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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION12(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, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period fromto
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
15(d)OF THE SECURITIES EXCHANGE ACT OF 1934Date 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
  þ o o
  o
 þ
 o
  o o
 o þ




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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
    
    
    16Item 4A. Unresolved Staff Comments
    
    
   43Item 5. Operating and Financial Review and Prospects
    
    
    43Item 6. Directors, Senior Management and Employees
    
    
    69Item 7. Major Shareholders and Related Party Transactions
    
    
    79Item 8. Financial Information
    
    
    93Item 9. The Offer and Listing
    
    
    94Item 10. Additional Information
    
    
    95Item 11. Quantitative and Qualitative Disclosures about Market Risks
    
    
    106Item 12. Description of Securities Other than Equity Securities
    
    
    108PART II
    
    
    110Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    110Item 14. Material Modifications to the Rights of Security Holders and Use
of Proceeds
    
    
    110Item 15. Controls and Procedures
    
    
    110Item 16A. Audit Committee Financial Expert
    
    
    111Item 16B. Code of Ethics
    
    
    111Item 16C. Principal Accountant Fees and Services
    
    
    111Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    112
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PageItem 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
    
    
    112Item 16F. Change in Registrants Certifying Accountant
    
    
    112Item 16G. Corporate Governance
    
    
    112PART III
    
    
    113Item 17. Financial Statements
    
    
    113Item 18. Financial Statements
    
    
    113Item 19. Exhibits
    
    
    113EX-4.51EX-4.52EX-4.53EX-4.54EX-4.55EX-4.56EX-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, or changes in the regulatory policies 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), the State-owned
Assets Supervision and Administration Commission, or the SASAC, and other relevant
government authorities of the PRC;
    
    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 Netcom Group Corporation (Hong Kong) Limited;
    
    effects of our proposed adjustments in our business strategies relating to the
personal handyphone system, or PHS, business;
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
    
    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 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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
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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
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PART I
 
 Item 1.
    
    Identity of Directors, Senior Management and AdvisersNot Applicable.
 
 Item 2.
    
    Offer Statistics and Expected TimetableNot Applicable.
 
 Item 3.
    
    Key Information
 A. Selected Financial Data
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As of or for the year ended December 312007
    
    2008
    
    2009
    
    2009RMB
    
    RMB
    
    RMB
    
    US$(1)(in millions, except for per share data)Consolidated Income Statement Data:CONTINUING OPERATIONSRevenue(2)Mobile businessTelecommunication service revenue
    
    
    62,236
    
    
    
    64,240
    
    
    
    69,769
    
    
    
    10,221Information communication technology services and other revenue
    
    
    187
    
    
    
    359
    
    
    
    252
    
    
    
    37Sales of mobile telecommunications products
    
    
    14
    
    
    
    532
    
    
    
    1,970
    
    
    
    289Total mobile telecommunications revenue
    
    
    62,437
    
    
    
    65,131
    
    
    
    71,991
    
    
    
    10,547Fixed-line businessTelecommunication service revenue(2)
    
    
    91,093
    
    
    
    88,254
    
    
    
    79,549
    
    
    
    11,654Information communication technology services and other revenue
    
    
    4,782
    
    
    
    4,339
    
    
    
    1,611
    
    
    
    236Sales of fixed-line telecommunications products
    
    
    980
    
    
    
    1,362
    
    
    
    193
    
    
    
    28Total fixed-line telecommunications revenue
    
    
    96,855
    
    
    
    93,955
    
    
    
    81,353
    
    
    
    11,918Unallocated amountsTelecommunication service revenue(2)
    
    
    420
    
    
    
    337
    
    
    
    275
    
    
    
    40Information communication technology services and other revenue
    
    
    228
    
    
    
    364
    
    
    
    326
    
    
    
    48Sales of
other telecommunications products
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    648
    
    
    
    706
    
    
    
    601
    
    
    
    88Total revenue
    
    
    159,940
    
    
    
    159,792
    
    
    
    153,945
    
    
    
    22,553Total costs, expenses and others
    
    
    (131,856
    )
    
    
    (150,139
    )
    
    
    (141,668
    )
    
    
    (20,754
    )Income from continuing operations before income tax
    
    
    28,084
    
    
    
    9,653
    
    
    
    12,277
    
    
    
    1,799Income tax expenses
    
    
    (7,175
    )
    
    
    (1,828
    )
    
    
    (2,721
    )
    
    
    (399
    )Income from continuing operations
    
    
    20,909
    
    
    
    7,825
    
    
    
    9,556
    
    
    
    1,400DISCONTINUED OPERATIONS(3)Income from discontinued operations
    
    
    656
    
    
    
    1,438
    
    
    
    
    
    
    
    Gain on disposal of discontinued operations
    
    
    
    
    
    
    26,135
    
    
    
    
    
    
    
    Sub-total for discontinued operation
    
    
    656
    
    
    
    27,573
    
    
    
    
    
    
    
    Net income
    
    
    21,565
    
    
    
    35,398
    
    
    
    9,556
    
    
    
    1,400Earnings per share for income attributable to the equity holders of the
Company during the yearBasic earnings per share(4)
    
    
    0.93
    
    
    
    1.49
    
    
    
    0.40
    
    
    
    0.06Diluted earnings per share(4)
    
    
    0.92
    
    
    
    1.48
    
    
    
    0.40
    
    
    
    0.06Basic earnings per ADS(5)
    
    
    9.35
    
    
    
    14.90
    
    
    
    4.02
    
    
    
    0.59Diluted earnings per ADS(5)
    
    
    9.25
    
    
    
    14.79
    
    
    
    4.00
    
    
    
    0.59Earnings per share for income from continuing operations attributable to the
equity holders of the Company during the yearBasic earnings per share(4)
    
    
    0.90
    
    
    
    0.33
    
    
    
    0.40
    
    
    
    0.06
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As of or for the year ended December 312007
    
    2008
    
    2009
    
    2009RMB
    
    RMB
    
    RMB
    
    US$(1)(in millions, except for per share data)Diluted earnings per share(4)
    
    
    0.89
    
    
    
    0.33
    
    
    
    0.40
    
    
    
    0.06Basic earnings per ADS(5)
    
    
    9.06
    
    
    
    3.29
    
    
    
    4.02
    
    
    
    0.59Diluted earnings per ADS(5)
    
    
    8.97
    
    
    
    3.27
    
    
    
    4.00
    
    
    
    0.59Earnings per share for income from discontinued operations attributable to
the equity holders of the Company during the yearBasic earnings per share(4)
    
    
    0.03
    
    
    
    1.16
    
    
    
    
    
    
    
    Diluted earnings per share(4)
    
    
    0.03
    
    
    
    1.15
    
    
    
    
    
    
    
    Basic earnings per ADS(5)
    
    
    0.29
    
    
    
    11.61
    
    
    
    
    
    
    
    Diluted earnings per ADS(5)
    
    
    0.28
    
    
    
    11.52
    
    
    
    
    
    
    
    Number of shares outstanding for basic earnings per share(4)
    
    
    23,075
    
    
    
    23,751
    
    
    
    23,767
    
    
    
    23,767Number of shares outstanding for diluted earnings per share(4)
    
    
    23,321
    
    
    
    23,941
    
    
    
    23,895
    
    
    
    23,895Number of ADS outstanding for basic earnings per ADS(5)
    
    
    2,308
    
    
    
    2,375
    
    
    
    2,377
    
    
    
    2,377Number of ADS outstanding for diluted earnings per ADS(5)
    
    
    2,332
    
    
    
    2,394
    
    
    
    2,389
    
    
    
    2,389Consolidated Balance Sheet Data:AssetsCash and cash equivalent and short-term bank deposits
    
    
    13,555
    
    
    
    10,574
    
    
    
    8,816
    
    
    
    1,292Property, plant and equipment
    
    
    277,787
    
    
    
    285,469
    
    
    
    351,157
    
    
    
    51,445Available-for-sale financial assets
    
    
    287
    
    
    
    95
    
    
    
    7,977
    
    
    
    1,168Proceeds receivable for the disposal of the CDMA business
    
    
    
    
    
    
    13,140
    
    
    
    5,121
    
    
    
    750Total assets
    
    
    338,222
    
    
    
    348,752
    
    
    
    417,045
    
    
    
    61,097LiabilitiesPayables in relation to the disposal of the CDMA business
    
    
    
    
    
    
    4,232
    
    
    
    7
    
    
    
    1Short-term bank loans
    
    
    11,850
    
    
    
    10,780
    
    
    
    63,909
    
    
    
    9,363Commercial paper
    
    
    20,000
    
    
    
    10,000
    
    
    
    
    
    
    
    Current portion of long-term bank loans
    
    
    7,411
    
    
    
    1,216
    
    
    
    62
    
    
    
    9Current portion of other obligations
    
    
    3,484
    
    
    
    3,012
    
    
    
    2,534
    
    
    
    371Long-term bank loans
    
    
    16,086
    
    
    
    997
    
    
    
    759
    
    
    
    111Corporate bonds
    
    
    2,000
    
    
    
    7,000
    
    
    
    7,000
    
    
    
    1,026Total liabilities
    
    
    160,033
    
    
    
    141,025
    
    
    
    210,578
    
    
    
    30,850Shareholders equity
    
    
    178,189
    
    
    
    207,727
    
    
    
    206,467
    
    
    
    30,247Share capital
    
    
    1,437
    
    
    
    2,329
    
    
    
    2,310
    
    
    
    339Other Financial Data:CONTINUING OPERATIONSNet cash inflow from operating activities of
continuing operations
    
    
    68,854
    
    
    
    57,241
    
    
    
    57,733
    
    
    
    8,459Net cash outflow from investing activities of continuing operations
    
    
    (47,770
    )
    
    
    (54,742
    )
    
    
    (85,308
    )
    
    
    (12,498
    )Net cash (outflow)/inflow from financing activities of continuing
operations
    
    
    (29,805
    )
    
    
    (35,070
    )
    
    
    30,197
    
    
    
    4,423Net cash (outflow)/inflow from continuing operations
    
    
    (8,721
    )
    
    
    (32,571
    )
    
    
    2,622
    
    
    
    384DISCONTINUED OPERATIONS(3)Net cash inflow from operating activities of
discontinued operations
    
    
    837
    
    
    
    656
    
    
    
    
    
    
    
    Net cash (outflow)/inflow from investing activities of discontinued
operations
    
    
    (25
    )
    
    
    29,489
    
    
    
    (5,039
    )
    
    
    (738
    )Net cash outflow from financing activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash inflow/(outflow) from discontinued operations
    
    
    812
    
    
    
    30,145
    
    
    
    (5,039
    )
    
    
    (738
    )Net decrease in cash and cash equivalents
    
    
    (7,909
    )
    
    
    (2,426
    )
    
    
    (2,417
    )
    
    
    (354
    )Dividend declared per share
    
    
    0.20
    
    
    
    0.20
    
    
    
    0.16
    
    
    
    0.02
 
 (1)
    
    The translation of RMB into US dollars has been made at the rate of RMB6.8259 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, 2009. The translations - 3 -




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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 our CDMA business have been disclosed as discontinued operations for the years
ended December 31, 2007 and 2008.(4)
    
    See Note 37 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. Exchange Rate Information
   Noon Buying Rate
 RMB per US$1.00
    
    HK$ per US$1.00High
    
    Low
    
    High
    
    LowDecember 2009
    
    
    6.8244
    
    
    
    6.8299
    
    
    
    7.7495
    
    
    
    7.7572January 2010
    
    
    6.8258
    
    
    
    6.8295
    
    
    
    7.7539
    
    
    
    7.7752February 2010
    
    
    6.8258
    
    
    
    6.8330
    
    
    
    7.7619
    
    
    
    7.7716March 2010
    
    
    6.8254
    
    
    
    6.8270
    
    
    
    7.7574
    
    
    
    7.7648April 2010
    
    
    6.8229
    
    
    
    6.8275
    
    
    
    7.7565
    
    
    
    7.7675May 2010
    
    
    6.8310
    
    
    
    6.8245
    
    
    
    7.8030
    
    
    
    7.7626June 2010
(up to June 11, 2010)
    
    
    6.8322
    
    
    
    6.8268
    
    
    
    7.8040
    
    
    
    7.7903
  Average Noon Buying Rate
 RMB per US$1.00
    
    HK$ per US$1.002005
    
    
    8.1826
    
    
    
    7.77552006
    
    
    7.9579
    
    
    
    7.76852007
    
    
    7.5806
    
    
    
    7.80082008
    
    
    6.9193
    
    
    
    7.78142009
    
    
    6.8295
    
    
    
    7.7513
 B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
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D. Risk Factors
 Risks Relating to Our Business
 We face intense competition in all our businesses from other telecommunications service
providers, including China Mobile and China Telecom, which may materially adversely affect
our financial condition, results of operations and growth prospects.
    We may further lose subscribers, in particular, fixed-line services subscribers, which may
materially adversely affect our financial condition, results of operations and growth
prospects.
  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.
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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 may experience
various difficulties in the ongoing integration process, and our future financial condition,
results of operations and growth prospects may be materially adversely affected.
  
