. Kim Shin Bae was
appointed as a Non-Executive Director of our company on October 15, 2008 and resigned on
January 22, 2009. Mr. Shan Weijian resigned as an Independent Non-Executive Director of our
company on October 15, 2008.(2)
    
    Mr. Lu Yimin was appointed as an Executive Director of our company in October 2008.(3)
    
    Mr. Zuo Xunsheng was appointed as an Executive Director of our company in October 2008.(4)
    
    Mr. Cesareo Alierta Izuel was appointed as a Non-Executive Director of our company in October
2008.(5)
    
    Mr. Jung Man Won was appointed as a Non-Executive Director of our company in January 2009.(6)
    
    Mr. John Lawson Thornton was appointed as an Independent non-Executive Director of our
company in October 2008.(7)
    
    Mr. Timpson Chung Shui Ming was appointed as an Independent Non-Executive Director of our
company in October 2008. Mr. Chang Xiaobing
 Mr. Lu Yimin
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Mr. Zuo Xunsheng
 Mr. Tong Jilu
 Mr. Cesareo Alierta Izuel
 Mr. Jung Man Won
 -76-




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Mr. Wu Jinglian
 Mr. Linus Cheung Wing Lam
 Mr. Wong Wai Ming
 Mr. John Lawson Thornton
 Mr. Timpson Chung Shui Ming
 -77-




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Ms. Li Jianguo
 Mr. Pei Aihua
 Mr. Zhao Jidong
 Mr. Li Fushen
 -78-




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Mr. Li Gang
 Mr. Zhang Junan
 Mr. Jiang Zhengxin
 -79-




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B. Compensation
  C. Board Practices
 General
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Name
    
    Appointment Date
    
    Re-appointment Date
    
    Resignation DateCurrent DirectorsChang Xiaobing
    
    December 21, 2004
    
    May 12, 2006 and
May 26, 2009
    
    Liu Yimin
    
    October 15, 2008
    
    May 26, 2009
    
    Zuo Xunsheng
    
    October 15, 2008
    
    May 26, 2009
    
    Tong Jilu
    
    February 1, 2004
    
    May 12, 2004
May 12, 2006 and
May 16, 2008
    
    Cesareo Alierta Izuel
    
    October 15, 2008
    
    May 26, 2009
    
    Jung Man Won
    
    January 22, 2009
    
    May 26, 2009
    
    Wu Jinglian
    
    April 20, 2000
    
    May 13, 2002,
May 12, 2004,
May 12, 2005 and
May 11, 2007
    
    Linus Cheung Wing Lam
    
    May 12, 2004
    
    May 12, 2006 and
May 16, 2008
    
    Wong Wai Ming
    
    January 19, 2006
    
    May 12, 2006 and
May 26, 2009
    
    John Lawson Thornton
    
    October 15, 2008
    
    May 26, 2009
    
    Timpson Chung Shui Ming
    
    October 15, 2008
    
    May 26, 2009
    
    Former DirectorsShang Bing
    
    November 5, 2004
    
    May 12, 2005 and
May 11, 2007
    
    May 23, 2008Yang Xiaowei
    
    April 1, 2006
    
    May 12, 2006 and
May 11, 2007
    
    May 23, 2008Li Zhengmao
    
    April 1, 2006
    
    May 12, 2006 and
May 16, 2008
    
    May 23, 2008Miao Jianhua
    
    July 12, 2007
    
    May 16, 2008
    
    May 23, 2008Li Gang
    
    April 1, 2006
    
    May 12, 2006 and
May 16, 2008
    
    October 15, 2008Zhang Junan
    
    April 1, 2006
    
    May 12, 2006
    
    October 15, 2008Kim Shin Bae
    
    October 15, 2008
    
    
    
    January 22, 2009Lu Jianguo
    
    April 1, 2006
    
    May 12, 2006
    
    October 15, 2008Lee Suk Hwan
    
    October 23, 2007
    
    May 16, 2008
    
    October 15, 2008Shan Weijian
    
    May 12, 2003
    
    May 12, 2005 and
May 11, 2007
    
    October 15, 2008
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Audit Committee
  
    
    considering and approving the appointment, resignation and removal of our external
auditor and the auditors fees;
    
    reviewing our interim and annual financial statements and disclosures before
submission to the board of directors;
    
    discussing with the auditor any problems and reservations
arising from the review of
the interim and the audit of annual financial statements;
    
    reviewing any correspondence from the auditor to our management and the responses of
our management;
    
    reviewing the relevant reports concerning our internal controls and procedures;
    
    discussing with our management our internal control system to ensure that our
management discharge their duties to have an effective internal control system in
place;
    
    pre-approving the audit and non-audit services to be provided by the external
auditor, and determining whether any non-audit services would affect the independence
of the auditor;
    
    discussing with our management the timing and procedures for the rotation of the
partner of the auditing firm responsible for the audit of our company and the partner
responsible for the review of audit-related documents;
    
    supervising the internal audit department, which will directly report to the
committee; and
    
    having the right to approve the appointment or removal of the head of internal audit
department.
  Remuneration Committee
  D. Employees
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Number of
    
    
    
    
    Number ofBy Function
    
    Employees
    
    
    By Business Segment
    
    EmployeesManagement and administration
    
    
    35,154
    
    
    GSM mobile
    
    
    53,949Other general administration
    
    
    16,513
    
    
    Fixed-Line
    
    
    150,666Marketing and sales
    
    
    82,142Technical, engineering and
network maintenance
    
    
    60,057Retail and customer service
    
    
    10,488
    
    
    Total
    
    
    204,615General support
    
    
    261Total
    
    
    204,615
   E. Share Ownership
  Ordinary
    
    Percentage of TotalName
    
    Capacity and Nature
    
    Shares Held
    
    Issued SharesTimpson Chung Shui Ming
    
    Beneficial Owner (Personal)
    
    
    6,000
    
    
    
    0.0000
    %
   Compensation forNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    2008Capacity and
    
    Shares
    
    
    
    
    Exercise
    
    
    Consideration
    
    
    (RMB inName
    
    Nature
    
    Covered(1)
    
    
    Expiration Date
    
    Price
    
    
    Paid
    
    
    thousand)DirectorsChang Xiaobing
    
    Beneficial Owner
    
    
    526,000
    
    
    December 20, 2010
    
    HK$6.20
    
    
    HK$1.00
    
    
    
    3,295(Personal)
    
    
    746,000
    
    
    February 14, 2012
    
    HK$6.35
    
    
    HK$1.00Lu Yimin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    498Zuo Xunsheng
    
    Beneficial Owner
    
    
    686,894
    
    
    November 16, 2010
    
    HK$5.57
    
    
    
    
    
    
    
    507(Personal)Tong Jilu
    
    Beneficial Owner
    
    
    292,000
    
    
    June 22, 2010
    
    HK$15.42
    
    
    HK$1.00
    
    
    
    2,465(Personal)
    
    
    92,000
    
    
    July 19, 2010
    
    HK$5.92
    
    
    HK$1.00460,000
    
    
    February 14, 2012
    
    HK$6.35
    
    
    HK$1.00Beneficial Owner
    
    
    32,000
    
    
    July 19, 2010
    
    HK$5.92
    
    
    HK$1.00(Spouse)
    
    
    40,000
    
    
    February 14, 2012
    
    HK$6.35
    
    
    HK$1.00Cesareo Alierta Izuel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Jung Man Won
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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Compensation forNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    2008Capacity and
    
    Shares
    
    
    
    
    Exercise
    
    
    Consideration
    
    
    (RMB inName
    
    Nature
    
    Covered(1)
    
    
    Expiration Date
    
    Price
    
    
    Paid
    
    
    thousand)Wu Jinglian
    
    Beneficial Owner
    
    
    292,000
    
    
    May 20, 2010(6)
    
    HK$4.30
    
    
    HK$1.00
    
    
    
    365(Personal)
    
    
    292,000
    
    
    July 19, 2010
    
    HK$5.92
    
    
    HK$1.00Linus Cheung Wing Lam
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347Wong Wai Ming
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360John Lawson Thornton
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74Timpson Chung Shui Ming
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74Employees(2)(3)(4)
    
    
    
    
    16,977,600
    
    
    June 21, 2010(5)
    
    HK$15.42
    
    
    HK$1.004,058,000
    
    
    June 22, 2010(5)
    
    HK$15.42
    
    
    HK$1.008,664,000
    
    
    May 20, 2010(6)
    
    HK$4.30
    
    
    HK$1.0040,608,000
    
    
    July 19, 2010(5)
    
    HK$5.92
    
    
    HK$1.00128,000
    
    
    December 20, 2010(5)
    
    HK$6.20
    
    
    HK$1.00150,310,000
    
    
    February 14, 2012(5)
    
    HK$6.35
    
    
    HK$1.0099,940,204
    
    
    November 16, 2010
    
    HK$5.57
    
    
    HK$1.0088,929,468
    
    
    December 5, 2011
    
    HK$8.26
    
    
    HK$1.00
 
 (1)
    
    Each option gives the holder the right to subscribe for one share.(2)
    
    Include Mr. Shang Bing, Mr. Yang Xiaowei, Mr. Li Zhengmao and Mr. Miao Jianhua, who resigned
as Executive Directors on May 23, 2008. The number of options outstanding as of May 31, 2009
included a total of 2,909,000 options held by Mr. Shang Bing, Mr. Yang Xiaowei and Mr. Li
Zhengmao as beneficial owner (personal).Mr. Shang Bing, Mr. Yang Xiaowei and Mr. Li Zhengmao were determined by the Board as
Transferred Personnel pursuant to the Pre-Global Offering Share Option Scheme and the Share
Option Scheme, and options held by them are subject to relevant terms of the Pre-Global Share
Option Scheme and the Share Option Scheme. The number of options outstanding as of May 31,
2009 includes the options held by Mr. Shang Bing, Mr. Yang Xiaowei and Mr. Li Zhengmao as
beneficial owner (personal).(3)
    
    Include Mr. Li Gang, Mr. Zhang Junan and Mr. Lu Jianguo, who resigned as
Executive Directors on October 15, 2008. Number of options outstanding as of May 31, 2009
included a total 2,084,600 options held by them as beneficial owners (personal).(4)
    
    According to the terms of the CDMA business disposal between our company and China Telecom,
some of our employees were transferred to China Telecom upon the CDMA business disposal
becoming effective. Pursuant to the Pre-Global Share Option Scheme and the Share Option
Scheme, the said transferred employees may exercise (a) all effective options (granted and
vested under those two share option schemes) to the extent such options had not been already
exercised and (b) all effective unvested options (options that had not vested by the time of
such transfer of employees according to the applicable vesting schedule but were nevertheless
vested by the Board pursuant to those two option schemes) at any time from the date of their
transfer to the earlier of (i) 12 months after the date of the transfer and (ii) the end of
applicable option period. All other options will lapse automatically on the date immediately
after the date of such transfer of employees. The number of options outstanding as of May 31,
2009 and held by our employees includes a total number of approximately 22,500,000 options
that are held by those transferred employees.(5)
    
    Include approximately 25,000,000 options, for which the Board extended the exercisable period
for one year pursuant to amendments of the Share Option Scheme and the Pre-Global Offering
Share Option Scheme approved by our shareholders on May 26, 2009, held by employees who were
(i) determined by the Board as Transferred Personnel under the applicable share option
scheme due to the transfers of those employees to other telecommunications operators as part
of the 2008 industry restructuring (including some ex-directors and employees discussed in
notes (2) and (4) above) and (ii) unable to exercise their options due to a Mandatory
Moratorium as set forth in the Share Option Scheme and the Pre-Global Offering Share Option
Scheme.(6)
    
    The original expiration date for these options was May 20, 2009, which was extended to May
20, 2010 by the Board pursuant to amendments of the Share Option Scheme and the Pre-Global
Offering Share Option Scheme approved by our shareholders on May 26, 2009, because those
options were not exercisable due to a Mandatory Moratorium as set forth in the Share Option
Scheme and the Pre-Global Offering Share Option Scheme. Stock Incentive Schemes
 Share Option Scheme.
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Pre-Global Offering Share Option Scheme.
 
    
    The subscription price of a share in respect of any particular option granted under
the pre-global offering share option scheme is HK$15.42, the offer price in the Hong
Kong public offering portion of our initial public offering, excluding brokerage fees
and transaction levy.
    
    The period during which an option may be exercised commences two years from the date
of grant and ends 10 years from June 22, 2000.
  Special Purpose Share Option Scheme.
 
 Item 7. Major Shareholders and Related Party Transactions
 A.
    
    Major Shareholders
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B. Related Party Transactions
       Continuing Related Party Transactions between China Netcoms Subsidiaries and Netcom Group
  Domestic Interconnection Settlement Agreement
  -86-




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International Long Distance Voice Services Settlement Agreement
     Engineering and Information Technology Services Agreement
  -87-




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Master Sharing Agreement
   (a)
    
    CNC China agrees to provide customer relationship management services for large
enterprise customers of Netcom Group;(b)
    
    CNC China agrees to provide network management services to Netcom Group;(c)
    
    CNC China agrees to share with Netcom Group the services provided by
administrative and managerial staff in respect of central management of the business
operations, financial control, human resources and other related matters of both CNC
China and Netcom Group;(d)
    
    CNC China agrees to provide to Netcom Group supporting services, such as
billing and settlement provided by CNC Chinas business support center;(e)
    
    Netcom Group agrees to provide to CNC China supporting services, including
telephone card production, development and certain related services;(f)
    
    Netcom Group agrees to provide to CNC China certain other shared services,
including advertising, publicity, research and development, business hospitality,
maintenance and property management;(g)
    
    Netcom Group agrees to provide certain office space in its headquarters to CNC
China for use as CNC Chinas principal executive office; and(h)
    
    CNC China and Netcom Group agree to share the revenues received by Netcom Group
from other telecommunications operators whose networks interconnect with the Internet
backbone network of Netcom Group and share the monthly connection fee that Netcom Group
pays to the State Internet Switching Center.
  -88-




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Property Leasing Agreement
    Materials Procurement Agreement
   (a)
    
    CNC China may request Netcom Group to act as its agent for the procurement of
imported and domestic telecommunications equipment and other domestic
non-telecommunications equipment;(b)
    
    CNC China may purchase from Netcom Group certain products, including cables,
modems and telephone directories; and(c)
    
    Netcom Group agrees to provide to CNC China storage and transportation services
related to the procurement and purchase of materials or equipment under the agreement.
  
    
    the price fixed by the PRC Government;
    
    where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
    
    where there is neither a government-fixed price nor a government-recommended price,
the market
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price; or
 
    
    where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
  Ancillary Telecommunications Services Agreement
    
    
    the price fixed by the PRC Government;
    
    where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
    
    where there is neither a government-fixed price nor a government-recommended price,
the market price; or
    
    where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
  Support Services Agreement
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
    
    the price fixed by the PRC Government;
    
    where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
    
    where there is neither a government-fixed price nor a government-recommended price,
the market price; or
    
    where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
  Telecommunications Facilities Leasing Agreement
   (a)
    
    Netcom Group agrees to lease certain inter-provincial fiber optic cables within
CNC Chinas service regions to CNC China;(b)
    
    Netcom Group agrees to lease certain international telecommunications resources
(including international telecommunications channel gateways, international
telecommunications service gateways, international submarine cable capacity,
international land cables and international satellite facilities) to CNC China; and(c)
    
    Netcom Group agrees to lease to CNC china certain other telecommunications
facilities required by CNC China for its operations.
  Information and Communications Technology Agreement
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(a)
    
    China Netcom System Integration (and its subsidiaries) agrees to provide
information and communications technology services to Netcom Group (and its
subsidiaries, other than China Netcom and its subsidiaries), which include system
integration services, software development services, operational maintenance services,
consultancy services, equipment leasing-related services and product sales-and
distribution-related services; and(b)
    
    China Netcom System Integration agrees to subcontract services ancillary to the
provision of information and communications technology services referred to in
paragraph (a) above, namely, system installation and configuration services, to the
subsidiaries and branches of Netcom Group (other than China Netcom and its
subsidiaries) in Netcom Groups southern service regions in the PRC.
  
    
    the price fixed by the PRC Government;
    
    where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price; or
    
    where there is neither a government-fixed price nor a government-recommended price,
the market price.
  
    
    if the value of any single item of system installation and configuration services
provided by Netcom Group (and its subsidiaries, other than China Netcom and its
subsidiaries) to China Netcom System Integration (and its subsidiaries) is expected to
exceed RMB0.3 million, the award of such services will be subject to competitive
bidding; or
    
    if the value of any single item of system integration, software development,
operational maintenance, consultancy and equipment leasing-related services is expected
to exceed RMB0.5 million, or where the value of any single item of product sales and
distribution related services is expected to exceed RMB2 million, the award of such
services will be subject to competitive bidding.
 Related Party Transactions between CUCL and Netcom Group
  Framework Agreement for Interconnection Settlement
   -92-




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Framework Agreement for Engineering and Information Technology Services
   Framework Agreement for Property Leasing
   Framework Agreement for Ancillary Telecommunications Services
   -93-




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
    
    the price fixed by the PRC Government;
    
    where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
    
    where there is neither a government-fixed price nor a government-recommended price,
the market price; or
    
    where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
  Framework Agreement for Support Services
   
    
    the price fixed by the PRC Government;
    
    where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
    
    where there is neither a government-fixed price nor a government-recommended price,
the market price; or
    
    where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
  Framework Agreement for Telecommunications Facilities Leasing
   (a)
    
    Netcom Group agrees to lease certain inter-provincial fiber optic cables within
CUCLs service regions to CUCL;(b)
    
    Netcom Group agrees to lease certain international telecommunications resources
(including
 -94-




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international telecommunications channel gateways, international telecommunications
service gateways, international submarine cable capacity, international land cables
and international satellite facilities) to CUCL; and(c)
    
    Netcom Group agrees to lease certain other telecommunications facilities
required by CUCL for its operations.
  Amended Continuing Related Party Transactions
   Supply of Telephone Cards
    -95-




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Provision of Equipment Procurement Services
    (a)
    
    0.55% of the contract value of those procurement contracts up to and including
US$30 million and 0.35% of the contract value of those procurement contracts over US$30
million, in the case of imported equipment; and(b)
    
    0.25% of the contract value of those procurement contracts up to and including
RMB200 million and 0.15% of the contract value of those procurement contracts over
RMB200 million, in the case of domestic equipment.
 Interconnection Arrangements
     Mutual Provision of Premises
   -96-




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Provision of International Telecommunications Network Gateways
   Provision of Operator-Based Value-Added Services
   Provision of Value-Added Telecommunications Services
   Provision of 10010/10011 Customer Services
  -97-




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(a)
    
    The cost per operator seat in economically developed metropolises, such as
Beijing, Shanghai and Guangdong, shall be the Actual Cost per Operator Seat (as defined
below) in such area for the previous year. The cost per operator seat in areas apart
from those economically developed metropolises shall be the lower of the Actual Cost
per Operator Seat in the same region and the nationwide (excluding Beijing, Shanghai
and Guangdong) average of Actual Cost per Operator Seat (as defined below) plus 10%, in
each case, for the previous year.The Actual Cost per Operator Seat comprises wages, administration expenses,
operation and maintenance expenses, depreciation of equipment and leasing for
premises attributable to the customer services. The Actual Cost per Operator Seat
in a certain area shall be the product of dividing the costs of Unicom Group
providing 10010/10011 services (as confirmed in the audit report issued by an
external audit firm) in the same region for the previous year by the average number
of monthly operator seats of Unicom Group for the previous year. Such audit report
and relevant supporting documents shall be provided to each of CUCL, CNC China and
their auditors.(b)
    
    The number of effectively operating operator seats shall be determined in the
following way: Unicom Group shall notify the number of operator seats of the previous
month to CUCL and CNC China before the tenth day of each month. CUCL and CNC China
shall confirm the number of effectively operating operator seats within five working
days, based on the criteria as set out in the Service Standard for Telecommunications
Operations (for Trial Implementation) published by the former Ministry of Information
and Industry. The number of effectively operating operator seats will be subject to
final confirmation by CUCL and CNC China.
  Provision of Agency Services
   Provision of Engineering Design and Technical Services
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Leasing of CDMA Network Capacity
    Acquisitions of Fixed-Line Business in 21 Provinces in Southern China and Other Assets from Parent
Companies and Lease of Telecommunications Networks in 21 Provinces in Southern China
  -99-




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Mergers of Parent Companies and Subsidiaries
  Agreements Relating to the Restructuring in Connection with Our Initial Public Offering
 The Reorganization Agreement
  
    
    Unicom Groups agreement to transfer to CUCL certain assets and liabilities;
    
    mutual warranties and indemnities given by Unicom Group and CUCL in relation to the
assets and liabilities transferred to CUCL and in relation to the restructuring;
    
    undertakings by Unicom Group in favor of CUCL, including, among other things:
 
    
    to hold and maintain all licenses received from the former Ministry of
Information Industry in connection with any of our businesses for our benefit,
and to allocate spectrum and to provide other resources to us;
    
    subject to applicable Chinese laws and regulations in effect at the relevant
time, to take all actions necessary to obtain, maintain, renew and otherwise
extend to or for our benefit such governmental or regulatory licenses,
consents, permits or other approvals as we shall require to continue to operate
our businesses;
    
    to arrange for us to participate in its international roaming arrangements;
    
    not to engage in any business that competes with our businesses, except for
the existing competing businesses of Unicom Group;
    
    to grant us a right of first refusal in relation to any government
authorization, license or permit, or other business opportunity to develop any
new telecommunications technology, product or service;
    
    to ensure that we can continue to use the premises for which title
documentation cannot be obtained at this time, for a period of three years
following the restructuring;
 -100-




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
    
    not to dispose of any of our shares it beneficially owns or to take or
permit any other actions, including primary issuances of securities by us or
CUCL, which would result in us or CUCL no longer constituting majority-owned
subsidiaries of Unicom Group; and
    
    not to seek an overseas listing for any of its businesses or the businesses
of its subsidiaries in which we are engaged or may engage in the future except
through us;
 
    
    an option granted by Unicom Group to us to acquire Unicom Groups interest in any
telecommunications interest, such as Unicom Paging, Unicom Xingye and Unicom Groups
CDMA telephony license and business; and
    
    a commitment by Unicom Group that it will provide continuous financial support to us
when necessary.
  Equity Transfer Agreement
  
    
    Unicom Groups agreement to transfer all of its equity interest in CUCL to us;
    
    our agreement to issue shares to Unicom BVI, Unicom BVIs agreement to issue shares
to Unicom HK and Unicom HKs agreement to issue shares to Unicom Group;
    
    Unicom Groups and our agreement that:
 
    
    we shall be entitled to apply in Hong Kong, Macau, Taiwan and in all places
outside of China for all trademarks incorporating the word Unicom in English
and Chinese and for the Unicom logo; and
    
    once these trademarks have been registered, we will sublicense these
trademarks to Unicom Group, CUCL, Guoxin Paging and Guoxin Pagings
subsidiaries on a royalty-free basis; and
 
    
    warranties and indemnities given by Unicom Group to us in relation to CUCL.
 Trademark Agreement
 
 -101-




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Our Roaming Arrangements
   
    
    The cellular subscribers using roaming services will pay roaming fees at the agreed
rate of RMB0.60 per minute of roaming usage for both incoming and outgoing calls, based
on the guidelines of the former Ministry of Information Industry.
 
    
    If our cellular subscribers roam in the service areas of Unicom Group, we
will be entitled to receive the roaming fees, which will be apportioned in the
following way: (i) RMB0.40 per minute (the rate for local call charges under
the guidelines of the former Ministry of Information Industry) will be paid to
Unicom Group; and (ii) the remaining RMB0.20 per minute will be withheld by us;
    
    If the cellular subscribers of Unicom Group roam in our service areas,
Unicom Group will be entitled to receive the roaming fees, which will be
apportioned in the following way: (i) RMB0.56 per minute will be paid to us;
and (ii) RMB0.04 per minute will be withheld by Unicom Group; and
    
    If our cellular business expands to cover all regions throughout the PRC,
the arrangements set out above will be terminated automatically.
 
    
    If the network of a third-party cellular network operator is made available to the
cellular subscribers of Unicom Group pursuant to the international roaming arrangements
of Unicom Group, or if the network of Unicom Group is made available to the subscribers
of any third-party cellular network operator pursuant to such arrangements, we will
receive 50% of all roaming revenue to be received under such international roaming
arrangements.
  Asset Transfer Agreement Relating to the Acquisition of Unicom Guizhou
  
    
    Unicom Groups agreement to sell and CUCLs agreement to purchase the GSM
telecommunications assets and business and CDMA telecommunications business held by
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Unicom Guizhou;
 
    
    CUCLs agreement to pay Unicom Group a cash consideration in the amount of RMB880
million;
    
    The profit or loss of Unicom Guizhou for the period from December 31, 2006 to
December 31, 2007, the effective date of the transfer, was transferred to Unicom Group;
and
    
    Representations and warranties given Unicom Group in relation to Unicom Guizhou.
 Agreements Relating to the Restructuring in Connection with China Netcoms Initial Public Offering
 Reorganization Agreements
  
    
    telecommunications businesses in its northern and southern service regions; and
    
    international telecommunications services in the Asia-Pacific region.
  
    
    provide telecommunications services in provinces, autonomous regions and
municipalities outside China Netcoms northern and southern service regions; and
    
    own non-core businesses.
  
    
    a breach of any provision of the restructuring agreement on the part of Netcom Group
or its subsidiaries (other than CNC China);
    
    any matter occurring prior to the effective date of the restructuring relating to
assets and liabilities transferred to CNC China under the restructuring;
    
    the assets retained or held by Netcom Group after the restructuring;
    
    any rights and interests in relation to all employees of CNC China who were employed
by Netcom Group prior to the restructuring for the period of their employment by Netcom
Group; and
    
    any defect in property titles in respect of properties transferred to China Netcom
under the restructuring.
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Netcom Groups Undertakings
  
    
    Netcom Group will extend its full support to China Netcoms operations and
development;
    
    China Netcom will be the only basic telecommunications services provider operating
in China (through its PRC subsidiary) under Netcom Groups control that will have its
securities listed on a stock exchange in Hong Kong or outside of China;
    
    to the extent within Netcom Groups control, China Netcom will be treated equally
with Netcom Group and/or any other operators controlled by Netcom Group in relation to
fixed-line telephone services, Internet services (including, but not limited to,
fixed-line broadband services), data services, leased line services, international
telecommunications services, value-added services or other related telecommunications
services with respect to all approvals, transactions and arrangements between China
Netcom and Netcom Group and/or such operators controlled by Netcom Group;
    
    if Netcom Group obtains the license to operate any telecommunications business in
China outside the current business scope of China Netcoms PRC subsidiary (including,
but not limited to a mobile telecommunications license, new telecommunications services
and the testing and commercial operation of new technologies), Netcom Group will notify
China Netcom as soon as possible, and upon China Netcoms request, grant exclusively to
China Netcoms subsidiary conducting telecommunications business in China, through
licensing or otherwise, the right to conduct such telecommunications business within
the provinces, municipalities and autonomous regions where China Netcom conducts
business. If these arrangements require the approval of the relevant government
department, Netcom Group will use its best efforts to seek to obtain such approval;
    
    to the extent within Netcom Groups control, China Netcom will have the preferential
right to acquire Netcom Groups interest in companies or other entities that provide
telecommunications services or their businesses; and
    
    Netcom Group will fulfill the relevant universal services obligations for which it
is responsible under relevant regulations and projects by the MIIT. Netcom Group will
be responsible for the investment and construction of the network facilities required
to fulfill the universal obligations of Netcom Group and/or China Netcom (or its
subsidiary) in relation to obligations and other requirements. If China Netcom operates
or maintains such network facilities in the regions where it operates in China, Netcom
Group has agreed to provide China Netcom with reasonable compensation in respect of the
relevant expenses arising as a result of the operation and maintenance of such network
facilities, based on fair market value.
  Trademark Agreements between China Netcom and Netcom Group
  -104-




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China Netcoms Acquisition of CNC New Horizon BVI
    Cooperation Agreement Between China Netcom and Netcom Group in Relation to the 2008 Beijing Olympic
Games
  Sale of China Netcoms Business of Guangdong and Shanghai Service Regions
  China Netcoms Purchase of Design Institute from Netcom Group
  -105-




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China Netcoms Loans Borrowed from its Subsidiaries and Other Holding Companies
  C. Interests of Experts and Counsel
  
 Item 8. Financial Information
  Legal Proceedings
  Policy on Dividend Distribution
   
 Item 9. The Offer and Listing
 Market Price Information
   Price per Ordinary Share(HK$)
    
    Price per ADS (US$)High
    
    Low
    
    High
    
    LowAnnual:2003
    
    
    8.00
    
    
    
    3.92
    
    
    
    10.55
    
    
    
    5.022004
    
    
    10.20
    
    
    
    5.20
    
    
    
    13.18
    
    
    
    6.782005
    
    
    7.20
    
    
    
    5.65
    
    
    
    9.19
    
    
    
    7.302006
    
    
    12.44
    
    
    
    6.25
    
    
    
    15.46
    
    
    
    8.032007
    
    
    18.80
    
    
    
    9.18
    
    
    
    24.25
    
    
    
    11.75
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Price per Ordinary Share(HK$)
    
    Price per ADS (US$)High
    
    Low
    
    High
    
    Low2008
    
    
    19.58
    
    
    
    8.53
    
    
    
    25.07
    
    
    
    10.27Quarterly:First Quarter, 2007
    
    
    11.78
    
    
    
    9.18
    
    
    
    15.09
    
    
    
    11.75Second Quarter, 2007
    
    
    13.64
    
    
    
    11.06
    
    
    
    17.47
    
    
    
    14.39Third Quarter, 2007
    
    
    16.08
    
    
    
    11.28
    
    
    
    21.03
    
    
    
    14.35Fourth Quarter, 2007
    
    
    18.80
    
    
    
    14.08
    
    
    
    24.52
    
    
    
    17.63First Quarter, 2008
    
    
    19.58
    
    
    
    14.70
    
    
    
    25.07
    
    
    
    19.96Second Quarter, 2008
    
    
    18.48
    
    
    
    13.92
    
    
    
    22.79
    
    
    
    17.49Third Quarter, 2008(1)
    
    
    16.48
    
    
    
    9.95
    
    
    
    21.03
    
    
    
    12.60Fourth Quarter, 2008
    
    
    12.04
    
    
    
    8.53
    
    
    
    15.52
    
    
    
    10.27First Quarter, 2009
    
    
    10.86
    
    
    
    6.84
    
    
    
    14.06
    
    
    
    8.72Monthly:January 2009
    
    
    10.86
    
    
    
    6.84
    
    
    
    14.06
    
    
    
    8.79February 2009
    
    
    7.84
    
    
    
    6.90
    
    
    
    10.12
    
    
    
    8.72March 2009
    
    
    8.63
    
    
    
    7.00
    
    
    
    11.23
    
    
    
    8.77April 2009
    
    
    8.87
    
    
    
    7.46
    
    
    
    11.57
    
    
    
    9.86May 2009
    
    
    9.75
    
    
    
    8.83
    
    
    
    12.82
    
    
    
    11.07June 2009
(through June 19, 2009)
    
    
    11.86
    
    
    
    10.38
    
    
    
    15.50
    
    
    
    13.72
 
 (1)
    
    Trading was suspended from May 23, 2008 to and including June 2, 2008 on the HKSE and on the
NYSE. 
 Item 10. Additional Information
 A. Share Capital
  B. Memorandum and Articles of Association
 General
  Directors
 Material Interests and Voting
 not
 
    
    the giving of any security or indemnity either (i) to the director or any of his
associates (as defined in the HKSE Listing Rules) in respect of money lent or
obligations incurred or undertaken by him or any of them at the request of or for the
benefit of Unicom or any of its subsidiaries or (ii) to a
 -107-




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third-party in respect of a debt or obligation of Unicom or any of its subsidiaries
for which the director or any of his associates has assumed responsibility in whole
or in part and whether alone or jointly under a guarantee or indemnity or by the
giving of security;
 
    
    an offer of shares or debentures or other securities of or by Unicom (or any other
company which Unicom may promote or be interested in) where the director or any of his
associates is or will be an interested participant in the underwriting or
sub-underwriting of the offer;
    
    any other company in which the director or any of his associates is interested only,
whether directly or indirectly, as an officer or shareholder or in which the director
or any of his associates is beneficially interested in shares of that company, provided
that he, together with any of his associates, is not beneficially interested in 5% or
more of (i) the issued shares of any class of such company (or of any third company
through which such interest is derived), or (ii) the voting rights attached to such
issued shares or securities (excluding for the purpose of calculating such 5% interest,
any indirect interest of such director or any of his associates by virtue of Unicoms
interest in such company);
    
    the benefit of employees of Unicom or any of its subsidiaries, including (i) the
adoption, modification or operation of any employee share scheme under which the
director or any of his associates may benefit or (ii) the adoption, modification or
operation of a pension fund or retirement, death or disability benefits scheme which
relates both to directors, their associates and employees of Unicom or any of its
subsidiaries and does not provide in respect of the director or any of his associates,
any privilege or advantage not generally accorded to the class of persons to which such
scheme or fund relates; or
    
    any contract or arrangement in which the director or any of his associates is
interested in the same manner as other holders of shares or debentures or other
securities of Unicom by virtue only of his interest in shares or debentures or other
securities of Unicom.
 Remuneration and Pensions
   Borrowing Powers
  Qualification of Directors
 -108-




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A director of Unicom is not required to hold any qualification shares.
 Rotation of Directors
  Rights Attached to Ordinary Shares
 Voting Rights
     Issue of Shares
   Dividends
  -109-




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Winding Up
   Miscellaneous
   Modification of Rights
  Annual General and Extraordinary General Meetings
   -110-




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##### Table of Contents



Limitations on Rights to Own Securities
  Changes in Capital
   
    
    consolidate and divide all or any of our share capital into shares of a larger
amount than our existing shares;
    
    divide our shares into several classes and attach to them any preferential,
deferred, qualified or special rights, privileges or conditions;
    
    cancel any shares that at the date of the passing of the resolution have not been
taken or agreed to be taken by any person, and diminish the amount of our share capital
by the amount of the shares so cancelled;
    
    sub-divide our shares or any of them into shares of a smaller amount than is fixed
by our Memorandum of Association, subject nevertheless to the provisions of the
Companies Ordinance; and
    
    make provision for the issue and allotment of shares which do not carry any voting
rights.
 Miscellaneous
  C. Material Contracts
  
    
    CDMA Business Framework Agreement among us, CUCL and China Telecom, dated June 2,
2008,
 -111-




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relating to the sale of our CDMA business and its related assets and liabilities to
China Telecom;
 
    
    CDMA Business Disposal Agreement among us, CUCL and China Telecom, dated July 27,
2008, relating to the sale of our CDMA business and its related assets and liabilities
to China Telecom; and
    
    Merger Agreement between CUCL and CNC China, dated October 15, 2008, relating to the
merger between CUCL and CNC China.
 D. Exchange Controls
   E. Taxation
  Peoples Republic of China
  Taxation of Dividends
  -112-




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Taxation of Capital Gains
  Additional PRC Tax Considerations
 Stamp duty
 Estate tax
 Hong Kong
 Taxation of Dividends
  -113-