    
    unforeseen contingent risks or latent liabilities relating to the merger that may
not become apparent until the future;
    
    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 of our 3G business 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 business may be
adversely affected due to the competitive nature between 3G services and 2G mobile business
and fixed-line broadband services in the industry.
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
    
    we will be able to gain access to sufficient sites for 3G network expansion;
    
    there will be sufficient demand for 3G services for us to deliver these services
profitably;
    
    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.
  Interruptions to our networks and operating systems or to those with which we interconnect,
including those caused by natural disaster 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.
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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;
    
    our creditworthiness and relationship with lenders;
    
    changes in credit policies, other government or banking policies that may affect
credit markets in China;
    
    conditions of the economy and the telecommunications industry in China;
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
    
    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 slows down under the recent
global financial crisis or as a result of subdued global recovery, 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 (including certain of its management
personnel) and us from time to
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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.
  Risks Relating to the Telecommunications Industry in China
 Government regulation of the telecommunications industry in China may affect 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 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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##### Table of Contents



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.
  Fluctuations in the value of the Renminbi could adversely affect the prices of our shares
and ADSs as well as our profitability.
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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.
  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.
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New provisions of the PRC Employment Contract Law and its implementation rules 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.
  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
 - 16 -




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A. History and Development of the Company
   Restructurings of the Telecommunications Industry
    Sale of CDMA Business, Merger with China Netcom and Related Transactions
 Disposal of CDMA Business and Related Transactions
  - 17 -




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Merger with China Netcom and Related Transactions
 Merger with China Netcom
   - 18 -




---



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Change of Company Name
  Related Transactions
  History and Corporate Development of China Netcom
    - 19 -




---



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Our Parent Company and Our Initial Public Offering
   Unicom Acquisitions and Sales
      - 20 -




---



##### Table of Contents



Unicom Vsens Telecommunications Company Limited
  China Unicom Mobile Network Company Limited
  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
  
    
    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.
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Mutual Investment with Telefónica
  Share Repurchase from SK Telecom
  Our Relationship with Unicom Group
   - 22 -




---



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Two-Step Voting Arrangements
 - 23 -




---



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
    
    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
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General
  Mobile Business
   As of or forthe year ended December 31,2007
    
    2008
    
    2009(1)Number of subscribers (in thousands)
    
    
    120,564
    
    
    
    133,365
    
    
    
    147,587Estimated market share in our service areas(2)
    
    
    22.0
    %
    
    
    20.8
    %
    
    
    19.7
    %Average minutes of usage per subscriber per month (MOU)(3)
    
    
    249.7
    
    
    
    246.4
    
    
    
    253.1Average revenue per subscriber per month (ARPU) (in RMB)(4)
    
    
    45.7
    
    
    
    42.3
    
    
    
    41.6
 
 (1)
    
    Including our 3G business which we launched on a trial basis in May 2009 and began operating
on a commercial basis in October 2009.(2)
    
    Market share in a given area is determined by dividing the number of our mobile subscribers
in the area by the total number of mobile subscribers in the area. Source: MIIT.(3)
    
    MOU is calculated by dividing the total minutes of usage during the period by the average
number of our mobile subscribers during the period, and dividing the result by the number of
months in the relevant period.(4)
    
    ARPU is calculated by dividing the sum of mobile business revenue during the relevant period
by the average number of our mobile subscribers during the period, and dividing the result by
the number of months in the period. GSM Mobile Business
  GSM Voice Business
  Subscriber Increase.
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MOU and ARPU
 GSM Value-Added Services
  3G Mobile Business
    Fixed-Line Business
   - 26 -




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Fixed-Line Broadband Services and Data Communications Services
 Fixed-Line Broadband Services
    As of December 31,2007
    
    2008
    
    2009Number of fixed-line broadband subscribers
(in thousands)
    
    
    23,476
    
    
    
    30,081
    
    
    
    38,550
 Data Communications Services
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Fixed-Line Voice Business
  As of December 31,2007
    
    2008
    
    2009(in thousands)Number of fixed-line
subscribers(1)Residential Residential
    
    
    69,337
    
    
    
    63,824
    
    
    
    61,733Business
    
    
    13,295
    
    
    
    13,586
    
    
    
    14,238PHS
    
    
    28,639
    
    
    
    23,979
    
    
    
    18,742Public telephones
    
    
    8,539
    
    
    
    8,181
    
    
    
    8,109Total
    
    
    119,810
    
    
    
    109,570
    
    
    
    102,822
 
 (1)
    
    Fixed-line subscribers consist of all local 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.  Local Voice Services
  For the Year Ended December 31,2007
    
    2008
    
    2009Usage of
local calls (pulse in millions)(1)Total usage
    
    
    220,180
    
    
    
    206,632
    
    
    
    188,116Internet dial-up usage
    
    
    3,696
    
    
    
    2,960
    
    
    
    2,577Total usage excluding Internet dial-up usage
    
    
    216,484
    
    
    
    203,672
    
    
    
    185,539
 
 (1)
    
    Pulses are the billing units for calculating local telephone usage fees. Long Distance Voice Services
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For the Year Ended December 31,2007
    
    2008
    
    2009Total minutes of domestic
long distance calls (minutes
in millions)(1)Traditional
    
    
    25,241
    
    
    
    25,771
    
    
    
    21,261VoIP
    
    
    17,181
    
    
    
    14,643
    
    
    
    11,698Total
    
    
    42,422
    
    
    
    40,414
    
    
    
    32,959
 
 (1)
    
    Includes calls originated by prepaid phone cards users and VoIP subscribers that are carried
over our long distance networks.  For the Year Ended December 31,2007
    
    2008
    
    2009International long distance
outbound call minutes
(minutes in
millions)(1)(2)Traditional
    
    
    236
    
    
    
    236
    
    
    
    221VoIP
    
    
    551
    
    
    
    456
    
    
    
    403Total
    
    
    787
    
    
    
    692
    
    
    
    624
 
 (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
  Interconnection and Roaming Arrangements
 Interconnection
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Roaming
   Networks
  Mobile Networks
  
    
    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.
 - 30 -




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Fixed-Line Networks
    Marketing, Sales and Distribution
  Customer Service
  - 31 -




---



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Information Systems
  Research and Development
  Competition
  Strategic Alliances
 Strategic Alliance with Telefónica.
 Trademarks
 - 32 -




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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.
    Telecommunications Regulations
   - 33 -




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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.
    
    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.
   - 34 -




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
    
    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
   Tariff Setting and Price Controls
    - 35 -




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Mobile
Business
  Post-paid Services
    
    Pre-paid Services(RMB)
    
    (RMB)Basic 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
    Fixed-Line Voice Business
  - 36 -




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TariffLocal Voice Services
    
    (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 three minutes or less) and 0.09 to
0.11 for each additional pulse (one minute
intervals)Inter-district
    
    up to 0.30 per pulse (one minute intervals)Communication fee:Internet dial-up
    
    0.02 per pulse (one minute intervals)Domestic long distance services
on our traditional
network(1)
    
    0.07 per six secondsInternational 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)
 - 37 -




---



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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
    
    
    
    3,000
 
 (1)
    
    One-way tariff for PVCs frame relay services. 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 Whose Network Calls
    
    Operator at Whose Network Calls are
    
    Current Main Settlementare Originated
    
    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. For calls
originated from
157 or 188
prefix phone
numbers (TD users)
during the period
from January 1,
2010 to December
31, 2010, mobile
operator (China
Mobile) pays
RMB0.012 per minute
to fixed-line
operator.Local fixed-line operator
    
    Mobile operator
    
    (1) Local
fixed-line operator
collects the usage
charge from its
subscribers;
(2) No revenue
sharing or
settlement prior to
June 1, 2010.
Local fixed-line
operator pays
RMB0.001 per minute
to mobile operator
after June 1, 2010.
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Operator from Whose Network Calls
    
    Operator at Whose Network Calls are
    
    Current Main Settlementare Originated
    
    Terminated
    
    ArrangementMobile operator A
    
    Mobile operator B
    
    (1) Mobile operator
A collects the
cellular usage
charge from its
subscribers;
(2) Mobile operator
A pays RMB0.06 per
minute to mobile
operator B. For
calls originated
from 157 or 188
prefix phone
numbers (TD users)
during the period
from January 1,
2010 to December
31, 2010, mobile
operator A (China
Mobile) pays
RMB0.012 per minute
to mobile operator
B.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
trunk circuit,
operator A collects
the usage charge
from its
subscribers and pay
RMB0.06 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 Network Calls are
    
    Operator at Whose Network Calls are
    
    Current Main 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 BFixed-line or mobile operator A
    
    Domestic long distance calls made
without using the carrier identity
code of operator B
    
    (1) Operator A
collects the tariff
from the
subscribers;
(2) If operator A
is a fixed-line
operator, operator
A retains RMB0.06
per minute; if
operator A is a
mobile operator,
operator A retains
local usage fee and
RMB0.06 per minute;
and
(3) Operator A pays
operator B the rest
of the domestic
long distance
tariff.
Note: Domestic long
distance calls
shall be charged at
the domestic long
distance call
tariff of operator
B.Local fixed-line or mobile operator A
    
    Domestic long distance calls made by
using the carrier identity code of
operator B
    
    (1) Operator B
collects the tariff
from the
subscribers; and
(2) Operator B pays
operator A RMB0.06
per minute.
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Operator at Whose Network Calls are
    
    Operator at Whose Network Calls are
    
    Current Main SettlementOriginated
    
    Terminated
    
    ArrangementLocal fixed-line or mobile operator A
    
    International long
distance calls
(including to Hong
Kong, Macau and
Taiwan) made
without using the
carrier identity
code of operator B
and directed by
operator A from the
originating network
to operator B.
    
    (1) Operator A
collects the tariff
from the
subscribers;
(2) If operator A
is a fixed-line
operator, operator
A retains no more
than RMB0.54 per
minute with the
remaining paid to
operator B;
(3) If operator A
is a mobile
operator, operator
A retains local usage fees and no more
than RMB0.54 per
minute with the
remaining paid to
operator B.
Note: International
long distance calls
shall be charged at
the international
long distance call
tariff of operator
B.Local fixed-line or mobile operator A
    
    International long
distance calls made
by using the
carrier identity
code of operator B
and through the
domestic and
international long
distance networks
of operator B.
    
    (1) Operator B
collects the tariff
from the
subscribers; and
(2) Operator B pays
operator A RMB0.06
per minute.
  Operator from Whose Network Calls
    
    Operator at Whose Network Calls are
    
    Current Main Settlementare Originated
    
    Terminated
    
    ArrangementFixed-line or mobile operator A
    
    Fixed-line or
mobile operator B
through the VoIP
network of operator
C
    
    (1) Operator A
collects local
usage fees;
(2) Operator C
collects the VoIP
long distance usage
fees from its
subscribers;
(3) Operator C pays
RMB0.06 per minute
to operator B on
the terminating
end;
(4) No settlement
between operator C
and operator A on
the originating
end.
  Network from Which
    
    Network at Which
    
    Current Main SettlementSMS Originated
    
    SMS Terminated
    
    ArrangementFixed-line or mobile operator A
    
    Fixed-line or mobile operator B
    
    (1) Operator A
collects the tariff
from its subscribers;
(2) Operator A pays
RMB0.03 (RMB0.05 prior
to January 1, 2010)
per SMS to Operator B
  - 40 -




---



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Network from Which
    
    Network at Which
    
    Current Main SettlementMMS Originated
    
    MMS Terminated
    
    ArrangementFixed-line or mobile operator A
    
    Fixed-line or mobile operator B
    
    (1) Operator A
collects the tariff
from its subscribers;
(2) Operator A pays
RMB0.10 (RMB0.15 prior
to January 1, 2010)
per MMS to Operator B
 Technical Standards
   Quality of Service
  Universal Services
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Convergence Policy of Telecom, Broadcasting and Internet Networks
  Others
   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 (Hong Kong) Operations Limited
    
    Hong Kong
    
    
    100
    %China Unicom (Americas) Operations Limited
    
    United States
    
    
    100
    %China Unicom (Singapore) Operations Pte. Ltd.
    
    Singapore
    
    
    100
    %China Unicom (Europe) Operations Limited
    
    United Kingdom
    
    
    100
    %China Unicom (Japan) Operations Corporation
    
    Japan
    
    
    100
    %
 D. Properties
 - 42 -




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Item 4A.
    
    Unresolved Staff Comments
  
 Item 5.
    
    Operating and Financial Review and Prospects
  Acquisitions of Fixed-Line Business in 21 Provinces in Southern China and Other Assets from Parent
Companies, 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
   - 43 -




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Overview
   For the Year Ended December 31,2007
    
    2008
    
    2009RMB in
    
    As % of
    
    RMB in
    
    As % of
    
    RMB in
    
    As % ofmillions
    
    Total
    
    millions
    
    Total
    
    millions
    
    TotalContinuing OperationsTotal revenue (excluding fixed-line
upfront connection fees and
interconnection revenue between certain
fixed-line business and the discontinued
operations of CDMA business)(1)
    
    
    157,426
    
    
    
    100.0
    
    
    
    157,914
    
    
    
    100.0
    
    
    
    153,455
    
    
    
    100.0Total telecommunications service revenue
(excluding fixed-line upfront connection
fees and interconnection revenue between
certain fixed-line business and the
discontinued operations of CDMA business)
    
    
    151,235
    
    
    
    96.1
    
    
    
    150,953
    
    
    
    95.6
    
    
    
    149,103
    
    
    
    97.2Include: Mobile business
    
    
    62,236
    
    
    
    39.5
    
    
    
    64,240
    
    
    
    40.7
    
    
    
    69,769
    
    
    
    45.5Fixed-line business
    
    
    88,579
    
    
    
    56.3
    
    
    
    86,376
    
    
    
    54.7
    
    
    
    79,059
    
    
    
    51.5Out of which:Broadband service
    
    
    16,450
    
    
    
    10.4
    
    
    
    20,962
    
    
    
    13.3
    
    
    
    23,898
    
    
    
    15.6Information communication technology
services and other revenue
    
    
    5,197
    
    
    
    3.3
    
    
    
    5,062
    
    
    
    3.2
    
    
    
    2,189
    
    
    
    1.4Total sales of telecommunications products
    
    
    994
    
    
    
    0.6
    
    
    
    1,899
    
    
    
    1.2
    
    
    
    2,163
    
    
    
    1.4
 
 (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. In addition, upon disposal of the CDMA business in 2008,
interconnection revenue between certain fixed-line business and the discontinued operations of
CDMA business will not be recognized anymore. Therefore, we consider that analyses of our
operating results excluding upfront connection fees and interconnection revenue between
certain fixed-line business and the discontinued operations of CDMA business are more relevant
to the readers of this report.  
    
    usage fees and monthly fees for our 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;
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
    
    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 telephone cards, which is service fees received from customers for
telephone services, is recognized when we render the related service upon actual usage
of the telephone cards by customers;
    
    revenue from interconnection with other telecommunications operators for calls made
from their networks to our networks. We recognize interconnection revenue when the
relevant calls are made by subscribers;
    
    revenue for offerings which include the sale of mobile handsets and provision of
services, the amount of revenue allocated to the handset sale is determined using the
residual value method. Under such method, we determine the revenue from the sale of
the mobile handsets by deducting the fair value of the service element from the total
contract consideration. We recognize revenues related to sale of a handset when the
title is passed to the customer whereas service revenues are recognized based upon the
actual usage of mobile services. The cost of the mobile handset is expensed
immediately to the statement of income.
    
    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 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 reasonable 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 reasonable, 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 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
    
    2008
    
    2009RMB in
    
    
    
    
    
    RMB in
    
    
    
    
    
    RMB inmillions
    
    % of Total
    
    millions
    
    % of Total
    
    millions
    
    % of TotalContinuing OperationsTotal revenue (excluding fixed-line
upfront connection fees and
interconnection revenue between certain
fixed-line business and the
discontinued operations of CDMA
business)(1)
    
    
    157,426
    
    
    
    100.0
    
    
    
    157,914
    
    
    
    100.0
    
    
    
    153,455
    
    
    
    100.0Costs, expenses and others
    
    
    131,856
    
    
    
    83.8
    
    
    
    150,139
    
    
    
    95.1
    
    
    
    141,668
    
    
    
    92.3Interconnection charges
    
    
    12,198
    
    
    
    7.7
    
    
    
    13,038
    
    
    
    8.3
    
    
    
    12,955
    
    
    
    8.4Depreciation and amortization
    
    
    47,625
    
    
    
    30.2
    
    
    
    47,961
    
    
    
    30.4
    
    
    
    47,587
    
    
    
    31.0Networks, operations and support
expenses
    
    
    17,877
    
    
    
    11.4
    
    
    
    18,736
    
    
    
    11.9
    
    
    
    21,728
    
    
    
    14.2Leasing fee for telecommunications
networks in southern China
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    1.3Employee benefit expenses
    
    
    19,398
    
    
    
    12.3
    
    
    
    20,758
    
    
    
    13.0
    
    
    
    21,931
    
    
    
    14.3Selling and marketing
    
    
    19,660
    
    
    
    12.5
    
    
    
    19,614
    
    
    
    12.4
    
    
    
    21,020
    
    
    
    13.7Cost in relation to information
communication technology services
    
    
    3,808
    
    
    
    2.4
    
    
    
    3,010
    
    
    
    1.9
    
    
    
    839
    
    
    
    0.5General, administrative and other
expenses
    
    
    11,776
    
    
    
    7.5
    
    
    
    12,968
    
    
    
    8.2
    
    
    
    12,175
    
    
    
    7.9Cost of telecommunications products
sold
    
    
    1,109
    
    
    
    0.7
    
    
    
    2,156
    
    
    
    1.4
    
    
    
    2,689
    
    
    
    1.8Finance costs, net of interest income
    
    
    2,936
    
    
    
    1.9
    
    
    
    2,158
    
    
    
    1.4
    
    
    
    945
    
    
    
    0.6Impairment loss on property, plant
and equipment
    
    
    
    
    
    
    
    
    
    
    11,837
    
    
    
    7.5
    
    
    
    
    
    
    
    Realized loss on changes in fair
value of derivative component of
convertible bonds
    
    
    569
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Realized gains on changes in fair
value of derivative financial
instrument
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,239
    )
    
    
    (0.8
    )Other income-net
    
    
    (5,100
    )
    
    
    (3.2
    )
    
    
    (2,097
    )
    
    
    (1.3
    )
    
    
    (962
    )
    
    
    (0.6
    )
 
 (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. In addition, upon disposal of the CDMA business in 2008,
interconnection revenue between certain fixed-line business and the discontinued operations of
CDMA business will no longer be recognized. Therefore, we consider that analyses of our
operating results excluding upfront connection fees and interconnection revenue between
certain fixed-line business and the discontinued operations of CDMA business are more relevant
to the readers of this report.  
    
    interconnection expenses, representing amounts paid to other operators 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;
    
    leasing fee for telecommunications networks in southern China;
    
    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;
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
    
    selling and marketing expenses, including commissions, promotion and advertising
expenses, direct incremental costs for activating subscriber services and customer
retention costs;
    
    cost in relation to information communication technology services, primarily
including cost of hardware sold ; and
    
    general, administrative and other expenses, primarily including provision for
doubtful debts, utilities, general office expenses and travel expenses.
 Critical Accounting Policies
  Significant Accounting Policies
 Revenue Recognition
   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 SMSs, Cool Ringtone, personalized ring, caller number display and
secretarial services to subscribers, is recognized when service is rendered;
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
    
    Standalone sales of telecommunications products, which mainly represent handsets and
accessories, are recognized when title has been passed to the buyers;
    
    For offerings which include the sale of mobile handsets and provision of services,
the amount of revenue allocated to the handset sale is determined using the residual
value method. Under such method, we determine the revenue from the sale of the mobile
handsets by deducting the fair value of the service element from the total contract
consideration. We recognize revenues related to sale of a handset when the title is
passed to the customer whereas service revenues are recognized based upon the actual
usage of mobile services. The cost of the mobile handset is expensed immediately to
the statement of income.
    
    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 are 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.
 Interest income
  Dividend income
  Deferred Revenue, Advances from Customers and Subscriber Points Reward Program
 Deferred revenue
  Advances from customers
  Subscriber points reward program
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Critical Accounting Estimates and Judgments
 Recognition of Upfront Non-refundable Revenue and Direct Incremental Costs
     The Acquisition of Target Business (2009 Business Combination)
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Lease of Telecommunications Networks in Southern China
  PRC Tax Resident Enterprise
   Depreciation on Property, Plant and Equipment
  Revaluation of Property, Plant and Equipment
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Impairment of Non-Current Assets
     Provision for Doubtful Debts
  - 51 -




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Income Tax and Deferred Taxation
    Recently Issued International Financial Reporting Standards/Hong Kong Financial Reporting Standards
   Effective for annualaccounting periodbeginning on or afterIFRS/HKFRS 2 (amendments), Group cash-settled share-based payment transactions
    
    January 1, 2010IFRS/HKFRS 3 (revised), Business combinations
    
    July 1, 2009IFRS/HKFRS 9 Financial instrument
    
    January 1, 2013IAS/HKAS 27 (revised), Consolidated and separate financial statements
    
    July 1, 2009IASBs improvements to IFRS/HKICPAs improvements to HKFRS:IFRS/HKFRS 3 Business combinations
    
    July 1, 2010IFRS/HKFRS 7 Financial instruments: disclosures
    
    January 1, 2011IAS/HKAS 7 (Amendment), Cash flow statements
    
    January 1, 2010IAS/HKAS 17 (Amendment), Leases
    
    January 1, 2010IAS/HKAS 34 Interim financial reporting
    
    January 1, 2011IAS/HKAS 36 (Amendment), Impairment of assets
    
    January 1, 2010
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##### Table of Contents



Effective for annualaccounting periodbeginning on or afterIAS/HKAS 38 (Amendment), Intangible assets
    
    July 1, 2009IFRIC/(HK)IFRIC 13 Customer loyalty programmes
    
    January 1, 2011
   Operating Results
  Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 Revenue
  Mobile Business Revenue
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2008
    
    2009RMB in millions
    
    As % of total
    
    RMB in millions
    
    As % of totalTotal revenue from mobile
business
    
    
    65,131
    
    
    
    100.0
    
    
    
    71,991
    
    
    
    100.0Telecommunications service
revenue
    
    
    64,240
    
    
    
    98.6
    
    
    
    69,769
    
    
    
    97.0Usage fees and monthly fees
    
    
    40,462
    
    
    
    62.1
    
    
    
    42,297
    
    
    
    58.8Value-added service revenue
    
    
    16,263
    
    
    
    25.0
    
    
    
    19,070
    
    
    
    26.5Interconnection revenue
    
    
    6,775
    
    
    
    10.4
    
    
    
    8,220
    
    
    
    11.4Other service revenue
    
    
    740
    
    
    
    1.1
    
    
    
    182
    
    
    
    0.3Other revenue
    
    
    359
    
    
    
    0.6
    
    
    
    252
    
    
    
    0.3Sales of mobile
telecommunications products
    
    
    532
    
    
    
    0.8
    
    
    
    1,970
    
    
    
    2.7
 Usage Fees and Monthly Fees
 Value-Added Service Revenue
 Interconnection Revenue
 Sales of Telecommunications Products
 Fixed-Line Business Revenue
   For the Year Ended December 31,2008
    
    2009RMB in millions
    
    As % of Total
    
    RMB in millions
    
    As % of TotalTotal revenue from fixed-line business(1)
    
    
    92,077
    
    
    
    100.0
    
    
    
    80,863
    
    
    
    100.0
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For the Year Ended December 31,2008
    
    2009RMB in millions
    
    As % of Total
    
    RMB in millions
    
    As % of TotalTelecommunications service revenue(1)
    
    
    86,376
    
    
    
    93.8
    
    
    
    79,059
    
    
    
    97.8Usage fee and monthly fee(1)
    
    
    40,497
    
    
    
    44.0
    
    
    
    34,369
    
    
    
    42.5Fixed-line broadband service revenue
    
    
    20,962
    
    
    
    22.8
    
    
    
    23,898
    
    
    
    29.6Interconnection revenue
    
    
    7,342
    
    
    
    8.0
    
    
    
    5,599
    
    
    
    6.9Value-added service revenue
    
    
    7,074
    
    
    
    7.7
    
    
    
    5,238
    
    
    
    6.5Leased line service revenue
    
    
    5,492
    
    
    
    6.0
    
    
    
    5,683
    
    
    
    7.0Managed data, other internet-related service
revenue
    
    
    2,662
    
    
    
    2.8
    
    
    
    2,466
    
    
    
    3.0Others
    
    
    2,347
    
    
    
    2.5
    
    
    
    1,806
    
    
    
    2.3Information communication technology services and
other revenue
    
    
    4,339
    
    
    
    4.7
    
    
    
    1,611
    
    
    
    2.0Sales of fixed-line telecommunications products
    
    
    1,362
    
    
    
    1.5
    
    
    
    193
    
    
    
    0.2
 
 (1)
    
    Excluding fixed-line upfront connection fees of RMB0.49 billion in 2009 and RMB0.89 billion
in 2008 and interconnection revenue of RMB0.99 billion between certain fixed-line business and
the discontinued operations of CDMA business in 2008. 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. In
addition, upon disposal of the CDMA business in 2008, interconnection revenue between certain
fixed-line business and the discontinued operations of CDMA business will not be recognized
anymore. Therefore, we consider that analyses of our operating results excluding upfront
connection fees and interconnection revenue between certain fixed-line business and the
discontinued operations of CDMA business are more relevant to the readers of this report. Usage Fees and Monthly Fees.
  Fixed-Line Broadband Service Revenue.
 Interconnection Revenue
 Value-Added Service Revenue
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Leased Line Service Revenue
 Managed Data Service and Other Internet-Related Service Revenue
 Others
 Information communication technology services and other revenue.
 Sales of Telecommunications Products
 Costs, Expenses and Others
   For the Year Ended December 31,2008
    