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Profits
  Stamp Duty
   Estate Duty
  United States
 United States Federal Income Taxation
  
    
    a dealer in securities,
    
    a trader in securities that elects to use a mark-to-market method of accounting for
your securities holdings,
    
    a tax-exempt organization,
    
    an insurance company,
    
    a person liable for alternative minimum tax,
    
    a person that actually or constructively owns 10% or more of our voting stock,
    
    a person that holds shares or ADSs that are a hedge or that are hedged against
currency risks or as
 -114-




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part of a straddle or a conversion transaction, or
    
    a person whose functional currency is not the U.S. dollar.
   
    
    a citizen or resident of the United States,
    
    a corporation organized under the laws of the United States or any States,
    
    an estate whose income is subject to United States federal income tax regardless of
its source, or
    
    a trust if a United States court can exercise primary supervision over the trusts
administration and one or more United States persons are authorized to control all
substantial decisions of the trust.
     Taxation of Dividends
   -115-




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Taxation of Capital Gains
   Passive Foreign Investment Company Rules
  
    
    at least 75% of our gross income for the taxable year is passive income; or
    
    at least 50% of the value, determined on the basis of a quarterly average, of our
assets is attributable to assets that produce or are held for the production of passive
income.
  -116-




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##### Table of Contents




    
    any gain you realize on the sale or other disposition of your shares or ADSs; and
    
    any excess distribution that we make to you (generally, any distributions to you
during a single taxable year that are greater than 125% of the average annual
distributions received by you in respect of the shares or ADSs during the three
preceding taxable years or, if shorter, your holding period for the shares or ADSs).
  
    
    the gain or excess distribution will be allocated ratably over your holding period
for the shares or ADSs;
    
    the amount allocated to the taxable year in which you realized the gain or excess
distribution will be taxed as ordinary income;
    
    the amount allocated to each prior year, with certain exceptions, will be taxed at
the highest tax rate in effect for that year; and
    
    the interest charge generally applicable to underpayments of tax will be imposed in
respect of the tax attributable to each such year.
     -117-




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##### Table of Contents



F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
   I. Subsidiary Information
  
 Item 11. Quantitative and Qualitative Disclosures about Market Risks
  Interest Rate Risk
     -118-




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As ofDecemberExpected Maturity
    
    31, 20082009
    
    2010
    
    2011
    
    2012
    
    2013
    
    Thereafter
    
    Total
    
    Fair Value(RMB equivalent in millions, except interest rates)Liabilities:RMB-denominated loansVariable rate
    
    
    1,114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,114
    
    
    
    1,114Average rate (1)
    
    
    6.14
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. dollar-denominated loansFixed rate
    
    
    33
    
    
    
    26
    
    
    
    26
    
    
    
    26
    
    
    
    26
    
    
    
    386
    
    
    
    523
    
    
    
    322Average rate
    
    
    0.42
    %
    
    
    0.35
    %
    
    
    0.34
    %
    
    
    0.32
    %
    
    
    0.31
    %
    
    
    0.17
    %
    
    
    
    
    
    
    Euro-denominated loansFixed rate
    
    
    27
    
    
    
    28
    
    
    
    28
    
    
    
    28
    
    
    
    27
    
    
    
    204
    
    
    
    342
    
    
    
    257Average rate
    
    
    2.17
    %
    
    
    2.15
    %
    
    
    2.14
    %
    
    
    2.12
    %
    
    
    2.10
    %
    
    
    1.76
    %
    
    
    
    
    
    
    Japanese yen-denominated
loansFixed rate
    
    
    42
    
    
    
    42
    
    
    
    42
    
    
    
    42
    
    
    
    42
    
    
    
    24
    
    
    
    234
    
    
    
    213Average rate
    
    
    2.12
    %
    
    
    2.12
    %
    
    
    2.12
    %
    
    
    2.12
    %
    
    
    2.12
    %
    
    
    2.12
    %
    
    
    
    
    
    
    
 
 (1)
    
    The average interest rates for variable rate loans are calculated based on the rates reported
as of December 31, 2008.  Exchange Rate Risk
     -119-




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As ofDecemberExpected Maturity
    
    31, 20082009
    
    2010
    
    2011
    
    2012
    
    2013
    
    Thereafter
    
    Total
    
    Fair Value(RMB equivalent in millions)Assets:Cash and cash equivalentsU.S. dollars
    
    
    1,051
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,051
    
    
    
    1,051HK dollars
    
    
    197
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197
    
    
    
    197Japanese yen
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4EURO dollars
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    43GBP
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    20Liabilities:U.S. dollar-denominated loans
    
    
    33
    
    
    
    26
    
    
    
    26
    
    
    
    26
    
    
    
    26
    
    
    
    386
    
    
    
    523
    
    
    
    322Euro-denominated loans
    
    
    27
    
    
    
    28
    
    
    
    28
    
    
    
    28
    
    
    
    27
    
    
    
    204
    
    
    
    342
    
    
    
    257Japanese yen-denominated loans
    
    
    42
    
    
    
    42
    
    
    
    42
    
    
    
    42
    
    
    
    42
    
    
    
    24
    
    
    
    234
    
    
    
    213Off-balance sheet commitments:Capital commitments
authorized and contracted for
in U.S. dollars
    
    
    159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
  
 Item 12. Description of Securities Other than Equity Securities
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
  -120-




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Changes in Internal Control Over Financial Reporting
   
 Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  
 Item 16C. Principal Accountant Fees and Services
  -121-




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For the years endedDecember 31,2007
    
    2008(in RMB thousands)Audit services
    
    
    122,578
    
    
    
    106,850Audit-related services
    
    
    5,989
    
    
    
    23,347Tax services
    
    
    591
    
    
    
    111Other
    
    
    435
    
    
    
    165Total
    
    
    129,593
    
    
    
    130,473
     Audit Committees Pre-approval Policies and Procedures
   
 Item 16D. Exemptions from the Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 Item 16F. Change in Registrants Certifying Accountant
 -122-




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Item 16G. Corporate Governance
        -123-




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PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  
 Item 19. Exhibits
 ExhibitNumber
    
    Description of Exhibit1.1
    
    Memorandum of Association of Unicom, dated January 27, 2000(1).1.2
    
    Amended Articles of Association of Unicom (as amended on September 16, 2008).*2.1
    
    Deposit Agreement, among Unicom, The Bank of New York, as Depositary, and Owners and Beneficial
Owners of American Depositary Receipts issued thereunder, including the form of American Depositary
Receipt.(2)2.2
    
    Form of specimen certificate for the shares.(1)4.1
    
    Reorganization Agreement between Unicom Group and CUCL, dated April 21, 2000 (together with English
translation).(1)4.2
    
    Equity Transfer Agreement among Unicom Group, Unicom HK, Unicom BVI and Unicom, dated April 21,
2000.(1)4.3
    
    Trademark License Agreement between Unicom Group and CUCL, dated May 25, 2000 (together with English
translation).(1)4.4
    
    Transmission Line Lease and Services Agreement between Unicom Group, CUCL and Guoxin Paging, dated
August 1, 2001 (together with English translation).(1)4.5
    
    Reorganization Agreement between Unicom Group and Unicom New Century, dated November 18, 2002.
(English translation)(3)4.6
    
    Conditional Sale and Purchase Agreement between Unicom BVI and us in connection with the sale of
Unicom New Century, dated November 20, 2002. (English translation)(3)4.7
    
    Reorganization Agreement between Unicom Group and Unicom New World, dated November 4, 2003. (English
translation)(4)4.8
    
    Conditional Sale and Purchase Agreement between Unicom BVI and us in connection with the sale of
Unicom New World, dated November 20, 2003. (English translation)(4)4.9
    
    Conditional Sales and Purchase Agreement between China Unicom (Hong Kong) Group Limited and our
Company with respect to the acquisition of Unicom International, dated July 28, 2004.(5)4.10
    
    Subscription Agreement between Unicom and SK Telecom Co., Ltd., dated June 20, 2006.(6)4.11
    
    CDMA Network Capacity Lease Agreement among Unicom New Horizon, the A Share Company and Unicom
Group, dated October 26, 2006.(7)4.12
    
    Transfer Agreement of the CDMA Network Capacity Lease Agreement between the A Share Company and
CUCL, dated October 26, 2006. (English translation)(7)4.13
    
    Asset Transfer Agreement between CUCL and Unicom Group in connection with the acquisition of Unicom
Guizhou, dated November 16, 2007. (English translation)(8)
 -124-




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit4.14
    
    Supplement Agreement among Unicom New Horizon, Unicom Group, CUCL and the A Share Company in
connection with the acquisition of Unicom Guizhou and the 2006 CDMA Network Capacity Lease
Agreement, dated November 16, 2007. (8)4.15
    
    CDMA Business Transfer Framework Agreement between us, CUCL and China Telecom dated as of June 2,
2008. (English translation)(8)4.16
    
    CDMA Business Disposal Agreement among Unicom, CUCL and China Telecom, dated July 27, 2008. (English
summary)*4.17
    
    Business and Assets Transfer Agreement among Unicom Parent, Netcom Parent and the A Share Company,
relating to acquisitions of certain business and assets, including the fixed-line business in 21
provinces in southern China, dated December 16, 2008. (English translation)(9)4.18
    
    Transfer Agreement between the A Share Company and CUCL, relating to acquisitions of certain
business and assets, including the fixed-line business in 21 provinces in southern China, dated
December 16, 2008. (English translation)(9)4.19
    
    Network Lease Agreement between CUCL and Unicom New Horizon, relating to the lease of
telecommunications networks in 21 provinces in southern China by CUCL from Unicom New Horizon, dated
December 16, 2008. (English translation)(9)4.20
    
    Assets and Liabilities Transfer Agreement between CNC China and Netcom Group, dated June 23, 2004.
(English translation)(10)4.21
    
    Asset Injection Agreement among Netcom Group, Netcom BVI, CNC China and China Netcom, dated June 29,
2004. (English translation)(10)4.22
    
    Letter of Undertakings by Netcom Group, dated September 5, 2005. (English translation)(10)4.23
    
    Restructuring Agreement among CNC China, Netcom Group and China Netcom, dated September 6, 2004.

(English translation)(10)4.24
    
    Non-Competition Agreement among CNC China, Netcom Group and China Netcom, dated September 6, 2004.
(English translation)(10)4.25
    
    Trademark Licensing Agreement among CNC China, Netcom Group and China Netcom, dated October 8, 2004.
(English translation)(10)4.26
    
    Conditional Sale and Purchase Agreement among China Netcom, Netcom BVI and Netcom Group, relating to
the acquisition of CNC New Horizon BVI, dated September 12, 2005.*4.27
    
    Asset Transfer Agreement between China Netcom and Netcom Group, relating to the sale of China
Netcoms telecommunications assets, liabilities and business operations in Guangdong Province and
Shanghai Municipality, dated January 15, 2007.*4.28
    
    Domestic Interconnection Settlement Agreement between CNC China and Netcom Group, dated November 6,
2007. (English translation)*4.29
    
    International Long Distance Voice Services Settlement Agreement between CNC China and Netcom Group,
dated November 6, 2007.(English translation)*4.30
    
    Engineering and Information Technology Services Agreement between CNC China and Netcom Group, dated
November 6, 2007.(English translation)*4.31
    
    Master Sharing Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)*4.32
    
    Property Leasing Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)*4.33
    
    Materials Procurement Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)*
 -125-




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit4.34
    
    Ancillary Telecommunications Services Agreement between CNC China and Netcom Group, dated November
6, 2007. (English translation)*4.35
    
    Support Services Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)*4.36
    
    Telecommunications Facilities Leasing Agreement between CNC China and Netcom Group, dated November
6, 2007. (English translation)*4.37
    
    Information and Communications Technology Agreement between China Netcom System Integration and
Netcom Group, dated November 6, 2007. (English translation)*4.38
    
    Equity Interest Transfer Agreement between China Netcom Group System Integration and China Netcom
Group Beijing Communications Corporation, relating to the acquisition of Design Institute, dated
December 5, 2007. (English translation)(11)4.39
    
    Framework Agreement for Interconnection Settlement between CUCL and Netcom Group, dated August 12,
2008. (English translation)*4.40
    
    Framework Agreement for Engineering and Information Technology Services between CUCL and Netcom
Group, dated August 12, 2008. (English translation)*4.41
    
    Framework Agreement for Property Leasing Services between CUCL and Netcom Group, dated August 12,
2008. (English translation)*4.42
    
    Framework Agreement for Ancillary Telecommunications Services between CUCL and Netcom Group, dated
August 12, 2008. (English translation)*4.43
    
    Framework Agreement for Support Services between CUCL and Netcom Group, dated August 12, 2008.
(English translation)*4.44
    
    Framework Agreement for Telecommunications Facilities Leasing between CUCL and Netcom Group, dated
August 12, 2008. (English translation)*4.45
    
    Comprehensive Services Agreement between Unicom Group and the A Share Company, dated August 12,
2008. (English translation)*4.46
    
    Transfer Agreement among the A Share Company, CUCL and CNC China, in connection with the
Comprehensive Services Agreement, dated August 12, 2008. (English translation)*4.47
    
    Merger Agreement between CUCL and CNC China, relating to the merger between CUCL and CNC China,
dated October 15, 2008. (English translation)*4.48
    
    Pre-Global Offering Share Option Scheme, adopted by ordinary resolution of the Company on June 1,
2000 and amended by ordinary resolutions of the Company on May 13, 2002, May 11, 2007and
May 26, 2009.*4.49
    
    Share Option Scheme, adopted by ordinary resolution of the Company on June 1, 2000 and amended by
ordinary resolutions of the Company on May 13, 2002, May 11, 2007 and May 26, 2009.*4.50
    
    Special Purpose Share Option Scheme, adopted by ordinary resolution of the Company on September 16,
2008 and amended by ordinary resolutions of the Company on May 26, 2009.*8.1
    
    List of our significant subsidiaries.*11.1
    
    Code of Ethics for Senior Officers.(4)11.2
    
    Employee Code of Ethics. (English translation)(6)12.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a).*12.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a).*13.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(b).*13.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(b).*
 -126-




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##### Table of Contents



(1)
    
    Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-11938)
filed with the SEC in connection with our initial public offering in June 2000.(2)
    
    Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-11952)
filed with the SEC with respect to American Depositary Shares representing our shares.(3)
    
    Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2002.(4)
    
    Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2003.(5)
    
    Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2004.(6)
    
    Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year ended December 31, 2005.(7)
    
    Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year ended December 31, 2006.(8)
    
    Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year ended December 31, 2007.(9)
    
    Incorporated by reference to Schedule 13D/A (File No. 5-51154) filed by China Netcom Group
Corporation (BVI) Limited, China Network Communications Group Corporation, China United
Network Communications Group Company Limited, China United Telecommunications Corporation
Limited, and China Unicom (BVI) Limited, filed on December 24, 2008.(10)
    
    Incorporated by reference to China Netcoms Registration Statement on Form F-1 (File No.
333-119786) filed with the SEC in connection with its initial public offering in November
2004.(11)
    
    Incorporated by reference to China Netcoms Annual Report on Form 20-F (File No. 1-32332) for
the year ended December 31, 2007.*
    
    Filed herewith. -127-




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##### Table of Contents



SIGNATURE
   CHINA UNICOM (HONG KONG) LIMITEDBy:

/s/
Chang XiaobingName:
    Chang XiaobingTitle:
    Chairman and Chief Executive Officer -128-




---



##### 



INDEX OF CONSOLIDATED FINANCIAL STATEMENTS
 CHINA UNICOM (HONG KONG) LIMITED AND ITS SUBSIDIARIES
 Report of Independent Registered Public Accounting FirmConsolidated balance sheets as of December 31, 2007 and 2008Consolidated statements of income for the years ended December 31, 2007 and 2008Consolidated statements of changes in equity for the years ended December 31, 2007 and 2008Consolidated statements of cash flows for the years ended December 31, 2007 and 2008Notes to the consolidated financial statements




---



##### Table of Contents



TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
CHINA UNICOM (HONG KONG) LIMITED
(FORMERLY KNOWN AS CHINA UNICOM LIMITED)
 (Incorporated in the Hong Kong Special Administrative Region of the Peoples Republic of China
(Hong Kong) with limited liability)
 Internal Control  Integrated Framework
    
 F-2




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2008
(Expressed in millions)
 2007As restatedNote
    
    (Note 2.2)
    
    2008
    
    2008RMB
    
    RMB
    
    US$ASSETSNon-current assetsProperty, plant and equipment
    
    
    6
    
    
    
    276,110
    
    
    
    283,912
    
    
    
    41,614Lease prepayments
    
    
    7
    
    
    
    8,063
    
    
    
    7,799
    
    
    
    1,143Goodwill
    
    
    8
    
    
    
    3,144
    
    
    
    2,771
    
    
    
    406Deferred income tax assets
    
    
    9
    
    
    
    2,514
    
    
    
    5,326
    
    
    
    781Other assets
    
    
    10
    
    
    
    12,081
    
    
    
    8,996
    
    
    
    1,319301,912
    
    
    
    308,804
    
    
    
    45,263Current assetsInventories and consumables
    
    
    12
    
    
    
    2,815
    
    
    
    1,171
    
    
    
    172Accounts receivable, net
    
    
    13
    
    
    
    11,014
    
    
    
    8,587
    
    
    
    1,258Prepayments and other current assets
    
    
    14
    
    
    
    4,314
    
    
    
    2,427
    
    
    
    356Amounts due from ultimate holding company
    
    
    37.1
    
    
    
    
    
    
    
    15
    
    
    
    2Amounts due from related parties
    
    
    37.1
    
    
    
    502
    
    
    
    439
    
    
    
    64Amounts due from domestic carriers
    
    
    37.2
    
    
    
    816
    
    
    
    865
    
    
    
    127Proceeds receivable for the disposal of
the CDMA Business
    
    
    33
    
    
    
    
    
    
    
    13,140
    
    
    
    1,926Short-term bank deposits
    
    
    15
    
    
    
    735
    
    
    
    238
    
    
    
    35Cash and cash equivalents
    
    
    16
    
    
    
    11,979
    
    
    
    9,238
    
    
    
    1,35432,175
    
    
    
    36,120
    
    
    
    5,294Total assets
    
    
    
    
    
    
    334,087
    
    
    
    344,924
    
    
    
    50,557EQUITYCapital and reserves attributable to
equity holders of the CompanyShare capital
    
    
    17
    
    
    
    1,437
    
    
    
    2,329
    
    
    
    341Share premium
    
    
    17
    
    
    
    64,320
    
    
    
    166,784
    
    
    
    24,446Reserves
    
    
    18
    
    
    
    76,275
    
    
    
    (23,183
    )
    
    
    (3,398
    )Retained profits- Proposed final dividend
    
    
    34
    
    
    
    6,427
    
    
    
    4,754
    
    
    
    697- Others
    
    
    
    
    
    
    30,053
    
    
    
    56,026
    
    
    
    8,212178,512
    
    
    
    206,710
    
    
    
    30,298Minority interest in equity
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    Total equity
    
    
    
    
    
    
    178,516
    
    
    
    206,710
    
    
    
    30,298
  F-3




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##### Table of Contents



2007As restatedNote
    
    (Note 2.2)
    
    2008
    
    2008RMB
    
    RMB
    
    US$LIABILITIESNon-current liabilitiesLong-term bank loans
    
    
    19
    
    
    
    16,086
    
    
    
    997
    
    
    
    146Corporate bonds
    
    
    20
    
    
    
    2,000
    
    
    
    7,000
    
    
    
    1,026Deferred income tax liabilities
    
    
    9
    
    
    
    17
    
    
    
    16
    
    
    
    2Deferred revenue
    
    
    
    
    
    
    5,246
    
    
    
    3,383
    
    
    
    496Amounts due to related parties
    
    
    37.1
    
    
    
    6,169
    
    
    
    
    
    
    
    Other obligations
    
    
    22
    
    
    
    2,007
    
    
    
    1,599
    
    
    
    23531,525
    
    
    
    12,995
    
    
    
    1,905Current liabilitiesPayables and accrued liabilities
    
    
    23
    
    
    
    49,312
    
    
    
    65,687
    
    
    
    9,628Taxes payable
    
    
    
    
    
    
    4,990
    
    
    
    11,304
    
    
    
    1,657Amounts due to ultimate holding company
    
    
    37.1
    
    
    
    821
    
    
    
    
    
    
    
    Amounts due to related parties
    
    
    37.1
    
    
    
    5,656
    
    
    
    2,727
    
    
    
    400Amounts due to domestic carriers
    
    
    37.2
    
    
    
    510
    
    
    
    538
    
    
    
    79Payables in relation to the disposal
of the CDMA Business
    
    
    37.2
    
    
    
    
    
    
    
    4,232
    
    
    
    620Dividend payable
    
    
    
    
    
    
    
    
    
    
    149
    
    
    
    22Short-term commercial paper
    
    
    24
    
    
    
    20,000
    
    
    
    10,000
    
    
    
    1,466Short-term bank loans
    
    
    25
    
    
    
    11,850
    
    
    
    10,780
    
    
    
    1,580Current portion of long-term bank loans
    
    
    19
    
    
    
    7,411
    
    
    
    1,216
    
    
    
    178Current portion of obligations under
finance leases
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    Current portion of deferred revenue
    
    
    
    
    
    
    3,103
    
    
    
    2,200
    
    
    
    322Current portion of other obligations
    
    
    22
    
    
    
    3,381
    
    
    
    3,012
    
    
    
    442Advances from customers
    
    
    
    
    
    
    16,909
    
    
    
    13,374
    
    
    
    1,960124,046
    
    
    
    125,219
    
    
    
    18,354Total liabilities
    
    
    
    
    
    
    155,571
    
    
    
    138,214
    
    
    
    20,259Total equity and liabilities
    
    
    
    
    
    
    334,087
    
    
    
    344,924
    
    
    
    50,557Net current liabilities
    
    
    
    
    
    
    (91,871
    )
    
    
    (89,099
    )
    
    
    (13,060
    )Total assets less current liabilities
    
    
    
    
    
    
    210,041
    
    
    
    219,705
    
    
    
    32,203
  F-4




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008
(Expressed in millions, except per share data)
 2007As restatedNote
    
    (Note 2.2)
    
    2008
    
    2008RMB
    
    RMB
    
    US$Continuing operationsRevenue
    
    
    5, 26
    
    
    
    150,687
    
    
    
    148,906
    
    
    
    21,826Interconnection charges
    
    
    
    
    
    
    (11,214
    )
    
    
    (12,011
    )
    
    
    (1,761
    )Depreciation and amortization
    
    
    
    
    
    
    (47,369
    )
    
    
    (47,678
    )
    
    
    (6,988
    )Networks, operations and support expenses
    
    
    28
    
    
    
    (16,022
    )
    
    
    (16,577
    )
    
    
    (2,430
    )Employee benefit expenses
    
    
    31
    
    
    
    (17,540
    )
    
    
    (18,902
    )
    
    
    (2,771
    )Other operating expenses
    
    
    29
    
    
    
    (32,776
    )
    
    
    (33,582
    )
    
    
    (4,922
    )Finance costs
    
    
    30
    
    
    
    (3,231
    )
    
    
    (2,411
    )
    
    
    (353
    )Interest income
    
    
    
    
    
    
    285
    
    
    
    239
    
    
    
    35Impairment loss on property, plant and equipment
    
    
    6
    
    
    
    
    
    
    
    (11,837
    )
    
    
    (1,735
    )Realized loss on changes in fair value of
derivative component of the convertible bonds
    
    
    21
    
    
    
    (569
    )
    
    
    
    
    
    
    Other income  net
    
    
    27
    
    
    
    4,990
    
    
    
    1,994
    
    
    
    292Income from continuing operations before income
tax
    
    
    
    
    
    
    27,241
    
    
    
    8,141
    
    
    
    1,193Income tax expenses
    
    
    9
    
    
    
    (7,083
    )
    
    
    (1,801
    )
    
    
    (264
    )Income from continuing operations
    
    
    
    
    
    
    20,158
    
    
    
    6,340
    
    
    
    929Discontinued operationsIncome from discontinued operations
    
    
    33
    
    
    
    654
    
    
    
    1,438
    
    
    
    211Gain on the disposal of discontinued operations
    
    
    33
    
    
    
    626
    
    
    
    26,135
    
    
    
    3,831Net income
    
    
    
    
    
    
    21,438
    
    
    
    33,913
    
    
    
    4,971Attributable to:Equity holders of the Company
    
    
    
    
    
    
    21,437
    
    
    
    33,912
    
    
    
    4,971Minority interest
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    21,438
    
    
    
    33,913
    
    
    
    4,971Proposed final dividend
    
    
    34
    
    
    
    6,427
    
    
    
    4,754
    
    
    
    697Dividend paid during the year
    
    
    34
    
    
    
    5,885
    
    
    
    6,231
    
    
    
    913
  F-5




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##### Table of Contents



2007As restatedNote
    
    (Note 2.2)
    
    2008
    
    2008RMB
    
    RMB
    
    US$Earnings per share for income attributable to the
equity holders of the Company during the yearBasic earnings per share
    
    
    35
    
    
    
    0.93
    
    
    
    1.43
    
    
    
    0.21Diluted earnings per share
    
    
    35
    
    
    
    0.92
    
    
    
    1.42
    
    
    
    0.21Earnings per share for income from continuing
operations attributable to the equity holders
of the Company during the yearBasic earnings per share
    
    
    35
    
    
    
    0.87
    
    
    
    0.27
    
    
    
    0.04Diluted earnings per share
    
    
    35
    
    
    
    0.86
    
    
    
    0.27
    
    
    
    0.04Earnings per share for income from discontinued
operations attributable to the equity holders
of the Company during the yearBasic earnings per share
    
    
    35
    
    
    
    0.06
    
    
    
    1.16
    
    
    
    0.17Diluted earnings per share
    
    
    35
    
    
    
    0.06
    
    
    
    1.15
    
    
    
    0.17
  F-6




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008
(Expressed in millions of RMB)
 Employeeshare-basedShare
    
    Share
    
    compensation
    
    Revaluation
    
    Statutory
    
    Other
    
    Retained
    
    
    
    
    
    Minority
    
    Totalcapital
    
    premium
    
    reserve
    
    reserve
    
    reserve
    
    reserve
    
    profits
    
    Total
    
    interest
    
    equityBalance at January 1, 2007
(As previously reported)
    
    
    1,344
    
    
    
    53,223
    
    
    
    264
    
    
    
    272
    
    
    
    3,019
    
    
    
    453
    
    
    
    21,286
    
    
    
    79,861
    
    
    
    3
    
    
    
    79,864Change of accounting policy on
measurement of property, plant and
equipment (Note 2.2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (782
    )
    
    
    (790
    )
    
    
    
    
    
    
    (790
    )Adjusted for 2008 Business
Combination under common control
(Note 1)
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    2,886
    
    
    
    11,811
    
    
    
    40,663
    
    
    
    18,709
    
    
    
    74,194
    
    
    
    
    
    
    
    74,194Balance at January 1, 2007
(As restated)
    
    
    1,344
    
    
    
    53,223
    
    
    
    389
    
    
    
    3,150
    
    
    
    14,830
    
    
    
    41,116
    
    
    
    39,213
    
    
    
    153,265
    
    
    
    3
    
    
    
    153,268Effect of change of statutory
income tax rate on deferred tax
(Note 9(a))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    
    
    
    
    (664
    )
    
    
    
    
    
    
    (529
    )
    
    
    
    
    
    
    (529
    )Currency translation differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Net income and expense recognized
directly in equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    
    
    
    
    (679
    )
    
    
    
    
    
    
    (544
    )
    
    
    
    
    
    
    (544
    )Income for the year from continuing
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,158
    
    
    
    20,158
    
    
    
    
    
    
    
    20,158Income for the year from
discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,279
    
    
    
    1,279
    
    
    
    1
    
    
    
    1,280Total recognized income and expense
for 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    
    
    
    
    (679
    )
    
    
    21,437
    
    
    
    20,893
    
    
    
    1
    
    
    
    20,894Transfer to retained profits in
respect of depreciation differences
on revalued assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,103
    )
    
    
    
    
    
    
    (104
    )
    
    
    2,207
    
    
    
    
    
    
    
    
    
    
    
    Transfer to retained profits in
respect of revaluation reserve
relating to the disposal of
Guangdong and Shanghai Branches
(Note 33)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69
    )
    
    
    
    
    
    
    20
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    Consideration for purchase of
business and entity under common
control (Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,179
    )
    
    
    
    
    
    
    (1,179
    )
    
    
    
    
    
    
    (1,179
    )Distributions due to business
combinations of entities and
business under common control (Note
1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101
    )
    
    
    (48
    )
    
    
    (149
    )
    
    
    
    
    
    
    (149
    )Transfer of profits to other
reserve due to purchase of Guizhou
Business under common control (Note
1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    (95
    )
    
    
    
    
    
    
    
    
    
    
    Capitalization of retained profits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,295
    
    
    
    (17,295
    )
    
    
    
    
    
    
    
    
    
    
    Transfer to statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,517
    
    
    
    
    
    
    
    (1,517
    )
    
    
    
    
    
    
    
    
    
    
    Appropriation to statutory reserve
(Note 18)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,586
    
    
    
    
    
    
    
    (1,586
    )
    
    
    
    
    
    
    
    
    
    
    Employee share option scheme:-Value of employee services
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    216-Issuance of shares upon exercise
of options (Note 32)
    
    
    5
    
    
    
    366
    
    
    
    (89
    )
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    532
    
    
    
    
    
    
    
    532Conversion of convertible bonds
    
    
    88
    
    
    
    10,731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,819
    
    
    
    
    
    
    
    10,819Dividends relating to 2006 (Note 34)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,885
    )
    
    
    (5,885
    )
    
    
    
    
    
    
    (5,885
    )Balance at December 31, 2007
(As restated)
    
    
    1,437
    
    
    
    64,320
    
    
    
    516
    
    
    
    1,113
    
    
    
    17,933
    
    
    
    56,713
    
    
    
    36,480
    
    
    
    178,512
    
    
    
    4
    
    
    
    178,516
  F-7




---



##### Table of Contents



Employeeshare-basedShare
    
    Share
    
    compensation
    
    Revaluation
    
    Statutory
    
    Other
    
    Retained
    
    
    
    
    
    Minority
    
    Totalcapital
    
    premium
    
    reserve
    
    reserve
    
    reserve
    
    reserve
    
    profits
    
    Total
    
    interest
    
    equityBalance at January 1, 2008
(As previously reported)
    
    
    1,437
    
    
    
    64,320
    
    
    
    363
    
    
    
    302
    
    
    
    3,737
    
    
    
    (433
    )
    
    
    27,488
    
    
    
    97,214
    
    
    
    4
    
    
    
    97,218Change of accounting policy on
measurement of property, plant and
equipment (Note 2.2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    (668
    )
    
    
    (754
    )
    
    
    
    
    
    
    (754
    )Adjusted for 2008 Business
Combination under common control
(Note 1)
    
    
    
    
    
    
    
    
    
    
    153
    
    
    
    897
    
    
    
    14,196
    
    
    
    57,146
    
    
    
    9,660
    
    
    
    82,052
    
    
    
    
    
    
    
    82,052Balance at January 1, 2008
(As restated)
    
    
    1,437
    
    
    
    64,320
    
    
    
    516
    
    
    
    1,113
    
    
    
    17,933
    
    
    
    56,713
    
    
    
    36,480
    
    
    
    178,512
    
    
    
    4
    
    
    
    178,516Currency translation differences
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )Net income and expense recognized
directly in equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )Income for the year from continuing
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,340
    
    
    
    6,340
    
    
    
    
    
    
    
    6,340Income for the year from
discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,572
    
    
    
    27,572
    
    
    
    1
    
    
    
    27,573Total recognized income and expense
for 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    33,912
    
    
    
    33,883
    
    
    
    1
    
    
    
    33,884Transfer to retained profits in
respect of depreciation differences
on revalued assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (977
    )
    
    
    
    
    
    
    (70
    )
    
    
    1,047
    
    
    
    
    
    
    
    
    
    
    
    Transfer to statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    886
    
    
    
    
    
    
    
    (886
    )
    
    
    
    
    
    
    
    
    
    
    Appropriation to statutory reserves
(Note 18)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,542
    
    
    
    
    
    
    
    (3,542
    )
    
    
    
    
    
    
    
    
    
    
    Employee share option scheme:-Value of employee services
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96-Issuance of shares upon exercise
of options (Note 32)
    
    
    3
    
    
    
    252
    
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    450Issuance of shares for 2008
Business Combination under common
control (Note 1)
    
    
    889
    
    
    
    102,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103,101
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transfer out upon the disposal of
the CDMA Business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Dividends relating to 2007 (Note 34)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,231
    )
    
    
    (6,231
    )
    
    
    
    
    
    
    (6,231
    )Balance at December 31, 2008
    
    
    2,329
    
    
    
    166,784
    
    
    
    540
    
    
    
    136
    
    
    
    22,361
    
    
    
    (46,220
    )
    
    
    60,780
    
    
    
    206,710
    
    
    
    
    
    
    
    206,710
  F-8




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008
(Expressed in millions)
 2007As restatedNote
    
    (Note 2.2)
    
    2008
    
    2008RMB
    
    RMB
    
    US$Cash flows from operating activitiesCash generated from operations of continuing
operations
    
    
    (a
    )
    
    
    76,608
    
    
    
    67,204
    
    
    
    9,850Interest received
    
    
    
    
    
    
    287
    
    
    
    246
    
    
    
    36Interest paid
    
    
    
    
    
    
    (3,511
    )
    
    
    (3,011
    )
    
    
    (441
    )Income tax paid
    
    
    
    
    
    
    (8,128
    )
    
    
    (7,765
    )
    
    
    (1,138
    )Net cash inflow from operating activities of
continuing operations
    
    
    
    
    
    
    65,256
    
    
    
    56,674
    
    
    
    8,307Net cash inflow from operating activities of
discontinued operations
    
    
    
    
    
    
    1,225
    
    
    
    656
    
    
    
    96Net cash inflow from operating activities
    
    
    
    
    
    
    66,481
    
    
    
    57,330
    
    
    
    8,403Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (41,798
    )
    
    
    (47,747
    )
    
    
    (6,999
    )Proceeds from disposal of property, plant and
equipment and other assets
    
    
    
    
    
    
    145
    
    
    
    252
    
    
    
    37Consideration for purchase of business and
entities under common control
    
    
    
    
    
    
    (3,139
    )
    
    
    (5,880
    )
    
    
    (862
    )Decrease/(increase) in short-term bank deposits
    
    
    
    
    
    
    (434
    )
    
    
    497
    
    
    
    73Purchase of other assets
    
    
    
    
    
    
    (2,415
    )
    
    
    (1,612
    )
    
    
    (236
    )Net cash outflow from investing activities of
continuing operations
    
    
    
    
    
    
    (47,641
    )
    
    
    (54,490
    )
    
    
    (7,987
    )Net cash inflow from investing activities of
discontinued operations
    
    
    
    
    
    
    3,078
    
    
    
    29,489
    
    
    
    4,322Net cash outflow from investing activities
    
    
    
    
    
    
    (44,563
    )
    
    
    (25,001
    )
    
    
    (3,665
    )
  F-9




---



##### Table of Contents



2007As restatedNote
    
    (Note 2.2)
    
    2008
    
    2008RMB
    
    RMB
    
    US$Cash flows from financing activitiesProceeds from exercise of share options
    
    
    
    
    
    
    532
    
    
    
    450
    
    
    
    66Proceeds from short-term commercial paper
    
    
    
    
    
    
    20,000
    
    
    
    10,000
    
    
    
    1,466Proceeds from short-term bank loans
    
    
    
    
    