    2009RMB in millions
    
    % of Total
    
    RMB in millions
    
    % of TotalContinuing OperationsTotal
telecommunications services revenue(1)
    
    
    150,953
    
    
    
    100.0
    
    
    
    149,103
    
    
    
    100.0Costs, expenses and others
    
    
    150,139
    
    
    
    99.4
    
    
    
    141,668
    
    
    
    95.0Interconnection charges
    
    
    13,038
    
    
    
    8.6
    
    
    
    12,955
    
    
    
    8.7Depreciation and amortization
    
    
    47,961
    
    
    
    31.8
    
    
    
    47,587
    
    
    
    31.9Networks, operations and support expenses
    
    
    18,736
    
    
    
    12.4
    
    
    
    21,728
    
    
    
    14.6Leasing fee for telecommunications networks in southern China
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    1.3
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For the Year Ended December 31,2008
    
    2009RMB in millions
    
    % of Total
    
    RMB in millions
    
    % of TotalEmployee benefit expenses
    
    
    20,758
    
    
    
    13.8
    
    
    
    21,931
    
    
    
    14.7Selling and marketing
    
    
    19,614
    
    
    
    13.0
    
    
    
    21,020
    
    
    
    14.1Cost in relation to information communication
technology services
    
    
    3,010
    
    
    
    2.0
    
    
    
    839
    
    
    
    0.6General, administrative and other expenses
    
    
    12,968
    
    
    
    8.6
    
    
    
    12,175
    
    
    
    8.2Cost of telecommunications products sold(1)
    
    
    2,156
    
    
    
    1.4
    
    
    
    2,689
    
    
    
    1.8Finance costs, net of interest income
    
    
    2,158
    
    
    
    1.4
    
    
    
    945
    
    
    
    0.6Impairment loss on property, plant and equipment
    
    
    11,837
    
    
    
    7.8
    
    
    
    
    
    
    
    Realized gains on changes in fair value of derivative
financial instrument
    
    
    
    
    
    
    
    
    
    
    (1,239
    )
    
    
    (0.8
    )Other income-net
    
    
    (2,097
    )
    
    
    (1.4
    )
    
    
    (962
    )
    
    
    (0.7
    )
 
 (1)
    
    Excluding fixed-line upfront connection fees of RMB0.49 billion in 2009 and RMB0.89 billion
in 2008 and interconnection revenue of RMB0.99 billion between certain fixed-line business and
the discontinued operations of CDMA business in 2008. Interconnection Charges
 Depreciation and Amortization
 Networks, Operations and Support Expenses
 Leasing Fee for Telecommunications Networks in Southern China.
 Employee Benefit Expenses
 Selling and Marketing Expenses
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Cost in Relation to Information Communication Technology Services
 General, Administrative and Other Expenses
 Cost of Telecommunications Products Sold
 Finance Costs, Net of Interest Income
 Impairment Loss on the PHS Business-Related Assets
   Realised Gain on Changes in Fair Value of Derivative Financial Instrument
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Other Income-Net
 Income Before Income Tax
   (1)
    
    deferred fixed-line upfront connection fees of RMB0.49 billion for 2009 and
RMB0.89 billion for 2008;(2)
    
    gain of RMB0.04 billion from the nonmonetary assets exchange for 2009 and
RMB1.31 billion for 2008;(3)
    
    the lease fee of RMB2.00 billion for the telecommunications networks of 21
provinces in southern China for 2009;(4)
    
    realized gain of RMB1.24 billion on changes in fair value of derivative
financial instrument in 2009; and(5)
    
    impairment loss of RMB11.84 billion on PHS services related equipment in
2008.
  Income Tax
  Net Income for the Year
  Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Revenue
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Mobile Business Revenue
    2007
    
    2008RMB in millions
    
    As % of total
    
    RMB in millions
    
    As % of totalTotal revenue from mobile
business
    
    
    62,437
    
    
    
    100.0
    
    
    
    65,131
    
    
    
    100.0Telecommunications service
revenue
    
    
    62,236
    
    
    
    99.7
    
    
    
    64,240
    
    
    
    98.6Usage fees and monthly fees
    
    
    42,077
    
    
    
    67.4
    
    
    
    40,462
    
    
    
    62.1Value-added service revenue
    
    
    13,528
    
    
    
    21.7
    
    
    
    16,263
    
    
    
    25.0Interconnection revenue
    
    
    5,767
    
    
    
    9.2
    
    
    
    6,775
    
    
    
    10.4Other services revenue
    
    
    864
    
    
    
    1.4
    
    
    
    740
    
    
    
    1.1Other revenue
    
    
    187
    
    
    
    0.3
    
    
    
    359
    
    
    
    0.6Sales of mobile
telecommunications products
    
    
    14
    
    
    
    0.0
    
    
    
    532
    
    
    
    0.8
 Usage Fees and Monthly Fees
 Value-Added Service Revenue
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Interconnection Revenue
 Sales of Telecommunications Products
 Fixed-Line Business Revenue
   For the Year Ended December 31,2007
    
    2008RMB in millions
    
    As % of Total
    
    RMB in millions
    
    As % of TotalTotal
revenue from fixed-line business(1)
    
    
    94,341
    
    
    
    100.0
    
    
    
    92,077
    
    
    
    100.0Telecommunications service revenue(1)
    
    
    88,579
    
    
    
    93.9
    
    
    
    86,376
    
    
    
    93.8Usage fee and monthly fee(1)
    
    
    47,908
    
    
    
    50.8
    
    
    
    40,497
    
    
    
    44.0Fixed-line broadband service revenue
    
    
    16,450
    
    
    
    17.4
    
    
    
    20,962
    
    
    
    22.8Interconnection revenue
    
    
    7,799
    
    
    
    8.3
    
    
    
    7,342
    
    
    
    8.0Value-added service revenue
    
    
    7,084
    
    
    
    7.5
    
    
    
    7,074
    
    
    
    7.7Leased line service revenue
    
    
    4,433
    
    
    
    4.7
    
    
    
    5,492
    
    
    
    6.0Managed data, other
internet-related service revenue
    
    
    2,363
    
    
    
    2.5
    
    
    
    2,662
    
    
    
    2.8Others
    
    
    2,542
    
    
    
    2.7
    
    
    
    2,347
    
    
    
    2.5Information communication technology
services and other revenue
    
    
    4,782
    
    
    
    5.1
    
    
    
    4,339
    
    
    
    4.7Sales of fixed-line
telecommunications products
    
    
    980
    
    
    
    1.0
    
    
    
    1,362
    
    
    
    1.5
 
 (1)
    
    Excluding (i)fixed-line upfront connection fees of RMB0.89 billion and RMB1.52 billion in
2008 and 2007 respectively; (ii) interconnection revenue of RMB0.99 billion and RMB1.00
billion between certain fixed-line business and the discontinued operations of CDMA business
in 2008 and 2007 respectively. 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. In addition, upon disposal
of the CDMA business in 2008, interconnection revenue between certain fixed-line business and
the discontinued operations of CDMA business will not be recognized anymore. Therefore, we
consider that analyses of our operating results excluding upfront connection fees and
interconnection revenue between certain fixed-line business and the discontinued operations of
CDMA business are more relevant to the readers of this report. - 61 -




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##### Table of Contents



Usage Fees and Monthly Fees.
 Fixed-Line Broadband Service Revenue.
 Interconnection Revenue
 Value-Added Service Revenue
 Leased Line Service Revenue
 Managed Data Service and Other Internet-Related Service Revenue
 Others
 Information communication technology services and other revenue.
 Sales of Telecommunications Products
 Costs, Expenses and Others
  - 62 -




---



##### Table of Contents



For the Year Ended December 31,2007
    
    2008RMB in millions
    
    % of Total
    
    RMB in millions
    
    % of TotalContinuing OperationsTotal telecommunications services revenue(1)
    
    
    151,235
    
    
    
    100.0
    
    
    
    150,953
    
    
    
    100.0Costs, expenses and others
    
    
    131,856
    
    
    
    87.1
    
    
    
    150,139
    
    
    
    99.4Interconnection charges
    
    
    12,198
    
    
    
    8.1
    
    
    
    13,038
    
    
    
    8.6Depreciation and amortization
    
    
    47,625
    
    
    
    31.5
    
    
    
    47,961
    
    
    
    31.8Networks, operations and support expenses
    
    
    17,877
    
    
    
    11.8
    
    
    
    18,736
    
    
    
    12.4Employee benefit expenses
    
    
    19,398
    
    
    
    12.8
    
    
    
    20,758
    
    
    
    13.8Selling and marketing
    
    
    19,660
    
    
    
    13.0
    
    
    
    19,614
    
    
    
    13.0Cost in relation to information communication
technology services
    
    
    3,808
    
    
    
    2.5
    
    
    
    3,010
    
    
    
    2.0General, administrative and other expenses
    
    
    11,776
    
    
    
    7.8
    
    
    
    12,968
    
    
    
    8.6Cost of telecommunications products sold
    
    
    1,109
    
    
    
    0.7
    
    
    
    2,156
    
    
    
    1.4Finance costs, net of interest income
    
    
    2,936
    
    
    
    1.9
    
    
    
    2,158
    
    
    
    1.4Impairment loss on property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    11,837
    
    
    
    7.8Realized loss on changes in fair value of derivative
component of convertible bonds
    
    
    569
    
    
    
    0.4
    
    
    
    
    
    
    
    Other income-net
    
    
    (5,100
    )
    
    
    (3.4
    )
    
    
    (2,097
    )
    
    
    (1.4
    )
 
 (1)
    
    Excluding (i) fixed-line upfront connection fee of RMB0.89 billion and RMB1.52 billion in
2008 and 2007, respectively, and (ii) interconnection revenue between certain fixed-line
business and the discontinued operations of CDMA business of RMB0.99 billion and RMB1.00 billion in 2008 and 2007, respectively. Interconnection Charges
 Depreciation and Amortization
 Networks, Operations and Support Expenses
 Employee Benefit Expenses
 - 63 -




---



##### Table of Contents



Selling and Marketing Expenses
 General, Administrative and Other Expenses
 Cost of Telecommunications Products Sold
 Finance Costs, Net of Interest Income
 Impairment Loss on the PHS Business-Related Assets
   Other Income-Net
 - 64 -




---



##### Table of Contents



Income from Continuing Operations before Income Tax
   (1)
    
    deferred fixed-line upfront connection fees of RMB0.89 billion for 2008 and
RMB1.52 billion for 2007;(2)
    
    gain of RMB1.31 billion from the non-monetary assets exchange for 2008 and
RMB0.39 billion for 2007;(3)
    
    tax refund on reinvestment in subsidiaries of RMB4.00 billion in 2007;(4)
    
    realized loss on changes in fair value of derivative component of the
convertible bonds of RMB0.57 billion in 2007; and(5)
    
    impairment loss of RMB11.84 billion on PHS services related equipment in 2008.
   Income Tax
   Income from Continuing Operations
  Income from Discontinued Operations
  Net Income for the Year
  - 65 -




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##### Table of Contents



Liquidity and Capital Resources
 Working Capital and Cash Flows
    For the Year Ended December 31,2007
    
    2008
    
    2009RMB in millions
    
    RMB in millions
    
    RMB in millionsNet cash inflow from operating activities of continuing operations
    
    
    68,854
    
    
    
    57,241
    
    
    
    57,733Net cash outflow from investing activities of continuing operations
    
    
    (47,770
    )
    
    
    (54,742
    )
    
    
    (85,308
    )Net cash (outflow)/inflow from financing activities of continuing
operations
    
    
    (29,805
    )
    
    
    (35,070
    )
    
    
    30,197Net cash (outflow)/inflow from continuing operations
    
    
    (8,721
    )
    
    
    (32,571
    )
    
    
    2,622Net cash inflow /(outflow) from discontinued operations
    
    
    812
    
    
    
    30,145
    
    
    
    (5,039
    )Net decrease in cash and cash equivalents
    
    
    (7,909
    )
    
    
    (2,426
    )
    
    
    (2,417
    )
    - 66 -




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##### Table of Contents



Indebtedness and Capital Structure
  As of December 31,2007
    
    2008
    
    2009(RMB in millions, except percentages)Cash and cash equivalent and short-term bank deposits
    
    
    13,555
    
    
    
    10,574
    
    
    
    8,816Total assets
    
    
    338,222
    
    
    
    348,752
    
    
    
    417,045Short-term debt
    
    
    45,430
    
    
    
    21,996
    
    
    
    66,601Short-term bank loans
    
    
    11,850
    
    
    
    10,780
    
    
    
    63,909Commercial paper
    
    
    20,000
    
    
    
    10,000
    
    
    
    Current portion of long-term bank loans
    
    
    7,411
    
    
    
    1,216
    
    
    
    62Amounts due to related parties
    
    
    6,169
    
    
    
    
    
    
    
    2,104Notes payables included in accounts payable and
accrued liabilities
    
    
    
    
    
    
    
    
    
    
    500Current portion of obligations under finance lease
included in other obligations
    
    
    
    
    
    
    
    
    
    
    26Long-term debt
    
    
    20,046
    
    
    
    7,997
    
    
    
    7,862Corporate bonds
    
    
    2,000
    
    
    
    7,000
    
    
    
    7,000Non current portion of long-term bank loans
    
    
    16,086
    
    
    
    997
    
    
    
    759Amounts due to related parties
    
    
    1,960
    
    
    
    
    
    
    
    Non current portion of obligations under finance lease
    
    
    
    
    
    
    
    
    
    
    103Shareholders equity
    
    
    178,189
    
    
    
    207,727
    
    
    
    206,467Debt-to-capitalization ratio(1)
    
    
    26.9
    %
    
    
    12.6
    %
    
    
    26.5
    %Debt-to-equity ratio(2)
    
    
    36.7
    %
    
    
    14.4
    %
    
    
    36.1
    %
 
 (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.    - 67 -




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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)*
    
    
    64,752
    
    
    
    64,752
    
    
    
    
    
    
    
    
    
    
    
    Long-term bank loans (2)*
    
    
    881
    
    
    
    72
    
    
    
    123
    
    
    
    124
    
    
    
    562Corporate bonds (3)*
    
    
    8,665
    
    
    
    355
    
    
    
    709
    
    
    
    5,372
    
    
    
    2,229Other obligations
    
    
    2,726
    
    
    
    2,537
    
    
    
    117
    
    
    
    12
    
    
    
    60Capital commitments (4)
    
    
    12,840
    
    
    
    11,553
    
    
    
    1,176
    
    
    
    45
    
    
    
    66Operating leases commitments (4)Telecommunications networks leasing
arrangement in 21 provinces in southern China
    
    
    2,200
    
    
    
    2,200
    
    
    
    
    
    
    
    
    
    
    
    Other commitments
    
    
    6,703
    
    
    
    1,909
    
    
    
    2,289
    
    
    
    1,326
    
    
    
    1,179Total obligations
    
    
    98,767
    
    
    
    83,378
    
    
    
    4,414
    
    
    
    6,879
    
    
    
    4,096
 
 *
    
    Interest included(1)
    
    See Note 26 Short-Term Bank Loans to our consolidated financial statements.(2)
    
    See Note 20 Long-Term Bank Loans to our consolidated financial statements.(3)
    
    See Note 21 Corporate Bonds to our consolidated financial statements.(4)
    
    See Note 40 Contingencies and Commitments to our consolidated financial statements. Off-Balance Sheet Arrangements
  - 68 -




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##### Table of Contents



Capital Expenditures
  For the Year Ended December 31,2008(3)
    
    2009
    
    2010(RMB in
    
    As a
    
    (RMB in
    
    As a
    
    (RMB in
    
    As abillions)
    
    percentage
    
    billions)
    
    percentage
    
    billions)
    
    percentage3G mobile
    
    
    
    
    
    
    
    
    
    
    36.40
    
    
    
    32.4
    %
    
    
    23.00
    
    
    
    31.3
    %GSM mobile (1)
    
    
    33.13
    
    
    
    46.8
    %
    
    
    20.58
    
    
    
    18.3
    %
    
    
    8.00
    
    
    
    10.9
    %Fixed-line broadband and data services
    
    
    9.10
    
    
    
    12.8
    %
    
    
    18.80
    
    
    
    16.7
    %
    
    
    15.30
    
    
    
    20.8
    %Fixed-line business
    
    
    0.73
    
    
    
    1.0
    %
    
    
    0.60
    
    
    
    0.5
    %
    
    
    0.60
    
    
    
    0.8
    %Innovation and value-added platform
    
    
    4.15
    
    
    
    5.9
    %
    
    
    2.08
    
    
    
    1.8
    %
    
    
    2.70
    
    
    
    3.7
    %IT system
    
    
    2.41
    
    
    
    3.4
    %
    
    
    6.74
    
    
    
    6.0
    %
    
    
    4.30
    
    
    
    5.9
    %Infrastructure and transmission network
    
    
    18.28
    
    
    
    25.8
    %
    
    
    25.01
    
    
    
    22.2
    %
    
    
    17.40
    
    
    
    23.7
    %Others (2)
    
    
    3.06
    
    
    
    4.3
    %
    
    
    2.26
    
    
    
    2.0
    %
    
    
    2.20
    
    
    
    3.0
    %Total
    
    
    70.86
    
    
    
    100.0
    %
    
    
    112.47
    
    
    
    100.0
    %
    
    
    73.50
    
    
    
    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.(3)
    
    Capital expenditures of 2008 had been restated to reflect the effect of 2009 Business
Combination.    
 Item 6.
    
    Directors, Senior Management and Employees
 A. Directors and Senior Management
  Name
    
    Age
    
    PositionChang Xiaobing
    
    53
    
    Chairman of the Board of Directors and Chief
Executive OfficerLu Yimin
    
    46
    
    Executive Director and PresidentZuo Xunsheng
    
    59
    
    Executive Director and Senior Vice PresidentTong Jilu
    
    52
    
    Executive Director and Chief Financial OfficerCesareo Alierta Izuel
    
    65
    
    Non-Executive Director
 - 69 -




---



##### Table of Contents



Name
    
    Age
    
    PositionLinus Cheung Wing Lam
    
    62
    
    Independent Non-Executive DirectorWong Wai Ming
    
    52
    
    Independent Non-Executive DirectorJohn Lawson Thornton
    
    56
    
    Independent Non-Executive DirectorTimpson Chung Shui Ming
    
    58
    
    Independent Non-Executive DirectorCai Hongbin(1)
    
    43
    
    Independent Non-Executive DirectorLi Jianguo
    
    56
    
    Senior Vice PresidentPei Aihua
    
    59
    
    Senior Vice PresidentZhao Jidong
    
    59
    
    Senior Vice PresidentLi Fushen
    
    47
    
    Senior Vice PresidentLi Gang
    
    52
    
    Senior Vice PresidentZhang Junan
    
    53
    
    Senior Vice PresidentJiang Zhengxin
    
    52
    
    Senior Vice President
 
 (1)
    
    Mr. Cai Hongbin was appointed as an Independent Non-Executive Director of our company on May
13, 2010. Mr. Wu Jinglian retired as Independent Non-Executive Director of our company on May
12, 2010. Mr. Chang Xiaobing
 Mr. Lu Yimin
 Mr. Zuo Xunsheng
 - 70 -




---



##### Table of Contents



Mr. Tong Jilu
 Mr. Cesareo Alierta Izuel
 Mr. Linus Cheung Wing Lam
 Mr. Wong Wai Ming
 - 71 -




---



##### Table of Contents



Mr. John Lawson Thornton
 Mr. Timpson Chung Shui Ming
 Mr. Cai Hongbin
 - 72 -




---



##### Table of Contents



Ms. Li Jianguo
 Mr. Pei Aihua
 Mr. Zhao Jidong
 Mr. Li Fushen
 Mr. Li Gang
 - 73 -




---



##### Table of Contents



Mr. Zhang Junan
 Mr. Jiang Zhengxin
 B. Compensation
  C. Board Practices
 General
  - 74 -




---



##### Table of Contents



Resignation orName
    
    Appointment Date
    
    Re-appointment Date
    
    Retirement DateCurrent DirectorsChang Xiaobing
    
    December 21, 2004
    
    May 12, 2006 andMay 26, 2009
    
    Lu Yimin
    
    October 15, 2008
    
    May 26, 2009
    
    Zuo Xunsheng
    
    October 15, 2008
    
    May 26, 2009 andMay 12, 2010
    
    Tong Jilu
    
    February 1, 2004
    
    May 12, 2004,
May 12, 2006,
May 16, 2008 and
May 12, 2010
    
    Cesareo Alierta Izuel
    
    October 15, 2008
    
    May 26, 2009
    
    Linus Cheung Wing Lam
    
    May 12, 2004
    
    May 12, 2006,
May 16, 2008 and
May 12, 2010
    
    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
    
    Cai Hongbin
    
    May 13, 2010
    
    
    
    Former DirectorsKim Shin Bae
    
    October 15, 2008
    
    
    
    January 22, 2009Jung Man Won
    
    January 22, 2009
    
    May 26, 2009
    
    November 5, 2009Wu Jinglian
    
    April 20, 2000
    
    May 13, 2002,
May 12, 2004,
May 12, 2005 and
May 11, 2007
    
    May 12, 2010
 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;
 - 75 -




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##### Table of Contents




    
    discussing with the auditor any problems and reservations arising from the audit of
the interim and 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
  By Function
    
    Number of EmployeesManagement and administration
    
    
    23,282Sales and customer service
    
    
    65,235Product and Marketing
    
    
    18,612Network construction and maintenance
    
    
    82,149Support
    
    
    27,494Temporary employees
    
    
    105,000Total
    
    
    321,772
 - 76 -




---



##### Table of Contents



E. Share Ownership
  Ordinary
    
    Percentage of TotalName
    
    Capacity and Nature
    
    Shares Held
    
    Issued SharesLinus Cheung Wing
Lam
    
    Beneficial Owner (Personal)
    
    
    400,000
    
    
    
    0.0017
    %Timpson Chung Shui
Ming
    
    Beneficial Owner (Personal)
    
    
    6,000
    
    
    
    0.0000
    %
   Number ofCapacity and
    
    Shares
    
    
    
    Exercise
    
    Consideration
    
    CompensationName
    
    Nature
    
    Covered(1)
    
    Expiration Date
    
    Price
    
    Paid
    
    for 2009(RMB inthousands)DirectorsChang Xiaobing
    
    Beneficial Owner
    
    
    526,000
    
    
    December 20, 2011(3)
    
    
    HK$6.20
    
    
    
    HK$1.00
    
    
    
    2,958(Personal)
    
    
    746,000
    
    
    February 14, 2012
    
    
    HK$6.35
    
    
    
    HK$1.00Lu Yimin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,554Zuo Xunsheng
    
    Beneficial Owner
    
    
    686,894
    
    
    November 16, 2011(3)
    
    
    HK$5.57
    
    
    
    
    
    
    
    2,251(Personal)Tong Jilu
    
    Beneficial Owner
    
    
    292,000
    
    
    June 22, 2011(3)
    
    
    HK$15.42
    
    
    
    HK$1.00
    
    
    
    2,195(Personal)
    
    
    92,000
    
    
    July 19, 2011(3)
    
    
    HK$5.92
    
    
    
    HK$1.00460,000
    
    
    February 14, 2012
    
    
    HK$6.35
    
    
    
    HK$1.00Beneficial Owner
    
    
    32,000
    
    
    July 19, 2011(3)
    
    
    HK$5.92
    
    
    
    HK$1.00(Spouse)
    
    
    40,000
    
    
    February 14, 2012
    
    
    HK$6.35
    
    
    
    HK$1.00Cesareo Alierta Izuel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264Linus Cheung Wing Lam
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344Wong Wai Ming
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    370John Lawson Thornton
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344Timpson Chung Shui Ming
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344Cai Hongbin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/AEmployees(2)
    
    
    
    
    16,977,600
    
    
    June 21, 2010
    
    
    HK$15.42
    
    
    
    HK$1.004,058,000
    
    
    June 22, 2011(3)
    
    
    HK$15.42
    
    
    
    HK$1.008,956,000
    
    
    May 20, 2011(3)
    
    
    HK$4.30
    
    
    
    HK$1.0040,900,000
    
    
    July 19, 2011(3)
    
    
    HK$5.92
    
    
    
    HK$1.00128,000
    
    
    December 20, 2011(3)
    
    
    HK$6.20
    
    
    
    HK$1.00150,310,000
    
    
    February 14, 2012
    
    
    HK$6.35
    
    
    
    HK$1.0099,940,204
    
    
    November 16, 2011(3)
    
    
    HK$5.57
    
    
    
    HK$1.0088,929,468
    
    
    December 5, 2011
    
    
    HK$8.26
    
    
    
    HK$1.00
 - 77 -




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##### Table of Contents



(1)
    
    Each option gives the holder the right to subscribe for one share.(2)
    
    Includes approximately 25,000,000 options held by option holders who were determined by the
Board to be Transferred Personnel under applicable share option schemes due to the transfer
of those option holders to other telecommunications operators as part of the 2008 industry
restructuring.In 2009, the exercise periods of these 25,000,000 options were extended by one year by the
Board pursuant to the amended terms of each of the Pre-Global Offering Share Option Scheme and
the Share Option Scheme. The main reasons for extension were (i) that the holders of those
options were determined by the Board to be Transferred Personnel under the respective terms
of the Pre-Global Offering Share Option Scheme and the Share Option Scheme due to the
transfers of those option holders to other telecommunications operators as part of the 2008
industry restructuring, and (ii) that those options were not exercisable due to a Mandatory
Moratorium under the respective terms of each of the Pre-Global Offering Share Option Scheme
and the Share Option Scheme. In March 2010, due to the Mandatory Moratorium continuing to be
in force, the Board further extended the exercise periods of such options by another year.(3)
    