    
    63,837
    
    
    
    50,714
    
    
    
    7,433Proceeds from long-term bank loans
    
    
    
    
    
    
    2,559
    
    
    
    2,888
    
    
    
    423Proceeds from issuance of corporate bonds
    
    
    
    
    
    
    2,000
    
    
    
    5,000
    
    
    
    733Proceeds from related party loans
    
    
    
    
    
    
    2,249
    
    
    
    
    
    
    
    Repayment of short-term commercial paper
    
    
    
    
    
    
    (16,646
    )
    
    
    (20,000
    )
    
    
    (2,931
    )Repayment of short-term bank loans
    
    
    
    
    
    
    (82,965
    )
    
    
    (51,784
    )
    
    
    (7,590
    )Repayment of long-term bank loans
    
    
    
    
    
    
    (13,416
    )
    
    
    (23,832
    )
    
    
    (3,493
    )Repayment of capital element of finance
lease payments
    
    
    
    
    
    
    (890
    )
    
    
    (101
    )
    
    
    (15
    )Repayment of related party loans
    
    
    
    
    
    
    
    
    
    
    (2,222
    )
    
    
    (326
    )Payment of prior years distribution
    
    
    
    
    
    
    (1,180
    )
    
    
    (101
    )
    
    
    (15
    )Dividends paid to equity holders
    
    
    34
    
    
    
    (5,885
    )
    
    
    (6,082
    )
    
    
    (891
    )Net cash outflow from financing
activities of continuing operations
    
    
    
    
    
    
    (29,805
    )
    
    
    (35,070
    )
    
    
    (5,140
    )Net cash outflow from financing
activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash outflow from financing activities
    
    
    
    
    
    
    (29,805
    )
    
    
    (35,070
    )
    
    
    (5,140
    )Net cash outflow from continuing operations
    
    
    
    
    
    
    (12,190
    )
    
    
    (32,886
    )
    
    
    (4,820
    )Net cash inflow from discontinued operations
    
    
    33
    
    
    
    4,303
    
    
    
    30,145
    
    
    
    4,418Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (7,887
    )
    
    
    (2,741
    )
    
    
    (402
    )Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    19,866
    
    
    
    11,979
    
    
    
    1,756Cash and cash equivalents, end of year
    
    
    16
    
    
    
    11,979
    
    
    
    9,238
    
    
    
    1,354Analysis of the balances of cash and cash
equivalents:Cash balances
    
    
    
    
    
    
    8
    
    
    
    6
    
    
    
    1Bank balances
    
    
    
    
    
    
    11,971
    
    
    
    9,232
    
    
    
    1,35311,979
    
    
    
    9,238
    
    
    
    1,354
  F-10




---



##### Table of Contents



(a)
    
    The reconciliation of income from continuing operations before income tax to cash
generated from operations of continuing operations is as follows:
 2007As restated(Note 2.2)
    
    2008
    
    2008RMB
    
    RMB
    
    US$Income from continuing operations before income tax
    
    
    27,241
    
    
    
    8,141
    
    
    
    1,193Adjustments for:Depreciation and amortization
    
    
    47,369
    
    
    
    47,678
    
    
    
    6,988Interest income
    
    
    (285
    )
    
    
    (239
    )
    
    
    (35
    )Finance costs
    
    
    2,922
    
    
    
    2,135
    
    
    
    313Loss on disposal of property, plant and equipment and
other assets
    
    
    140
    
    
    
    2
    
    
    
    Gain on non-monetary assets exchange
    
    
    (386
    )
    
    
    (1,305
    )
    
    
    (191
    )Share-based compensation costs
    
    
    170
    
    
    
    84
    
    
    
    12Provision for doubtful debts
    
    
    2,200
    
    
    
    2,900
    
    
    
    425Impairment loss on property, plant and equipment
    
    
    
    
    
    
    11,837
    
    
    
    1,735Realized loss on changes in fair value of derivative
component of the convertible bonds
    
    
    569
    
    
    
    
    
    
    
    Changes in working capital:Increase in accounts receivable
    
    
    (2,400
    )
    
    
    (1,683
    )
    
    
    (247
    )(Increase)/decrease in inventories
    
    
    16
    
    
    
    (109
    )
    
    
    (16
    )Decrease in other assets
    
    
    1,619
    
    
    
    833
    
    
    
    122Decrease/(increase) in prepayments and other current
assets
    
    
    (1,028
    )
    
    
    669
    
    
    
    98Decrease/(increase) in amounts due from related parties
    
    
    (24
    )
    
    
    63
    
    
    
    9(Increase)/decrease in amounts due from domestic carriers
    
    
    28
    
    
    
    (49
    )
    
    
    (7
    )(Decrease)/increase in payables and accrued liabilities
    
    
    2,376
    
    
    
    (991
    )
    
    
    (145
    )Increase in advances from customers
    
    
    407
    
    
    
    1,159
    
    
    
    170Decrease in deferred revenue
    
    
    (2,899
    )
    
    
    (2,987
    )
    
    
    (437
    )Decrease in amounts due to ultimate holding company
    
    
    (369
    )
    
    
    (735
    )
    
    
    (108
    )Decrease in amounts due to related parties
    
    
    (797
    )
    
    
    (995
    )
    
    
    (146
    )Increase/(decrease) in amounts due to domestic carriers
    
    
    (261
    )
    
    
    796
    
    
    
    117Cash generated from operations of continuing operations
    
    
    76,608
    
    
    
    67,204
    
    
    
    9,850
 F-11




---



##### Table of Contents



(b)
    
    Major non-cash transactions:
 (i)
    
    Payables to equipment suppliers for construction-in-progress during 2008 increased by
approximately
RMB19.7 billion (2007: approximately RMB1.3 billion).(ii)
    
    On August 20, 2007, convertible bonds of USD1 billion outstanding as of December 31,
2006 were fully converted into 899,745,075 ordinary shares of HKD0.10 each of the Company.(iii)
    
    On October 15, 2008, the Company issued 10,102,389,377 ordinary shares of HKD0.10 each
at a price of HKD11.60 per share with fair value or total price of approximately RMB103.1
billion (equivalent to approximately HKD117.2 billion) in exchange for the entire issued
share capital of China Netcom Group Corporation (Hong Kong) Limited. Please refer to Note 1
and Note 17 for details.(iv)
    
    For the years ended December 31, 2007 and 2008, the Group replaced copper cables in
some fixed-line network infrastructure with optical fibers and related equipment. Some of
this replacement was done through non-monetary assets exchanges with suppliers, through
which optical fibers and related equipment were received in exchange for the Groups own
copper cables. The cost of the assets received was recorded at the fair value of the assets
surrendered. In 2008, the net book value and fair value of copper cables surrendered were
RMB805 million (2007: RMB182 million) and RMB2,110 million (2007: RMB568 million),
respectively. A gain on the non-monetary assets exchange of RMB1,305 million (2007: RMB386
million) was recognized in the consolidated statement of income for the year ended December
31, 2008.
  F-12




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in RMB millions unless otherwise stated)
 1.
    
    ORGANISATION AND PRINCIPAL ACTIVITIESChina Unicom (Hong Kong) Limited (the Company) was incorporated as a limited liability company
in the Hong Kong Special Administrative Region (Hong Kong), the Peoples Republic of China
(the PRC) on February 8, 2000. On October 15, 2008, the name of the Company was changed from
China Unicom Limited (CHINESE CHARACTERS) to China Unicom (Hong Kong) Limited
(CHINESE CHARACTERS). Prior to the disposal of the CDMA cellular business to
China Telecom Corporation Limited (China Telecom) and the merger with China Netcom Group
Corporation (Hong Kong) Limited (China Netcom) on October 1, 2008 and October 15, 2008,
respectively, as described below, the principal activities of the Company are investment holding
and the Companys subsidiaries were principally engaged in the provision of GSM and CDMA
cellular, long distance, data and Internet services in the PRC. Upon the merger with China
Netcom, the Companys subsidiaries also provide fixed- line voice and value-added services,
broadband and other Internet-related services, information communications technology services,
business and data communications services and advertising and media services (hereinafter
collectively referred to as the Fixed-line business) in the PRC. The GSM and CDMA businesses
are hereinafter collectively referred to as the Cellular Business. The Company and its
subsidiaries are hereinafter referred to as the Group. The address of its registered office is
75th Floor, The Center, 99 Queens Road Central, Hong Kong.The shares of the Company were listed on the Stock Exchange of Hong Kong Limited (SEHK) on
June 22, 2000 and the American Depositary Shares (ADS) of the Company were listed on the New
York Stock Exchange on June 21, 2000.The immediate holding company of the Company is China Unicom (BVI) Limited (Unicom BVI). The
majority of the equity interest in Unicom BVI is owned by China United Telecommunications
Corporation Limited (A Share Company, a joint stock company incorporated in the PRC on
December 31, 2001, with its A shares listed on the Shanghai Stock Exchange on October 9, 2002).
The majority of the equity interest in A Share Company is owned by China United Network
Communications Group Company Limited (formerly known as China United Telecommunications
Corporation, a state-owned enterprise established in the PRC, hereinafter referred to as Unicom
Group). In connection with the merger between the Company and China Netcom, Unicom BVI and
China Netcom Group Corporation (BVI) Limited (Netcom BVI, the immediate holding company of
China Netcom) entered into a concert party agreement on September 22, 2008, pursuant to which
each of Unicom BVI and Netcom BVI will become persons acting in concert under the Hong Kong
Takeovers Code in respect of their aggregate shareholding in the Company and agree, amongst
others, to cooperate actively to obtain or consolidate control of the Company following
completion of the merger. The directors of the Company consider Unicom Group to be the ultimate
holding company of the Company.On November 15, 2008, the Company was notified by its substantial shareholders, Unicom BVI and
Netcom BVI, that their respective parent companies, namely, Unicom Group and China Network
Communications Group Corporation (a state-owned enterprise established in the PRC, the parent
company of Netcom BVI, hereinafter referred to as Netcom Group), have agreed to undertake a
merger (the Parent Merger). On January 6, 2009, the Company was notified by its substantial
shareholders that the Parent Merger, through the absorption of Netcom Group by Unicom Group has
been approved by the State-owned Assets Supervision and Administration Commission of the State
Council (SASAC) and has become effective. As a result of the Parent Merger, Unicom Group has
assumed all the rights and obligations of Netcom Group, all the assets, liabilities and business
of Netcom Group including the connected transaction agreements with the Group vested in Unicom
Group. Netcom Group will be deregistered and Unicom Group remains the ultimate holding company
of the Company.
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Disposal of the Groups CDMA business to China TelecomOn June 2, 2008, the Company, China United Network Communications Corporation Limited (CUCL,
formerly known as China Unicom Corporation Limited, a wholly-owned subsidiary of the Company)
and China Telecom entered into a CDMA business framework agreement (the Framework Agreement),
which set out the terms and conditions on which the Company, CUCL and China Telecom would
proceed with the CDMA business disposal whereby CUCL would sell, and China Telecom would
purchase, the CDMA business operated by the Group. The CDMA business was defined in the
Framework Agreement to include the CDMA mobile telecommunication operations, and its related
assets (including certain jointly used CDMA base stations to be agreed between CUCL and China
Telecom) and liabilities owned and operated by CUCL. Pursuant to the Framework Agreement, the
consideration for the proposed CDMA business disposal was RMB43.8 billion and was payable by
China Telecom to the Group in cash in three installments. The consideration was subject to a
price adjustment mechanism based on the CDMA service revenue generated by the Group for the six
months ended June 30, 2007 and June 30, 2008. Based on the CDMA service revenue generated by the
Group for the six months ended June 30, 2007 and June 30, 2008, and as agreed by the Company and
China Telecom, there was no subsequent adjustment to the consideration as a result of the price
adjustment mechanism. The completion of the proposed CDMA business disposal was subject to
various conditions as set forth in the Framework Agreement.On July 27, 2008, the Company, CUCL and China Telecom further entered into a CDMA business
disposal agreement (the Disposal Agreement). Pursuant to the Disposal Agreement , the Company
and CUCL agreed to sell and China Telecom agreed to purchase: (i) the entire CDMA business,
which is owned and operated by CUCL, together with the assets of CUCL which are relevant to the
CDMA operations and the rights and liabilities of CUCL relating to its CDMA subscribers,
immediately prior to the completion date; (ii) the entire equity interest in China Unicom
(Macau) Company Limited (Unicom Macau, a subsidiary of the Company); and (iii) 99.5% of the
equity interest in Unicom Huasheng Telecommunications Technology Company Limited (Unicom
Huasheng, a subsidiary of CUCL) representing the entire equity interest in Unicom Huasheng held
by CUCL (collectively referred to as the CDMA Business). The scope of the CDMA Business was
set out in the Disposal Agreement and the detailed items were confirmed by the Company, CUCL and
China Telecom in a final list of the detailed items of the CDMA Business.An extraordinary general meeting of the shareholders of the Company at which the above Disposal
Agreement was approved was held on September 16, 2008. As all of the conditions of the CDMA
Business disposal as specified in the Disposal Agreement were satisfied or were deemed to have
been satisfied, the CDMA Business disposal was completed on October 1, 2008 and the Group
recorded a gain on disposal of approximately RMB26.1 billion for the year ended December 31,
2008. For details, please refer to Note 33.
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Merger between the Company and China Netcom by way of a scheme of arrangement of China Netcom
(hereinafter referred to as the 2008 Business Combination)On June 2, 2008, the Company and China Netcom jointly announced that the Company had formally
presented a share proposal, an ADS proposal, and an option proposal to the board of directors of
China Netcom, and requested China Netcoms board of directors to put forward the proposals to
the shareholders of China Netcom to consider a merger of the Company and China Netcom (Proposed
Merger) by way of a scheme of arrangement of China Netcom (the Scheme) under Section 166 of
the Hong Kong Companies Ordinance.Pursuant to the aforementioned share proposal and ADS proposal, each holder of a China Netcom
share or China Netcom ADS was entitled to receive 1.508 new ordinary shares or 3.016 new ADSs of
the Company, respectively, for every China Netcom share and China Netcom ADS held. Under the
option proposal, the Company would establish a new option plan, and each holder of China Netcom
option would be entitled to receive new options of the Company to acquire the Companys shares
in exchange for their outstanding China Netcom options (whether vested or not). The grant of
these options would be based on a formula that valued the new options of the Company received by
a holder of China Netcom options equivalent to the see-through price of that holders
outstanding China Netcom options.An extraordinary general meeting of the shareholders of the Company at which the resolutions
described above was approved was held on September 16, 2008 and the Scheme was sanctioned by the
Hong Kong High Court on October 14, 2008. The consideration for the 2008 Business Combination
was approximately HKD117.2 billion which was satisfied by the issuance of 10,102,389,377
ordinary shares of HKD0.10 each of the Company. As all of the conditions of the above proposals
and the Scheme as specified in the Scheme document had been satisfied, the Scheme became
effective on October 15, 2008.Incorporation of Unicom Huakai Telecommunications Company Limited (Unicom Huakai)On August 19, 2008, CUCL established a wholly-owned subsidiary, Unicom Huakai, which is
principally engaged in sales of handsets and telecommunications equipment and provision of
technical services. The paid-in capital of Unicom Huakai is RMB500 million.On December 26, 2008, the name of Unicom Huakai was changed to Unicom Vsens Telecommunications
Company Limited.Incorporation of China Unicom Mobile Network Company Limited (Unicom Mobile Network)On December 31, 2008, CUCL established a wholly-owned subsidiary, Unicom Mobile Network, which
is principally engaged in construction and maintenance of the Groups networks. The paid-in
capital of Unicom Mobile Network is RMB500 million.
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Proposed merger between CUCL and China Netcom (Group) Company Limited (a wholly- owned foreign
enterprise established in the PRC, hereinafter referred to as CNC China, a wholly-owned
subsidiary of China Netcom)On October 15, 2008, as part of the Companys integration with China Netcom, the Company
entered into an agreement with three of its wholly-owned subsidiaries, namely (i) China
Netcom; (ii) CUCL; and (iii) CNC China, pursuant to which CUCL would merge with, and
absorb, CNC China. The merged company would retain the name of China United Network
Communications Corporation Limited and would remain a wholly-owned subsidiary of the
Company. The merger between CUCL and CNC China became effective on January 1, 2009.
 2007 disposal and business combination activities
 
    
    Disposal of the fixed-line telecommunications operations in Guangdong province and
Shanghai municipality branches (Guangdong and Shanghai Branches)
 On January 15, 2007, the Companys wholly-owned subsidiary, CNC China entered into an
assets transfer agreement with Netcom Group. Pursuant to the agreement, CNC China agreed to
sell its assets and liabilities in relation to its fixed-line telecommunications operations
in Guangdong and Shanghai Branches in the PRC to Netcom Group for cash consideration of
RMB3.5 billion. The disposal was completed on February 28, 2007 upon the approval granted
from the Ministry of Industry and Information Technology (MIIT, the former Ministry of
Information Industry has been consolidated into the MIIT).
 
    
    Purchase of assets and business of Guizhou branch of Unicom Group
 Pursuant to an asset transfer agreement entered between CUCL and Unicom Group on November 16,
2007, CUCL agreed to purchase the GSM cellular telecommunication assets and business, and
the CDMA cellular telecommunication business (operated through a leasing of CDMA network
capacity from Unicom New Horizon Mobile Telecommunications Company Limited (Unicom New
Horizon, a wholly-owned subsidiary of Unicom Group)) of Guizhou branch of Unicom Group
(Guizhou Business) at a cash consideration of RMB880 million. In addition, pursuant to
the asset transfer agreement, the income or loss of the Guizhou Business for the period
from December 31, 2006 to December 31, 2007 (i.e, the effective date of the acquisition)
was transferred to Unicom Group.
 
    
    Acquisition of Beijing Telecommunications Planning and Designing Institute Corporation
Limited (Beijing Telecom P&D Institute)
 On December 5, 2007, China Netcom Group System Integration Limited Corporation (System
Integration Corporation), a wholly-owned subsidiary of CNC China, entered into an equity
interest transfer agreement with China Netcom Group Beijing Communications Corporation
(Beijing Communications Corporation, a subsidiary of Netcom Group), pursuant to which
System Integration Corporation agreed to acquire the entire equity interest of Beijing
Telecom P&D Institute from Beijing Communications Corporation for a total consideration of
RMB299 million. The acquisition was completed on December 31, 2007.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of these consolidated financial
statements are set out below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
 2.1
    
    First-time Adoption of International Financial Reporting Standards (IFRSs) and
Statement of ComplianceThese financial statements have been prepared in accordance with all applicable
International Financial Reporting Standards issued by the International Accounting
Standards Board (IASB), which collective term includes all applicable individual
International Financial Reporting Standards, International Accounting Standards (IASs)
and Interpretations issued by the IASB. Hong Kong Financial Reporting Standards
(HKFRSs), which collective term includes all applicable individual Hong Kong Financial
Reporting Standards, Hong Kong Accounting Standards (HKASs) and Interpretations issued
by the Hong Kong Institute of Certified Public Accountants (HKICPA). These financial
statements also comply with HKFRSs, which are consistent with IFRSs, as well as the
applicable disclosure provisions of the Rules Governing the Listing of Securities on the
SEHK and the requirements of the Hong Kong Companies Ordinance.Although HKFRSs have been fully converged with IFRSs in all material respects since
January 1, 2005, these financial statements are the first published financial statements
in which the Group makes an explicit and unreserved statement of compliance with IFRSs.
Therefore, in preparing these financial statements, management has given due consideration
to the requirements of IFRS 1, First-time Adoption of International Financial Reporting
Standards. As the Groups financial statements for the year ended December 31, 2008 are
the first annual financial statements that comply with IFRSs and HKFRSs, the Group is
required to establish its IFRS accounting policies for the year ended December 31, 2008
and except for the standard described below, apply these retrospectively to determine the
IFRS opening balance sheet at its date of transition, January 1, 2007, being the beginning
of the earliest period for which the Group presents full comparative information in these
financial statements.With due regard to the Groups accounting policies in previous periods and the
requirements of IFRS 1, management has elected to apply the optional exemption to not
apply IFRS 3 Business Combinations retrospectively to past business combinations that
occurred prior to January 1, 2005. In addition, the Group has elected to apply IFRS 2
Share-based Payment to equity instruments that were granted after November 7, 2002 that
vested on or after January 1, 2005. As a result, the conversion from HKFRSs to IFRSs did
not result in any impact on the Groups accounts. As such, the Group makes an explicit and
unreserved statement of compliance with IFRSs in the first IFRS financial statements which
included amounts arising from business combinations in prior years in the comparatives.
Accordingly, these financial statements continue to include a statement of compliance with
HKFRSs as well as including for the first time a statement of compliance with IFRSs,
without adjustment to the Groups financial position, the Groups
financial performance or cash flows either at the date of transition to IFRSs or at the
end of latest period presented in accordance with HKFRSs.The comparative amounts of the consolidated financial statements were restated in
accordance with HKFRSs. For details, please refer to Note 2.2. Under IFRSs, there is no
restatement as the same accounting policies are applied to the opening balance sheet and
throughout all periods presented.
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##### Table of Contents



2.2
    
    Basis of PreparationThe consolidated financial statements have been prepared under the historical cost
convention, modified by the revaluation of property, plant and equipment (other than
buildings and telecommunications equipment of the GSM business), and financial assets and
financial liabilities (including derivative financial instruments) at fair value through
profit or loss. The consolidated financial statements prepared by the PRC subsidiaries for
PRC statutory reporting purposes are based on the Chinese Accounting Standards for
Business Enterprises (CAS) issued by the Ministry of Finance, which became effective
from January 1, 2007 with certain transitional provisions. There are certain differences
between the Groups IFRS/HKFRS financial statements and PRC statutory financial
statements. The principal adjustments made to the PRC statutory financial statements to
conform to IFRS/HKFRS include the following:
 
    
    reversal of the revaluation surplus or deficit and related depreciation and
amortization charges arising from the revaluation of assets (mainly property, plant
and equipment) performed by independent valuers for the purpose of reporting to
relevant PRC government authorities prior to January 1, 2007;
    
    recognition of the revaluation surplus or deficit and related depreciation charges
for the purpose of reporting the property, plant and equipment (other than buildings
and telecommunications equipment of the GSM business) at revalued amounts under
IFRS/HKFRS;
    
    recognition of goodwill associated with the acquisition of certain subsidiaries
prior to 2005;
    
    capitalization of the direct costs associated with the acquisition of subsidiaries
prior to 2005;
    
    additional capitalization of borrowing costs prior to the adoption of CAS on
January 1, 2007;
    
    capitalization and amortization of upfront non-refundable revenue and the related
direct incremental costs for activating cellular subscribers prior to the adoption of
CAS on January 1, 2007; and
    
    adjustments on deferred taxation in relation to IFRS/HKFRS adjustments.
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Discontinued OperationsOn June 2, 2008, the Company, CUCL and China Telecom entered into the Framework Agreement
to dispose of the assets and liabilities in relation to the CDMA business and the disposal
was completed on October 1, 2008. In accordance with IFRS/HKFRS 5 Non-current Assets Held
for Sale and Discontinued Operations issued by the IASB/HKICPA (IFRS/HKFRS 5), the
results and cash flows of the operations of the CDMA business segment of the Group have
been presented as discontinued operations in the consolidated statement of income and
statement of cash flows of the Group for the year ended December 31, 2008, and the 2007
comparative figures for the consolidated statement of income and statement of cash flows
were also reclassified as discontinued operations accordingly. The difference between the
consideration received and receivable and the book value of net assets disposed of is
recorded as Gain on the disposal of discontinued operations in the consolidated
statement of income for the year ended December 31, 2008.On January 15, 2007, CNC China entered into an assets transfer agreement with Netcom Group
to dispose of the assets and liabilities in relation to the telecommunications operations
of its Guangdong and Shanghai Branches in the PRC and the disposal was completed on
February 28, 2007. In accordance with IFRS/HKFRS 5, the results and cash flows of the
operations of the Guangdong and Shanghai Branches have been presented as discontinued
operations in the consolidated statement of income and statement of cash flows of the
Group for the year ended December 31, 2007.For details, please refer to Note 33.Business Combination of Entities and Business under Common ControlThe merger between the Company and China Netcom is considered to be a business combination
of entities under common control as their respective ultimate holding companies, namely
Unicom Group and Netcom Group, are both under the common control of SASAC. Further, the
2008 Business Combination was carried out by reference to the Announcement on Deepening
the Reform of the Structure of the Telecommunications Sector dated May 24, 2008 jointly
issued by MIIT, the National Development and Reform Commission (NDRC) and the Ministry
of Finance of the PRC. As set out in Note 1, Unicom Group and Netcom Group had merged on
January 6, 2009 following the merger between the Company and China Netcom.The acquisition of Beijing Telecom P&D Institute in 2007 was considered to be a business
combination of entities under common control of Netcom Group as Beijing Telecom P&D
Institute was a wholly-owned subsidiary of Beijing Communications Corporation, which is a
wholly-owned subsidiary of Netcom Group.The acquisition of Guizhou Business in 2007 was also considered to be a business
combination of entity and business under common control as the Group and Guizhou Business
were both under the common control of Unicom Group.Upon the adoption of HKFRSs in 2005 by the Group, the above transactions have been
accounted for using merger accounting in accordance with the Accounting Guideline 5
Merger Accounting for Common Control Combinations (AG 5) issued by the HKICPA. With
regard to IFRSs, the Group adopted the accounting policy to account for business
combinations of entities and businesses under common control using the predecessor values
method which is consistent with HKFRSs. The acquired assets and liabilities are stated at
predecessor values, and are included in the consolidated financial statements from the
beginning of the earliest period presented as if the entities and business acquired had
always been part of the Group.
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##### Table of Contents



Change of Accounting Policies and EstimatesSince the 2008 Business Combination is accounted for as a business combination
of entities under common control, the Group has restated all its HKFRS 2007
comparative amounts as if the merger had been completed on the earliest date of the
periods being presented, i.e., January 1, 2007. In addition, to align the accounting
policies of the Group and China Netcom, the Group has adopted the following changes
solely to its HKFRS accounting policies:
 (a)
    
    Measurement of property, plant and equipmentPursuant to a resolution passed by the Board of Directors on August 13, 2008, the
Group changed the following accounting policies for the property, plant and
equipment held by the Group prior to the merger with China Netcom:
 1)
    
    Buildings are stated at historical costs less accumulated
depreciation and accumulated impairment losses instead of at revalued amounts;2)
    
    Other property, plant and equipment (other than the
telecommunications equipment of GSM business) are stated at revalued amounts
instead of historical costs less accumulated depreciation and accumulated
impairment losses.
 The change in accounting policy in relation to buildings has been
applied on a retrospective basis. The change in accounting policy for other
property, plant and equipment (other than the telecommunications equipment of
GSM business) to the revaluation basis has been treated as a revaluation
occurring at the beginning of the earliest period presented in these financial
statements. Accordingly, a revaluation of property, plant and equipment (other
than the telecommunications equipment of GSM business) as of January 1, 2007
was performed by an independent property valuation firm, using the replacement
cost or open market value approach, as appropriate.
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##### Table of Contents



As of January 1,
    
    As of December 31,
    
    Year ended December 31,2007
    
    2007
    
    2008
    
    2007
    
    2008Continuing operations:Change in measurement of
buildingsDecrease in property, plant
and equipment, net
    
    
    (349
    )
    
    
    (335
    )
    
    
    (324
    )
    
    
    
    
    
    
    Decrease in deferred tax
liabilities
    
    
    104
    
    
    
    76
    
    
    
    73
    
    
    
    
    
    
    
    Decrease in revaluation
reserve
    
    
    273
    
    
    
    301
    
    
    
    304
    
    
    
    
    
    
    
    Increase in retained profits
    
    
    (28
    )
    
    
    (42
    )
    
    
    (53
    )
    
    
    
    
    
    
    Decrease in depreciation
and amortization charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (11
    )Increase in deferred tax
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Change in measurement of other
property, plant and equipment
(other than the
telecommunications equipment
of GSM business)Decrease in property, plant
and equipment, net
    
    
    (814
    )
    
    
    (659
    )
    
    
    (504
    )
    
    
    
    
    
    
    Increase in deferred tax
assets
    
    
    269
    
    
    
    164
    
    
    
    125
    
    
    
    
    
    
    
    Increase in revaluation
reserve, net
    
    
    (265
    )
    
    
    (215
    )
    
    
    (135
    )
    
    
    
    
    
    
    Decrease in retained profits
    
    
    810
    
    
    
    710
    
    
    
    514
    
    
    
    
    
    
    
    Decrease in depreciation
and amortization charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (155
    )
    
    
    (155
    )Increase in deferred tax
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    39
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(b)
    
    Subscriber points reward programThe Group has implemented a subscriber points reward program, which is a bonus
points based scheme that rewards subscribers according to their service consumption,
loyalty and payment history. In prior years, the Group recognized the estimated
costs under the subscriber points reward program as other operating expenses. In
2008, the Group early adopted IFRIC/HK(IFRIC)-Int 13. Upon the early adoption of
IFRIC/HK(IFRIC)-Int 13, a portion of the consideration received or receivable from
customers is allocated to the bonus points by reference to their fair value. The
fair value of the subscriber points award is recorded as deferred revenue when the
rewards are granted and recognized as revenue when the points are redeemed or
expired. The deferred revenue is recognized based on (i) the value of each bonus
point awarded to subscribers, (ii) the number of bonus points related to subscribers
who are qualified or expected to be qualified to exercise their redemption right at
each balance sheet date; and (iii) the expected bonus points redemption rate. The
adoption of IFRIC/HK(IFRIC)-Int 13 represents a change solely in HKFRS accounting
policy which has been applied retrospectively so the comparatives presented have
been restated to conform with the changed policy.The impact of changes of accounting policy is summarized as follows:
 As of December 31, 2007
    
    As of December 31, 2008Decrease in payables and accrued
liabilities
    
    
    (634
    )
    
    
    (118
    )Increase in deferred revenue
    
    
    634
    
    
    
    118Year ended
    
    Year endedDecember 31, 2007
    
    December 31, 2008Continuing operations:(Decrease)/increase in revenue
    
    
    (55
    )
    
    
    264Decrease/(increase) in expense
    
    
    55
    
    
    
    (264
    )Discontinued operations:(Decrease)/increase in revenue
    
    
    (23
    )
    
    
    118Decrease/(increase) in expense
    
    
    23
    
    
    
    (118
    )
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CDMABusiness
    
    
    
    
    
    Changes ofAs previously
    
    (discontinued
    
    2008 Business
    
    accountingreported
    
    operations)
    
    Combination
    
    policies
    
    Eliminations
    
    As restatedFor the year ended/as of
December 31, 2007Results of continuing
operations:Revenue
    
    
    99,539
    
    
    
    (31,197
    )
    
    
    84,005
    
    
    
    (78
    )
    
    
    (1,582
    )
    
    
    150,687Net income
    
    
    9,301
    
    
    
    (656
    )
    
    
    11,472
    
    
    
    41
    
    
    
    
    
    
    
    20,158Financial position:Non-current assets
    
    
    132,588
    
    
    
    
    
    
    
    170,078
    
    
    
    (754
    )
    
    
    
    
    
    
    301,912Current assets
    
    
    16,834
    
    
    
    
    
    
    
    15,508
    
    
    
    
    
    
    
    (167
    )
    
    
    32,175Total assets
    
    
    149,422
    
    
    
    
    
    
    
    185,586
    
    
    
    (754
    )
    
    
    (167
    )
    
    
    334,087Non-current
liabilities
    
    
    2,974
    
    
    
    
    
    
    
    28,128
    
    
    
    423
    
    
    
    
    
    
    
    31,525Current liabilities
    
    
    49,231
    
    
    
    
    
    
    
    75,405
    
    
    
    (423
    )
    
    
    (167
    )
    
    
    124,046Total liabilities
    
    
    52,205
    
    
    
    
    
    
    
    103,533
    
    
    
    
    
    
    
    (167
    )
    
    
    155,571Net assets
    
    
    97,217
    
    
    
    
    
    
    
    82,053
    
    
    
    (754
    )
    
    
    
    
    
    
    178,516
 Going Concern Assumption
  
    
    The Groups continuous net cash inflow from operating activities;
    
    Unutilized banking facilities of approximately RMB92.0 billion; and
    
    Other available sources of financing from domestic banks and other financial
institutions given the Groups credit history.
   Critical Accounting Estimates and Judgment
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New Accounting Standards, Amendments and Interpretations Pronouncements
  (a)
    
    The following interpretation is early adopted by the Group
 
    
    IFRIC/HK(IFRIC)-Int 13, Customer loyalty programmes (effective from July 1,
2008). IFRIC/HK(IFRIC)-Int 13 clarifies that where goods or services are sold
together with a customer loyalty incentive (for example, loyalty points or free
products), the arrangement is a multiple-element arrangement and the
consideration receivable from the customer is allocated between the components of
the arrangement using fair values. Comparatives for 2007 have been restated upon
adoption of this new interpretation. For the financial impact of the early
adoption of IFRIC/HK(IFRIC)-Int 13 on the Groups financial statements, please
refer to point (b) Subscriber points reward program under the section headed
Change of Accounting Policies and Estimates of this Note.
 (b)
    
    The following new amendment and interpretation are effective in 2008 and
are relevant and are applicable to the Groups operations
 
    
    IFRIC/HK(IFRIC)-Int 11, Group and treasury share transactions provides
guidance on whether share-based transactions involving treasury shares or
involving group entities (for example, options over parents shares) should be
accounted for as equity-settled or cash-settled share-based payment transactions
in the stand-alone accounts of the parent and group companies. In previous
years, the Company granted certain share options to its subsidiaries employees
and recognized the share-based compensation cost in accordance with the
transitional provision of IFRS/HKFRS 2. Upon the adoption of IFRIC/HK(IFRIC)-Int
11, equity-settled share-based compensation plan in which the Company grants
share options to subsidiaries employees are accounted for as an increase in the
value of investments in the subsidiaries in the Companys balance sheet which is
eliminated on consolidation. Accordingly, the share-based compensation cost
previously recognized by the Company in its unconsolidated financial statements
of approximately RMB151 million for the year ended December 31, 2007 was
allocated to the subsidiaries and the related business segments. The segment
information for the year ended December 31, 2007 has been restated to reflect
the effect of the adoption of IFRIC/HK(IFRIC)-Int 11.
    
    IAS/HKAS 39, Financial instruments: Recognition and measurement, amendment
on reclassification of financial assets permits reclassification of certain
financial assets out of the held-for-trading and available-for-sale categories if
specified conditions are met. The related amendment to IFRS/HKFRS 7, Financial
instruments: Disclosures, introduces disclosure requirements with respect to
financial assets reclassified out of the held-for-trading and available-for-sale
categories. This amendment does not have any impact on the Groups financial
statements, as the Group has not reclassified any financial assets.
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(c)
    
    The following interpretations to published standards are mandatory for
accounting periods beginning on or after January 1, 2008 but are not relevant to the
Groups operation
 
    
    IFRIC/HK(IFRIC)-Int 12, Service concession arrangements.
    
    IFRIC/HK(IFRIC)-Int 14, The limit on a defined benefit asset, minimum
funding requirements and their interaction.
 (d)
    
    Standards, amendments to standards and interpretations to existing
standards have been issued but not yet effective in 2008 and have not been early
adopted by the Group
 
    
    IFRS/HKFRS 2 (Amendment), Share-based payment (effective from January 1,
2009). The amended standard deals with vesting conditions and cancellations. It
clarifies that vesting conditions are service conditions and performance
conditions only. Other features of a share-based payment are not vesting
conditions. As such these features would need to be included in the grant date
fair value for transactions with employees and others providing similar
services, that is, these features would not impact the number of awards
expected to vest or valuation thereof subsequent to grant date. All
cancellations, whether by the entity or by other parties, should receive the
same accounting treatment.
    