    The original expiry dates for these options were June 22, 2010, May 20, 2010 (the expiry date
of these options was extended from May 20, 2009 to May 20, 2010 by the Board in 2009 pursuant
to the amended terms of the Share Option Scheme), July 19, 2010, December 20, 2010 and
November 16, 2010, respectively, which were extended to June 22, 2011, May 20, 2011, July 19,
2011, December 20, 2011 and November 16, 2011, respectively, by the Board in March 2010
pursuant to the amended terms of each of the Share Option Scheme and the Special Purpose Share
Option Scheme, because those options were not exercisable due to a Mandatory Moratorium
under the respective terms of each of the Share Option Scheme and the Special Purpose Share
Option Scheme. Stock Incentive Schemes
 Share Option Scheme.
 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.
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Item 7. Major Shareholders and Related Party Transactions
 A. Major Shareholders
   B. Related Party Transactions
      - 79 -




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Continuing Related Party Transactions between China Unicoms Subsidiaries and Unicom Group
 Domestic Interconnection Settlement Agreement
    International Long Distance Voice Services Settlement Agreement
     - 80 -




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Framework Agreement for Interconnection Settlement
      Engineering and Information Technology Services Agreement and Framework Agreement for Engineering
and Information Technology Services
    - 81 -




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Master Sharing Agreement
   (a)
    
    CUCL agrees to provide customer relationship management services for large
enterprise customers of Unicom Group;(b)
    
    CUCL agrees to provide network management services to Unicom Group;(c)
    
    CUCL agrees to share with Unicom 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 CUCL
and Unicom Group;(d)
    
    CUCL agrees to provide to Unicom Group supporting services, such as billing
and settlement provided by CUCLs business support center;(e)
    
    Unicom Group agrees to provide to CUCL supporting services, including
telephone card production, development and certain related services;(f)
    
    Unicom Group agrees to provide to CUCL certain other shared services,
including advertising, publicity, research and development, business hospitality,
maintenance and property management;(g)
    
    Unicom Group agrees to provide certain office space in its headquarters to
CUCL for use as CUCLs principal executive office; and(h)
    
    CUCL and Unicom Group agree to share the revenues received by Unicom Group
from other telecommunications operators whose networks interconnect with the Internet
backbone network of Unicom Group and share the monthly connection fee that Unicom
Group pays to the State Internet Switching Center.
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Property Leasing Agreement and Framework Agreement for Property Leasing
     Materials Procurement Agreement
   (a)
    
    CUCL may request Unicom Group to act as its agent for the procurement of
imported and domestic telecommunications equipment and other domestic
non-telecommunications equipment;(b)
    
    CUCL may purchase from Unicom Group certain products, including cables,
modems and telephone directories; and(c)
    
    Unicom Group agrees to provide to CUCL storage and transportation services
related to the procurement and purchase of materials or equipment under the agreement.
  
    
    the price fixed by the PRC Government;
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
    
    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.
  Ancillary Telecommunications Services Agreement and Framework Agreement for Ancillary
Telecommunications 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.
  Support Services Agreement and Framework Agreement for Support Services
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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 and Framework Agreement for Telecommunication
Facilities Leasing
    (a)
    
    Unicom Group agrees to lease certain inter-provincial fiber optic cables within
CUCLs service regions to CUCL;
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(b)
    
    Unicom 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 CUCL; and(c)
    
    Unicom Group agrees to lease to CUCL certain other telecommunications
facilities required by CUCL for its operations.
  Information and Communications Technology Agreement
   (a)
    
    China Unicom System Integration (and its subsidiaries) agrees to provide
information and communications technology services to Unicom Group (and its
subsidiaries, other than China Unicom 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 Unicom System Integration agrees to subcontract services ancillary to the
provision of information and communications technology services referred to in clause
(a) above, namely, system installation and configuration services, to the subsidiaries
and branches of Unicom Group (other than China Unicom and its subsidiaries) in Unicom
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.
  - 86 -




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
    
    if the value of any single item of system installation and configuration services
provided by Unicom Group (and its subsidiaries, other than China Unicom and its
subsidiaries) to China Unicom 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.
 Amended Continuing Related Party Transactions
   Supply of Telephone Cards
    Provision of Equipment Procurement Services
   - 87 -




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(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
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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
   (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
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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 CUCL and its 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 before the tenth day of each month. CUCL 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.
  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
  Mergers of Parent Companies and Subsidiaries
  Certain Agreements Relating to 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:
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
    
    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 governmental
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;
    
    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.
  Trademark Agreement
 
 Our Roaming Arrangements
  - 92 -




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
    
    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.
  C. Interests of Experts and Counsel
  
 Item 8.
    
    Financial Information
  Legal Proceedings
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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
    
    
    
    24.52
    
    
    
    11.752008
    
    
    19.58
    
    
    
    8.53
    
    
    
    25.07
    
    
    
    10.272009
    
    
    12.34
    
    
    
    6.84
    
    
    
    15.75
    
    
    
    8.72Quarterly:First 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
    
    
    
    8.72Second Quarter, 2009
    
    
    11.86
    
    
    
    7.46
    
    
    
    15.50
    
    
    
    9.86Third Quarter, 2009
    
    
    12.34
    
    
    
    9.91
    
    
    
    15.75
    
    
    
    12.61Fourth Quarter, 2009
    
    
    11.22
    
    
    
    9.63
    
    
    
    14.47
    
    
    
    12.46First Quarter, 2010
    
    
    10.40
    
    
    
    8.31
    
    
    
    13.41
    
    
    
    10.58Monthly:December 2009
    
    
    10.50
    
    
    
    9.63
    
    
    
    13.38
    
    
    
    12.25January 2010
    
    
    10.40
    
    
    
    8.64
    
    
    
    13.41
    
    
    
    10.99February 2010
    
    
    9.31
    
    
    
    8.31
    
    
    
    12.17
    
    
    
    10.58March 2010
    
    
    9.89
    
    
    
    8.74
    
    
    
    12.60
    
    
    
    10.97
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Price per Ordinary Share(HK$)
    
    Price per ADS (US$)High
    
    Low
    
    High
    
    LowApril 2010
    
    
    9.82
    
    
    
    8.84
    
    
    
    12.22
    
    
    
    11.19May 2010
    
    
    9.80
    
    
    
    8.89
    
    
    
    12.37
    
    
    
    11.09June 2010
(through June 17, 2010)
    
    
    9.79
    
    
    
    8.97
    
    
    
    12.7
    
    
    
    11.35
 
 (1)
    
    Trading was suspended from May 23, 2008 to June 2, 2008 (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 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 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;
    
    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
 - 95 -




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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); or
    
    the benefit of employees of Unicom or any of its subsidiaries, including (i) the
adoption, modification or operation of a pension fund or retirement, death or
disability benefits scheme which relates 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 (ii) the adoption, modification or
operation of any employee share scheme involving the issue or grant of options over shares or other securities by Unicom to, or for the benefit of, the employees of Unicom
or its subsidiaries under which the director or any of his associates may benefit.
 Remuneration and Pensions
   Borrowing Powers
  Qualification of Directors
  Rotation of Directors
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Rights Attached to Ordinary Shares
 Voting Rights
     Issue of Shares
   Dividends
    - 97 -




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Winding Up
   Miscellaneous
   Modification of Rights
  Annual General and Extraordinary General Meetings
   Limitations on Rights to Own Securities
  Changes in Capital
  - 98 -




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
    
    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, 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.
    
    Share subscription agreement between us and Telefónica, dated September 6, 2009,
relating to the mutual investment of an equivalent of US$1 billion by the parties in
each other.
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
    
    Strategic Alliance Agreement between us and Telefónica, dated September 6, 2009,
relating to strengthening the business of each of the companies by cooperation based on
the network, business model and experience of each other.
    
    Irrevocable Offer by SK Telecom, dated September 25, 2009, to the Company, for the
sale of our shares held by SK Telecom to us.
    
    Irrevocable voting undertaking from China Netcom Group Corporation (BVI) Limited in
favor of SK Telecom, dated September 25, 2009.
    
    Share Repurchase Agreement, dated November 3, 2009, entered into between the Company
and SK Telecom.
    
    Amendment Agreement to Share Repurchase Agreement, dated November 3, 2009, entered
into between the Company and SK Telecom.
 D. Exchange Controls
   E. Taxation
  Peoples Republic of China
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Taxation of Dividends
    Taxation of Capital Gains
  Additional PRC Tax Considerations
 Stamp duty
 Estate tax
 Hong Kong
 - 101 -




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Taxation of Dividends
  Profits
  Stamp Duty
   Estate Duty
  United States
 United States Federal Income Taxation
  
    
    a dealer in securities or currencies,
    
    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,
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
    
    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 as 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, any States thereof, or
the District of Columbia,
    
    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
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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.
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
    
    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.
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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
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As ofDecemberExpected Maturity
    
    31, 20092010
    
    2011
    
    2012
    
    2013
    
    2014
    
    Thereafter
    
    Total
    
    Fair Value(RMB equivalent in millions, except interest rates)Liabilities:RMB-denominated loansFixed rate
    
    
    55,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,104
    
    
    
    55,104Average rate (1)
    
    
    1.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    HK dollar-denominated loansVariable rate
    
    
    10,909
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,909
    
    
    
    10,909Average rate
    
    
    0.43
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. dollar-denominated loansFixed rate
    
    
    31
    
    
    
    29
    
    
    
    26
    
    
    
    26
    
    
    
    26
    
    
    
    356
    
    
    
    494
    
    
    
    340Average rate
    
    
    0.07
    %
    
    
    0.06
    %
    
    
    0.06
    %
    
    
    0.05
    %
    
    
    0.05
    %
    
    
    0.01
    %
    
    
    
    
    
    
    Euro-denominated loansFixed rate
    
    
    31
    
    
    
    28
    
    
    
    28
    
    
    
    28
    
    
    
    28
    
    
    
    184
    
    
    
    327
    
    
    
    274Average rate
    
    
    0.23
    %
    
    
    0.23
    %
    
    
    0.21
    %
    
    
    0.19
    %
    
    
    0.16
    %
    
    
    0.09
    %
    
    
    
    
    
    
    
 
 (1)
    
    The average interest rates for variable rate loans are calculated based on the rates reported
as of December 31, 2009.  Exchange Rate Risk
     - 107 -




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##### Table of Contents



As ofDecemberExpected Maturity
    
    31, 20092010
    
    2011
    
    2012
    
    2013
    
    2014
    
    Thereafter
    
    Total
    
    FairValue(RMB equivalent in millions)Assets:Cash and cash equivalentsU.S. dollars
    
    
    585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585
    
    
    
    585HK dollars
    
    
    285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    285Japanese yen
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1EURO dollars
    
    
    258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    258
    
    
    
    258GBP
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Short-term bank depositsU.S. dollars
    
    
    336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336
    
    
    
    336HK dollars
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    76Liabilities:U.S. dollar-denominated loans
    
    
    31
    
    
    
    29
    
    
    
    26
    
    
    
    26
    
    
    
    26
    
    
    
    356
    
    
    
    494
    
    
    
    340Euro-denominated loans
    
    
    31
    
    
    
    28
    
    
    
    28
    
    
    
    28
    
    
    
    28
    
    
    
    184
    
    
    
    327
    
    
    
    274HK dollars-denominated loans
    
    
    10,909
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,909
    
    
    
    10,909Off-balance sheet commitments:Capital commitments
authorized and contracted
for in U.S. dollars
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Risk Relating to Available-for-Sale Financial Assets
  
 Item 12. Description of Securities Other than Equity Securities
  - 108 -




---



##### Table of Contents



ADR holders must pay:
    
    For:
    
    US$5.00 (or less) per 100
ADRs (or portion thereof)
    
    
    
    Each issuance of an ADR, including as a
result of a distribution of shares or rights or other
property
    
    Each cancellation of an ADR, including if the
deposit agreement terminates
    
    Each distribution of securities, other than
shares or ADRs, treating the securities as if they
were shares for purpose of calculating fees
    
    US$0.02 (or less) per ADR
    
    
    
    Any cash distribution (not including cash dividend distribution)
    
    Registration or transfer fees
    
    
    
    Transfer and registration of shares on the
share register of our transfer agent and the
registrar in Hong Kong from an ADR holders name to
the name of the depositary or its agent when the ADR
holder deposits or withdraws shares
    
    Expenses of the depositary
    
    
    
    Conversion of Hong Kong dollars to U.S.
dollars
    
    Cable, telex and facsimile transmission
expenses
    
    Servicing of the shares or deposited
securities
    
    Taxes and other
governmental charges the depositary
or the custodian has to pay on any
ADR or share underlying an ADR, for
example, stock transfer taxes,
stamp duty or withholding taxes
    
    
    
    As necessary
  - 109 -




---



##### Table of Contents



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
    Changes in Internal Control Over Financial Reporting
  - 110 -




---



##### Table of Contents



Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  
 Item 16C. Principal Accountant Fees and Services
  For the Year EndedDecember 31,2008
    
    2009(in RMB thousands)Audit services
    
    
    106,850
    
    
    
    73,200Audit-related services
    
    
    23,347
    
    
    
    2,200Tax services
    
    
    111
    
    
    
    560Other
    
    
    165
    
    
    
    472Total
    
    
    130,473
    
    
    