    IFRS/HKFRS 8, Operating segments (effective from January 1, 2009). The
amended standard replaces IAS/HKAS 14, Segment reporting, and aligns segment
reporting with the requirements of the US standard SFAS 131, Disclosures about
segments of an enterprise and related information. The new standard requires a
management approach, under which segment information is presented on the same
basis as that used for internal reporting purposes.
    
    IFRS/HKFRS 3 (Revised) Business combination (effective from July 1, 2009).
The revised standard continues to apply the acquisition method to business
combinations, with some significant changes. For example, all payments to
purchase a business are to be recorded at fair value at the acquisition date,
with contingent payments classified as debt subsequently re-measured through
the consolidated statement of income. There is a choice on an acquisition by
acquisition basis to measure the non-controlling interest in the acquiree
either at fair value or at the non-controlling interests proportionate share
of the acquirees net assets. All acquisition-related costs should be expensed.
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
    
    IAS/HKAS 1 (Revised), Presentation of financial statements (effective from
January 1, 2009). The revised standard will prohibit the presentation of items of
income and expenses (that is, non-owner changes in equity) in the statement of
changes in equity, requiring non-owner changes in equity to be presented
separately from owner changes in equity. All non-owner changes in equity will be
required to be shown in a performance statement, but entities can choose whether
to present one performance statement (the statement of comprehensive income) or
two statements (the consolidated statement of income and statement of
comprehensive income). Where entities restate or reclassify comparative
information, they will be required to present a restated balance sheet as of the
beginning comparative period in addition to the current requirement to present
balance sheets at the end of the current period and comparative period. It is
likely that both the consolidated statement of income and statement of
comprehensive income will be presented as performance statements.
    
    IAS/HKAS 23 (Revised), Borrowing costs (effective from January 1, 2009). The
amendment requires an entity to capitalize borrowing costs directly attributable
to the acquisition, construction or production of a qualifying asset (one that
takes a substantial period of time to get ready for use or sale) as part of the
cost of that asset. The option of immediately expensing those borrowing costs
will be removed.
    
    IAS/HKAS 27 (Revised), Consolidated and separate financial statements
(effective from July 1, 2009). The revised standard requires the effects of all
transactions with non-controlling interests to be recorded in equity if there is
no change in control and these transactions will no longer result in goodwill or
gains and losses. The standard also specifies the accounting when control is
lost. Any remaining interest in the entity is re-measured to fair value and a
gain or loss is recognized in income or loss.
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
    
    IASBs annual improvement project published in May 2008/HKICPAs improvements to
HKFRS published in October 2008
 
    
    IAS/HKAS 1 (Amendment), Presentation of financial statements (effective
from January 1, 2009). The amendment clarifies that some rather than all
financial assets and liabilities classified as held for trading in accordance
with IAS/HKAS 39, Financial instruments: Recognition and measurement are
examples of current assets and liabilities respectively.
    
    IAS/HKAS 19 (Amendment), Employee benefits (effective from January 1,
2009).
 
    
    The amendment clarifies that a plan amendment that
results in a change in the extent to which benefit promises are affected
by future salary increases is a curtailment, while an amendment that
changes benefits attributable to past service gives rise to a negative
past service cost if it results in a reduction in the present value of
the defined benefit obligation.
    
    The definition of return on plan assets has been
amended to state that plan administration costs are deducted in the
calculation of return on plan assets only to the extent that such costs
have been excluded from measurement of the defined benefit obligation.
    
    The distinction between short term and long term
employee benefits will be based on whether benefits are due to be settled
within or after 12 months of employee service being rendered.
    
    IAS/HKAS 37, Provisions, contingent liabilities
and contingent assets requires contingent liabilities to be disclosed,
not recognized. IAS/HKAS 19 has been amended to be consistent.
 
    
    IAS/HKAS 23 (Amendment), Borrowing costs (effective from January 1,
2009). The definition of borrowing costs has been amended so that interest
expense is calculated using the effective interest method defined in IAS/HKAS
39 Financial instruments: Recognition and measurement. This eliminates the
inconsistency of terms between IAS/HKAS 39 and IAS/HKAS 23.
 
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
    
    IAS/HKAS 27 (Amendment), Consolidated and separate financial statements
(effective from January 1, 2009). Where an investment in a subsidiary that is
accounted for under IAS/HKAS 39, Financial instruments: recognition and
measurement, is classified as held for sale under IFRS/HKFRS 5, Non-current
assets held for sale and discontinued operations, IAS/HKAS 39 would continue
to be applied.
    
    IAS/HKAS 36 (Amendment), Impairment of assets (effective from January 1,
2009). Where fair value less costs to sell is calculated on the basis of
discounted cash flows, disclosures equivalent to those for value-in-use
calculation should be made.
    
    IAS/HKAS 40 (Amendment), Investment property (and consequential
amendments to IAS/HKAS 16) (effective from January 1, 2009). Property that is
under construction or development for future use as investment property is
within the scope of IAS/HKAS 40. Where the fair value model is applied, such
property is, therefore, measured at fair value. However, where fair value of
investment property under construction is not reliably measurable, the
property is measured at cost until the earlier of the date construction is
completed and the date at which fair value becomes reliably measurable.
    
    IFRS/HKFRS 5 (Amendment), Non-current assets held for sale and
discontinued operations (and consequential amendment to IFRS/HKFRS 1,
First-time adoption) (effective from July 1, 2009). The amendment clarifies
that all of a subsidiarys assets and liabilities are classified as held for
sale if a partial disposal sale plan results in loss of control, and relevant
disclosure should be made for this subsidiary if the definition of a
discontinued operation is met. A consequential amendment to IFRS/HKFRS 1
states that these amendments are applied prospectively from the date of
transition to IFRS/HKFRSs.
    
    There are a number of minor amendments to IFRS/HKFRS 7, Financial
instruments: Disclosures, IAS/HKAS 8, Accounting policies, changes in
accounting estimates and errors, IAS/HKAS 10, Events after the balance
sheet date, IAS/HKAS 18, Revenue and IAS/HKAS 34, Interim financial
reporting which are not addressed above.
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2.3
    
    ConsolidationThe consolidated financial statements include the financial statements of the Company and
all of its subsidiaries made up to December 31.
 (a)
    
    SubsidiariesSubsidiaries are all entities (including special purpose entities) over which the
Group has the power to govern the financial and operating policies generally
accompanying a shareholding of more than one half of the voting rights. The existence
and effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the Group controls another entity.Subsidiaries are fully consolidated from the date on which control is transferred to
the Group. They are deconsolidated from the date that control ceases. Upon the
disposal of subsidiaries, the difference between the consideration received and
receivable and the book value of net assets disposed of is recorded as gain/loss on
disposal in the consolidated statement of income in the year of disposal.The Group has acquired the equity interests of certain subsidiaries prior to 2005
(refer to Note 8 for details). Prior to the adoption of HKFRSs in 2005, the Group
accounted for the acquisition of subsidiaries under common control in accordance with
the original HK SSAP 27 Accounting for Group Reconstructions (HK SSAP 27) under
the previous accounting principles generally accepted in Hong Kong and the
requirement of the Hong Kong Companies Ordinance. Since the criteria for applying
merger accounting under HK SSAP 27 was not satisfied, the purchase method of
accounting was used to account for the acquisitions of those subsidiaries (including
common control transactions) by the Group prior to 2005.Under the purchase method of accounting, the cost of an acquisition is measured at
the fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent liabilities
assumed are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of the cost of
acquisition over the fair value of the Groups share of the identifiable net assets
acquired is recorded as goodwill. If the cost of acquisition is less than the fair
value of the Groups share of the identifiable net assets of the subsidiary acquired,
the difference is recognized directly in the statement of income.Upon the adoption of HKFRSs in 2005, merger accounting is used by the Group to
account for the business combination of entities and businesses under common control
in accordance with AG 5 issued by the HKICPA. The results of operations and financial
position of such entities or businesses are included in the consolidated financial
statements as if the businesses were always part of the Group from the beginning of
the earliest period presented or since the date when the combining entities or
businesses first came under common control, where this is a shorter period,
regardless of the date of the common control combination.Upon the adoption of IFRSs, the Group has elected not to apply IFRS 3 Business
Combination retrospectively to past business combination that occurred prior to
January 1, 2005. In addition, the Group adopted the accounting policy to account for
business combination of entities and businesses under common control using the
predecessor values method which is consistent with HKFRS.
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Inter-company transactions, balances and unrealized gains on transactions between
group companies are eliminated. Unrealized losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting
policies of subsidiaries would be changed where necessary in the consolidated
financial statements to ensure consistency with the policies adopted by the Group.(b)
    
    Minority interestsMinority interests at the balance sheet date, being the portion of the net assets of
subsidiaries attributable to interests that are not owned by the Company, whether
directly or indirectly through subsidiaries, are presented in the consolidated balance
sheets and statements of changes in equity within equity, separately from equity
attributable to the equity holders of the Company. Minority interests in the results
of the Group are presented on the face of the consolidated statement of income as an
allocation of the total income or loss for the year between minority shareholders and
the equity holders of the Company.Where losses applicable to the minority exceed the minoritys interest in the equity
of a subsidiary, the excess, and any further losses applicable to the minority, are
charged against the Groups interest except to the extent that the minority has a
binding obligation to, and is able to, make additional investment to cover the losses.
If the subsidiary subsequently reports income, the Groups interest is allocated all
such income until the minoritys share of losses previously absorbed by the Group has
been recovered.The Group applies a policy of treating transactions with minority interests as
transactions with parties external to the Group. Disposals to minority interests
result in gains or losses for the Group are recorded in the consolidated financial
statements. Purchases from minority interests result in goodwill, being the difference
of any consideration paid and the relevant share of the carrying value of the net
assets of the subsidiary acquired.
 2.4
    
    Segment ReportingA business segment is a group of assets and operations engaged in providing products or
services that are subject to risks and returns that are different from those of other
business segments. For details of the Groups business segments, please refer to Note 5.
The Group has not presented geographical segments as the Group operates primarily in one
geographical segment. This is also consistent with the Groups internal financial
reporting.Unallocated costs primarily represent corporate expenses, realized loss on changes in fair
value of derivative component of the convertible bonds and income tax expenses, whilst
unallocated income represents interest income and other gains (including the tax refund on
reinvestment in subsidiaries) that cannot be allocated to different operating segments.
Segment assets consist primarily of property, plant and equipment, other assets,
prepayments, inventories and consumables, receivables and operating cash. Segment
liabilities primarily comprise operating liabilities. Capital expenditure mainly comprises
additions to property, plant and equipment.
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2.5
    
    Foreign Currency Translation
 (a)
    
    Functional and presentation currencyItems included in the financial statements of each of the Groups entities are
measured using the currency of the primary economic environment in which the entities
operate (the functional currency). The consolidated financial statements are
presented in RMB, which is the Companys functional and presentation currency.(b)
    
    Transactions and balancesForeign currency transactions are translated into the functional currency using the
exchange rates prevailing at the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognized in the statement of income.(c)
    
    Group companiesThe results and financial position of all the Group entities (none of which has the
currency of a hyperinflationary economy) that have a functional currency different
from the presentation currency are translated into the presentation currency as
follows:
 
    
    Assets and liabilities for each balance sheet presented are translated at the
closing rate at the date of that balance sheet;
    
    Income and expenses for each statement of income are translated at average
exchange rates (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which case
income and expenses are translated at the dates of the transactions); and
    
    All resulting exchange differences are recognized as a separate component of
equity into other reserve.
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2.6
    
    Property, Plant and Equipment
 (i)
    
    Construction-in-progressConstruction-in-progress (CIP) represents buildings, plant and equipment under
construction and pending installation, and is stated at cost less accumulated
impairment losses. Costs include construction and acquisition costs, and interest
charges arising from borrowings used to finance the assets during the construction
period. No provision for depreciation is made on construction-in-progress until such
time as the assets are completed and ready for use. When the asset being constructed
becomes available for use, the CIP is transferred to the appropriate category of
property, plant and equipment.(ii)
    
    BuildingsAs discussed in Note 2.2, on January 1, 2007, the Group changed its accounting
policy such that buildings held by the Group are stated at cost, instead of revalued
amounts, less accumulated depreciation and accumulated impairment losses, and are
depreciated over their expected useful lives, which is consistent with the
accounting policy of China Netcom prior to the merger as discussed in Note 1.(iii)
    
    Other property, plant and equipmentOther property, plant and equipment comprise telecommunications equipment, leasehold
improvements, office furniture, fixtures, motor vehicles and others. The cost of an
asset, except for those acquired in exchange for a non-monetary asset or assets,
comprises its purchase price and any directly attributable costs of bringing the
asset to its working condition and location for its intended use.If an item of property, plant and equipment is acquired in exchange for another item
of property, plant and equipment, the cost of such an item of property, plant and
equipment is measured at fair value unless (a) the exchange transactions lacks
commercial substance, or (b) the fair value of neither the asset received nor the
asset given up is reliably measurable. If the acquired item is not measured at fair
value, its cost is measured at the carrying amount of the asset given up.Subsequent costs are included in the assets carrying amount or recognized as a
separate asset, as appropriate, only when it is probable at the time the costs are
incurred that future economic benefits associated with the item will flow to the
Group, and the cost of the item can be measured reliably. The carrying amount of the
replaced part is derecognized. All other repairs and maintenance are charged to the
statement of income during the financial period in which they are incurred.As discussed in Note 2.2, on January 1, 2007, the Group changed its accounting
policy such that all other property, plant and equipment (other than the
telecommunications equipment of the GSM business) held by the Group are stated at
revalued amounts, instead of historical costs, less accumulated depreciation and
accumulated impairment losses, which is consistent with the accounting policy of
China Netcom prior to the merger as discussed in Note 1.
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When an item of fixed asset is revalued, any accumulated depreciation at the date of
the revaluation is restated proportionately together with the change in the gross
carrying amount of the asset so that the carrying amount of the asset after
revaluation equals its revalued amount. Increases in valuation are credited to the
revaluation reserve. Decreases in valuation are first set off against any
revaluation surplus on earlier valuations in respect of the same item and thereafter
are debited to statement of income. Any subsequent increases are credited to the
statement of income up to the amount previously debited. Each year the difference
between depreciation based on the revalued carrying amount of the asset expensed in
the statement of income and depreciation based on the assets original cost is
transferred from the revaluation reserve to retained profits.Revaluations on fixed assets will be performed with sufficient regularity by
independent valuers and in each of the intervening years, valuations are reviewed by
management of the Group. The revalued amount is the fair value at the date of
revaluation.(iv)
    
    DepreciationDepreciation on property, plant and equipment is calculated using the straight-line
method to allocate their costs or revalued amounts less their residual values over
their estimated useful lives, as follows:
 Depreciable life
    
    Residual rateBuildings
    
    3 - 50 years
    
    
    3-5
    %Telecommunications equipment of GSM
business
    
    5 - 15 years
    
    
    3-5
    %Telecommunications equipment of
Fixed-line business
    
    5 - 15 years
    
    
    3-5
    %Office furniture, fixtures, motor
vehicles and others
    
    5 - 18 years
    
    
    3-5
    %
 Leasehold improvements are depreciated over the shorter of their estimated useful
lives and the lease periods.The assets residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.An assets carrying amount is written down immediately to its recoverable amount if
the assets carrying amount is greater than its estimated recoverable amount (Note
2.10).(v)
    
    Gain or loss on disposal of property, plant or equipmentGains or losses on disposal of a property, plant or equipment are determined by
comparing the net sales proceeds with the carrying amounts, and are recognized in
the statement of income. When revalued assets are sold, the residual amounts
included in the revaluation reserve are transferred to retained profits.
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2.7
    
    GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the
Groups share of the net identifiable assets of the acquired subsidiaries at the date of
acquisition. Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses. Impairment losses on goodwill are not reversed. Gain or
loss on the disposal of an entity includes the carrying amount of goodwill relating to the
entity sold.Goodwill is allocated to cash-generating units for the purpose of impairment testing. The
allocation is made to those cash-generating units or groups of cash-generating units that
are expected to benefit from the business combination in which the goodwill arose.2.8
    
    Lease prepaymentsLease prepayments represent payments for land use rights. Lease prepayments for land use
rights are stated at cost initially and expensed on a straight line basis over the lease
period.2.9
    
    Other AssetsOther assets mainly represent (i) capitalized direct incremental costs for activating GSM
and CDMA subscribers; (ii) installation costs of fixed-line services; (iii) customer
acquisition costs; (iv) computer software; and (v) prepaid rental for premises and leased
lines.
 (i)
    
    Capitalized direct incremental costs for activating GSM and CDMA
subscribers, including costs of SIM/UIM cards and commissions which are directly
associated with upfront non-refundable revenue received upon activation of cellular
services, are amortized over the expected customer service periods. The expected
customer service periods are estimated based on the expected stabilized churn rates
of subscribers.(ii)
    
    The direct incremental costs associated with the installation in relation
to Fixed-line business are deferred and expensed to the statement of income over the
expected customer relationship period of 10 years except when the direct incremental
costs exceed the corresponding upfront installation fees. In such cases, the excess
of the direct incremental costs over the installation fees are recorded immediately
as expenses in the statement of income.(iii)
    
    Customer acquisition costs
 (a)
    
    Customer acquisition costs under contractual CDMA
subscriber packages represent the cost of CDMA handsets given to contractual
subscribers under special promotional packages. Such customer acquisition
costs, to the extent recoverable, are amortized over the contractual period
(not exceeding 2 years) during which the minimum contract revenue is expected
to flow to the Group. Customer acquisition costs of contractual CDMA
subscribers are included in prepayment and other current assets when the
customer contract is within 1 year of expiry, whereas they are recorded as
other assets when the unexpired contract period is over 1 year.
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(b)
    
    When certain bifurcation conditions as mentioned in Note
2.21 (a) of Personal Handy-phone System (PHS) bundled service contracts are
met, revenue attributable to handsets given to customers under bundled
service contracts is recognized separately in the statement of income of the
period the contracts are entered into. The costs of these handsets are
expensed immediately to the statement of income in the same period. When any
one of the bifurcation conditions is not met, the costs of handsets given to
customers under bundled service contracts are deferred as subscriber
acquisition costs, to the extent recoverable, as they meet the definition and
criteria for an asset and expensed to the statement of income on a systematic
basis over the customer service contract period.
 (iv)
    
    Acquired computer software licences are capitalized on the basis of the
costs incurred to acquire and bring to use the specific software. These costs are
amortized over their estimated useful lives on a straight-line basis.(v)
    
    Long-term prepaid rental for premises and leased lines are amortized using
a straight-line method over the lease period.
 2.10
    
    Impairment of Non-Financial AssetsAssets that have an indefinite useful life or are not yet available for use are not
subject to amortization and are tested for impairment at each balance sheet date. Assets
are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognized for the amount by
which the assets carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of (i) an assets fair value less costs to sell and (ii) value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). Assets other than
goodwill that suffered from impairment are reviewed for possible reversal of the
impairment at each reporting date.2.11
    
    Inventories and ConsumablesInventories, which primarily comprise handsets, SIM cards, UIM cards and accessories, are
stated at the lower of cost and net realizable value. Cost is based on the
first-in-first-out method and comprises all costs of purchase and other costs incurred in
bringing the inventories to their present location and condition. Net realizable value
for all the inventories is determined on the basis of anticipated sales proceeds less
estimated selling expenses.Consumables consist of materials and supplies used in maintaining the Groups
telecommunication network and are charged to the statement of income when brought into
use. Consumables are stated at cost less any provision for obsolescence.
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2.12
    
    Accounts Receivable and Other ReceivablesAccounts receivable and other receivables are recognized initially at fair value and
subsequently measured at amortized cost using the effective interest method, less
provision for impairment. A provision for impairment of accounts receivable and other
receivables is established when there is objective evidence that the Group will not be
able to collect all amounts due according to the original terms of the receivables. The
amount of the provision is the difference between the assets carrying amount and the
present value of estimated future cash flows which is discounted at the original effective
interest rate. The carrying amount of the assets is reduced through the use of a provision
account, and the amount of the loss is recognized in the statement of income. When a
receivable is proven to be uncollectible with sufficient evidence, it is written off
against the provision account for receivables. Subsequent recoveries of amounts previously
written off are credited in the statement of income.2.13
    
    Short-term Bank DepositsShort-term bank deposits are cash invested in fixed-term deposits with original maturities
ranging from more than 3 months to 1 year.2.14
    
    Cash and Cash EquivalentsCash and cash equivalents include cash in hand, deposits held at call with banks and other
short-term highly liquid investments with original maturities of 3 months or less.2.15
    
    Convertible BondsAs the functional currency of the Group is RMB, the conversion of the convertible bonds
denominated in Hong Kong Dollars would not result in settlement by the exchange of a fixed
amount of cash in RMB, the functional currency of the Group, for a fixed number of the
Companys shares. In accordance with the requirements of IAS/HKAS 39, Financial
Instruments  Recognition and Measurement, the convertible bond contract must be
separated into two component elements: a derivative component consisting of the conversion
option and a liability component consisting of the straight debt element of the bonds.On the issue of the convertible bonds, the fair value of the embedded conversion option
was calculated using the Binomial model. The derivative component, the embedded conversion
option, was carried at fair value on the balance sheet with any changes in fair value
being charged or credited to the statement of income in the period when the change
occurred. The remainder of the proceeds was allocated to the debt element of the bonds,
net of transaction costs, and was recorded as the liability component. The liability
component was subsequently carried at amortized cost until extinguished on conversion or
redemption. Interest expense was calculated using the effective interest method by
applying the effective interest rate to the liability component through the maturity date.If the convertible bonds were converted, the carrying amounts of the derivative and
liability components were transferred to share capital and share premium as consideration
for the shares issued. If the convertible bonds were redeemed, any difference between the
amount paid and the carrying amounts of both components was recognized in the statement of
income.
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2.16
    
    Deferred Revenue, Advances from Customers and Subscriber Points Reward Program
 (a)
    
    Deferred revenueDeferred revenue mainly represents upfront non-refundable revenue, including
connection fees, installation fees and receipts from the activation of SIM/UIM cards
relating to the Cellular Business, which are deferred and recognized over the
expected customer service period.(b)
    
    Advances from customersAdvances from customers are amounts paid by customers for prepaid cards, other calling
cards and prepaid service fees, which cover future telecommunications services (over a
period of one to twelve months). Advances from customers are stated at the amount of
proceeds received less the amount already recognized as revenues upon the rendering of
services.(c)
    
    Subscriber points reward programThe fair value of providing telecommunications services and the subscriber points
reward are allocated based on their relative fair values. A portion of revenue equal
to the fair value of the subscriber points reward is recorded as deferred revenue when
the rewards are granted and recognized as revenue when the points are redeemed or
expired. The deferred revenue is recognized based on (i) the value of each bonus point
awarded to subscribers, (ii) the number of bonus points related to subscribers who are
qualified or expected to be qualified to exercise their redemption right at each
balance sheet date; and (iii) the expected bonus points redemption rate. The fair
value of the outstanding subscriber points reward is subject to review by management
on a periodic basis.
 2.17
    
    BorrowingsBorrowings are recognized initially at fair value, net of transaction costs incurred.
Borrowings are subsequently stated at amortized cost, any difference between the proceeds
(net of transaction costs) and the redemption value is recognized in the statement of
income over the period of the borrowings using the effective interest method.Borrowings are classified as current liabilities unless the Group has an unconditional
right to defer settlement of the liability for at least 12 months after the balance sheet
date.2.18
    
    Employee Benefits
 (a)
    
    Retirement benefitsThe Group participates in defined contribution pension schemes. For defined
contribution plans, the Group pays contributions to publicly or privately administered
pension insurance plans on a mandatory, contractual or voluntary basis. The Group has
no further payment obligations once the contributions have been paid. The
contributions are recognized as employee benefit expenses when they are due. Prepaid
contributions are recognized as an asset to the extent that a reduction in the future
payments is available.
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(b)
    
    Early retirement benefitsEarly retirement benefits are recognized as expenses when the Group reaches agreement
with the relevant employees for early retirement.(c)
    
    Housing benefitsOne-off cash housing subsidies paid to the PRC employees are charged to the statement
of income in the year in which it is determined that the payment of such subsidies is
probable and the amounts can be reasonably estimated.The Groups contributions to the housing fund, special monetary housing benefits and
other housing benefits are expensed as incurred. The Group has no further payment
obligations once the contributions have been paid.(d)
    
    Share-based compensation costsThe Group operates an equity-settled, share-based compensation plan. The fair value of
the employee services received in exchange for the grant of the share options is
recognized as an expense. The total amount to be expensed over the vesting period is
determined by reference to the fair value of the share options granted excluding the
impact of any non-market vesting conditions (for example, revenue and profit targets).
However, non-market vesting conditions are considered in determining the number of
options that are expected to vest. At each balance sheet date, the Group revises its
estimates of the number of share options that are expected to vest. The Group
recognizes the impact of the revision of original estimates, if any, in the statement
of income of the period in which the revision occurs, with a corresponding adjustment
to equity.The proceeds received net of any directly attributable transaction costs are credited
to share capital (nominal value) and share premium when the share options are
exercised. The corresponding employee share-based compensation reserve is transferred
to share premium.In connection with the 2008 Business Combination (Note 1), the exchange of China
Netcoms options to the Companys options was accounted for as a modification in
accordance with IFRS/HKFRS 2 Share-based Payment issued by the IASB/HKICPA
(IFRS/HKFRS 2). The incremental fair value of the exchanged options measured before
and after the modification is to be recognized as follows:
 
    
    For vested options, the incremental share-based compensation costs are
recognized in the statement of income immediately;
    
    For non-vested options, the incremental share-based compensation costs are
recognized in the statement of income over the remaining vesting period.
 
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2.19
    
    ProvisionsProvisions are recognized when the Group has present legal or constructive obligations as
a result of past events, it is probable that an outflow of resources will be required to
settle the obligation, and the amount has been reliably estimated. Where there are a
number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. A provision
is recognized even if the likelihood of an outflow with respect to any one item included
in the same class of obligations may be small.Provisions are measured at the present value of the pre-tax amount of expenditures
expected to be required to settle the obligation that reflects current market assessments
of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognized as interest expense.2.20
    
    Discontinued OperationsA discontinued operation is a component of the Group that may be a major line of business
or geographical area of operations that has been disposed of or is held for sale. The
results and cash flows of that component are separately reported as discontinued
operations in the statement of income and statement of cash flows, respectively. The
difference between the consideration received and receivable and the book value of net
assets disposed of is recorded as gain/loss on disposal in the consolidated statement of
income in the year of disposal. The comparative statement of income and statement of cash
flows are also reclassified as discontinued operations. The assets and liabilities of
such component classified as discontinued operations or held for sale is presented
separately in assets and liabilities, respectively, of the consolidated balance sheet,
from the date it is first determined to be discontinued operations or assets/liabilities
held for sale, and are de-recognized upon the completion of the disposal.
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2.21
    
    Revenue RecognitionRevenue comprises the fair value of the consideration received or receivable for the
services and sales of goods or telecommunications products in the ordinary course of the
Groups activities. Revenue is shown net of business tax, government surcharges, returns
and discounts and after eliminating sales within the Group.The Group recognizes revenue when the amount of revenue can be reliably measured, it is
probable that future economic benefits will flow to the entity and specific criteria have
been met for each of the Groups activities as described below. The amount of revenue is
not considered to be reliably measurable until all contingencies relating to the sale have
been resolved. The Group bases its estimates on historical results, taking into
consideration of the type of customer, the type of transaction and the specifics of each
arrangement.
 (a)
    
    Sales of services and goods
 
    
    Usage fees and monthly fees are recognized when the service are rendered;
    
    Revenues from the provision of broadband and other Internet-related services
and managed data services are recognized when the services are provided to
customers;
    
    Revenue from telephone cards, which represents service fees received from
customers for telephone services, is recognized when the related service is
rendered upon actual usage of the telephone cards by customers;
    
    Lease income from leasing of lines and customer-end equipment are treated as
operating leases with rental income recognized on a straight-line basis over the
lease term;
    
    Value-added services revenue, which mainly represents revenue from the
provision of services such as short message, cool ringtone, personalized ring,
wireless data services, caller number display and secretarial services to
subscribers, is recognized when service is rendered;
    
    Standalone sales of telecommunications products, which mainly represent
handsets and accessories, are recognized when title has been passed to the
buyers;
    
    For CDMA promotional packages where CDMA handsets are provided to subscribers
for their use during a specified contract period (Note 4.2(a)), since the
commercial substance of the transaction is to develop new contractual subscribers
by offering handsets, the two elements of CDMA cellular services and handsets are
considered as a linked transaction. Service revenues from such promotional
packages are recognized based upon the actual usage of cellular services at the
tariff set out in the contracts.
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
    
    Certain PHS bundled service contracts comprise the provision of PHS services and
handsets to customers, under which customers either prepay a certain amount of
service fee or commit to spend a minimum monthly service fee for a designated
period in order to receive a free handset. When all of the following criteria are
met, PHS handsets and related services are separately recognized as revenues
according to their relative fair values. When any one of the following criteria is
not met, total revenues from PHS bundled service contracts are recognized on a
systematic basis to match the shorter of the pattern of usage of the PHS services
by customers and the minimum non-cancellable contractual period.
 (i)
    
    PHS handsets and related services have value on a
stand-alone basis;(ii)
    
    Reliable estimate for fair value of PHS handsets and
related services exists; and(iii)
    
    In arrangements that include a general right of refund for
the delivered item, performance of the undelivered item is considered
probable and substantially in the Groups control.
 
    
    Revenue from information communications technology services are recognized
when goods are delivered to the customers (which generally coincides with the
time when the customers have accepted the goods and the related risks and rewards
of ownership have been transferred to the customers) or when services are
rendered to the customers using the percentage of completion method when the
outcome of the services provided can be estimated reliably. If the outcome of the
services provided cannot be estimated reliably, the treatment should be as
follows: (i) if it is probable that the costs incurred for the services provided
is recoverable, services revenue should be recognized only to the extent of
recoverable costs incurred, and costs should be recognized as current expenses in
the period in which they are incurred; (ii) if it is probable that costs incurred
will not be recoverable, costs should be recognized as current expenses
immediately and services revenue should not be recognized.
 (b)
    
    Interest incomeInterest income from deposits in banks or other financial institutions is recognized
on a time proportion basis, using the effective interest method.(c)
    
    Dividend incomeDividend income is recognized when the right to receive payment is established.
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2.22
    
    Leases (as the lessee)
 (a)
    
    Operating leaseLeases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor), including long-term
prepayment for land use rights, are expensed in the statement of income on a
straight-line basis over the period of the lease.(b)
    
    Finance leaseLeases of assets where the Group has substantially all the risks and rewards of
ownership are classified as finance leases. Finance leases are capitalized at the
commencement of the lease at the lower of the fair value of the leased property and
the present value of the minimum lease payments. Each lease payment is allocated
between the liability and finance charges so as to achieve a constant rate of interest
on the liability balance outstanding. The corresponding liabilities, net of finance
charges, are recorded as obligations under finance leases. The interest element
implicit in the lease payment is recognized in the statement of income over the lease
period so as to produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
 2.23
    
    Borrowing CostsBorrowing costs are expensed as incurred, except for interest directly attributable to the
acquisition, construction or production of an asset that necessarily takes a substantial
period of time to get ready for its intended use, in which case they are capitalized as
part of the cost of that asset. Capitalization of borrowing costs commences when
expenditures for the asset and borrowing costs are being incurred and the activities to
prepare the asset for its intended use are in progress. Borrowing costs are capitalized up
to the date when the project is completed and ready for its intended use.To the extent that funds are borrowed specifically for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalization is determined
at the actual borrowing costs incurred on that borrowing during the period less any
investment income on the temporary investment of those borrowings.To the extent that funds are borrowed generally and used for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalization is determined
by applying a capitalization rate to the expenditures on that asset. The capitalization
rate is the weighted average of the borrowing costs applicable to the borrowings of the
Group that are outstanding during the period, other than borrowings made specifically for
the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized
during a period should not exceed the amount of borrowing cost incurred during that
period. Other borrowing costs are recognized as expenses when incurred.
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2.24
    
    Taxation
 (a)
    
    Current income taxThe current income tax charge is calculated on the basis of the tax laws enacted or
substantially enacted at the balance sheet date in the countries where the Company and
its subsidiaries operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation and establishes provisions
where appropriate on the basis of the amount expected to be paid to the tax
authorities.(b)
    
    Deferred income taxDeferred income tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. However, if the deferred income tax
arises from initial recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects neither accounting
nor taxable income or loss, it is not accounted for. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantially enacted by the
balance sheet date and are expected to apply when the related deferred income tax
asset is realized or the deferred income tax liability is settled.Deferred income tax assets are recognized to the extent that it is probable that
future taxable income will be available against which the temporary differences can be
utilized.
 2.25
    
    Government GrantsGovernment grants are recognized at their fair values where there is a reasonable
assurance that the grant will be received and the Group will comply with all attached
conditions. Grants relating to assets are included in non-current liabilities, which are
credited to the statement of income on a straight-line basis over the expected lives of
the related assets. Grants relating to costs are deferred and recognized in the statement
of income over the period necessary to match them with the costs that they are intended to
compensate.2.26
    
    Dividend DistributionDividend distribution to the Companys shareholders is recognized as a liability in the
Companys financial statements in the period in which the dividends are approved by the
Companys shareholders.
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2.27
    
    Contingent Liabilities and Contingent AssetsA contingent liability is a possible obligation that arises from past events and whose
existence will only be confirmed by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the Group. It can also be a
present obligation arising from past events that is not recognized because it is not
probable that outflow of economic resources will be required or the amount of obligation
cannot be measured reliably.A contingent liability is not recognized but is disclosed in the notes to the financial
statements. When a change in the probability of an outflow occurs so that outflow is
probable, the liability will then be recognized as a provision.A contingent asset is a possible asset that arises from past events and whose existence
will be confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Group.Contingent assets are not recognized but are disclosed in the notes to the financial
statements when an inflow of economic benefits is probable. When an inflow is virtually
certain, an asset is recognized.2.28
    
    Earnings per Share and per American Depositary Share (ADS)Basic earnings per share is computed by dividing the income attributable to equity holders
by the weighted average number of ordinary shares outstanding during the year.Diluted earnings per share is computed by dividing the income attributable to equity
holders by the weighted average number of ordinary shares, after adjusting for the effects
of the dilutive potential ordinary shares.Basic and diluted earnings per ADS are computed by multiplying earnings per share by 10,
which is the number of shares represented by each ADS.
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3.
    
    FINANCIAL RISK MANAGEMENT
 3.1
    
    Financial risk factorsThe Groups activities expose it to a variety of financial risks: market risk (including
currency risk, cash flow interest rate risk and fair value interest rate risk), credit
risk and liquidity risk. The Groups overall risk management program focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on
the Groups financial performance.Financial risk management is carried out by the Groups finance department at its
headquarters, following the overall direction determined by the Board of Directors. The
Groups finance department identifies and evaluates financial risks in close co-operation
with the Groups operating units.
 (a)
    
    Market risk
 (i)
    
    Foreign exchange riskThe Groups major operational activities are carried out in Mainland China and a
majority of the transactions are denominated in RMB. The Group is exposed to
foreign exchange risk arising from various currency exposures, primarily with
respect to US dollars and HK dollars. Exchange risk exists with respect to the
repayment of indebtedness to foreign lenders and payables to equipment suppliers
and contractors.The Groups finance department at its headquarters is responsible for monitoring
the amount of monetary assets and liabilities denominated in foreign currencies to
minimise the exposure to the Group. From time to time, the Group may enter into
forward exchange contracts or currency swap contracts to mitigate the foreign
exchange risk. During the year, the Group and the Company had not entered into any
forward exchange contracts or currency swap contracts.As of December 31, 2007 and 2008, the Group had cash and cash equivalents and
short-term bank deposits denominated in foreign currencies amounting to RMB1,673
million and RMB1,315 million, respectively (Note 36). As of December 31, 2007 and
2008, the Group had bank borrowings denominated in foreign currencies amounting to
RMB4,898 million and RMB1,099 million, respectively (Note 19).As of December 31, 2008, if the RMB had strengthened/weakened by 10% against the
foreign currencies, primarily with respect to US dollars and HK dollars, while all
other variables are held constant, the Group would have recognized additional
exchange loss/gain of approximately RMB22 million (2007: exchange gain/loss
approximately RMB323 million) for foreign currencies denominated cash and cash
equivalents, short-term bank deposits and bank loans.
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(ii)
    
    Cash flow and fair value interest rate riskThe Groups interest-bearing assets are mainly represented by bank deposits,
management does not expect the changes in market deposit interest rates will have
significant impact on the financial statements as the deposits are all short-term
in nature and the interest involved will not be significant.The Groups interest rate risk arises from interest bearing borrowings including
bank loans, corporate bonds and short-term commercial paper. Borrowings issued at
floating rates expose the Group to cash flow interest rate risk. Borrowings issued
at fixed rates expose the Group to fair value interest rate risk. The Group
determines the amount of its fixed rate or floating rate borrowings depending on
the prevailing market conditions. During 2007 and 2008, the Groups borrowings
were mainly at fixed rates and were mainly denominated in RMB.Increases in interest rates will increase the cost of new borrowing and the
interest expense with respect to the Groups outstanding floating rate borrowings,
and therefore could have a material adverse effect on the Groups financial
position. Management continuously monitors the interest rate position of the Group
and makes decisions with reference to the latest market conditions. From time to
time, the Group may enter into interest rate swap agreements designed to mitigate
its exposure to interest rate risks in connection with the floating rate
borrowings, although the Group did not consider it was necessary to do so in 2007
and 2008.As of December 31, 2008, the Group had approximately RMB28,879 million (2007:
approximately RMB35,296 million) of bank loans, corporate bonds and short-term
commercial paper at fixed rates and approximately RMB1,114 million (2007:
approximately RMB22,051 million) of bank loans at floating rates.For the year ended December 31, 2008, if interest rates on the floating rate
borrowings had been 10% higher/lower while all other variables are held constant,
the interest expenses would have increased/decreased by approximately RMB125
million (2007: approximately RMB131 million).
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(b)
    
    Credit riskCredit risk is managed on a group basis. Credit risk arises from cash and cash
equivalents and short-term bank deposits with banks, as well as credit exposures to
corporate customers, individual subscribers, related parties and other operators.The table below shows the bank deposits and cash and cash equivalents balances held at
the major banks by the Group as of December 31, 2007 and 2008:
 2007(As restated)
    
    2008Short-term bank depositsState-owned banks
    
    
    619
    
    
    
    238Other banks
    
    
    116
    
    
    
    735
    
    
    
    238Cash and cash equivalentsState-owned banks
    
    
    11,484
    
    
    
    8,672Other banks
    
    
    495
    
    
    
    56611,979
    
    
    
    9,238
 The Group expects that there is no significant credit risk associated with the bank
deposits and cash and cash equivalents since the state-owned banks have support from
the government and other banks are medium or large size listed banks. Management does
not expect that there will be any significant losses from non-performance by these
counterparties.In addition, the Group has no significant concentrations of credit risk with respect
to corporate customers and individual subscribers. The extent of the Groups credit
exposure is mainly represented by the fair value of accounts receivable for services.
The Group has policies to limit the credit exposure on accounts receivable for
services. The Group assesses the credit quality of and sets credit limits on all its
customers by taking into account their financial position, the availability of
guarantee from third parties, their credit history and other factors such as current
market conditions. The normal credit period granted by the Group is on average between
30 days to 90 days from the date of billing. The utilization of credit limits and the
settlement pattern of the customers are regularly monitored by the Group.Credit risk relating to amounts due from related parties and other operators is not
considered to be significant as these companies are reputable and their receivables
are settled on a regular basis.(c)
    
    Liquidity riskPrudent liquidity risk management includes maintaining sufficient cash and
availability of funds through short-term bank loans, short-term commercial paper and
the issuance of bonds. Due to the dynamic nature of the underlying businesses, the
Groups finance department at its headquarters maintains flexibility in funding
through having adequate amount of cash and cash equivalents and utilizing different
sources of financing when necessary.
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The following tables show the undiscounted balances of the financial liabilities
(including interest expense) categorized by time period from the balance sheet date to
the contractual maturity date.
 Less than 1
    
    Between 1
    
    Between 2
    
    Over 5year
    
    and 2 years
    
    and 5 years
    
    yearsAt December 31, 2007 (As restated)Long-term bank loans
    
    
    8,665
    
    
    
    10,353
    
    
    
    3,823
    
    
    
    2,840Corporate bonds
    
    
    90
    
    
    
    90
    
    
    
    270
    
    
    
    2,450Other obligations
    
    
    525
    
    
    
    458
    
    
    
    1,243
    
    
    
    1,051Payables and accrued liabilities
    
    
    46,486
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to related parties
    
    
    6,015
    
    
    
    2,214
    
    
    
    4,337
    
    
    
    Amounts due to domestic carriers
    
    
    510
    
    
    
    
    
    
    
    
    
    
    
    Short-term commercial paper
    
    
    20,629
    
    
    
    
    
    
    
    
    
    
    
    Short-term bank loans
    
    
    12,134
    
    
    
    
    
    
    
    
    
    
    
    95,054
    
    
    
    13,115
    
    
    
    9,673
    
    
    
    6,341At December 31, 2008Long-term bank loans
    
    
    1,299
    
    
    
    108
    
    
    
    315
    
    
    
    635Corporate bonds
    
    
    355
    
    
    
    355
    
    
    
    6,064
    
    
    
    2,360Other obligations
    
    
    510
    
    
    
    394
    
    
    
    1,034
    
    
    
    866Payables and accrued liabilities
    
    
    63,605
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to related parties
    
    
    2,727
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to domestic carriers
    
    
    538
    
    
    
    
    
    
    
    
    
    
    
    Payables in relation to the
disposal of the CDMA Business
    
    
    4,232
    
    
    
    
    
    
    
    
    
    
    
    Short-term commercial paper
    
    
    10,447
    
    
    
    
    
    
    
    
    
    
    
    Short-term bank loans
    
    
    11,013
    
    
    
    
    
    
    
    
    
    
    
    94,726
    
    
    
    857
    
    
    
    7,413
    
    
    
    3,861
 Regarding the Groups going concern basis of assumption for the preparation of its
financial statements, please refer the details to Note 2.2.
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3.2
    
    Capital risk managementThe Groups objectives when managing capital are:
 
    
    To safeguard the Groups ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders.
    
    To support the Groups stability and growth.
    
    To provide capital for the purpose of strengthening the Groups risk management
capability.
 In order to maintain or adjust the capital structure, the Group reviews and manages its
capital structure actively and regularly to ensure optimal capital structure and
shareholder returns, taking into account the future capital requirements of the Group and
capital efficiency, prevailing and projected profitability, projected operating cash
flows, projected capital expenditures and projected strategic investment opportunities.The Group monitors capital on the basis of the debt-to-capitalization ratio. This ratio is
calculated as interest bearing debts plus minority interest over interest bearing debts
plus total equity. Interest bearing debts represent short-term commercial paper,
short-term bank loans, long-term bank loans, amounts due to related parties and corporate
bonds, as shown in the consolidated balance sheet. Total equity represents capital and
reserves attributable to the Companys equity holders plus minority interest as shown in
the consolidated balance sheet.The Groups debt-to-capitalization ratios at December 31, 2007 and 2008 are as follows:
 2007(As restated)
    
    2008Interest bearing debts:- Short-term commercial paper
    
    
    20,000
    
    
    
    10,000- Short-term bank loans
    
    
    11,850
    
    
    
    10,780- Current portion of long-term loans
    
    
    7,411
    
    
    
    1,216- Long-term bank loans
    
    
    16,086
    
    
    
    997- Corporate bonds
    
    
    2,000
    
    
    
    7,000- Amounts due to related parties
    
    
    8,129
    
    
    
    65,476
    
    
    
    29,993Minority interest
    
    
    4
    
    
    
    Interest bearing debts plus minority interest
    
    
    65,480
    
    
    
    29,993Total equity:- Capital and reserves attributable to equity
holders of the Company
    
    
    178,512
    
    
    
    206,710- Minority interest
    
    
    4
    
    
    
    178,516
    
    
    
    206,710Interest bearing debts plus total equity
    
    
    243,996
    
    
    
    236,703Debt-to-capitalization ratio
    
    
    26.8
    %
    
    
    12.7
    %
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The decrease in debt-to-capitalization ratio during 2008 resulted primarily from the
repayment of short-term commercial paper and long-term bank loans by utilizing the
proceeds from the sale of the CDMA Business by the Group and the issuance of new shares in
connection with the merger with China Netcom.3.3
    
    Fair value estimationThe estimate of fair value of the Companys options is determined by using valuation
techniques. The Group selects an appropriate valuation method and makes assumptions with
reference to market conditions existing at each valuation date.The fair value of financial instruments that are actively traded is based on the market
price as of balance sheet date. The carrying value of trade receivables (net of impairment
provision) and payables are a reasonable approximation of their fair values. The fair
value of financial liabilities for disclosure purposes is estimated by discounting the
future contractual cash flows at the current market interest rate that is available to the
Group for similar financial instruments.
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4.
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
  4.1
    
    Critical accounting estimates and assumptionsThe Group makes estimates and assumptions concerning the future. The resulting accounting
estimates may not be equal to the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below.
 (a)
    
    Depreciation on property, plant and equipmentDepreciation on the Groups property, plant and equipment is calculated using the
straight-line method to allocate cost or revalued amounts up to residual values over
the estimated useful lives of the assets. The Group reviews the useful lives and
residual values periodically to ensure that the method and rates of depreciation are
consistent with the expected pattern of realization of economic benefits from
property, plant and equipment. The Group estimates the useful lives of property, plant
and equipment based on historical experience, taking into account anticipated
technological changes. If there are significant changes from previously estimated
useful lives, the amount of depreciation expenses may change.(b)
    
    Revaluation of property, plant and equipmentProperty, plant and equipment other than buildings and telecommunications equipment of
the GSM business (Note 2.6 (iii)) is carried at revalued amounts, being the fair value
at the date of revaluation, less subsequent accumulated depreciation and impairment.
Such equipment was revalued on a replacement cost or open market value approach, as
appropriate, by an independent valuer. If the revalued amounts differ significantly
from the carrying amounts of the equipment in the future, the carrying amounts will be
adjusted to the revalued amounts. The key assumptions made to determine the revalued
amounts include the estimated replacement costs and the estimated useful lives of the
equipment. This will have an impact on the Groups future results, since any
subsequent decreases in valuation are first set off against increases on earlier
valuations in respect of the same item and thereafter are charged as an expense to the
statement of income and any subsequent increases are credited as income to the
statement of income up to the amount previously charged to the statement of income and
thereafter are credited to equity. In addition, the depreciation expenses in future
periods will change as the carrying amounts of such equipment change as a result of
the revaluation.
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(c)
    
    Impairment of non-current assetsThe Group tests whether non-current assets have suffered from any impairment, in
accordance with the accounting policy stated in Note 2.10. The recoverable amount of
an asset is the higher of its fair value less costs to sell and its value in use.
Management estimates value in use based on estimated discounted pre-tax future cash
flows of the cash generating unit at the lowest level to which the asset belongs. If
there is any significant change in managements assumptions, including discount rates
or growth rates in the future cash flow projection, the estimated recoverable amounts
of the non-current assets and the Groups results would be significantly affected.
Such impairment losses are recognized in the statement of income, except where the
asset is carried at valuation and the impairment loss does not exceed the revaluation
surplus for that same asset, in which case the impairment loss is treated as a
revaluation decrease and charged to the revaluation reserve. Accordingly, there will
be an impact to the future results if there is a significant change in the recoverable
amounts of the non-current assets.For the year ended December 31, 2008, the Group recognized RMB11,837 million (2007:
Nil) of impairment loss on property, plant and equipment in relation to the PHS
services. 1% increase in the discount rate used would result in an increase in
impairment loss of approximately RMB11 million. For details, please refer to Note 6.(d)
    
    Provision for doubtful debtsAccounts receivables are recognized initially at fair value and subsequently measured
at amortized cost using the effective interest method, less provision for impairment.
The Group evaluates specific accounts receivable where there are indications that the
receivable may be doubtful or is not collectible. The Group records a provision based
on its best estimates to reduce the receivable balance to the amount that is expected
to be collected. For the remaining receivable balances as of each reporting date, the
Group makes a provision based on observable data indicating that there is a measurable
decrease in the estimated future cash flows from the remaining balances. The Group
makes such estimates based on its past experience, historical collection patterns,
subscribers creditworthiness and collection trends. For general subscribers, the
Group makes a full provision for receivables aged over 3 months, which is consistent
with its credit policy with respect to the relevant subscribers.The Groups estimates described above are based on past experience, subscribers
creditworthiness and collection trends. If circumstances change (e.g. due to factors
including developments in the Groups business and the external market environment),
the Group may need to re-evaluate its policies on doubtful debts, and make additional
provisions in the future.
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(e)
    
    Income tax and deferred taxationThe Group estimates its income tax provision and deferred taxation in accordance with
the prevailing tax rules and regulations, taking into account any special approvals
obtained from relevant tax authorities and any preferential tax treatment to which it
is entitled in each location or jurisdiction in which the Group operates. There are
many transactions and calculations for which the ultimate tax determination is
uncertain during the ordinary course of business. The Group recognizes liabilities for
anticipated tax audit issues based on estimates of whether additional taxes will be
due. Where the final tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.For temporary differences which give rise to deferred tax assets, the Group has
assessed the likelihood that the deferred tax assets could be recovered. Major
deferred tax assets relate to impairment loss and revaluation deficit on property,
plant and equipment, provision for doubtful debts, deferred revenue and accruals of
expenses not yet deductible for tax purpose. Due to the effects of these temporary
differences on income tax, the Group has recorded deferred tax assets amounting to
approximately RMB5,326 million as of December 31, 2008 (2007: approximately RMB2,514
million). Deferred tax assets are recognized based on the Groups estimates and
assumptions that they will be recovered from taxable income arising from continuing
operations in the foreseeable future.The Group believes it has recorded adequate current tax provision and deferred taxes
based on the prevailing tax rules and regulations and its current best estimates and
assumptions. In the event that future tax rules and regulations or related
circumstances change, adjustments to current and deferred taxation may be necessary
which would impact the Groups results or financial position.(f)
    
    Equity-settled share optionsOn October 15, 2008, the Company granted share options under the Special Purpose Share
Option Scheme. The fair value of this option which is not traded in an active market
is determined by using valuation techniques. The Group uses its judgment to select an
appropriate valuation method and makes assumptions that are mainly based on market
conditions existing at the grant date. The valuation model requires the input of
subjective assumptions, including the volatility of share price, dividend yield and
expected option life. Changes in subjective input assumptions can materially affect
the fair value estimate. For details, please refer to Note 32.
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4.2
    
    Critical judgments in applying the Groups accounting policiesRecognition of upfront non-refundable revenue and direct incremental costs
 (a)
    
    Mobile telecommunications servicesThe Group defers and amortizes upfront non-refundable revenue, including connection
fees and activation fees of SIM cards or UIM cards from cellular subscribers over
the expected customer service period. Accordingly, the related direct incremental
costs of acquiring and activating GSM and CDMA subscribers, including costs of SIM
or UIM cards and commissions which are directly associated with upfront
non-refundable revenue received upon activation of cellular services, are also
capitalized and amortized over the same expected customer service period. The Group
only capitalized costs to the extent that they will generate future economic
benefits. The excess of the direct incremental costs over the corresponding upfront
non-refundable revenue, if any, are expensed to the statement of income
immediately. The weighted average customer service period of Cellular Business
based on current estimation after considering the prevailing market environment is
approximately 3 years (2007: approximately 3 years).The expected customer service period for the Cellular Business is estimated based
on the expected stabilized churn rates of subscribers after taking into
consideration factors such as customer retention experience, the expected level of
competition, the risk of technological or functional obsolescence of our services
and the current regulatory environment. If the estimate of the expected stabilized
churn rate changes for future periods as a result of unexpected changes in
competition environment, telecommunications technology or regulatory environment,
the amount and timing of recognition of these deferred direct incremental costs and
deferred revenue would also be changed.(b)
    
    Fixed-line telecommunications servicesThe Group defers the recognition of upfront customer connection and installation
fees and amortizes them over the expected customer relationship period of 10 years.
The related direct incremental installation costs are deferred and amortized over
the same expected customer relationship period of 10 years, except when the direct
incremental costs exceed the corresponding installation fees, the excess amounts are
immediately written off as an expense to the statement of income.The Group estimates the expected customer relationship period based on the
historical customer retention experience and after factoring in the expected level
of future competition, the risk of technological or functional obsolescence to the
Groups services, technological innovation, and the expected changes in the
regulatory and social environment. If the Groups estimate of the expected customer
relationship period changes as a result of increased competition, changes in
telecommunications technology or other factors, the amount and timing of recognition
of the deferred revenues may change for future periods.
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5.
    
    SEGMENT INFORMATION
   Continuing operations:
 
    
    GSM business  the provision of GSM telephone and related services in all 31 provinces,
municipalities and autonomous regions in Mainland China;
    
    Fixed-line business  the provision of fixed-line telecommunications and related
services in Liaoning, Jilin, Heilongjiang, Shandong, Shanxi, Henan and Hebei provinces,
Neimenggu autonomous region and Tianjin and Beijing municipalities and the provision of
domestic and international data and Internet related services and domestic and
international long distance and related services in all 31 provinces, municipalities and
autonomous regions in Mainland China previously separately reported by the Group.
 Discontinued operations:
 
    
    CDMA business  the provision of CDMA telephone and related services, through a leasing
arrangement for CDMA network capacity from Unicom New Horizon;
    
    Fixed-line business  the provision of fixed-line telecommunications and related
services in Guangdong and Shanghai Branches.
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5.1
    
    Business Segments
 2007(As restated)Discontinued operations (Up to effective date of disposal)Fixed-linebusinessContinuing operations
    
    
    
    
    
    - GuangdongTotal
    
    
    
    
    
    and
    
    TotalGSM
    
    Fixed-line
    
    Unallocated
    
    
    
    
    
    continuing
    
    CDMA
    
    Shanghai
    
    discontinuedbusiness
    
    business
    
    amounts
    
    Elimination
    
    operations
    
    business
    
    Branches
    
    operations
    
    TotalService revenue
    
    
    62,547
    
    
    
    87,200
    
    
    
    
    
    
    
    
    
    
    
    149,747
    
    
    
    26,309
    
    
    
    615
    
    
    
    26,924
    
    
    
    176,671Sales of telecommunications
products
    
    
    12
    
    
    
    928
    
    
    
    
    
    
    
    
    
    
    
    940
    
    
    
    4,888
    
    
    
    
    
    
    
    4,888
    
    
    
    5,828Total revenue from external
customers
    
    
    62,559
    
    
    
    88,128
    
    
    
    
    
    
    
    
    
    
    
    150,687
    
    
    
    31,197
    
    
    
    615
    
    
    
    31,812
    
    
    
    182,499Intersegment revenue
    
    
    173
    
    
    
    3,724
    
    
    
    
    
    
    
    (3,897
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    62,732
    
    
    
    91,852
    
    
    
    
    
    
    
    (3,897
    )
    
    
    150,687
    
    
    
    31,197
    
    
    
    615
    
    
    
    31,812
    
    
    
    182,499Interconnection charges
    
    
    (10,022
    )
    
    
    (5,032
    )
    
    
    
    
    
    
    3,840
    
    
    
    (11,214
    )
    
    
    (2,164
    )
    
    
    (151
    )
    
    
    (2,315
    )
    
    
    (13,529
    )Depreciation and amortization
    
    
    (19,044
    )
    
    
    (28,325
    )
    
    
    
    
    
    
    
    
    
    
    (47,369
    )
    
    
    (632
    )
    
    
    (141
    )
    
    
    (773
    )
    
    
    (48,142
    )Networks, operations and
support expenses
    
    
    (6,256
    )
    
    
    (9,820
    )
    
    
    
    
    
    
    54
    
    
    
    (16,022
    )
    
    
    (10,203
    )
    
    
    (91
    )
    
    
    (10,294
    )
    
    
    (26,316
    )Employee benefit expenses
    
    
    (4,499
    )
    
    
    (12,996
    )
    
    
    (45
    )
    
    
    
    
    
    
    (17,540
    )
    
    
    (1,823
    )
    
    
    (57
    )
    
    
    (1,880
    )
    
    
    (19,420
    )Other operating expenses
    
    
    (14,132
    )
    
    
    (18,619
    )
    
    
    (28
    )
    
    
    3
    
    
    
    (32,776
    )
    
    
    (15,227
    )
    
    
    (154
    )
    
    
    (15,381
    )
    
    
    (48,157
    )Financial income/(costs)
    
    
    134
    
    
    
    (3,297
    )
    
    
    (724
    )
    
    
    656
    
    
    
    (3,231
    )
    
    
    (15
    )
    
    
    (26
    )
    
    
    (41
    )
    
    
    (3,272
    )Interest income
    
    
    107
    
    
    
    136
    
    
    
    698
    
    
    
    (656
    )
    
    
    285
    
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    300Realized loss on
changes in fair value of
derivative component of
the convertible bonds
    
    
    
    
    
    
    
    
    
    
    (569
    )
    
    
    
    
    
    
    (569
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (569
    )Other income  net
    
    
    132
    
    
    
    2,077
    
    
    
    2,781
    
    
    
    
    
    
    
    4,990
    
    
    
    7
    
    
    
    2
    
    
    
    9
    
    
    
    4,999Segment income/(loss) before
income tax
    
    
    9,152
    
    
    
    15,976
    
    
    
    2,113
    
    
    
    
    
    
    
    27,241
    
    
    
    1,155
    
    
    
    (3
    )
    
    
    1,152
    
    
    
    28,393Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,083
    )
    
    
    
    
    
    
    
    
    
    
    (498
    )
    
    
    (7,581
    )Gain on the disposal of
Guangdong and Shanghai
Branches
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    626
    
    
    
    626Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,158
    
    
    
    
    
    
    
    
    
    
    
    1,280
    
    
    
    21,438Attributable to:Equity holders of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,158
    
    
    
    
    
    
    
    
    
    
    
    1,279
    
    
    
    21,437Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    120,158
    
    
    
    
    
    
    
    
    
    
    
    1,280
    
    
    
    21,438Other information:(Provision)/reversal for
doubtful debts
    
    
    (1,258
    )
    
    
    (942
    )
    
    
    
    
    
    
    
    
    
    
    (2,200
    )
    
    
    (395
    )
    
    
    17
    
    
    
    (378
    )
    
    
    (2,578
    )Capital expenditures for
segment assets (a)
    
    
    16,332
    
    
    
    20,040
    
    
    
    9,587
    
    
    
    
    
    
    
    45,959
    
    
    
    
    
    
    
    443
    
    
    
    443
    
    
    
    46,402
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2008DiscontinuedContinuing operations
    
    operations (Up toTotal
    
    effective date ofGSM
    
    Fixed-line
    
    Unallocated
    
    
    
    
    
    continuing
    
    disposal)business
    
    business
    
    amounts
    
    Elimination
    
    operations
    
    CDMA business
    
    TotalService revenue
    
    
    64,704
    
    
    
    82,548
    
    
    
    
    
    
    
    
    
    
    
    147,252
    
    
    
    19,077
    
    
    
    166,329Sales of telecommunications
products
    
    
    550
    
    
    
    1,104
    
    
    
    
    
    
    
    
    
    
    
    1,654
    
    
    
    3,253
    
    
    
    4,907Total revenue from
external customers
    
    
    65,254
    
    
    
    83,652
    
    
    
    
    
    
    
    
    
    
    
    148,906
    
    
    
    22,330
    
    
    
    171,236Intersegment revenue
    
    
    157
    
    
    
    3,314
    
    
    
    
    
    
    
    (3,471
    )
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    65,411
    
    
    
    86,966
    
    
    
    
    
    
    
    (3,471
    )
    
    
    148,906
    
    
    
    22,330
    
    
    
    171,236Interconnection charges
    
    
    (10,753
    )
    
    
    (4,603
    )
    
    
    
    
    
    
    3,345
    
    
    
    (12,011
    )
    
    
    (1,692
    )
    
    
    (13,703
    )Depreciation and amortization
    
    
    (18,786
    )
    
    
    (28,892
    )
    
    
    
    
    
    
    
    
    
    
    (47,678
    )
    
    
    (411
    )
    
    
    (48,089
    )Networks, operations and
support expenses
    
    
    (6,658
    )
    
    
    (10,038
    )
    
    
    
    
    
    
    119
    
    
    
    (16,577
    )
    
    
    (7,780
    )
    
    
    (24,357
    )Employee benefit expenses
    
    
    (5,137
    )
    
    
    (13,718
    )
    
    
    (47
    )
    
    
    
    
    
    
    (18,902
    )
    
    
    (1,600
    )
    
    
    (20,502
    )Other operating expenses
    
    
    (15,976
    )
    
    
    (17,272
    )
    
    
    (341
    )
    
    
    7
    
    
    
    (33,582
    )
    
    
    (8,966
    )
    
    
    (42,548
    )Financial income/(costs)
    
    
    175
    
    
    
    (2,632
    )
    
    
    (668
    )
    
    
    714
    
    
    
    (2,411
    )
    
    
    (6
    )
    
    
    (2,417
    )Interest income
    
    
    309
    
    
    
    105
    
    
    
    539
    
    
    
    (714
    )
    
    
    239
    
    
    
    10
    
    
    
    249Impairment
loss on property,
plant and equipment
    
    
    
    
    
    
    (11,837
    )
    
    
    
    
    
    
    
    
    
    
    (11,837
    )
    
    
    
    
    
    
    (11,837
    )Other income  net
    
    
    110
    
    
    
    1,884
    
    
    
    
    
    
    
    
    
    
    
    1,994
    
    
    
    22
    
    
    
    2,016Segment income/(loss) before
income tax
    
    
    8,695
    
    
    
    (37
    )
    
    
    (517
    )
    
    
    
    
    
    
    8,141
    
    
    
    1,907
    
    
    
    10,048Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,801
    )
    
    
    (469
    )
    
    
    (2,270
    )Gain on the disposal of the
CDMA Business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,135
    
    
    
    26,135Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,340
    
    
    
    27,573
    
    
    
    33,913Attributable to:Equity holders of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,340
    
    
    
    27,572
    
    
    
    33,912Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    16,340
    
    
    
    27,573
    
    
    
    33,913Other information:Provision for doubtful debts
    
    
    (1,371
    )
    
    
    (1,529
    )
    
    
    
    
    
    
    
    
    
    
    (2,900
    )
    
    
    (383
    )
    
    
    (3,283
    )Capital expenditures for
segment assets (a)
    
    
    33,852
    
    
    
    26,957
    
    
    
    9,676
    
    
    
    
    
    
    
    70,485
    
    
    
    
    
    
    
    70,485
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December 31, 2007 (As restated)GSM
    
    CDMA
    
    Fixed-line
    
    Unallocatedbusiness
    
    business
    
    business
    
    amounts
    
    Elimination
    
    TotalTotal segment assets
    
    
    112,657
    
    
    
    9,885
    
    
    
    210,649
    
    
    
    17,234
    
    
    
    (16,338
    )
    
    
    334,087Total segment
liabilities
    
    
    49,118
    
    
    
    9,101
    
    
    
    109,891
    
    
    
    3,799
    
    
    
    (16,338
    )
    
    
    155,571December 31, 2008GSM
    
    CDMA
    
    Fixed-line
    
    Unallocatedbusiness
    
    business
    
    business
    
    amounts
    
    Elimination
    
    TotalTotal segment assets
    
    
    168,782
    
    
    
    
    
    
    
    202,645
    
    
    
    16,329
    
    
    
    (42,832
    )
    
    
    344,924Total segment
liabilities
    
    
    82,027
    
    
    
    
    
    
    
    98,699
    
    
    
    320
    
    
    
    (42,832
    )
    
    
    138,214
 
 (a)
    
    Capital expenditures classified under Unallocated amounts represent capital
expenditures on common facilities, which benefit all business segments.
 5.2
    
    Geographical SegmentsThe customers of the Groups services are mainly in Mainland China. There is no other
geographical segment with segment revenue from external customers equal to or greater than
10% of total revenue of the Group.In addition, although the Group has its corporate headquarters in Hong Kong, a substantial
portion of the Groups non-current assets (including property, plant and equipment and other
assets) are situated in Mainland China, as the Groups principal activities are conducted in
Mainland China. For 2007 and 2008, substantially all capital expenditures incurred by the
Group were to acquire assets located in Mainland China and less than 10% of the Groups
assets and operations are located outside Mainland China. Accordingly, no geographical
segment information is presented.
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6.
    
    PROPERTY, PLANT AND EQUIPMENTThe movement of property, plant and equipment for the years ended December 31, 2007 and 2008 are
as follows:
 2007 (As restated)OfficeTele-
    
    furniture,Tele-
    
    communications
    
    fixtures,communications
    
    equipment of
    
    motorequipment of
    
    Fixed-line
    
    vehicles
    
    Leasehold
    
    Construction-Buildings
    
    GSM business
    
    business
    
    and others
    
    improvements
    
    in-progress
    
    TotalCost or valuation:Beginning of year
(As previously reported)
    
    
    14,804
    
    
    
    134,810
    
    
    
    34,002
    
    
    
    9,675
    
    
    
    1,388
    
    
    
    13,670
    
    
    
    208,3492008 Business Combination
under common control (Note
1)
    
    
    27,545
    
    
    
    
    
    
    
    289,263
    
    
    
    18,899
    
    
    
    166
    
    
    
    6,335
    
    
    
    342,208Change of accounting policy
on measurement of property,
plant and equipment (Note
2.2)
    
    
    (377
    )
    
    
    
    
    
    
    (3,985
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,362
    )Beginning of year
(As restated)
    
    
    41,972
    
    
    
    134,810
    
    
    
    319,280
    
    
    
    28,574
    
    
    
    1,554
    
    
    
    20,005
    
    
    
    546,195Additions
    
    
    221
    
    
    
    154
    
    
    
    849
    
    
    
    1,089
    
    
    
    8
    
    
    
    42,880
    
    
    
    45,201Transfer from CIP
    
    
    2,422
    
    
    
    18,793
    
    
    
    17,356
    
    
    
    3,777
    
    
    
    437
    
    
    
    (42,785
    )
    
    
    Disposal of discontinued
operations
    
    
    (413
    )
    
    
    
    
    
    
    (7,635
    )
    
    
    (344
    )
    
    
    (137
    )
    
    
    (1,134
    )
    
    
    (9,663
    )Disposals
    
    
    (108
    )
    
    
    (2,097
    )
    
    
    (2,139
    )
    
    
    (678
    )
    
    
    (205
    )
    
    
    
    
    
    
    (5,227
    )End of year (As restated)
    
    
    44,094
    
    
    
    151,660
    
    
    
    327,711
    
    
    
    32,418
    
    
    
    1,657
    
    
    
    18,966
    
    
    
    576,506Representing:At cost
    
    
    44,094
    
    
    
    151,660
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,966
    
    
    
    214,720At valuation
    
    
    
    
    
    
    
    
    
    
    327,711
    
    
    
    32,418
    
    
    
    1,657
    
    
    
    
    
    
    
    361,78644,094
    
    
    
    151,660
    
    
    
    327,711
    
    
    
    32,418
    
    
    
    1,657
    
    
    
    18,966
    
    
    
    576,506Accumulated
depreciation and
impairment:Beginning of year
(As previously reported)
    
    
    (3,568
    )
    
    
    (71,725
    )
    
    
    (14,413
    )
    
    
    (5,032
    )
    
    
    (802
    )
    
    
    (14
    )
    
    
    (95,554
    )2008 Business Combination
under common control (Note
1)
    
    
    (7,081
    )
    
    
    
    
    
    
    (151,127
    )
    
    
    (9,446
    )
    
    
    (78
    )
    
    
    
    
    
    
    (167,732
    )Change of accounting
policy on measurement of
property, plant and
equipment (Note 2.2)
    
    
    28
    
    
    
    
    
    
    
    3,171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,199Beginning of year
(As restated)
    
    
    (10,621
    )
    
    
    (71,725
    )
    
    
    (162,369
    )
    
    
    (14,478
    )
    
    
    (880
    )
    
    
    (14
    )
    
    
    (260,087
    )Charge for the year
    
    
    (1,326
    )
    
    
    (15,684
    )
    
    
    (26,001
    )
    
    
    (3,695
    )
    
    
    (292
    )
    
    
    (10
    )
    
    
    (47,008
    )Impairment loss for the
year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Disposal of discontinued
operations
    
    
    60
    
    
    
    
    
    
    
    1,867
    
    
    
    137
    
    
    
    74
    
    
    
    
    
    
    
    2,138Disposals
    
    
    78
    
    
    
    1,963
    
    
    
    1,702
    
    
    
    613
    
    
    
    205
    
    
    
    
    
    
    
    4,561End of year (As restated)
    
    
    (11,809
    )
    
    
    (85,446
    )
    
    
    (184,801
    )
    
    
    (17,423
    )
    
    
    (893
    )
    
    
    (24
    )
    
    
    (300,396
    )Net book value:End of year (As restated)
    
    
    32,285
    
    
    
    66,214
    
    
    
    142,910
    
    
    
    14,995
    
    
    
    764
    
    
    
    18,942
    
    
    
    276,110Beginning of year
(As restated)
    
    
    31,351
    
    
    
    63,085
    
    
    
    156,911
    
    
    
    14,096
    
    
    
    674
    
    
    
    19,991
    
    
    
    286,108
 F-59




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##### Table of Contents



2008OfficeTele-
    
    furniture,Tele-
    
    communications
    
    fixtures,communications
    
    equipment of
    
    motorequipment of
    
    Fixed-line
    
    vehicles
    
    Leasehold
    
    Construction-Buildings
    
    GSM business
    
    business
    
    and others
    
    improvements
    
    in-progress
    
    TotalCost or valuation:Beginning of year
(As previously reported)
    
    
    16,361
    
    
    
    151,660
    
    
    
    35,481
    
    
    
    10,984
    
    
    
    1,612
    
    
    
    14,966
    
    
    
    231,0642008 Business Combination
under common control
(Note 1)
    
    
    28,110
    
    
    
    
    
    
    
    296,215
    
    
    
    21,434
    
    
    
    45
    
    
    
    4,000
    
    
    
    349,804Change of accounting
policy on measurement of
property, plant and
equipment (Note 2.2)
    
    
    (377
    )
    
    
    
    
    
    
    (3,985
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,362
    )Beginning of year
(As restated)
    
    
    44,094
    
    
    
    151,660
    
    
    
    327,711
    
    
    
    32,418
    
    
    
    1,657
    
    
    
    18,966
    
    
    
    576,506Additions
    
    
    200
    
    
    
    194
    
    
    
    1,272
    
    
    
    1,067
    
    
    
    7
    
    
    
    67,745
    
    
    
    70,485Transfer from CIP
    
    
    2,039
    
    
    
    17,931
    
    
    
    21,797
    
    
    
    3,788
    
    
    
    350
    
    
    
    (45,905
    )
    
    
    Disposal of discontinued
operations
    
    
    (1,077
    )
    
    
    (3,469
    )
    
    
    
    
    
    
    (284
    )
    
    
    (6
    )
    
    
    (23
    )
    
    
    (4,859
    )Disposals
    
    
    (306
    )
    
    
    (3,037
    )
    
    
    (5,637
    )
    
    
    (903
    )
    
    
    (381
    )
    
    
    
    
    
    
    (10,264
    )End of year
    
    
    44,950
    
    
    
    163,279
    
    
    
    345,143
    
    
    
    36,086
    
    
    
    1,627
    
    
    
    40,783
    
    
    
    631,868Representing:At cost
    
    
    44,950
    
    
    
    163,279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,783
    
    
    
    249,012At valuation
    
    
    
    
    
    
    
    
    
    
    345,143
    
    
    
    36,086
    
    
    
    1,627
    
    
    
    
    
    
    
    382,85644,950
    
    
    
    163,279
    
    
    
    345,143
    
    
    
    36,086
    
    
    
    1,627
    
    
    
    40,783
    
    
    
    631,868Accumulated
depreciation and
impairment:Beginning of year
(As previously
reported)
    
    
    (3,827
    )
    
    
    (85,446
    )
    
    
    (18,230
    )
    
    
    (6,505
    )
    
    
    (878
    )
    
    
    (14
    )
    
    
    (114,900
    )2008 Business Combination
under common control
(Note 1)
    
    
    (8,024
    )
    
    
    
    
    
    
    (169,897
    )
    
    
    (10,918
    )
    
    
    (15
    )
    
    
    (10
    )
    
    
    (188,864
    )Change of accounting
policy on measurement of
property, plant and
equipment (Note 2.2)
    
    
    42
    
    
    
    
    
    
    
    3,326
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,368Beginning of year
(As restated)
    
    
    (11,809
    )
    
    
    (85,446
    )
    
    
    (184,801
    )
    
    
    (17,423
    )
    
    
    (893
    )
    
    
    (24
    )
    
    
    (300,396
    )Charge for the year
    
    
    (1,612
    )
    
    
    (15,110
    )
    
    
    (25,589
    )
    
    
    (4,202
    )
    
    
    (269
    )
    
    
    (9
    )
    
    
    (46,791
    )Impairment loss for the
year
    
    
    
    
    
    
    
    
    
    
    (11,825
    )
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    (11,837
    )Disposal of discontinued
operations
    
    
    190
    
    
    
    1,546
    
    
    
    
    
    
    
    126
    
    
    
    
    
    
    
    
    
    
    
    1,862Disposals
    
    
    212
    
    
    
    3,068
    
    
    
    4,733
    
    
    
    831
    
    
    
    349
    
    
    
    13
    
    
    
    9,206End of year
    
    
    (13,019
    )
    
    
    (95,942
    )
    
    
    (217,482
    )
    
    
    (20,668
    )
    
    
    (813
    )
    
    
    (32
    )
    
    
    (347,956
    )Net book value:End of year
    
    
    31,931
    
    
    
    67,337
    
    
    
    127,661
    
    
    
    15,418
    
    
    
    814
    
    
    
    40,751
    
    
    
    283,912Beginning of year
(As restated)
    
    
    32,285
    
    
    
    66,214
    
    
    
    142,910
    
    
    
    14,995
    
    
    
    764
    
    
    
    18,942
    
    
    
    276,110
 F-60




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F-61




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7.
    