    76,432
     - 111 -




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##### Table of Contents



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
  
 Item 16G. Corporate Governance
     - 112 -




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##### Table of Contents



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).(12)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)
 - 113 -




---



##### Table of Contents



ExhibitNumber
    
    Description of Exhibit4.3
    
    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, 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)4.14
    
    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)(12)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)
 - 114 -




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit4.24
    
    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.(12)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.(12)4.28
    
    Domestic Interconnection Settlement Agreement between CNC China and Netcom Group, dated November 6,
2007. (English translation)(12)4.29
    
    International Long Distance Voice Services Settlement Agreement between CNC China and Netcom Group,
dated November 6, 2007.(English translation)(12)4.30
    
    Engineering and Information Technology Services Agreement between CNC China and Netcom Group, dated
November 6, 2007.(English translation)(12)4.31
    
    Master Sharing Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)(12)4.32
    
    Property Leasing Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)(12)4.33
    
    Materials Procurement Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)(12)4.34
    
    Ancillary Telecommunications Services Agreement between CNC China and Netcom Group, dated November
6, 2007. (English translation)(12)4.35
    
    Support Services Agreement between CNC China and Netcom Group, dated November 6, 2007. (English
translation)(12)4.36
    
    Telecommunications Facilities Leasing Agreement between CNC China and Netcom Group, dated November
6, 2007. (English translation)(12)4.37
    
    Information and Communications Technology Agreement between China Netcom System Integration and
Netcom Group, dated November 6, 2007. (English translation)(12)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)(12)4.40
    
    Framework Agreement for Engineering and Information Technology Services between CUCL and Netcom
Group, dated August 12, 2008. (English translation)(12)4.41
    
    Framework Agreement for Property Leasing Services between CUCL and Netcom Group, dated August 12,
2008. (English translation)(12)4.42
    
    Framework Agreement for Ancillary Telecommunications Services between CUCL and Netcom Group, dated
August 12, 2008. (English translation)(12)4.43
    
    Framework Agreement for Support Services between CUCL and Netcom Group, dated August 12, 2008.
(English translation)(12)4.44
    
    Framework Agreement for Telecommunications Facilities Leasing between CUCL and Netcom Group, dated
August 12, 2008. (English translation)(12)
 - 115 -




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit4.45
    
    Comprehensive Services Agreement between Unicom Group and the A Share Company, dated August 12,
2008. (English translation)(12)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)(12)4.47
    
    Merger Agreement between CUCL and CNC China, relating to the merger between CUCL and CNC China,
dated October 15, 2008. (English translation)(12)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.(12)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.(12)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.(12)4.51
    
    Subscription Agreement between China Unicom (Hong Kong) Limited and Telefónica S.A., dated September
6, 2009. *4.52
    
    Strategic Alliance Agreement between us and Telefónica, dated September 6, 2009.*4.53
    
    Irrevocable Offer by SK Telecom, dated September 25, 2009.*4.54
    
    Irrevocable voting undertaking from China Netcom Group Corporation (BVI) Limited in favor of SK
Telecom, dated September 25, 2009.*4.55
    
    Share Repurchase Agreement, dated November 3, 2009.*4.56
    
    Amendment Agreement to Share Repurchase Agreement, dated November 3, 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).*
  
 (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. - 116 -




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##### Table of Contents



(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.(12)
    
    Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2008.*
    
    Filed herewith. - 117 -




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##### Table of Contents



SIGNATURE
   CHINA UNICOM (HONG KONG) LIMITEDBy:
    /s/ Chang XiaobingName:
    Chang XiaobingTitle:
    Chairman and Chief Executive Officer - 118 -




---



##### 



INDEX OF CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting FirmConsolidated balance sheets as of December 31, 2008 and 2009Consolidated statements of income for the years ended December 31, 2007, 2008 and 2009Consolidated statements of comprehensive income for the years ended December 31, 2007, 2008 and 2009Consolidated statements of changes in equity for the years ended December 31, 2007, 2008 and 2009Consolidated statements of cash flows for the years ended December 31, 2007, 2008 and 2009Notes to the consolidated financial statements
  F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
CHINA UNICOM (HONG KONG) 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
   /s/ PricewaterhouseCoopers
 
 F-2




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2008 AND 2009
 (All amounts in Renminbi (RMB) millions)
 As of December 312008As restatedNote
    
    (Note 2.2 (a))
    
    2009
    
    2009RMB
    
    RMB
    
    US$ASSETSNon-current assetsProperty, plant and equipment
    
    
    6
    
    
    
    285,469
    
    
    
    351,157
    
    
    
    51,445Lease prepayments
    
    
    7
    
    
    
    7,863
    
    
    
    7,729
    
    
    
    1,132Goodwill
    
    
    8
    
    
    
    2,771
    
    
    
    2,771
    
    
    
    406Deferred income tax assets
    
    
    9
    
    
    
    5,334
    
    
    
    5,202
    
    
    
    762Available-for-sale financial assets
    
    
    12
    
    
    
    95
    
    
    
    7,977
    
    
    
    1,168Other assets
    
    
    10
    
    
    
    9,087
    
    
    
    11,596
    
    
    
    1,699310,619
    
    
    
    386,432
    
    
    
    56,612Current assetsInventories and consumables
    
    
    13
    
    
    
    1,092
    
    
    
    2,412
    
    
    
    353Accounts receivable, net
    
    
    14
    
    
    
    9,341
    
    
    
    8,825
    
    
    
    1,293Prepayments and other current assets
    
    
    15
    
    
    
    2,715
    
    
    
    4,252
    
    
    
    623Amounts due from ultimate holding company
    
    
    39.1
    
    
    
    169
    
    
    
    
    
    
    
    Amounts due from related parties
    
    
    39.1
    
    
    
    128
    
    
    
    53
    
    
    
    8Amounts due from domestic carriers
    
    
    39.2
    
    
    
    974
    
    
    
    1,134
    
    
    
    166Proceeds receivable for disposal of the
CDMA business
    
    
    35, 39.2
    
    
    
    13,140
    
    
    
    5,121
    
    
    
    750Short-term bank deposits
    
    
    16
    
    
    
    337
    
    
    
    996
    
    
    
    146Cash and cash equivalents
    
    
    17
    
    
    
    10,237
    
    
    
    7,820
    
    
    
    1,14638,133
    
    
    
    30,613
    
    
    
    4,485Total assets
    
    
    
    
    
    
    348,752
    
    
    
    417,045
    
    
    
    61,097EQUITYCapital and reserves attributable to
equity holders of the CompanyShare capital
    
    
    18
    
    
    
    2,329
    
    
    
    2,310
    
    
    
    339Share premium
    
    
    18
    
    
    
    166,784
    
    
    
    173,435
    
    
    
    25,408Reserves
    
    
    19
    
    
    
    (15,464
    )
    
    
    (18,088
    )
    
    
    (2,650
    )Retained profits Proposed final dividend
    
    
    36
    
    
    
    4,754
    
    
    
    3,770
    
    
    
    552 Others
    
    
    
    
    
    
    49,322
    
    
    
    45,038
    
    
    
    6,598207,725
    
    
    
    206,465
    
    
    
    30,247Minority interest in equity
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    Total equity
    
    
    
    
    
    
    207,727
    
    
    
    206,467
    
    
    
    30,247
  F-3




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED BALANCE SHEETS (Continued)
AS OF DECEMBER 31, 2008 AND 2009
(All amounts in RMB millions)
 As of December 312008As restatedNote
    
    (Note 2.2 (a))
    
    2009
    
    2009RMB
    
    RMB
    
    US$LIABILITIESNon-current liabilitiesLong-term bank loans
    
    
    20
    
    
    
    997
    
    
    
    759
    
    
    
    111Corporate bonds
    
    
    21
    
    
    
    7,000
    
    
    
    7,000
    
    
    
    1,026Deferred income tax liabilities
    
    
    9
    
    
    
    16
    
    
    
    245
    
    
    
    36Deferred revenue
    
    
    
    
    
    
    3,398
    
    
    
    2,562
    
    
    
    375Other obligations
    
    
    23
    
    
    
    1,681
    
    
    
    187
    
    
    
    2713,092
    
    
    
    10,753
    
    
    
    1,575Current liabilitiesAccounts payable and accrued liabilities
    
    
    24
    
    
    
    67,509
    
    
    
    104,072
    
    
    
    15,247Taxes payable
    
    
    
    
    
    
    11,307
    
    
    
    912
    
    
    
    134Amounts due to ultimate holding company
    
    
    39.1
    
    
    
    
    
    
    
    308
    
    
    
    45Amounts due to related parties
    
    
    39.1
    
    
    
    1,658
    
    
    
    5,438
    
    
    
    797Amounts due to domestic carriers
    
    
    39.2
    
    
    
    956
    
    
    
    1,136
    
    
    
    166Payables in relation to disposal of the CDMA business
    
    
    39.2
    
    
    
    4,232
    
    
    
    7
    
    
    
    1Dividend payable
    
    
    36
    
    
    
    149
    
    
    
    331
    
    
    
    48Commercial paper
    
    
    25
    
    
    
    10,000
    
    
    
    
    
    
    
    Short-term bank loans
    
    
    26
    
    
    
    10,780
    
    
    
    63,909
    
    
    
    9,363Current portion of long-term bank loans
    
    
    20
    
    
    
    1,216
    
    
    
    62
    
    
    
    9Current portion of deferred revenue
    
    
    
    
    
    
    2,200
    
    
    
    1,397
    
    
    
    205Current portion of other obligations
    
    
    23
    
    
    
    3,012
    
    
    
    2,534
    
    
    
    371Advances from customers
    
    
    
    
    
    
    14,914
    
    
    
    19,719
    
    
    
    2,889127,933
    
    
    
    199,825
    
    
    
    29,275Total liabilities
    
    
    
    
    
    
    141,025
    
    
    
    210,578
    
    
    
    30,850Total equity and liabilities
    
    
    
    
    
    
    348,752
    
    
    
    417,045
    
    
    
    61,097Net current liabilities
    
    
    
    
    
    
    (89,800
    )
    
    
    (169,212
    )
    
    
    (24,790
    )Total assets less current liabilities
    
    
    
    
    
    
    220,819
    
    
    
    217,220
    
    
    
    31,822
  F-4




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 
 CONSOLIDATED STATEMENTS OF INCOME
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (All amounts in RMB millions, except per share data)
 Year ended December 312007
    
    2008As restated
    
    As restatedNote
    
    (Note 2.2(a))
    
    (Note 2.2 (a))
    
    2009
    
    2009Continuing operations
    
    
    
    
    
    RMB
    
    RMB
    
    RMB
    
    US$Revenue
    
    
    5, 27, 39
    
    
    
    159,940
    
    
    
    159,792
    
    
    
    153,945
    
    
    
    22,553Interconnection charges
    
    
    
    
    
    
    (12,198
    )
    
    
    (13,038
    )
    
    
    (12,955
    )
    
    
    (1,898
    )Depreciation and amortization
    
    
    
    
    
    
    (47,625
    )
    
    
    (47,961
    )
    
    
    (47,587
    )
    
    
    (6,971
    )Networks, operations and support
expenses
    
    
    28
    
    
    
    (17,877
    )
    
    
    (18,736
    )
    
    
    (21,728
    )
    
    
    (3,183
    )Leasing fee for telecommunications
networks in Southern China
    
    
    4.2
    (b)
    
    
    
    
    
    
    
    
    
    
    (2,000
    )
    
    
    (293
    )Employee benefit expenses
    
    
    29
    
    
    
    (19,398
    )
    
    
    (20,758
    )
    
    
    (21,931
    )
    
    
    (3,213
    )Other operating expenses
    
    
    30
    
    
    
    (36,353
    )
    
    
    (37,748
    )
    
    
    (36,723
    )
    
    
    (5,380
    )Finance costs
    
    
    31
    
    
    
    (3,241
    )
    
    
    (2,423
    )
    
    
    (1,036
    )
    
    
    (152
    )Interest income
    
    
    
    
    
    
    305
    
    
    
    265
    
    
    
    91
    
    
    
    13Impairment loss on property, plant
and equipment
    
    
    6
    
    
    
    
    
    
    
    (11,837
    )
    
    
    
    
    
    
    Realized loss on changes in fair
value of derivative component of
convertible bonds
    
    
    22
    
    
    
    (569
    )
    
    
    
    
    
    
    
    
    
    
    Realized gain on changes in fair
value of derivative financial
instrument
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    1,239
    
    
    
    182Other income  net
    
    
    33
    
    
    
    5,100
    
    
    
    2,097
    
    
    
    962
    
    
    
    141Income from continuing operations
before income tax
    
    
    
    
    
    
    28,084
    
    
    
    9,653
    
    
    
    12,277
    
    
    
    1,799Income tax expenses
    
    
    9
    
    
    
    (7,175
    )
    
    
    (1,828
    )
    
    
    (2,721
    )
    
    
    (399
    )Income from continuing operations
    
    
    
    
    
    
    20,909
    
    
    
    7,825
    
    
    
    9,556
    
    
    
    1,400Discontinued operationsIncome from discontinued operations
    
    
    35
    
    
    