    LEASE PREPAYMENTSThe Groups long-term prepayment for land use rights represents prepaid operating lease payments
for land use rights in Mainland China and their net book value is analyzed as follows:
 2007(As restated)
    
    2008Held on:Leases of between 10 to 50 years
    
    
    7,998
    
    
    
    7,734Leases of less than 10 years
    
    
    65
    
    
    
    658,063
    
    
    
    7,799
 For the year ended December 31, 2008, the long-term prepayment for land use rights expensed in
the statement of income amounted to approximately RMB224 million (2007: approximately RMB261
million).8.
    
    GOODWILL
 2007
    
    2008Cost:Beginning of year
    
    
    3,144
    
    
    
    3,144Disposal of the CDMA Business
    
    
    
    
    
    
    (373
    )End of year
    
    
    3,144
    
    
    
    2,771
 Goodwill arising from the acquisitions of Unicom New Century Telecommunications Co., Ltd. and
Unicom New World Telecommunications Co., Ltd. by the Company in 2002 and 2003, respectively,
represented the excess of the purchase consideration over the Groups shares of the fair values
of the separately identifiable net assets acquired prior to the adoption of HKFRS and AG 5 in
2005 (refer to Note 2.3(a)).Goodwill is allocated to the Groups cash-generating units (CGU) identified according to
business segments. As of December 31, 2008, all the carrying value of goodwill was attributable
to the GSM business. The recoverable amount of goodwill is determined based on value in use
calculations. These calculations use pre-tax cash flow projections for 5 years based on
financial budgets approved by management, including revenue annual growth rate of 6% and the
applicable discount rate of 12%. Management determined expected operation results based on past
performance and its expectations in relation to market developments. The expected growth rates
used are consistent with the forecasts of the business segments. The discount rate used is
pre-tax and reflects specific risks relating to the CGU. Based on managements assessment
results, there was no impairment of goodwill as of December 31, 2007 and 2008 and no reasonable
change to the assumptions would lead to an impairment.Upon disposal of the CDMA Business effective on October 1, 2008, goodwill of approximately
RMB373 million attributable to the CDMA business arising from the above acquisitions was
derecognized.
 F-62




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##### Table of Contents



9.
    
    TAXATIONHong Kong income tax has been provided at the rate of 16.5% (2007: 17.5%) on the estimated
assessable income for the year. Taxation on income from outside Hong Kong has been calculated on
the estimated assessable income for the year at the rates of taxation prevailing in the
countries in which the Group operates the Companys subsidiaries are mainly operated in PRC, the
applicable standard enterprise income tax rate is 25% (2007: 33%).
 2007(As restated)
    
    2008Provision for enterprise income tax on the
estimated taxable income for the year- Hong Kong
    
    
    18
    
    
    
    24- Outside Hong Kong
    
    
    7,169
    
    
    
    4,6317,187
    
    
    
    4,655Deferred taxation
    
    
    (104
    )
    
    
    (2,854
    )Income tax expense
    
    
    7,083
    
    
    
    1,801
 (a)
    
    Pursuant to the new PRC enterprise income tax law passed by the Tenth National Peoples
Congress on March 16, 2007, the new enterprise income tax rates for domestic and foreign
enterprises are unified at 25% and are effective from January 1, 2008 (2007: 33%). However,
for entities operating in special economic zones that previously enjoyed preferential tax
rates, the applicable tax rate will be increased progressively to 25% over a five-year
period.(b)
    
    On December 6, 2007, the State Council issued the detailed implementation regulations
of the new PRC enterprise income tax law. Pursuant to the regulations, a 10% withholding
income tax will be levied on dividends declared on or after January 1, 2008 by foreign
investment enterprises to their foreign enterprise shareholders unless the enterprise
investor is deemed as a PRC Tax Resident Enterprise (TRE). The Company has made an
assessment as of December 31, 2008, based on existing laws and regulations at that time and
other factors such as sources of income, composition of the Board of Directors and the
location of major assets and accounting records, and concluded that it met the definition
of PRC TRE after assessment. Therefore, as of December 31, 2008, the Companys subsidiaries
in the PRC did not accrue withholding tax on dividends distributed to the Company and there
was no deferred tax liability accrued in the Groups consolidated financial statements for
the undistributed income of the Companys subsidiaries in the PRC for the year ended
December 31, 2008. On April 22, 2009, the PRC State
Administration of Taxation
issued a formal notice
regarding the determination of PRC TRE status and provided
implementation guidance in
withholding income tax for non-TRE enterprise shareholders. Accordingly, the Company performed a
reassessment and concluded that it continues to meet the definition of PRC TRE. However,
with respect to non-TRE enterprise shareholders, the Company will distribute the 2008 final
dividend payable to them after deducting the amount of Enterprise Income Tax
payable by these non-TRE enterprise shareholders thereon and will reclassify the related dividend payable to withholding
tax payable upon the declaration of such dividends. The requirement
to withhold tax does not apply to shareholders appearing as
individuals in the Companys share register.
 F-63




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##### Table of Contents



2007Note
    
    (As restated)
    
    2008Applicable PRC statutory tax rate
    
    
    
    
    
    
    33.0
    %
    
    
    25.0
    %Non-deductible expenses
    
    
    
    
    
    
    0.7
    %
    
    
    3.0
    %Realized loss on changes in fair value of derivative
component of the convertible bonds
    
    
    
    
    
    
    0.7
    %
    
    
    Non-taxable income- Tax refund on reinvestment in subsidiaries
    
    
    27
    
    
    
    (4.9
    %)
    
    
    - Upfront connection fees arising from Fixed-line business
    
    
    
    
    
    
    (2.8
    %)
    
    
    (4.8
    %)Impact of PRC preferential tax rates and tax holiday
    
    
    
    
    
    
    (0.8
    %)
    
    
    (0.8
    %)Effect of change of tax rate under the new PRC enterprise
income tax law
    
    
    (a
    )
    
    
    0.3
    %
    
    
    Others
    
    
    
    
    
    
    (0.2
    %)
    
    
    (0.3
    %)Effective tax rate
    
    
    
    
    
    
    26.0
    %
    
    
    22.1
    %
 F-64




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##### Table of Contents



2007(As restated)
    
    2008Deferred tax assets:- Deferred tax asset to be recovered after 12 months
    
    
    2,617
    
    
    
    4,891- Deferred tax asset to be recovered within 12 months
    
    
    1,409
    
    
    
    1,6054,026
    
    
    
    6,496Deferred tax liabilities:- Deferred tax liabilities to be settled after 12 months
    
    
    (533
    )
    
    
    (931
    )- Deferred tax liabilities to be settled within 12 months
    
    
    (979
    )
    
    
    (239
    )(1,512
    )
    
    
    (1,170
    )Net deferred tax assets after offsetting
    
    
    2,514
    
    
    
    5,326Deferred tax liabilities that cannot be offset
    
    
    (17
    )
    
    
    (16
    )
   2007(As restated)
    
    2008Net deferred tax assets after offsetting:- Beginning of year
    
    
    2,994
    
    
    
    2,514- Deferred tax credited/(charged) to the statement
of income- Continuing operations
    
    
    106
    
    
    
    2,853- Discontinued operations
    
    
    (32
    )
    
    
    (35
    )- Deferred tax charged to equity
    
    
    (529
    )
    
    
    - Disposal of discontinued operations
    
    
    (25
    )
    
    
    (6
    )- End of year
    
    
    2,514
    
    
    
    5,326The deferred tax liabilities that cannot be offset:- Beginning of year
    
    
    (15
    )
    
    
    (17
    )- Deferred tax (charged)/credited to the statement
of income
    
    
    (2
    )
    
    
    1- End of year
    
    
    (17
    )
    
    
    (16
    )
 F-65




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##### Table of Contents



9.
    
    TAXATIONDeferred taxation as of year-end represents the taxation effect of the following temporary
differences, taking into consideration the offsetting of balances related to the same tax
authority:
 2007Note
    
    (As restated)
    
    2008Mainland ChinaDeferred tax assets:Provision for doubtful debts
    
    
    
    
    
    
    742
    
    
    
    788Impairment loss on property, plant and equipment
    
    
    6
    
    
    
    20
    
    
    
    2,924Unrecognized revaluation surplus on property, plant
and equipment
    
    
    i
    
    
    
    2,061
    
    
    
    1,991Revaluation deficit on property, plant and equipment
    
    
    ii
    

    
    
    236
    
    
    
    170Write-down of inventories to net realizable value
    
    
    
    
    
    
    41
    
    
    
    11Accruals of expenses not yet deductible for tax purpose
    
    
    
    
    
    
    144
    
    
    
    145Deferral and amortization of upfront non-refundable
revenue
    
    
    
    
    
    
    396
    
    
    
    177Deferred revenue on subscriber points reward program
    
    
    
    
    
    
    177
    
    
    
    43Deferred revenue in relation to the provision of
supporting services upon the disposal of the CDMA
Business
    
    
    37.2
    (b)
    
    
    
    
    
    
    102Accruals of retirement benefits
    
    
    
    
    
    
    40
    
    
    
    33Others
    
    
    
    
    
    
    169
    
    
    
    1124,026
    
    
    
    6,496Deferred tax liabilities:Capitalization and amortization of direct incremental
costs
    
    
    
    
    
    
    (322
    )
    
    
    (124
    )Capitalized interest already deducted for tax purpose
    
    
    
    
    
    
    (830
    )
    
    
    (703
    )Revaluation surplus on property, plant and equipment
    
    ii
    
    
    (360
    )
    
    
    (343
    )(1,512
    )
    
    
    (1,170
    )2,514
    
    
    
    5,326Outside Mainland ChinaDeferred tax liabilities:Accelerated depreciation for tax purpose
    
    
    
    
    
    
    (17
    )
    
    
    (16
    )
 
 (i)
    
    Prior to the merger, the prepayments for the leasehold land and buildings held by China
Netcom were revalued for PRC tax purposes as of December 31, 2003 and 2004. However, the
resulting revaluations of the prepayments for the leasehold land and buildings were not
recognized under IFRS/HKFRS. Accordingly, deferred tax assets were recorded by the Group
under IFRS/HKFRS.(ii)
    
    The property, plant and equipment other than buildings and telecommunications equipment
of GSM business are carried at revalued amount under IFRS/HKFRS, which are not used for PRC
tax reporting purposes. As a result, the Group recorded the deferred tax assets or
liabilities arising from the revaluation deficit or surplus under IFRS/HKFRS. F-66




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##### Table of Contents



10.
    
    OTHER ASSETS
 2007Note
    
    (As restated)
    
    2008Direct incremental costs for activating mobile subscribers
    
    
    
    
    
    
    1,301
    
    
    
    499Customer acquisition costs of contractual CDMA subscribers
    
    
    4.2
    (a)
    
    
    2,349
    
    
    
    Installation costs of Fixed-line services
    
    
    
    
    
    
    2,848
    
    
    
    2,251Prepaid rental for premises and leased lines
    
    
    
    
    
    
    1,887
    
    
    
    2,121Purchased software
    
    
    
    
    
    
    2,432
    
    
    
    2,837Others
    
    
    
    
    
    
    1,264
    
    
    
    1,28812,081
    
    
    
    8,996
 F-67




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##### Table of Contents



11.
    
    SUBSIDIARIESInvestments in subsidiaries
 2007(As restated)
    
    2008Unlisted equity investments, at cost
    
    
    55,938
    
    
    
    159,761
 As of December 31, 2008, the details of the Companys subsidiaries are as follows:
 Percentage ofPlace and date of
    
    equity interests
    
    Particular of
    
    Principal activitiesincorporation and
    
    held
    
    issued share
    
    and place ofName
    
    nature of legal entity
    
    Direct
    
    Indirect
    
    capital
    
    operationChina United Network 
Communications 
Corporation Limited
(formerly known as 
China Unicom 
Corporation Limited)
    
    The PRC,
April 21, 2000,
limited liability
company
    
    
    100
    %
    
    
    
    
    
    RMB
64,721,120,000
    
    Telecommunications
operation in the
PRCUnicom New World
(BVI) Limited
    
    British Virgin Islands,
November 5, 2003,
limited company
    
    
    100
    %
    
    
    
    
    
    1,000 shares,
HKD1 each
    
    Investment holding
in BVIChina Unicom 
International Limited
    
    Hong Kong,
May 24, 2000,
limited company
    
    
    100
    %
    
    
    
    
    
    60,100,000
shares, HKD1 each
    
    Telecommunications
service in Hong
KongChina Unicom USA 
Corporation
    
    The United States of
America (the USA),
May 24, 2002,
corporation
    
    
    
    
    
    
    100
    %
    
    USD
500,000
    
    Telecommunications
service in the USABillion Express 
Investments Limited
    
    British Virgin Islands,
August 15, 2007,
limited company
    
    
    100
    %
    
    
    
    
    
    1 share,
USD1 each
    
    Investment holding
in BVIChina Unicom Limited
(formerly known as 
Central Link 
Investment Limited)
    
    Hong Kong,
August 31, 2007
limited company
    
    
    
    
    
    
    100
    %
    
    2 shares,
HKD1 each
    
    DormantUnicom Vsens 
Telecommunications 
Company Limited
    
    The PRC,
August 19, 2008,
Limited liability
company
    
    
    
    
    
    
    100
    %
    
    RMB
500,000,000
    
    Sales of handsets,
telecommunication
equipment and
provision of
technical services
in the PRCChina Unicom Mobile 
Network Company 
Limited
    
    The PRC,
December 31, 2008,
Limited liability
company
    
    
    
    
    
    
    100
    %
    
    RMB
500,000,000
    
    Construction and
maintenance of the
network in the PRC
 F-68




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##### Table of Contents



Percentage ofPlace and date of
    
    equity interests
    
    Particular of
    
    Principal activitiesincorporation and
    
    held
    
    issued share
    
    and place ofName
    
    nature of legal entity
    
    Direct
    
    Indirect
    
    capital
    
    operationChina Netcom Group 
Corporation (Hong 
Kong) Limited
    
    Hong Kong,
October 22, 1999,
limited company
    
    
    100
    %
    
    
    
    
    
    6,699,197,200
shares, USD0.04 each
    
    Investment holding
in Hong KongChina Netcom (Group) 
Company Limited
    
    The PRC,
August 6, 1999,
limited liability
company
    
    
    
    
    
    
    100
    %
    
    RMB
73,370,557,827.69
    
    Provision of
network
communications
services in the PRCChina Netcom 
Corporation 
International Limited
    
    Bermuda,
October 15, 2002,
limited company
    
    
    
    
    
    
    100
    %
    
    USD
12,000
    
    Investment holding
in BermudaChina Netcom Group 
System Integration 
Limited Corporation
    
    The PRC,
April 30, 2006,
limited liability
company
    
    
    
    
    
    
    100
    %
    
    RMB
550,000,000
    
    Provision of system
integration
services in the PRCChina Netcom Group 
Broadband Online 
Limited Corporation
    
    The PRC,
March 29, 2006,
limited liability
company
    
    
    
    
    
    
    100
    %
    
    RMB
30,000,000
    
    Provision of
internet
information
services and
value-added
telecommunications
services in the PRCBeijing
Telecommunications
Planning and
Designing Institute
Corporation Limited
    
    The PRC,
June 1, 2007
limited liability
company
    
    
    
    
    
    
    100
    %
    
    RMB
264,227,115.02
    
    Provision of
telecommunications
network
construction,
planning and
technical
consulting services
in the PRC
 F-69




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##### Table of Contents



12.
    
    INVENTORIES AND CONSUMABLES
 2007(As restated)
    
    2008Handsets and other customer end products
    
    
    1,753
    
    
    
    302Telephone cards
    
    
    585
    
    
    
    403Consumables
    
    
    449
    
    
    
    422Others
    
    
    28
    
    
    
    442,815
    
    
    
    1,171
 13.
    
    ACCOUNTS RECEIVABLE, NET
 2007(As restated)
    
    2008Accounts receivable for GSM business
    
    
    2,559
    
    
    
    3,098Accounts receivable for CDMA business
    
    
    1,637
    
    
    
    Accounts receivable for Fixed-line business
    
    
    9,788
    
    
    
    8,689Sub-total
    
    
    13,984
    
    
    
    11,787Less: Provision for doubtful debts for GSM business
    
    
    (1,028
    )
    
    
    (1,347
    )Provision for doubtful debts for CDMA business
    
    
    (442
    )
    
    
    Provision for doubtful debts for Fixed-line business
    
    
    (1,500
    )
    
    
    (1,853
    )11,014
    
    
    
    8,587
 The aging analysis of accounts receivable is as follows:
 2007(As restated)
    
    2008Within one month
    
    
    7,295
    
    
    
    6,078More than one month to three months
    
    
    2,595
    
    
    
    1,479More than three months to one year
    
    
    2,882
    
    
    
    2,792More than one year
    
    
    1,212
    
    
    
    1,43813,984
    
    
    
    11,787
 The normal credit period granted by the Group is on average between 30 days to 90 days from the
date of billing.There is no significant concentration of credit risk with respect to individual customers
receivables, as the Group has a large number of customers.
 F-70




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As of December 31, 2008, accounts receivable of approximately RMB2,039 million (2007:
approximately RMB2,726 million) were past due but not impaired. These relate to customers for
which there is no recent history of default. The aged analysis of these receivables is as
follows:
 2007(As restated)
    
    2008More than one month to three months
    
    
    2,095
    
    
    
    1,546More than three months to one year
    
    
    499
    
    
    
    323More than one year
    
    
    132
    
    
    
    1702,726
    
    
    
    2,039
 As of December 31, 2008, accounts receivable of approximately RMB3,200 million (2007:
approximately RMB2,970 million) were impaired. The individually impaired receivables mainly
relate to subscriber usage fees. The aging of these receivables is as follows:
 2007(As restated)
    
    2008More than three months to one year
    
    
    2,054
    
    
    
    2,023More than one year
    
    
    916
    
    
    
    1,1772,970
    
    
    
    3,200
 Provision for doubtful debts is analyzed as follows:
 2007(As restated)
    
    2008Balance, beginning of year
    
    
    4,386
    
    
    
    2,970Provision for the year:- Continuing operations
    
    
    2,200
    
    
    
    2,900- Discontinued operations
    
    
    378
    
    
    
    383Written-off during the year
    
    
    (3,954
    )
    
    
    (2,393
    )Disposal of discontinued operations
    
    
    (40
    )
    
    
    (660
    )Balance, end of year
    
    
    2,970
    
    
    
    3,200
 The creation and release of provisions for impaired receivables have been recognized in the
statement of income. Amounts charged to the allowance account are generally written-off when
there is reliable evidence to indicate no expectation of recovering additional cash.The maximum exposure to credit risk at the reporting date is the fair value of accounts
receivable mentioned above. The Group does not hold any collateral as security.
 F-71




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##### Table of Contents



14.
    
    PREPAYMENTS AND OTHER CURRENT ASSETS
 2007Note
    
    (As restated)
    
    2008Prepaid rental
    
    
    
    
    
    
    526
    
    
    
    670Deposits and prepayments
    
    
    
    
    
    
    915
    
    
    
    800Advances to employees
    
    
    
    
    
    
    225
    
    
    
    226Customer acquisition costs of contractual
CDMA subscribers
    
    
    4.2
    (a)
    
    
    508
    
    
    
    Tax refund on reinvestment in a subsidiary
    
    
    27
    
    
    
    1,459
    
    
    
    Others
    
    
    
    
    
    
    681
    
    
    
    7314,314
    
    
    
    2,427
 The aging analysis of prepayments and other current assets is as follows:
 2007(As restated)
    
    2008Within one year
    
    
    3,989
    
    
    
    2,106More than one year
    
    
    325
    
    
    
    3214,314
    
    
    
    2,427
 As of December 31, 2007 and 2008, there was no impairment for the prepayments and other current
assets.15.
    
    SHORT-TERM BANK DEPOSITS
 2007(As restated)
    
    2008Bank deposits with maturity exceeding three months
    
    
    721
    
    
    
    221Restricted bank deposits
    
    
    14
    
    
    
    17735
    
    
    
    238
 As of December 31, 2007 and 2008, restricted bank deposits primarily represented deposits that
were subject to externally imposed restriction relating to construction payable as requested by
a contractor.16.
    
    CASH AND CASH EQUIVALENTS
 2007(As restated)
    
    2008Cash at bank and in hand
    
    
    11,388
    
    
    
    8,721Bank deposits with original maturities of three months or less
    
    
    591
    
    
    
    51711,979
    
    
    
    9,238
 F-72




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17.
    
    SHARE CAPITAL
 2007
    
    2008HKD millions
    
    HKD millionsAuthorized:30,000,000,000 ordinary shares of HKD0.10 each
    
    
    3,000
    
    
    
    3,000
 Ordinaryshares,Number of
    
    par value ofShares
    
    HKD0.10 each
    
    Share
    
    ShareIssued and fully paid:
    
    millions
    
    HKD millions
    
    capital
    
    premium
    
    TotalAt January 1, 2007
    
    
    12,681
    
    
    
    1,268
    
    
    
    1,344
    
    
    
    53,223
    
    
    
    54,567Employee share option scheme- Issuance of shares upon
exercise of options (Note
32)
    
    
    54
    
    
    
    5
    
    
    
    5
    
    
    
    366
    
    
    
    371Conversion of convertible bonds
    
    
    900
    
    
    
    90
    
    
    
    88
    
    
    
    10,731
    
    
    
    10,819At December 31, 2007
    
    
    13,635
    
    
    
    1,363
    
    
    
    1,437
    
    
    
    64,320
    
    
    
    65,757Employee share option scheme- Issuance of shares upon
exercise of options (Note
32)
    
    
    31
    
    
    
    3
    
    
    
    3
    
    
    
    252
    
    
    
    255Issuance of shares in
connection with 2008 Business
Combination (Note a)
    
    
    10,102
    
    
    
    1,010
    
    
    
    889
    
    
    
    102,212
    
    
    
    103,101At December 31, 2008
    
    
    23,768
    
    
    
    2,376
    
    
    
    2,329
    
    
    
    166,784
    
    
    
    169,113
 
 Note a :
    
    Pursuant to an ordinary resolution passed at the extraordinary general meeting held
on September 16, 2008, the Company issued 10,102,389,377 ordinary shares of HKD0.10 each at
a price of HKD11.60 per share with fair value or total price of approximately RMB103.1
billion on October 15, 2008 in exchange for the entire issued share capital of China
Netcom. Please refer to Note 1 for details. F-73




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##### Table of Contents



18.
    
    RESERVESNature and purpose of statutory reservesCUCL and CNC China are registered as foreign investment enterprises in the PRC. In accordance
with the respective Articles of Association, they are required to provide for certain statutory
reserves, namely, general reserve fund and staff bonus and welfare fund, which are appropriated
from profit after tax and minority interests but before dividend distribution.CUCL and CNC China are required to allocate at least 10% of their income after tax and minority
interests determined under the PRC Company Law to the general reserve fund until the cumulative
amounts reach 50% of the registered capital. The statutory reserve can only be used, upon
approval obtained from the relevant authority, to offset accumulated losses or increase capital.Accordingly, CUCL and CNC China appropriated approximately RMB3,523 million and RMB19 million,
respectively (2007: approximately RMB718 million and RMB868 million, respectively), to the
general reserve fund for the year ended December 31, 2008.Appropriation to the staff bonus and welfare fund is at the discretion of the directors. The
staff bonus and welfare fund can only be used for special bonuses or the collective welfare of
the employees and cannot be distributed as cash dividends. Under IFRS/HKFRS, the appropriations
to the staff bonus and welfare fund will be charged to the statement of income as expenses
incurred since any assets acquired through this fund belong to the employees. For the years
ended December 31, 2007 and 2008, no appropriation to staff bonus and welfare fund has been made
by CUCL or CNC China.According to a PRC tax approval document issued by the Ministry of Finance and State
Administration of Taxation to the Group, the Groups upfront connection fees in respect of
Fixed-line business are not subject to PRC enterprise income tax and an amount equal to the
upfront connection fees recognized in the retained profits should be transferred from retained
profits to a statutory reserve. Up to December 31, 2008, the Group has made an accumulated
appropriation of approximately RMB11,592 million to the statutory reserve (Up to December 31,
2007: approximately RMB10,706 million).
 F-74




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##### Table of Contents



19.
    
    LONG-TERM BANK LOANS
 2007Interest rates and final maturity
    
    (As restated)
    
    2008RMB 
denominated bank 
loans
    
    Fixed interest rates of 3.60%
per annum with maturity through
2010- unsecured
    
    
    
    
    200
    
    
    
    200
    
    
    
    RMB 
denominated bank 
loans
    
    Floating interest rates ranging
from 4.86% to 6.80% (2007: 2.40%
to 10.08%) per annum with
maturity through 2009
(2007: maturity through 2009)- unsecured
    
    
    
    
    18,399
    
    
    
    1,11418,399
    
    
    
    1,114USD 
denominated 
bank loans
    
    Fixed interest rates ranging
from Nil to 5.65% (2007: Nil to
6.15%) per annum with maturity
through 2039 (2007: maturity
through 2039)- secured
    
    
    
    
    211
    
    
    
    146- unsecured
    
    
    
    
    377
    
    
    
    377588
    
    
    
    523USD 
denominated 
bank loans
    
    Floating interest rates of USD
LIBOR plus interest margin 0.35%
to 0.44% for 2007 per annum with
maturity through 2010 (a)- unsecured
    
    
    
    
    3,652
    
    
    
    3,652
    
    
    
    Japanese Yen 
denominated 
bank loans
    
    Fixed interest rates of 2.12%
(2007: 2.12%) per annum with
maturity through 2014
(2007: maturity through 2014)- unsecured
    
    
    
    
    234
    
    
    
    234234
    
    
    
    234Euro 
denominated 
bank loans
    
    Fixed interest rates ranging
from 0.50% to 2.50% (2007: 1.10%
to 7.85%) per annum with
maturity through 2034
(2007: maturity through 2034)- unsecured
    
    
    
    
    415
    
    
    
    342415
    
    
    
    342HKD 
denominated 
bank loans
    
    Fixed interest rates of 3.75%
for 2007 per annum with maturity
through 2010- unsecured
    
    
    
    
    9
    
    
    
    9
    
    
    
    Sub-total
    
    
    
    
    23,497
    
    
    
    2,213Less: Current portion
    
    
    
    
    (7,411
    )
    
    
    (1,216
    )16,086
    
    
    
    997
 F-75




---



##### Table of Contents



The repayment schedule of the long-term bank loans is as follows:
 2007(As restated)
    
    2008Balances due:- no later than one year
    
    
    7,411
    
    
    
    1,216- later than one year and
no later than two years
    
    
    9,671
    
    
    
    96- later than two years and
no later than five years
    
    
    3,613
    
    
    
    287- later than five years
    
    
    2,802
    
    
    
    61423,497
    
    
    
    2,213Less: Portion classified as current liabilities
    
    
    (7,411
    )
    
    
    (1,216
    )16,086
    
    
    
    997
 (a)
    
    On September 26, 2003, the Company signed an agreement with 13 financial institutions
for a long-term syndicated loan of USD700 million. This facility was split into 3 tranches
(i) USD200 million 3-year loan; (ii) USD300 million 5-year loan; and (iii) USD200 million
7-year loan and carried an interest rate of 0.28%, 0.35% and 0.44% over US dollar LIBOR per
annum for each tranche, respectively. In October 2003, the Company and CUCL entered into an
agreement to re-lend such funds to CUCL with similar terms to finance the network
construction of CUCL. The Company fully repaid the USD200 million 3-year loan in 2006, the
USD300 million 5-year loan in September 2008 and the USD200 million 7-year loan in November
2008 after obtaining consent for repayment from the relevant lenders.(b)
    
    The fair values of the Groups non-current portion of long-term bank loans as of
December 31, 2007 and 2008 were as follows:
 2007(As restated)
    
    2008Long-term bank loans
    
    
    14,547
    
    
    
    690
 The fair value is calculated based on cash flows discounted using rates based on the market
rates ranging from 4.59% to 6.56% (December 31, 2007: 3.25% to 7.05%).
 (c)
    
    As of December 31, 2008, bank loans of approximately RMB146 million (2007:
approximately RMB163 million) were secured by corporate guarantees granted by third
parties.(d)
    
    As of December 31, 2008, there were no corporate guarantees granted by Netcom Group
(2007: RMB49 million).
 F-76




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##### Table of Contents



20.
    
    CORPORATE BONDSOn June 8, 2007, the Group issued RMB2 billion 10-year corporate bonds, bearing interest at 4.5%
per annum. The corporate bonds are secured by a corporate guarantee granted by Bank of China
Limited.On September 3, 2008, the Group issued another RMB5 billion 5-year corporate bonds, bearing
interest at 5.29% per annum. The corporate bonds are secured by a corporate guarantee granted by
State Grid Corporation of China.21.
    
    CONVERTIBLE BONDSOn August 20, 2007, the Company received a notice delivered by SK Telecom Co., Ltd. (SK
Telecom), the sole holder of outstanding zero coupon convertible bonds of USD1 billion, pursuant
to the terms and conditions of the convertible bonds for the conversion in full of the
convertible bonds into the Companys shares. Accordingly, on August 31, 2007, the Company
allotted and issued 899,745,075 ordinary shares of HKD0.10 each of the Company to SK Telecom.Prior to the conversion, the change in the fair value of the conversion option from December 31,
2006 to August 20, 2007 resulted in a fair value loss of approximately RMB569 million, which has
been recorded in the Realized loss on changes in fair value of derivative component of the
convertible bonds in the statement of income for the year ended December 31, 2007.The convertible bonds with carrying value of approximately RMB10,818 million as of August 20,
2007 were fully converted into 899,745,075 ordinary shares of HKD0.10 each of the Company. The
share conversion resulted in an increase in share capital and share premium by approximately
RMB88 million and RMB10,731 million, respectively (Note 17).
 F-77




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##### Table of Contents



22.
    
    OTHER OBLIGATIONS
 Contractualobligations in
    
    Provision made inrelation to early
    
    relation to one-offretirement
    
    cashbenefits
    
    housing subsidiesNote (b)
    
    Note (a) & (b)
    
    TotalAs of January 1, 2007
    
    
    3,137
    
    
    
    3,185
    
    
    
    6,322Additions during the year
    
    
    
    
    
    
    
    
    
    
    Payments during the year
    
    
    (605
    )
    
    
    (329
    )
    
    
    (934
    )As of December 31, 2007
    
    
    2,532
    
    
    
    2,856
    
    
    
    5,388Analysis of total other obligations:- current portion
    
    
    525
    
    
    
    2,856
    
    
    
    3,381- non-current portion
    
    
    2,007
    
    
    
    
    
    
    
    2,0072,532
    
    
    
    2,856
    
    
    
    5,388As of January 1, 2008
    
    
    2,532
    
    
    
    2,856
    
    
    
    5,388Additions during the year
    
    
    
    
    
    
    
    
    
    
    Payments during the year
    
    
    (423
    )
    
    
    (354
    )
    
    
    (777
    )As of December 31, 2008
    
    
    2,109
    
    
    
    2,502
    
    
    
    4,611Analysis of total other obligations:- current portion
    
    
    510
    
    
    
    2,502
    
    
    
    3,012- non-current portion
    
    
    1,599
    
    
    
    
    
    
    
    1,5992,109
    
    
    
    2,502
    
    
    
    4,611
 
 (a)
    
    Certain staff quarters, prior to 1998, have been sold to certain of the Groups
employees at preferential prices, subject to a number of eligibility requirements. In 1998,
the State Council issued a circular which stipulated that the sale of quarters to employees
at preferential prices should be terminated. In 2000, the State Council issued a further
circular stating that cash subsidies should be made to certain eligible employees following
the withdrawal of the allocation of staff quarters. However, the specific timetable and
procedures for the implementation of these policies were to be determined by individual
provincial or municipal governments based on the particular situation of the provinces or
municipality.Based on the relevant detailed local government regulations promulgated, certain entities
within the Group have adopted cash housing subsidy plans. In accordance with these plans,
for those eligible employees who had not been allocated with quarters or who had not been
allocated with quarters up to the prescribed standards before the
discounted sales of quarters were terminated, the Group is required to pay them one-off cash housing subsidies
based on their years of service, positions and other criteria. Based on the available
information, the Group estimated the required provision for these cash housing subsidies
amounting to RMB4,142 million, which was charged to the statement of income for the year
ended December 31, 2000 (the year in which the Council circular in respect of cash subsidies
was issued).
 F-78




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##### Table of Contents



(b)
    
    Pursuant to the reorganization undertaken on June 30, 2004 between China Netcom, China
Netcom (Holding) Company Limited and Netcom Group and the acquisition of the principal
telecommunications operations, assets and liabilities in the four Northern
provinces/autonomous region, namely Shanxi province, Neimenggu autonomous region, Jilin
province and Heilongjiang province from Netcom Group (the Acquisition of New Horizon), if
the actual payments required for these subsidies and early retirement benefits differ from
the amount provided as of June 30, 2004 and June 30, 2005,
Netcom Group would bear any
additional payments required or would be paid the difference if the actual payments are lower
than the amount provided. Upon the completion of Parent Merger, Unicom Group has assumed all
the rights and obligations of Netcom Group.
 23.
    
    PAYABLES AND ACCRUED LIABILITIES
 2007(As restated)
    
    2008Payables to contractors and equipment suppliers
    
    
    32,700
    
    
    
    52,389Payables to telecommunications product suppliers
    
    
    2,949
    
    
    
    1,491Customer/contractor deposits
    
    
    2,826
    
    
    
    2,082Repair and maintenance expense payables
    
    
    1,774
    
    
    
    1,511Salary and welfare payables
    
    
    1,311
    
    
    
    949Interest payable
    
    
    468
    
    
    
    263Amounts due to services providers/content
providers
    
    
    1,256
    
    
    
    961Accrued expenses
    
    
    3,534
    
    
    
    3,064Others
    
    
    2,494
    
    
    
    2,97749,312
    
    
    
    65,687
 The aging analysis of payables and accrued liabilities is as follows:
 2007(As restated)
    
    2008Less than six months
    
    
    36,502
    
    
    
    51,975Six months to one year
    
    
    6,754
    
    
    
    7,052More than one year
    
    
    6,056
    
    
    
    6,66049,312
    
    
    
    65,687
 F-79




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24.
    
    SHORT-TERM COMMERCIAL PAPER
 CNC China issued unsecured commercial paper in the PRC
capital market in two lots of RMB10 billion each with repayment periods
of 365 days and 270 days on April 30, 2007 and September 18, 2007 respectively. The effective interest rates are 3.34% and 3.93% per annum respectively. The
aggregated net cash proceeds raised in these exercises was RMB20 billion. These commercial papers
were fully repaid on May 9, 2008 and June 16, 2008, respectively.CNC China issued RMB10 billion unsecured commercial paper with repayment periods of 365 days on
October 6, 2008 in the PRC capital market. The effective interest rate is 4.47% per annum. The
net cash proceeds raised in the PRC capital market were RMB10 billion.
 25.
    
    SHORT-TERM BANK LOANS
 2007Interest rates and final maturity
    
    (As restated)
    
    2008RMB denominated 
bank loans
    
    Fixed interest rates ranging
from 4.54% to 6.80% (2007: 4.86%
to 6.72%) per annum with
maturity through 2009 (2007:
maturity through 2008)- unsecured
    
    
    
    
    11,850
    
    
    
    10,78011,850
    
    
    
    10,780
 The carrying values of short-term bank loans approximate their fair values as of the balance
sheet date.
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26.
    
    REVENUEThe tariffs for the services provided by the Group are subject to regulations by various
government authorities, including the NDRC, the MIIT and the provincial price regulatory
authorities.Revenue from continuing operations is presented net of business tax and government surcharges.
Relevant business tax and government surcharges amounted to approximately RMB4,164 million for
the year ended December 31, 2008 (2007: approximately RMB4,191 million).The major components of revenue for continuing operations are as follows:
 2007(As restated)
    
    2008GSM business- Usage and monthly fees
    
    
    42,077
    
    
    
    40,464- Value-added services revenue
    
    
    13,528
    
    
    
    16,263- Interconnection fee
    
    
    5,851
    
    
    
    6,858- Other service revenue
    
    
    1,091
    
    
    
    1,119Total GSM service revenue
    
    
    62,547
    
    
    
    64,704Fixed-line business- Usage and monthly fees
    
    
    44,227
    
    
    
    37,324- Broadband services revenue
    
    
    14,273
    
    
    
    18,114- Interconnection fees
    
    
    7,911
    
    
    
    7,500- Value-added services revenue
    
    
    6,758
    
    
    
    6,591- Leased line income
    
    
    3,741
    
    
    
    4,597- Information communications technology
services revenue
    
    
    3,986
    
    
    
    3,124- Other Internet-related services and
managed data services revenue
    
    
    1,835
    
    
    
    1,673- Upfront installation fees
    
    
    1,283
    
    
    
    1,181- Upfront connection fees
    
    
    1,517
    
    
    
    886- Advertising and media services revenue
    
    
    380
    
    
    
    697- Other service revenue
    
    
    1,289
    
    
    
    861Total Fixed-line service revenue
    
    
    87,200
    
    
    
    82,548Sales of telecommunications products
    
    
    940
    
    
    
    1,654Total revenue from external customers
    
    
    150,687
    
    
    
    148,906
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27.
    
    OTHER INCOME  NET
 2007Note
    
    (As restated)
    
    2008Continuing operations:Tax refund on reinvestment in subsidiaries
    
    
    (a
    )
    
    
    4,001
    
    
    
    Gain on the non-monetary assets exchange
    
    
    (b
    )
    
    
    386
    
    
    
    1,305Others
    
    
    
    
    
    
    603
    
    
    
    6894,990
    
    
    
    1,994
 
 Note (a):
    
    During 2007, the Company and China Netcom reinvested their undistributed profits
into the subsidiaries and were granted a refund of a portion of the taxes previously paid
by these subsidiaries as permitted under the tax law effective until December 31, 2007.
This tax refund on reinvestment in subsidiaries was recorded as other income.Note (b):
    
    Please refer to Note (b)(iii) to the consolidated statement of cash flows for
details. 28. NETWORKS, OPERATIONS AND SUPPORT EXPENSES
 2007(As restated)
    
    2008Continuing operations:Repair and maintenance
    
    
    5,466
    
    
    
    5,431Power and water charges
    
    
    4,952
    
    
    
    5,451Operating leases
    
    
    3,453
    
    
    
    3,613Consumables
    
    
    1,524
    
    
    
    1,384Others
    
    
    627
    
    
    
    698Total networks, operations and support expenses
    
    
    16,022
    
    
    
    16,577
 29.
    
    OTHER OPERATING EXPENSES
 2007(As restated)
    
    2008Continuing operations:Provision for doubtful debts
    
    
    2,200
    
    
    
    2,900Cost of telecommunications products sold
    
    
    1,233
    
    
    
    2,067Cost of hardware sold in relation to information
communications technology services
    
    
    3,491
    
    
    
    2,461Commission expenses
    
    
    9,784
    
    
    
    10,104Advertising and promotion expenses
    
    
    2,601
    
    
    
    2,669Customer installation cost
    
    
    2,036
    
    
    
    1,961Customer acquisition and retention cost
    
    
    3,068
    
    
    
    2,650Auditors remuneration
    
    
    123
    
    
    
    107Property management charge
    
    
    923
    
    
    
    1,090Office and administrative expenses
    
    
    2,728
    
    
    
    2,440Transportation expense
    
    
    1,492
    
    
    
    1,714Miscellaneous taxes and fees
    
    
    504
    
    
    
    566Others
    
    
    2,593
    
    
    
    2,853Total other operating expenses
    
    
    32,776
    
    
    
    33,582
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30.
    
    FINANCE COSTS
 2007Note
    
    (As restated)
    
    2008Continuing operations:Finance costs:- Interest on bank loans, corporate bonds and
commercial paper repayable within 5 years
    
    
    
    
    
    
    2,992
    
    
    
    2,367- Interest on bank loans, repayable over 5 years
    
    
    
    
    
    
    198
    
    
    
    144- Interest expense on convertible bonds
    
    
    
    
    
    
    242
    
    
    
    - Deferred consideration related to Acquisition
of New Horizon
    
    
    
    
    
    
    375
    
    
    
    224- Less: Amounts capitalized in
construction-in-progress
    
    
    6
    
    
    
    (439
    )
    
    
    (260
    )Total interest expense
    
    
    
    
    
    
    3,368
    
    
    
    2,475- Exchange gain, net
    
    
    
    
    
    
    (457
    )
    
    
    (270
    )- Others
    
    
    
    
    
    
    320
    
    
    
    206Total finance costs
    
    
    
    
    
    
    3,231
    
    
    
    2,411
 31.
    
    EMPLOYEE BENEFIT EXPENSES
 2007Note
    
    (As restated)
    
    2008Continuing operations:Employee benefit expenses:- Salaries and wages
    
    
    
    
    
    
    14,087
    
    
    
    15,442- Contributions to defined
contribution pension schemes
    
    
    
    
    
    
    1,854
    
    
    
    2,110- Contributions to supplementary
defined contribution pension schemes
    
    
    
    
    
    
    56
    
    
    
    51- Contributions to housing fund
    
    
    
    
    
    
    913
    
    
    
    1,049- Monetary housing benefits
    
    
    
    
    
    
    27
    
    
    
    - Other housing benefits
    
    
    
    
    
    
    433
    
    
    
    166- Share-based compensation
    
    
    32
    
    
    
    170
    
    
    
    84Total
    
    
    
    
    
    
    17,540
    
    
    
    18,902
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32.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES
 32.1
    
    Fixed award pre-global offering share option scheme (the Pre-Global Offering Share
Option Scheme)Pursuant to the resolution passed by the Board of Directors in June 2000, the Company
adopted the Pre-Global Offering Share Option Scheme on June 1, 2000 for the granting of
share options to qualified employees on the following terms:
 (i)
    
    the exercise price is equivalent to the share issue price of the Global
Offering of HKD15.42 per share (excluding the brokerage fee and SEHK transaction levy);
and(ii)
    
    the share options are vested and exercisable after 2 years from the grant date
and expire 10 years from the date of grant.
 No further options can be granted under the Pre-Global Offering Option Scheme.The Pre-Global Offering Option Scheme had been amended in conjunction with the amended terms
of the share option scheme (Note 32.2) on May 13, 2002 and May 11, 2007, respectively. Apart
from the above two terms, the principal terms are substantially the same as the amended
Share Option Scheme in all material aspects.32.2
    
    Share option scheme (the Share Option Scheme)On June 1, 2000, the Company adopted the Share Option Scheme pursuant to which the directors
of the Company may, at their discretion, invite employees, including executive directors, of
the Company or any of its subsidiaries, to take up share options to subscribe for shares up
to a maximum aggregate number of shares (including those that could be subscribed for under
the Pre-Global Offering Share Option Scheme as described above) not exceeding 10% of the
total issued share capital of the Company. Pursuant to the Share Option Scheme, the nominal
consideration payable by a participant for the grant of share options will be HKD1.00. The
exercise price payable by a participant upon the exercise of an option will be determined by
the directors at their discretion at the date of grant, except that such price may not be
set below a minimum price which is the higher of:
 (i)
    
    the nominal value of the share; and(ii)
    
    80% of the average of the closing prices of shares on the SEHK on the five
trading days immediately preceding the date of grant of the option on which there were
dealings in the shares on the SEHK.
 The period during which an option may be exercised will be determined by the directors at
their discretion, except that no option may be exercised later than 10 years from June 22,
2000.
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(i)
    
    share option may be granted to employees including executive directors of
the Group or any of the non-executive directors;(ii)
    
    the option period commences on a day after the date on which an option is
offered but not later than 10 years from the offer date; and(iii)
    
    minimum subscription price shall not be less than the higher of:
 
    
    the nominal value of the shares;
    
    the closing price of the shares of the stock exchange as stated in the stock
exchanges quotation sheets on the offer date in respect of the share options;
and
    
    the average closing price of the shares on the stock exchanges quotation
sheets for the five trading days immediately preceding the offer date.
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32.3
    
    Special Purpose Unicom Share Option Scheme (the Special Purpose Share Option Scheme)
 Prior to the 2008 Business Combination, China Netcom granted share options to its directors
and employees (including employees of its subsidiaries) in years 2004 and 2005 pursuant to a
shareholders resolution passed on September 30, 2004.Pursuant to China Netcoms share option plan, China Netcom granted 158,640,000 options with
an exercise price of HKD8.40 each to certain of its directors and employees, immediately
prior to the closing of its global offering on October 22, 2004, to subscribe for its
ordinary shares at the initial public offering price under the Hong Kong public offering
(First Grant), excluding brokerage and trading fees, and transaction and investor
compensation levies. The First Grant had an exercise period of six years from the date of
grant. The grantees could exercise 40 percent of the options granted from May 17, 2006, a
further 20 percent of the options granted from May 17, 2007, a further 20 percent of the
options granted from May 17, 2008 and a further 20 percent of the options granted from May
17, 2009. All unexercised share options were to expire on November 16, 2010.On December 6, 2005, the board of directors of China Netcom approved the grant of 79,320,000
shares of share options with an exercise price of HKD12.45 to certain management personnel
and other professional personnel designated by the Compensation Committee of the newly
acquired four Northern provinces/autonomous region (Second Grant). The grantees could
exercise 40 percent of the options granted from December 6, 2007, a further 20 percent of
the options granted from December 6, 2008, a further 20 percent of the options granted from
December 6, 2009 and a further 20 percent of the options granted from December 6, 2010. All
unexercised share options were to expire on December 5, 2011.The grant date fair value of the share options granted in the First Grant and the Second
Grant was determined by the Black-Scholes model. The weighted average fair value of the First
Grant and the Second Grant on grant date was determined as HKD1.22 per share (RMB1.28 per
share) and HKD1.28 per share (RMB1.34 per share), respectively.Modifications to certain clauses of the share options schemes of China Netcom were approved
on May 16, 2006, pursuant to a resolution of the extraordinary general meeting of China
Netcom. The modifications were mainly related to eligibility of the participants, number of
options and exercise vesting schedules, rights upon cessation of employment, death and loss
of capacity, performance targets, and cancellation of options. The modifications did not
have any significant impact on the financial statements.
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Pursuant to the ordinary resolution passed by the shareholders on September 16, 2008, the
Company adopted the Special Purpose Share Option Scheme in connection with the merger of the
Company and China Netcom by way of a scheme of arrangement of China Netcom under Section 166
of the Companies Ordinance for the granting of options to holders of China Netcom options
outstanding at October 14, 2008 (Eligible Participants). Pursuant to this scheme, no
fractional options can be granted and the maximum number of shares which may be issued upon
the exercise of all options granted under this scheme and any other share options schemes of
the Company must not in aggregate exceed 10% of the issued share capital of the Company as
of the date of approval of this scheme.The number of options and exercise price of options granted under the Special Purpose Share
Option Scheme are as follows:
 (i)
    
    The exercise price of options under this scheme is equal to (a) the exercise
price of an outstanding China Netcom option held by the Eligible Participants, divided
by (b) the share exchange ratio 1.508.(ii)
    
    The total number of options granted by the Company to all Eligible Participants
under this scheme shall be equal to the product of (a) the share exchange ratio and (b)
the number of China Netcom options outstanding as of October 14, 2008.
 The above formula ensures that the value of options which granted under this scheme received
by a holder of China Netcom options is equivalent to the see-through price of that
holders outstanding China Netcom options.The period during which an option may be exercised will be determined by the directors at
their discretion, except that no option may be exercised later than September 30, 2014.No further options can be granted under the Special Purpose Share Option Scheme.
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Details of share options granted by China Netcom, immediately prior to the merger between
the Company and China Netcom (i.e. October 14, 2008) and the share options outstanding,
immediately prior to the merger between the Company and China Netcom (i.e. October 14,
2008) are as follows:
 For the period from January 1,2007
    
    
    2008 to October 14, 2008Average
    
    
    
    
    
    
    Averageexercise price
    
    
    Number of
    
    
    exercise price
    
    
    Number ofin HKD per
    
    
    share options
    
    
    in HKD per
    
    
    share optionsshare
    
    
    involved
    
    
    share
    
    
    involvedBalance, beginning of
year/period
    
    
    10.21
    
    
    
    176,646,900
    
    
    
    10.32
    
    
    
    150,844,560Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited/cancelled
    
    
    8.40
    
    
    
    (2,117,440
    )
    
    
    9.55
    
    
    
    (139,620
    )Cancelled in exchange for
the Companys options
    
    
    
    
    
    
    
    
    
    
    10.30
    
    
    
    (125,836,140
    )Exercised
    
    
    9.67
    
    
    
    (23,684,900
    )
    
    
    10.45
    
    
    
    (24,868,800
    )Balance, end of year/period
    
    
    10.32
    
    
    
    150,844,560
    
    
    
    
    
    
    
    Representing:First Grant
    
    
    
    
    
    
    79,263,860
    
    
    
    
    
    
    
    Second Grant
    
    
    
    
    
    
    71,580,700
    
    
    
    
    
    
    
    Balance, end of year/period
    
    
    
    
    
    
    150,844,560
    
    
    
    
    
    
    
    Exercisable at end of
year/period
    
    
    10.59
    
    
    
    45,218,610
    
    
    
    
    
    
    
    
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Details of share options of China Netcom exercised during 2007 and the period from January
1, 2008 to October 14, 2008 are as follows:For the year ended December 31, 2007:
 Weighted averageclosing price pershare at respectivedays immediatelybefore date ofExercise price
    
    exercise of options
    
    Proceeds received
    
    Number ofGrant
    
    HKD
    
    HKD
    
    HKD
    
    shares involvedFirst Grant
    
    
    8.40
    
    
    
    22.23
    
    
    
    136,343,760
    
    
    
    16,231,400Second Grant
    
    
    12.45
    
    
    
    23.92
    
    
    
    92,796,075
    
    
    
    7,453,500229,139,835
    
    
    
    23,684,900
 For the period from January 1, 2008 to October 14, 2008:
 Weighted averageclosing price pershare at respectivedays immediatelybefore date ofExercise price
    
    exercise of options
    
    Proceeds received
    
    Number ofGrant
    
    HKD
    
    HKD
    
    HKD
    
    shares involvedFirst Grant
    
    
    8.40
    
    
    
    26.17
    
    
    
    103,316,640
    
    
    
    12,299,600Second Grant
    
    
    12.45
    
    
    
    25.46
    
    
    
    156,486,540
    
    
    
    12,569,200259,803,180
    
    
    
    24,868,800
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The Group accounted for the exchange of options based on the estimated fair value of share
options at the modification date by using the Black-Scholes valuation model. Because the
Black-Scholes valuation model requires the input of subjective assumptions, including the
volatility of share price, changes in subjective input assumptions can materially affect the fair
value estimate. Accordingly, the weighted average fair values of 2004 and 2005 Special Purpose
Share Options granted under the Special Purpose Share Option Scheme was HKD6.01 and HKD4.00,
respectively. The significant assumptions used and the numbers of options granted are as follows:
 2004 Special Purpose
    
    2005 Special PurposeShare Option
    
    Share OptionStock price
    
    HKD11.60
    
    
    HKD11.60Exercise price
    
    HKD5.57
    
    
    HKD8.26Volatility
    
    
    55
    %
    
    
    49
    %Dividend yield
    
    
    2
    %
    
    
    2
    %Risk-free rate
    
    
    0.24-1.06
    %
    
    
    0.28-1.54
    %Expected life
    
    0.30-1.09 years
    
    
    0.32-2.32 yearsWeighted average option value
    
    HKD6.01
    
    
    HKD4.00Number of options granted
    
    
    100,831,432
    
    
    
    88,929,468
 The volatility measured at the standard deviation of expected share price returns was based on
statistical analysis of daily share prices over the last 2 to 3 years. Expected dividends were
based on historical dividends. Risk-free rate was by reference to the yield of Hong Kong Exchange
Fund Notes with a term similar to the expected option life.The total incremental fair value of the exchanged options was determined to be RMB21 million
which was measured by reference to the incremental fair value of the options granted under the
Special Purpose Share Option Scheme as of October 15, 2008 (the modification date) over the fair
value of China Netcom options as of October 15, 2008. For the year ended December 31, 2008,
share-based compensation expense of approximately RMB9 million was recorded by the Group as a
result of this modification.Movements in the number of share options outstanding and their related weighted average
exercise prices are as follows:
 2007
    
    
    2008Average exercise
    
    
    Number of
    
    
    Average exercise
    
    
    Number ofprice
    
    
    share options
    
    
    price
    
    
    share optionsin HKD per share
    
    
    involved
    
    
    in HKD per share
    
    
    involvedBalance, beginning of year
    
    
    6.95
    
    
    
    314,256,000
    
    
    
    7.12
    
    
    
    257,279,600Granted
    
    
    
    
    
    
    
    
    
    
    6.83
    
    
    
    189,760,900Forfeited
    
    
    8.43
    
    
    
    (3,420,800
    )
    
    
    6.37
    
    
    
    (2,720,334
    )Exercised
    
    
    6.03
    
    
    
    (53,555,600
    )
    
    
    7.62
    
    
    
    (31,246,000
    )Balance, end of year
    
    
    7.12
    
    
    
    257,279,600
    
    
    
    6.95
    
    
    
    413,074,166Exercisable at end of year
    
    
    8.48
    
    
    
    92,713,600
    
    
    
    7.14
    
    
    
    245,359,027
 Employee share options exercised for the year ended 31 December 2008 resulted in 31,246,000
shares being issued (2007: 53,555,600 shares), with exercise proceeds of approximately RMB216
million (2007: approximately RMB313 million).
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Number of
    
    Number ofThe price per
    
    share options
    
    share optionsshare to be
    
    outstanding
    
    outstandingpaid on
    
    as of
    
    as ofexercise of
    
    December 31,
    
    December 31,Date of options grant
    
    Vesting period
    
    Exercisable period
    
    options
    
    2007
    
    2008Share options granted under the Pre-Global Offering Share Option Scheme:June 22, 2000
    
    June 22, 2000 to June 21, 2002
    
    June 22, 2002 to June 21, 2010
    
    HKD15.42
    
    
    21,126,800
    
    
    
    16,977,600Share options granted under the Share Option Scheme:June 30, 2001
    
    June 30, 2001
    
    June 30, 2001 to June 22, 2010
    
    HKD15.42
    
    
    5,608,000
    
    
    
    4,350,000July 10, 2002 (Note i)
    
    July 10, 2002 to July 10, 2005
    
    July 10, 2003 to July 9, 2008
    
    HKD6.18
    
    
    3,308,000
    
    
    
    May 21, 2003
    
    May 21, 2003 to May 21, 2006
    
    May 21, 2004 to May 20, 2009
    
    HKD4.30
    
    
    11,092,800
    
    
    
    8,956,000July 20, 2004
    
    July 20, 2004 to July 20, 2007
    
    July 20, 2005 to July 19, 2010
    
    HKD5.92
    
    
    50,924,000
    
    
    
    41,024,000December 21, 2004
    
    December 21, 2004 to December 21, 2007
    
    December 21, 2005 to December 20, 2010
    
    HKD6.20
    
    
    654,000
    
    
    
    654,000February 15, 2006
    
    February 15, 2006 to February 15, 2009
    
    February 15, 2008 to February 14, 2012
    
    HKD6.35
    
    
    164,566,000
    
    
    
    151,556,000Share options granted under the Special Purpose Share Option Scheme:October 15, 2008
(2004 Special
Purpose Share Options)
    
    October 15, 2008 to May 17, 2009
    
    October 15, 2008 to November 16, 2010
    
    HKD5.57
    
    
    
    
    
    
    100,627,098October 15, 2008
(2005 Special
Purpose Share Options)
    
    October 15, 2008 to December 6, 2010
    
    October 15, 2008 to December 5, 2011
    
    HKD8.26
    
    
    
    
    
    
    88,929,468257,279,600
    
    
    
    413,074,166
 The options outstanding as of December 31, 2008 had a weighted average remaining contractual
life of 2.47 years (2007: 3.47 years).
 Note i:
    
    As all outstanding options granted on July 10, 2002 have been exercised, therefore
no options are expired under this grant.
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Details of share options exercised during 2007 and 2008 are as follows:For the year ended December 31, 2007:
 Weighted averageclosing price pershare at respectivedays immediatelybefore date ofexercise of options
    
    Proceeds received
    
    Number ofGrant
    
    Exercise price HKD
    
    HKD
    
    HKD
    
    shares involvedJune 22, 2000
    
    
    15.42
    
    
    
    17.56
    
    
    
    34,657,992
    
    
    
    2,247,600June 30, 2001
    
    
    15.42
    
    
    
    17.62
    
    
    
    8,450,160
    
    
    
    548,000July 10, 2002
    
    
    6.18
    
    
    
    12.96
    
    
    
    49,793,496
    
    
    
    8,057,200May 21, 2003
    
    
    4.30
    
    
    
    12.95
    
    
    
    60,057,240
    
    
    
    13,966,800July 20, 2004
    
    
    5.92
    
    
    
    13.77
    
    
    
    170,117,120
    
    
    
    28,736,000323,076,008
    
    
    
    53,555,600
 For the year ended December 31, 2008:
 Weighted averageclosing price pershare at respectivedays immediatelybefore date ofexercise of options
    
    Proceeds received
    
    Number ofGrant
    
    Exercise price HKD
    
    HKD
    
    HKD
    
    shares involvedJune 22, 2000
    
    
    15.42
    
    
    
    18.73
    
    
    
    63,980,664
    
    
    
    4,149,200June 30, 2001
    
    
    15.42
    
    
    
    18.38
    
    
    
    18,781,560
    
    
    
    1,218,000July 10, 2002
    
    
    6.18
    
    
    
    15.88
    
    
    
    20,443,440
    
    
    
    3,308,000May 21, 2003
    
    
    4.30
    
    
    
    16.90
    
    
    
    8,947,440
    
    
    
    2,080,800July 20, 2004
    
    
    5.92
    
    
    
    17.81
    
    
    
    58,240,960
    
    
    
    9,838,000February 15, 2006
    
    
    6.35
    
    
    
    17.62
    
    
    
    67,640,200
    
    
    
    10,652,000238,034,264
    
    
    
    31,246,000
 For the year ended December 31, 2008, employee share-based compensation expense recorded for
continuing operations amounted to approximately RMB84 million (2007: approximately RMB170
million).
 F-92




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##### Table of Contents



33.
    
    DISPOSAL GROUP AND DISCONTINUED OPERATIONSDiscontinued operationsOn June 2, 2008 and on June 27, 2008, the Company, CUCL and China Telecom entered into the
Framework Agreement and the Disposal Agreement, respectively, to sell the CDMA business to China
Telecom. The disposal was completed on October 1, 2008 (Note 1). The gain on disposal, net of
corresponding income tax of approximately RMB9.0 billion, amounted to approximately RMB26.1
billion.The net assets of CDMA business as of the effective date of the disposal of the CDMA
Business were as listed below:
 As ofNote
    
    
    October 1, 2008Net assets disposed of:Cash and cash equivalents
    
    
    (a)
    
    
    
    4,612Property, plant and equipment
    
    
    
    
    
    
    2,997Goodwill
    
    
    
    
    
    
    373Deferred tax assets
    
    
    
    
    
    
    6Other assets
    
    
    
    
    
    
    3,958Inventories
    
    
    
    
    
    
    525Accounts receivable, net
    
    
    
    
    
    
    690Prepayments and other current assets
    
    
    
    
    
    
    808Deferred revenue
    
    
    
    
    
    
    (444
    )Payable and accrued liabilities
    
    
    
    
    
    
    (1,144
    )Advances from customers
    
    
    
    
    
    
    (4,428
    )Minority interest
    
    
    
    
    
    
    (5
    )7,948Fair value of future services agreed in Disposal Agreement
    
    
    37.2(b)
    
    
    
    517Transaction costs and taxations
    
    
    
    
    
    
    184Income tax expense arising from the disposal of the CDMA
business
    
    
    
    
    
    
    9,016Gain on the disposal of the CDMA business recognized in
statement of income
    
    
    
    
    
    
    26,135Cash consideration on the disposal of the CDMA business
    
    
    
    
    
    
    43,800Less: Cash consideration receivable from the disposal of
the CDMA business
    
    
    
    
    
    
    (13,140
    )Cash and cash equivalents transferred
    
    
    
    
    
    
    (1,148
    )Net cash inflow
    
    
    
    
    
    
    29,512
 
 Note (a):
    
    The balance represented cash and cash equivalents of approximately RMB1,148 million
transferred and RMB3,464 million to be transferred to China Telecom in accordance with the Disposal
Agreement. For details, please refer to Note 37.2(b). F-93




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##### Table of Contents



On January 15, 2007, CNC China, entered into an assets transfer agreement with Netcom Group.
Pursuant to the agreement, CNC China agreed to dispose of its assets and liabilities in relation
to its telecommunications operations in Guangdong and Shanghai Branches. The disposal was
completed on February 28, 2007. The gain on disposal, net of corresponding income tax of
approximately RMB301 million, amounted to approximately RMB626 million.The net assets of Guangdong and Shanghai Branches as of the completion date are as listed below:
 As ofFebruary 28, 2007Net assets disposed of:Cash and cash equivalents
    
    
    23Accounts receivable and other current assets
    
    
    416Property, plant and equipment and other non-current assets
    
    
    7,630Current portion of deferred revenue
    
    
    (183
    )Accounts payable
    
    
    (2,046
    )Long-term bank loans
    
    
    (3,000
    )Other liabilities
    
    
    (267
    )2,573Income tax expense arising from the disposal of Guangdong
and Shanghai Branches
    
    
    301Gain on the disposal of Guangdong and Shanghai Branches
recognized in statement of income
    
    
    626Cash consideration on the disposal of Guangdong and
Shanghai Branches
    
    
    3,500Less: cash and cash equivalents included in disposed
Guangdong and Shanghai Branches
    
    
    (23
    )Net cash inflow
    
    
    3,477
 F-94




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##### Table of Contents



The results and cash flows of the CDMA business and the Fixed-line business-Guangdong and
Shanghai Branches for the years ended December 31, 2007 and 2008, respectively, are presented as
discontinued operations as follows:
 Fixed-line business -Guangdong and ShanghaiCDMA Business
    
    
    Branches
    
    
    TotalFor the
    
    
    For the periodperiod from
    
    
    fromFor the year
    
    
    January 1,
    
    
    January 1,
    
    
    For the
    
    
    For the
    
    
    For theended
    
    
    2008 to
    
    
    2007 to
    
    
    year ended
    
    
    year ended
    
    
    year endedDecember 31,
    
    
    September
    
    
    February 28,
    
    
    December
    
    
    December
    
    
    December2007
    
    
    30, 2008
    
    
    2007
    
    

31, 2008
    
    
    31, 2007
    
    
    31, 2008Revenue
    
    
    31,197
    
    
    
    22,330
    
    
    
    615
    
    
    
    
    
    
    
    31,812
    
    
    
    22,330Expenses
    
    
    (30,042
    )
    
    
    (20,423
    )
    
    
    (618
    )
    
    
    
    
    
    
    (30,660
    )
    
    
    (20,423
    )Income/(loss)
before income tax
from discontinued
operations
    
    
    1,155
    
    
    
    1,907
    
    
    
    (3
    )
    
    
    
    
    
    
    1,152
    
    
    
    1,907Income tax expenses
    
    
    (499
    )
    
    
    (469
    )
    
    
    1
    
    
    
    
    
    
    
    (498
    )
    
    
    (469
    )Income/(loss) for
the year/period of
discontinued
operations
    
    
    656
    
    
    
    1,438
    
    
    
    (2
    )
    
    
    
    
    
    
    654
    
    
    
    1,438Gain on disposal of
discontinued
operations before
income tax
    
    
    
    
    
    
    35,151
    
    
    
    927
    
    
    
    
    
    
    
    927
    
    
    
    35,151Income tax expenses
    
    
    
    
    
    
    (9,016
    )
    
    
    (301
    )
    
    
    
    
    
    
    (301
    )
    
    
    (9,016
    )Gain on disposal of
discontinued
operations after
income tax
    
    
    
    
    
    
    26,135
    
    
    
    626
    
    
    
    
    
    
    
    626
    
    
    
    26,135Income for the
year/period from
discontinued
operations
    
    
    656
    
    
    
    27,573
    
    
    
    624
    
    
    
    
    
    
    
    1,280
    
    
    
    27,573
 Fixed-line business-Guangdong and ShanghaiCDMA Business
    
    
    Branches
    
    
    TotalFor the
    
    
    For the periodperiod from
    
    
    fromFor the year
    
    
    January 1,
    
    
    January 1,
    
    
    For the
    
    
    For the
    
    
    For theended
    
    
    2008 to
    
    
    2007 to
    
    
    year ended
    
    
    year ended
    
    
    year endedDecember 31,
    
    
    September
    
    
    February 28,
    
    
    December
    
    
    December
    
    
    December2007
    
    
    30, 2008
    
    
    2007
    
    
    31, 2008
    
    
    31, 2007
    
    
    31, 2008Net cash inflow
from operating
activities
    
    
    837
    
    
    
    656
    
    
    
    388
    
    
    
    
    
    
    
    1,225
    
    
    
    656Net cash outflow
from investing
activities
    
    
    (25
    )
    
    
    (23
    )
    
    
    (374
    )
    
    
    
    
    
    
    (399
    )
    
    
    (23
    )Cash inflow from
disposal of
discontinued
operations
    
    
    
    
    
    
    29,512
    
    
    
    3,477
    
    
    
    
    
    
    
    3,477
    
    
    
    29,512Net cash
(outflow)/inflow
from investing
activities
    
    
    (25
    )
    
    
    29,489
    
    
    
    3,103
    
    
    
    
    
    
    
    3,078
    
    
    
    29,489Net cash inflow
from financing
activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash inflow
from discontinued
operations
    
    
    812
    
    
    
    30,145
    
    
    
    3,491
    
    
    
    
    
    
    
    4,303
    
    
    
    30,145
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34.
    
    DIVIDENDSAt the annual general meeting held on May 16, 2008, the shareholders of the Company approved the
payment of a final dividend of RMB0.20 per ordinary share for the year ended December 31, 2007
totaling approximately RMB2,732 million which has been reflected as a reduction of retained
profits for the year ended December 31, 2008. As of December 31, 2008, such dividends have been
paid by the Company, except for dividends payable of approximately RMB149 million due to Unicom
BVI.At a meeting held on March 31, 2009, the Board of Directors of the Company proposed the payment
of a final dividend of RMB0.20 per ordinary share to the shareholders for the year ended
December 31, 2008 totaling approximately RMB4,754 million. This proposed dividend has not been
reflected as a dividend payable in the financial statements as of December 31, 2008, but will be
reflected as an appropriation of retained profits in the financial statements for the year
ending December 31, 2009.
 2007(As restated)
    
    2008Proposed final dividend:RMB0.20 (2007: RMB0.20) per ordinary share by the
Company
    
    
    2,727
    
    
    
    4,754HKD nil (2007: HKD0.592) per ordinary share by China
Netcom (Note a)
    
    
    3,700
    
    
    
    6,427
    
    
    
    4,754Dividend paid:By the Company
    
    
    2,285
    
    
    
    2,732By China Netcom (Note a)
    
    
    3,600
    
    
    
    3,4995,885
    
    
    
    6,231
 
 Note a :
    
    Since the 2008 Business Combination is accounted for as a business combination of
entities under common control, accordingly, the proposed final dividend and dividend paid
are restated to include China Netcom as if it had always been part of the Group. F-96




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##### Table of Contents



35.
    
    EARNINGS PER SHAREEarnings per share and ADS:Basic earnings per share for the years ended December 31, 2007 and 2008 were computed by
dividing the income attributable to equity holders by the weighted average number of ordinary
shares outstanding during the years, as adjusted by the number of ordinary shares in issue had
the merger with China Netcom been completed on January 1, 2007.Diluted earnings per share for the years ended December 31, 2007 and 2008 were computed by
dividing the income attributable to equity holders by the weighted average number of ordinary
shares outstanding during the years, as adjusted by the number of ordinary shares in issue had
the merger with China Netcom been completed on January 1, 2007, after adjusting for the effects
of the dilutive potential ordinary shares. All potential ordinary shares arose from (i) share
options granted under the amended Pre-Global Offering Share Option Scheme; (ii) share options
granted under the amended Share Option Scheme; (iii) share options granted under the Special
Purpose Share Option Scheme; and (iv) the Convertible Bonds (for the year ended December 31,
2007 only). The potential ordinary shares which are not dilutive mainly arose from share options
granted under the amended Pre-Global Offering Share Option Scheme and are excluded from the
weighted average number of ordinary shares for the purpose of computation of diluted earnings
per share.The following table sets forth the computation of basic and diluted earnings per share:
 2007(As restated)
    
    2008Numerator (in RMB millions):Income attributable to the equity holders of the Company- Continuing operations
    
    
    20,158
    
    
    
    6,340- Discontinued operations
    
    
    1,279
    
    
    
    27,57221,437
    
    
    
    33,912Denominator (in millions):Weighted average number of ordinary shares outstanding
and shares used in computing basic earnings per share
    
    
    23,075
    
    
    
    23,751Dilutive equivalent shares arising from share options
    
    
    246
    
    
    
    190Shares used in computing diluted earnings per share
    
    
    23,321
    
    
    
    23,941Basic earnings per share (in RMB)- Continuing operations
    
    
    0.87
    
    
    
    0.27- Discontinued operations
    
    
    0.06
    
    
    
    1.160.93
    
    
    
    1.43Diluted earnings per share (in RMB)- Continuing operations
    
    
    0.86
    
    
    
    0.27- Discontinued operations
    
    
    0.06
    
    
    
    1.150.92
    
    
    
    1.42
 Basic and diluted earnings per ADS have been computed by multiplying the earnings per share by
10, which is the number of shares represented by each ADS.
 F-97




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36.
    
    FAIR VALUE OF FINANCIAL INSTRUMENTSFinancial assets of the Group mainly include cash and cash equivalents, short-term bank
deposits, accounts receivable, amounts due from ultimate holding company, related parties and
domestic carriers. Financial liabilities of the Group mainly include payables and accrued
liabilities, short-term bank loans, short-term commercial paper, corporate bonds, long-term bank
loans and amounts due to ultimate holding company, related parties and domestic carriers.Cash and cash equivalents and short-term bank deposits denominated in foreign currencies, as
summarized below, have been translated to RMB at the applicable rates quoted by the Peoples
Bank of China as of December 31, 2007 and 2008.
 2007(As restated)
    
    2008Original
    
    
    
    
    
    RMB
    
    Original
    
    
    
    
    
    RMBcurrency
    
    
    
    
    
    equivalent
    
    currency
    
    
    
    
    
    equivalentmillions
    
    Exchange rate
    
    millions
    
    millions
    
    Exchange rate
    
    millionsCash and cash equivalents:- denominated in HK dollars
    
    
    552
    
    
    
    0.94
    
    
    
    518
    
    
    
    223
    
    
    
    0.88
    
    
    
    197- denominated in US dollars
    
    
    65
    
    
    
    7.30
    
    
    
    471
    
    
    
    134
    
    
    
    6.83
    
    
    
    914- denominated in EURO
    
    
    3
    
    
    
    10.67
    
    
    
    28
    
    
    
    4
    
    
    
    9.66
    
    
    
    43- denominated in Japanese Yen
    
    
    247
    
    
    
    0.06
    
    
    
    16
    
    
    
    50
    
    
    
    0.08
    
    
    
    4- denominated in GBP
    
    
    
    
    
    
    14.58
    
    
    
    4
    
    
    
    2
    
    
    
    9.88
    
    
    
    20Sub-total
    
    
    
    
    
    
    
    
    
    
    1,037
    
    
    
    
    
    
    
    
    
    
    
    1,178Short-term bank deposits:- denominated in HK dollars
    
    
    71
    
    
    
    0.94
    
    
    
    67
    
    
    
    
    
    
    
    0.88
    
    
    
    - denominated in US dollars
    
    
    78
    
    
    
    7.30
    
    
    
    569
    
    
    
    20
    
    
    
    6.83
    
    
    
    137Sub-total
    
    
    
    
    
    
    
    
    
    
    636
    
    
    
    
    
    
    
    
    
    
    
    137Total
    
    
    
    
    
    
    
    
    
    
    1,673
    
    
    
    
    
    
    
    
    
    
    
    1,315
 The Group did not have and does not believe it will have any difficulties in exchanging its
foreign currency cash into RMB at the exchange rates quoted by the Peoples Bank of China. The
carrying amounts of the Groups cash and cash equivalents, short-term bank deposits, other
current financial assets and liabilities approximated their fair values as of December 31, 2007
and 2008 due to the nature or short maturity of those instruments.The carrying amounts of receivables and payables which are all subject to normal trade credit
terms approximated their fair value as of balance sheet date.In connection with the fair value of the Groups non-current portion of long-term bank loans,
please refer to Note 19 (b) for details.
 F-98




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##### Table of Contents



37.
    
    RELATED PARTY TRANSACTIONSUnicom Group and Netcom Group are state-owned enterprises directly controlled by the PRC
government. The PRC government is the Companys ultimate controlling party. State-owned
enterprises and their subsidiaries, in addition to Unicom Group and Netcom Group, directly or
indirectly controlled by the PRC government are also considered to be related parties of the
Group. Neither Unicom Group and Netcom Group nor the PRC government publishes financial
statements available for public use.The PRC government controls a significant portion of the productive assets and entities in the
PRC. The Group provides telecommunications services as part of its retail transactions, thus, is
likely to have extensive transactions with the employees of other state-controlled entities,
including their key management personnel and their close family members. These transactions are
carried out on commercial terms that are consistently applied to all customers.Management considers other state-owned enterprises, including other telecommunications service
operators, equipment vendors, construction vendors, lessors of assets and state-owned banks in
the PRC, have material transactions with the Group in its ordinary course of business. These
transactions are carried out on terms similar to those obtained by other state-owned parties and
have been reflected in the financial statements.The Groups telecommunications networks depend, in large part, on interconnection with the
network and on transmission lines leased from other domestic carriers. Management believes that
meaningful information relating to related party transactions has been adequately disclosed
below.
 F-99




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##### Table of Contents



37.1
    
    Transactions with Unicom Group, Netcom Group and their subsidiaries
 (a)
    
    Significant recurring transactionsThe following is a summary of significant recurring transactions carried out by the
Group with Unicom Group, Netcom Group and their subsidiaries. In the directors
opinion, these transactions were carried out in the ordinary course of business.
 2007Note
    
    (As restated)
    
    2008Transactions with Unicom Group, Netcom Group and
their subsidiaries:Continuing operations:Interconnection revenues
    
    (ii), (iv)
    
    
    723
    
    
    
    808Interconnection charges
    
    (iii), (iv)
    
    
    742
    
    
    
    768Rental income for premises and facilities
    
    
    (i),
    (v)
    
    
    19
    
    
    
    18Revenue for leasing of transmission line capacity
    
    (i), (vi)
    
    
    7
    
    
    
    36Charges for leasing of transmission line capacity
    
    (i), (vii)
    
    
    23
    
    
    
    80Charge for operator-based subscriber value-added
services
    
    (i), (viii)
    
    
    259
    
    
    
    297Charge for customer services
    
    (i), (ix)
    
    
    683
    
    
    
    713Agency fee incurred for subscriber development
services
    
    
    (i),
    (x)
    
    
    92
    
    
    
    150Charges for cellular subscriber value-added service
    
    (i), (xi)
    
    
    37
    
    
    
    153Rental charges for premises, equipment and
facilities
    
    (i), (xii)
    
    
    31
    
    
    
    35Charges for the international gateway services
    
    (i), (xiii)
    
    
    15
    
    
    
    7Purchase of telecom cards
    
    (i), (xiv)
    
    
    618
    
    
    
    549Agency fee incurred for procurement of
telecommunications equipment
    
    (i), (xv)
    
    
    18
    
    
    
    20Charge for engineering design and technical service
    
    (i), (xvi)
    
    
    117
    
    
    
    287Charge for engineering and information
technology-related services
    
    (xvii)
    
    
    1,946
    
    
    
    2,603Common corporate services income
    
    (xviii)
    
    
    121
    
    
    
    140Charges for common corporate services
    
    (xviii)
    
    
    477
    
    
    
    563Rental income from properties
    
    (xix)
    
    
    1
    
    
    
    10Rental charges for premises
    
    (xix)
    
    
    636
    
    
    
    642Property sub-lease rental charges
    
    (xix)
    
    
    11
    
    
    
    1Purchases of materials
    
    (xx)
    
    
    668
    
    
    
    512Charges for ancillary telecommunications support
services
    
    (xxi)
    
    
    448
    
    
    
    558Charges for support services
    
    (xxii)
    
    
    536
    
    
    
    461Charges for lease of telecommunications facility
    
    (xxiii)
    
    
    309
    
    
    
    306Income from information communication technologies
services
    
    (xxiv)
    
    
    130
    
    
    
    151
 F-100




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##### Table of Contents



2007Note
    
    (As restated)
    
    2008Discontinued operations:Interconnection revenue
    
    (ii), (iv)
    
    
    26
    
    
    
    17Interconnection charges
    
    (iii), (iv)
    
    
    17
    
    
    
    13Charges for leasing of transmission line capacity
    
    (i), (vii)
    
    
    
    
    
    
    3Charge for operator-based subscriber value-added
services
    
    (i), (viii)
    
    
    119
    
    
    
    89Charge for customer services
    
    (i), (ix)
    
    
    178
    
    
    
    111Agency fee incurred for subscriber development
services
    
    
    (i), (x)
    
    
    
    23
    
    
    
    24CDMA network capacity lease rental
    
    (xxv)
    
    
    8,382
    
    
    
    6,009Constructed capacity related cost of CDMA network
    
    (xxvi)
    
    
    215
    
    
    
    234Charges for cellular subscriber value-added service
    
    (i), (xi)
    
    
    17
    
    
    
    46Purchase of telecom cards
    
    (i), (xiv)
    
    
    79
    
    
    
    40Charge for engineering design and technical service
    
    (i), (xvi)
    
    
    1
    
    
    
    3
 F-101




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##### Table of Contents



(i)
    
    On October 26, 2006, CUCL entered into a new agreement 2006
Comprehensive
Services Agreement to continue to carry out related party transactions.
The new agreement was approved by the independent shareholders of the Company
on December 1, 2006, and became effective from January 1, 2007. Upon
completion of the acquisition of Guizhou Business in 2007, the 2006
Comprehensive Services Agreement was amended where necessary so that the
service area of CUCL was extended to include Guizhou province. In addition,
the rights and obligations of Guizhou branch of Unicom Group under the
framework agreement entered into with Guizhou branch of Unicom Huasheng for
the procurement of CDMA mobile handsets on December 19, 2006 were assigned to
and assumed by CUCL.Pursuant to the ordinary resolution passed at the extraordinary general
meeting held on September 16, 2008, the independent shareholders of the
Company approved the 2006 Comprehensive Services Agreement be amended with
effect from October 15, 2008 to include CNC China as a party (the Second 2006
Comprehensive Services Agreement).Also, the independent shareholders of the Company approved the following
agreements: 
    
    Framework Agreement for Engineering and
Information Technology Services dated August 12, 2008
    
    Engineering and Information Technology Services
Agreement 2008-2010
    
    Domestic Interconnection Settlement Agreement
2008-2010
    
    International Long Distance Voice Services
Settlement Agreement 2008-2010
    
    Framework Agreement for Interconnection
Settlement dated August 12, 2008
 (ii)
    
    Interconnection revenues represent the amounts received or
receivable from Unicom Group and Netcom Group for calls from their networks to
the Groups networks.(iii)
    
    Interconnection charges are for calls made from the Groups
networks to Unicom Group and Netcom Group networks.(iv)
    
    Pursuant to the Framework Agreement for Interconnection
Settlement dated August 12, 2008 entered between CUCL and Netcom Group, CUCL
and Netcom Group agreed to interconnect the network of Netcom Group on the one
hand and that of CUCL on the other and settle charges in respect of domestic
long distance voice services within their respective service regions and
international long distance voice services.Interconnection settlement between Unicom Group and Netcom Group networks and
the Groups network are based on standards established from time to time by
the MIIT. F-102




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##### Table of Contents



(v)
    
    Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006Comprehensive Services Agreement, the Group agreed to provide premises to
Unicom New Guoxin Telecommunications Corporation Limited (Unicom New
Guoxin). The rental amount is based on the lower of depreciation costs and
market price for similar premises in that locality.(vi)
    
    Pursuant to the agreement entered between the branches of CUCL
and 21 Provinces in Southern China of Netcom Group, revenue for leasing of
transmission line capacity is based on market rates.(vii)
    
    Pursuant to Framework Agreement for Telecommunications
Facilities Leasing dated August 12, 2008 entered between CUCL and Netcom Group,
the charges payable by CUCL are based on the annual depreciation charges of
such transmission line capacity (not higher than market rates).(viii)
    
    Pursuant to 2006 Comprehensive Services Agreement and the Second 2006
Comprehensive Services Agreement, the Group shall retain 40% of the actually
received revenue generated from the value-added services provided by New Guoxin
to the Groups subscribers and allocate 60% of such revenue to New Guoxin. The
settlement should be made among branches of the Group and New Guoxin
respectively.(ix)
    
    Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006 Comprehensive Services Agreement, New Guoxin provides business
inquiries, tariff inquiries, account maintenance, complaints handling, and
customer interview and subscriber retention services to the Groups customers.
The service fee payable by the Group shall be calculated on the basis of the
customer service costs plus a profit margin, which shall not exceed 10%. The
customer service costs were determined by the actual cost per operator seat and
the number of effective operator seats. In addition, Guangdong has been added
as one of the economically developed metropolises in determining the cost per
operator seat.(x)
    
    Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006 Comprehensive Services Agreement, New Guoxin provides subscriber
development services to the Group through telephone or other channels by
utilising its own network, equipment and operators. The agency fee chargeable
to the Group does not exceed the average of agency fees chargeable by any
independent third party agent in the same region. F-103




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(xi)
    
    Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006
Comprehensive Services Agreement, UNISK (Beijing) Information Technology
Corporation Limited (UNISK) and Unicom NewSpace Corporation Limited (Unicom
NewSpace) agreed to provide the cellular subscribers of CUCL with various
types of value-added services through its cellular communication network and
data platform. The Group retains a portion of the revenue generated from the
value-added services provided to the Groups subscribers (and actually
received by the Group) and allocates a portion of such fees to UNISK and
Unicom NewSpace for settlement, on the condition that such proportion
allocated to UNISK and Unicom NewSpace does not exceed the average proportion
allocated to independent value-added telecommunications content providers who
provide value-added telecommunications content to the Group in the same
region. The percentage of revenue to be allocated to UNISK and Unicom NewSpace
by the Group varies depending on the types of value-added service provided to
the Group.(xii)
    
    Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006 Comprehensive Services Agreement, CUCL and Unicom Group agreed to
mutually lease premises, equipment and facilities from each other. Rentals are
based on the lower of depreciation costs and market rates.(xiii)
    
    Pursuant to 2006 Comprehensive Services Agreement and the Second 2006
Comprehensive Services Agreement, charges for international gateway services
represent the amounts paid or payable to Unicom Group for international gateway
services provided for the Groups international long distance networks. The
charge for this service is based on the cost of operation and maintenance of
the international gateway facilities incurred by Unicom Group, including
depreciation, together with a margin of 10% over cost.(xiv)
    
    Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006 Comprehensive Services Agreement, the Group agreed to purchase
telephone cards from Unicom Group (to be imported by Unicom Xingye Science and
Technology Trade Company Limited (Unicom Xingye) at cost plus a margin to be
agreed from time to time, but not to exceed 20%, and subject to appropriate
volume discounts. Prices and volumes are subject to review by the parties on an
annual basis.(xv)
    
    Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006 Comprehensive Services Agreement, Unicom Import and Export Company
Limited (Unicom I/E Co) agreed to provide equipment procurement services to
the Group. Unicom I/E Co. charges the Group 0.55% (for contracts up to an
amount of USD30 million (inclusive)) and 0.35% (for contracts with an amount of
more than USD30 million) of the value of imported equipment, and 0.25% (for
contracts up to an amount of RMB200 million (inclusive)) and 0.15% (for
contracts with an amount of more than RMB200 million) of the value of domestic
equipment for such services.(xvi)
    
    Pursuant to 2006 Comprehensive Services Agreement and the
Second 2006
Comprehensive Services Agreement, China Information Technology Designing &
Consulting Institute (CITDCI) agreed to provide engineering design and
technical services to the Group based on its demands and requirements. The
service fee standards for the engineering design and technical services are
determined based on standards promulgated by the relevant government
authorities. In addition, such prices should not be higher than those adopted
by an independent third party providing similar services in the same industry. F-104




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(xvii)
    
    Pursuant to Framework Agreement for Engineering and Information Technology
Services dated August 12, 2008 entered between CUCL and Netcom Group and
Engineering and Information Technology Services Agreement 2008-2010 entered
between CNC China and Netcom Group, the charges payable by CUCL and CNC China
for the above services are determined with reference to market rates and are
settled when the relevant services are provided.(xviii)
    
    Pursuant to Master Sharing Agreement 2008-2010 entered between CNC China and
Netcom Group, expenses associated with common corporate services is allocated
between CNC China and Netcom Group based on total assets as appropriate.(xix)
    
    Pursuant to Property Leasing Agreement 2008-2010 entered
between CNC China and Netcom Group and the Framework Agreement for Property
Leasing dated August 12, 2008 entered between CUCL and Netcom Group, the
charges payable by CNC China and CUCL are based on market rates or the
depreciation charges and taxes (only not higher than the market rates) in
respect of each property. The charges are subject to review every year.(xx)
    
    Pursuant to Materials Procurement Agreement 2008-2010 entered
between CNC China and Netcom Group, the charges payable by CNC China to Netcom
Group are based on market rates or cost-plus basis.(xxi)
    
    Pursuant to Ancillary Telecommunications Services Agreement
2008-2010
entered between CNC China and Netcom Group, and the Framework Agreement for
Ancillary Telecommunications Services dated August 12, 2008 entered between
CUCL and Netcom Group, Netcom Group agreed to provide services including
certain telecommunications pre-sale, on-sale and after-sale services,
certain sales agency services, the printing and delivery of invoice
services, the maintenance of certain air-conditioning, fire alarm equipment
and telephone booths and other customer services. The charges are based on
market rates and settled as and when the relevant services are provided.(xxii)
    
    Pursuant to Support Services Agreement 2008-2010 entered between CNC China
and Netcom Group and the Framework Agreement for Support Services dated August
12, 2008 entered between CUCL and Netcom Group, Netcom Group agreed to provide
services including equipment leasing services, motor vehicles services, safety
and security services, conference services, basic construction agency services,
equipment maintenance services, employee training services, advertising
services, printing services and other support services. The charges are based
on market rates and settled as and when the relevant services are provided.(xxiii)
    
    Pursuant to Telecommunications Facilities Leasing Agreement 2008-2010
entered between CNC China and Netcom Group and the Framework Agreement for
Telecommunications Facilities Leasing dated August 12, 2008 entered between
CUCL and Netcom Group, CNC China agreed to lease the international
telecommunications facilities and inter-provincial transmission optic fibers
from Netcom Group. The lease payment is based on the depreciation charge of the
leased assets. F-105




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(xxiv)
    
    Pursuant to Information and Communications Technology Agreement 2008-2010
entered between System Integration Corporation and Netcom Group, System
Integration Corporation, agreed to provide information communications
technology services to Netcom Group and also to subcontract services ancillary
to the provision of information communications technology services, namely, the
system installation and configuration services, to the subsidiaries and
branches of Netcom Group in Netcom Groups southern service region in the PRC.
The charges payable by Netcom Group are based on market value.(xxv)
    
    On October 26, 2006, CUCL entered into the new agreement 2006
CDMA
Lease Agreement with Unicom Group and Unicom New Horizon to continue
to carry out related party transactions. The new agreement was approved by
the independent shareholders of the Company on December 1, 2006, and became
effective from January 1, 2007. As disclosed in the announcement dated July
28, 2008, the Company, CUCL and China Telecom agreed on the CDMA Business
disposal and the Company agreed to waive the CDMA network purchase option
and terminate the 2006 CDMA Lease Agreement, in each case with effect from
the completion of the CDMA Business disposal. During the Companys
extraordinary general meeting of shareholders held on September 16, 2008,
the Companys independent shareholders approved the waiver of the CDMA
network purchase option and the termination of the 2006 CDMA Lease
Agreement. Upon the completion of the CDMA Business disposal on October 1,
2008, the 2006 CDMA Lease Agreement was terminated.(xxvi)
    
    Pursuant to 2006 CDMA Lease Agreement, the constructed capacity related costs
in connection with the CDMA network capacity used by the Group, including the
rentals for the exchange centers and the base stations, water and electricity
charges, heating charges and fuel charges for the relevant equipment etc., as
well as the maintenance costs of a non-capital nature, are charged to the
Group. The proportion of the constructed capacity related costs to be borne by
the Group is calculated on a monthly basis by reference to the actual number of
cumulative CDMA subscribers of the Group at the end of the month prior to the
occurrence of the costs divided by 90%, as a percentage of the total capacity
available on the CDMA network.(xxvii)
    
    Unicom Group is the registered proprietor of the Unicom trademark in
English and the trademark bearing the Unicom logo, which is registered at
the PRC State Trademark Bureau. Pursuant to an exclusive PRC trademark licence
agreement between Unicom Group and the Group, the Group is granted the right
to use these trademarks on a royalty free and renewal basis. (b)
    
    Other significant transactionIn 2008, the Company completed the merger with China Netcom by way of a scheme of
arrangement. For details, please refer to Note 1.
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(c)
    
    Amounts due from and to Unicom Group, Netcom Group and their
subsidiariesAs of December 31, 2007, an amount due to Netcom Group of RMB5,880 million
represented the deferred payment arising from the Acquisition of New Horizon which
was unsecured, interest bearing at 5.265% per annum with final maturity through June
30, 2010. In 2008, the Group fully repaid the amount. The deferred payment as of
December 31, 2007 is analyzed as follows:
 2007
    
    2008Within one year
    
    
    1,960
    
    
    
    In the second year
    
    
    1,960
    
    
    
    In the third year
    
    
    1,960
    
    
    
    Total
    
    
    5,880
    
    
    
    
 In addition, the balance as of December 31, 2007 included the payables to related
parties of approximately RMB2,249 million with interest rates ranging from 3.0% to
3.8% per annum, which was unsecured and repayable within 3 years. In 2008, the Group
fully repaid the amount.Apart from these, amounts due from and to Unicom Group, Netcom Group and their
subsidiaries are unsecured, interest free, repayable on demand/on contract terms and
arise in the ordinary course of business in respect of the transactions with Unicom
Group, Netcom Group and their subsidiaries as described in (a) above.
 37.2
    
    Domestic carriers(a)
    
    Significant recurring transactions with domestic carriersThe following is a summary of significant transactions with domestic carriers in the
ordinary course of business:
 2007Note
    
    (As restated)
    
    2008Interconnection revenue
    
    
    (i
    )
    
    
    11,000
    
    
    
    11,816Interconnection charges
    
    
    (i
    )
    
    
    10,367
    
    
    
    10,819Leased line revenue
    
    (ii)
    
    
    539
    
    
    
    500Leased line charges
    
    (ii)
    
    
    350
    
    
    
    269
 
 (i)
    
    The interconnection revenue and charges mainly represent the
amounts due from or to domestic carriers for telephone calls made between the
Groups networks and the network of domestic carriers. The interconnection
settlements are calculated in accordance with interconnection agreements
reached between the branches of the Group and domestic carriers on a provincial
basis. The terms of these agreements are set in accordance with the standard
settlement arrangement stipulated by the MIIT.(ii)
    
    Leased line charges are paid or payable to domestic carriers by
the Group for the provision of transmission lines. At the same time, the Group
leases transmission lines to domestic carriers in return for leased line rental
income. The charges are calculated at a fixed charge per line, depending on the
number of lines being used by the Group and domestic carriers. F-107




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(b)
    
    Disposal of the Groups CDMA business to China TelecomIn 2008, the Company completed the disposal of the CDMA Business to China Telecom.
For details, please refer to Note 1 and Note 33.Pursuant to the Disposal Agreement, the Group is committed to providing certain
supporting services to China Telecom at no consideration during the transitional
period. Such services include providing the use of certain telecommunications
equipment, properties and information technology services in certain regions. The
value of such services was estimated by the Group based on the costs of the
underlying equipment or properties plus a margin. A portion of the consideration for
the disposal of the CDMA Business equal to the estimated value of such services has
been deferred and will be recognized over the expected service period.In addition, pursuant to the Disposal Agreement, upon the completion of the CDMA
Business disposal, CUCL and China Telecom would enter into agreements with respect
to the swapping and operation of certain jointly used network assets in accordance
with the terms set out in the Disposal Agreement. As of June 18,
2009, the
negotiation of the agreements is in progress. Based on the latest negotiations, the
Group estimated that the swapping and operation of these jointly used network assets
would not have a significant impact on the consolidated financial statements.As of December 31, 2008, the balances due from/to China Telecom in relation to the
disposal of the CDMA Business were as follows:
 Proceeds receivable
    
    
    13,140Advances from customers received on behalf of China Telecom
    
    
    (768
    )Cash to be transferred upon the final agreement of the values of assets and
liabilities transferred to China Telecom in accordance with the
Disposal Agreement
    
    
    (3,464
    )
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(c)
    
    Amounts due from and to domestic carriers
 2007(As restated)
    
    2008Amounts due from domestic carriers- Receivables for interconnection revenue and
leased line revenue
    
    
    894
    
    
    
    914- Less: Provision for doubtful debts
    
    
    (78
    )
    
    
    (49
    )816
    
    
    
    865Amounts due to domestic carriers- Payables for interconnection charges and
leased lines charges
    
    
    510
    
    
    
    538
  37.3    Other major state-owned financial institutions
 (a)
    
    Transactions with other major state-owned financial institutions in the
PRCThe following is a summary of significant transactions with other major state-owned
financial institutions in the PRC in the ordinary course of business:
 2007(As restated)
    
    2008Finance income/costs, include:- Interest income
    
    
    278
    
    
    
    238- Interest expense
    
    
    2,250
    
    
    
    2,008Short-term bank loans received
    
    
    63,125
    
    
    
    50,614Short-term commercial paper received
    
    
    20,000
    
    
    
    10,000Long-term bank loans received
    
    
    2,559
    
    
    
    2,888Issuance of corporate bonds
    
    
    2,000
    
    
    
    5,000Short-term bank loans repaid
    
    
    81,685
    
    
    
    51,184Short-term commercial paper repaid
    
    
    10,000
    
    
    
    20,000Long-term bank loans repaid
    
    
    9,583
    
    
    
    20,524
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(b)
    
    Amounts due from and to other major state-owned financial institutions in the PRCThe balances with other major state-owned financial institutions in the PRC in
various line items of the consolidated balance sheet are listed as follows:
 2007(As restated)
    
    2008Current assetsShort-term bank deposits
    
    
    619
    
    
    
    238Cash and cash equivalents
    
    
    11,484
    
    
    
    8,672Non-current liabilitiesLong-term bank loans
    
    
    14,625
    
    
    
    997Corporate bonds
    
    
    2,000
    
    
    
    7,000Current liabilitiesShort-term commercial paper
    
    
    20,000
    
    
    
    10,000Current portion of long-term bank loans
    
    
    7,411
    
    
    
    1,216
 38.
    
    CONTINGENCIES AND COMMITMENTS
 38.1
    
    Capital commitments
 As of December 31, 2007 and 2008, the Group had capital commitments, mainly in relation
to the construction of telecommunications networks, as follows:
 2007
    
    2008(As restated)
    
    Land andTotal
    
    buildings
    
    Equipment
    
    TotalAuthorized and contracted for
    
    
    3,802
    
    
    
    1,162
    
    
    
    4,914
    
    
    
    6,076Authorized but not contracted for
    
    
    2,508
    
    
    
    846
    
    
    
    6,092
    
    
    
    6,938Total
    
    
    6,310
    
    
    
    2,008
    
    
    
    11,006
    
    
    
    13,014
 As of December 31, 2008, approximately RMB159 million (2007: approximately RMB153
million) of capital commitment outstanding was denominated in US dollars, equivalent to
approximately USD23 million (2007: approximately USD21 million). As of December 31,
2007, the capital commitments were mainly related to continuing operations.
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38.2
    
    Operating lease commitmentsAs of December 31, 2007 and 2008, the Group had total future aggregate minimum lease
payments under non-cancellable operating leases as follows:
 2007
    
    2008(As restated)
    
    Land andTotal
    
    buildings
    
    Equipment
    
    TotalLeases expiring:- no later than one year
    
    
    9,096
    
    
    
    1,438
    
    
    
    390
    
    
    
    1,828- later than one year
and no later than five
years
    
    
    3,287
    
    
    
    3,876
    
    
    
    695
    
    
    
    4,571- later than five years
    
    
    2,031
    
    
    
    1,764
    
    
    
    193
    
    
    
    1,957Total
    
    
    14,414
    
    
    
    7,078
    
    
    
    1,278
    
    
    
    8,356
 As of December 31, 2007, the operating lease commitments included the leasing fees for
the CDMA network capacity based on the 2006 CDMA Lease Agreement of approximately
RMB7,543 million relating to discontinued operations. During the Companys Extraordinary
General Meeting of shareholders held on September 16, 2008, the Companys independent
shareholders approved the termination of the 2006 CDMA Lease Agreement. Upon the
completion of the CDMA Business disposal on October 1, 2008, the 2006 CDMA Lease
Agreement was terminated (see Note 37.1(a) (xxv)).38.3
    
    Contingent liabilitiesAs aforementioned in Note 26, the tariffs for the services provided by the Group
are subject to regulations by various government authorities. In 2008, the NDRC
investigated the compliance with tariffs regulations of several branches of CUCL and CNC
China. Based on managements assessment and preliminary discussions with MIIT and NDRC,
management considered that the Group had complied with the regulations issued by the
relevant government authorities for all periods covered by the investigation, and the
likelihood of a cash outflow as a result of the investigation is remote. Accordingly, no
contingent liabilities in relation to the investigation were recorded as of December 31,
2008.
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39.
    
    EVENTS AFTER BALANCE SHEET DATE
 (a)
    
    Acquisitions of certain assets and business from Unicom Group and Netcom GroupOn December 16, 2008, CUCL agreed to acquire from Unicom Group and Netcom Group (i) the
fixed-line business, but not the underlying property, plant and equipment, across the 21
provinces in Southern China and the local access telephone business and related assets in
Tianjin Municipality operated by Netcom Group and Unicom Group and/or their respective
subsidiaries and branches, (ii) the backbone transmission assets in Northern China owned by
Netcom Group and/or its subsidiaries (Target Assets), (iii) a 100% equity interest in
Unicom Xingye owned by Unicom Group, (iv) a 100% equity interest in CITDCI owned by Unicom
Group; and (v) a 100% equity interest in New Guoxin owned by Unicom Group at a consideration
of approximately RMB6.43 billion, subject to certain adjustments. The business and assets
described in (i), (iii), (iv) and (v) above are hereinafter collectively referred to as the
Target Business and the acquisition of the Target Business is referred to as 2009
Business Combination.The aforementioned acquisitions of assets and businesses were approved by the independent
shareholders of the Company in an extraordinary general meeting held on January 14, 2009. As
all of the conditions to the acquisitions were satisfied (or if applicable, waived), the
2009 Business Combination and the acquisitions of the Target Assets were completed on
January 31, 2009.(b)
    
    Leasing of telecommunications networks in Southern China from Unicom New HorizonIn connection with the 2009 Business Combination, on December 16, 2008, CUCL, Unicom Group,
Netcom Group and Unicom New Horizon entered into an agreement (the Network Lease
Agreement) in relation to the lease (the Lease) of the telecommunications networks of 21
provinces in Southern China by CUCL from Unicom New Horizon on an exclusive basis
immediately following and subject to the completion of the 2009 Business Combination. Under
the Network Lease Agreement, CUCL shall pay annual leasing fees of RMB 2.0 billion and
RMB2.2 billion for the two financial years ending December 31, 2009 and December 31, 2010,
respectively. The initial term of the Lease is two years effective from January 1, 2009 and
the Lease is renewable at the option of CUCL with at least two months prior notice.
Moreover, in connection with the Lease, Unicom New Horizon has granted to CUCL an option to
purchase the telecommunications networks in Southern China.(c)
    
    Granting of the license to operate 3G digital cellular business with WCDMA technologyOn January 7, 2009, MIIT has granted approval for Unicom Group to license CUCL to operate 3G
digital cellular business with WCDMA technology nationwide in China.(d)
    
    Proposed dividendAfter the balance sheet date, the Board of Directors proposed a final dividend for 2008. For
details, see Note 34.(e)
    
    The issuance of formal notice regarding the definition of PRC
TREOn April 22, 2009, the PRC State Administration of
Taxation issued a formal notice
regarding the determination of PRC TRE status and provided
implementation guidance in withholding income tax for non-TRE
enterprise shareholders. For details, please refer to
Note 9(b).
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40.
    
    COMPARATIVE FIGURESAs stated in Note 2.2, 2007 comparative figures have been restated to reflect the effects
of the 2008 Business Combination under common control, which is accounted for using merger
accounting in accordance with HKFRS. In addition, the results and cash flows of the CDMA
business segment have been presented as discontinued operations and accordingly, the 2007
comparative figures of the consolidated statement of income and statement of cash flows had
been reclassified in accordance with HKFRS. For comparative purposes, certain comparative
figures have also been reclassified to conform with current year presentation to align the
financial statements presentation of the Group and China Netcom and the effect of the
change in accounting policies under HKFRS (Please refer to Note 2.2 for details).41.
    
    APPROVAL OF FINANCIAL STATEMENTSThe financial statements were approved by the Board of
Directors on June 18, 2009.
 F-113