    656
    
    
    
    1,438
    
    
    
    
    
    
    
    Gain on disposal of discontinued
operations
    
    
    35
    
    
    
    
    
    
    
    26,135
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    21,565
    
    
    
    35,398
    
    
    
    9,556
    
    
    
    1,400Attributable to:Equity holders of the Company
    
    
    
    
    
    
    21,565
    
    
    
    35,398
    
    
    
    9,556
    
    
    
    1,400Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,565
    
    
    
    35,398
    
    
    
    9,556
    
    
    
    1,400
  F-5




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF INCOME (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(All amounts in RMB millions, except per share data)
 Year ended December 312007
    
    2008As restated
    
    As restatedNote
    
    (Note 2.2 (a))
    
    (Note 2.2 (a))
    
    2009
    
    2009RMB
    
    RMB
    
    RMB
    
    US$Earnings per share for income attributable to equity
holders of the Company during the yearBasic earnings per share (RMB)
    
    
    37
    
    
    
    0.93
    
    
    
    1.49
    
    
    
    0.40
    
    
    
    0.06Diluted earnings per share (RMB)
    
    
    37
    
    
    
    0.92
    
    
    
    1.48
    
    
    
    0.40
    
    
    
    0.06Earnings per ADS for income attributable to
equity holders of the Company during the yearBasic earnings per ADS (RMB)
    
    
    37
    
    
    
    9.35
    
    
    
    14.90
    
    
    
    4.02
    
    
    
    0.59Diluted earnings per ADS (RMB)
    
    
    37
    
    
    
    9.25
    
    
    
    14.79
    
    
    
    4.00
    
    
    
    0.59Earnings per share for income from continuing
operations attributable to equity holders of the
Company during the yearBasic earnings per share (RMB)
    
    
    37
    
    
    
    0.90
    
    
    
    0.33
    
    
    
    0.40
    
    
    
    0.06Diluted earnings per share (RMB)
    
    
    37
    
    
    
    0.89
    
    
    
    0.33
    
    
    
    0.40
    
    
    
    0.06Earnings per ADS for income from continuing
operations attributable to equity holders of the
Company during the yearBasic earnings per ADS (RMB)
    
    
    37
    
    
    
    9.06
    
    
    
    3.29
    
    
    
    4.02
    
    
    
    0.59Diluted earnings per ADS (RMB)
    
    
    37
    
    
    
    8.97
    
    
    
    3.27
    
    
    
    4.00
    
    
    
    0.59Earnings per share for income from discontinued
operations attributable to equity holders of the
Company during the yearBasic earnings per share (RMB)
    
    
    37
    
    
    
    0.03
    
    
    
    1.16
    
    
    
    
    
    
    
    Diluted earnings per share (RMB)
    
    
    37
    
    
    
    0.03
    
    
    
    1.15
    
    
    
    
    
    
    
    Earnings per ADS for income from discontinued
operations attributable to equity holders of the
Company during the yearBasic earnings per ADS (RMB)
    
    
    37
    
    
    
    0.29
    
    
    
    11.61
    
    
    
    
    
    
    
    Diluted earnings per ADS (RMB)
    
    
    37
    
    
    
    0.28
    
    
    
    11.52
    
    
    
    
    
    
    
    
   F-6




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (All amounts in RMB millions)
 Year ended December 312007
    
    2008
    
    2009
    
    2009RMB
    
    RMB
    
    RMB
    
    US$Net income
    
    
    21,565
    
    
    
    35,398
    
    
    
    9,556
    
    
    
    1,400Other comprehensive
income/(loss)Fair value gains/(losses) on
available-for-sale
financial assets
    
    
    246
    
    
    
    (188
    )
    
    
    (71
    )
    
    
    (10
    )Tax effect on fair value
(gains)/losses on
available-for-sale financial
assets
    
    
    (81
    )
    
    
    47
    
    
    
    33
    
    
    
    5Fair value gains/(losses) on
available-for-sale financial
assets, net of tax
    
    
    165
    
    
    
    (141
    )
    
    
    (38
    )
    
    
    (5
    )Currency translation differences
    
    
    (15
    )
    
    
    (29
    )
    
    
    
    
    
    
    Other comprehensive
income/(loss) for the year, net
of tax
    
    
    150
    
    
    
    (170
    )
    
    
    (38
    )
    
    
    (5
    )Total comprehensive income for
the year
    
    
    21,715
    
    
    
    35,228
    
    
    
    9,518
    
    
    
    1,395Total comprehensive income
attributable to:Equity holders of the Company
    
    
    21,715
    
    
    
    35,228
    
    
    
    9,518
    
    
    
    1,395Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,715
    
    
    
    35,228
    
    
    
    9,518
    
    
    
    1,395
  F-7




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (All amounts in RMB millions)
 Attributable to equity holders of the CompanyEmployee
    
    
    
    
    
    Available-share-based
    
    
    
    
    
    for-sale fairShare
    
    Share
    
    compensation
    
    Revaluation
    
    value
    
    Statutory
    
    Other
    
    Retained
    
    
    
    
    
    Minority
    
    Totalcapital
    
    premium
    
    reserve
    
    reserve
    
    reserve
    
    reserves
    
    Reserve
    
    profits
    
    Total
    
    interest
    
    equityBalance at January 1, 2007
(As previously reported)
    
    
    1,344
    
    
    
    53,223
    
    
    
    389
    
    
    
    3,150
    
    
    
    
    
    
    
    14,830
    
    
    
    41,116
    
    
    
    39,214
    
    
    
    153,266
    
    
    
    3
    
    
    
    153,269Adjusted for 2009 Business Combination
under common control (Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    1
    
    
    
    827
    
    
    
    4,957
    
    
    
    (6,467
    )
    
    
    (643
    )
    
    
    4
    
    
    
    (639
    )Balance at January 1, 2007
(As restated)
    
    
    1,344
    
    
    
    53,223
    
    
    
    389
    
    
    
    3,189
    
    
    
    1
    
    
    
    15,657
    
    
    
    46,073
    
    
    
    32,747
    
    
    
    152,623
    
    
    
    7
    
    
    
    152,630Total comprehensive income/(loss) for
the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165
    
    
    
    
    
    
    
    (15
    )
    
    
    21,565
    
    
    
    21,715
    
    
    
    
    
    
    
    21,715Transfer to retained profits in respect
of depreciation on revalued assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,179
    )
    
    
    
    
    
    
    
    
    
    
    (84
    )
    
    
    2,263
    
    
    
    
    
    
    
    
    
    
    
    Effect of change of statutory income tax
rate on deferred tax recognized in
equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    19
    
    
    
    
    
    
    
    (664
    )
    
    
    
    
    
    
    (510
    )
    
    
    
    
    
    
    (510
    )Consideration for purchase of 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 net income 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 reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,517
    
    
    
    
    
    
    
    (1,517
    )
    
    
    
    
    
    
    
    
    
    
    Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,591
    
    
    
    
    
    
    
    (1,591
    )
    
    
    
    
    
    
    
    
    
    
    Equity-settled share option schemes:Value of employee services
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    216Issuance of shares upon exercise of
options (Note 34)
    
    
    5
    
    
    
    366
    
    
    
    (89
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    532
    
    
    
    
    
    
    
    532Conversion of convertible bonds (Note
22)
    
    
    88
    
    
    
    10,731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,819
    
    
    
    
    
    
    
    10,819Dividends relating to 2006 (Note 36)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,885
    )
    
    
    (5,885
    )
    
    
    
    
    
    
    (5,885
    )Balance at December 31, 2007
(As restated)
    
    
    1,437
    
    
    
    64,320
    
    
    
    516
    
    
    
    1,145
    
    
    
    185
    
    
    
    18,765
    
    
    
    61,670
    
    
    
    30,144
    
    
    
    178,182
    
    
    
    7
    
    
    
    178,189
  F-8




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(All amounts in RMB millions)
 Attributable to equity holders of the CompanyEmployee
    
    
    
    
    
    Available-share-based
    
    
    
    
    
    for-sale fairShare
    
    Share
    
    compensation
    
    Revaluation
    
    value
    
    Statutory
    
    Other
    
    Retained
    
    
    
    
    
    Minority
    
    Totalcapital
    
    premium
    
    reserve
    
    reserve
    
    reserve
    
    reserves
    
    Reserve
    
    profits
    
    Total
    
    interest
    
    equityBalance at January 1, 2008
(As previously reported)
    
    
    1,437
    
    
    
    64,320
    
    
    
    516
    
    
    
    1,113
    
    
    
    
    
    
    
    17,933
    
    
    
    56,713
    
    
    
    36,480
    
    
    
    178,512
    
    
    
    4
    
    
    
    178,516Adjusted for 2009 Business
Combination under common control
(Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    185
    
    
    
    832
    
    
    
    4,957
    
    
    
    (6,336
    )
    
    
    (330
    )
    
    
    3
    
    
    
    (327
    )Balance at January 1, 2008
(As restated)
    
    
    1,437
    
    
    
    64,320
    
    
    
    516
    
    
    
    1,145
    
    
    
    185
    
    
    
    18,765
    
    
    
    61,670
    
    
    
    30,144
    
    
    
    178,182
    
    
    
    7
    
    
    
    178,189Total comprehensive (loss)/income
for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    (29
    )
    
    
    35,398
    
    
    
    35,228
    
    
    
    
    
    
    
    35,228Effect of 2009 Business Combination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201
    )
    
    
    2,062
    
    
    
    (1,861
    )
    
    
    
    
    
    
    
    
    
    
    Transfer to retained profits in
respect of depreciation on revalued
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (984
    )
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    1,054
    
    
    
    
    
    
    
    
    
    
    
    Transfer to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    886
    
    
    
    
    
    
    
    (886
    )
    
    
    
    
    
    
    
    
    
    
    Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,542
    
    
    
    
    
    
    
    (3,542
    )
    
    
    
    
    
    
    
    
    
    
    Equity-settled share option schemes:Value of employee services
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96Issuance of shares upon exercise
of options (Note 34)
    
    
    3
    
    
    
    252
    
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    450Issuance of shares in connection
with 2008 Business Combination
(Note 1)
    
    
    889
    
    
    
    102,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103,101
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transfer out upon disposal of the
CDMA business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Dividends relating to 2007 (Note 36)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,231
    )
    
    
    (6,231
    )
    
    
    
    
    
    
    (6,231
    )Balance at December 31, 2008
(As restated)
    
    
    2,329
    
    
    
    166,784
    
    
    
    540
    
    
    
    161
    
    
    
    44
    
    
    
    22,992
    
    
    
    (39,201
    )
    
    
    54,076
    
    
    
    207,725
    
    
    
    2
    
    
    
    207,727
  F-9




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (All amounts in RMB millions)
 Attributable to equity holders of the CompanyEmployeeCapital
    
    share-based
    
    
    
    
    
    Available forShare
    
    Share
    
    redemption
    
    compensation
    
    Revaluation
    
    -sale fair value
    
    Statutory
    
    Other
    
    Retained
    
    
    
    
    
    Minority
    
    Totalcapital
    
    premium
    
    reserve
    
    reserve
    
    reserve
    
    reserve
    
    reserves
    
    Reserve
    
    profits
    
    Total
    
    interest
    
    equityBalance at January 1, 2009
(As previously reported)
    
    
    2,329
    
    
    
    166,784
    
    
    
    
    
    
    
    540
    
    
    
    136
    
    
    
    
    
    
    
    22,361
    
    
    
    (46,220
    )
    
    
    60,780
    
    
    
    206,710
    
    
    
    
    
    
    
    206,710Adjusted for 2009 Business Combination under
common control (Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    44
    
    
    
    631
    
    
    
    7,019
    
    
    
    (6,704
    )
    
    
    1,015
    
    
    
    2
    
    
    
    1,017Balance at January 1, 2009
(As restated)
    
    
    2,329
    
    
    
    166,784
    
    
    
    
    
    
    
    540
    
    
    
    161
    
    
    
    44
    
    
    
    22,992
    
    
    
    (39,201
    )
    
    
    54,076
    
    
    
    207,725
    
    
    
    2
    
    
    
    207,727Total comprehensive (loss)/income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    9,556
    
    
    
    9,518
    
    
    
    
    
    
    
    9,518Transfer of profit of entities under common
control to Unicom Group in relation to 2009
Business Combination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    (64
    )
    
    
    
    
    
    
    (64
    )Consideration for 2009 Business Combination
under common control (Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,896
    )
    
    
    
    
    
    
    (3,896
    )
    
    
    
    
    
    
    (3,896
    )Transfer to retained profits in respect of
depreciation on revalued assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    Transfer to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    490
    
    
    
    
    
    
    
    (490
    )
    
    
    
    
    
    
    
    
    
    
    Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    769
    
    
    
    
    
    
    
    (769
    )
    
    
    
    
    
    
    
    
    
    
    Equity-settled share option schemes:Value of employee services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    27Issuance of shares for mutual investment by
the Company and Telefónica
(Note 18 & Note 32)
    
    
    60
    
    
    
    6,651
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,711
    
    
    
    
    
    
    
    6,711Off-market share repurchase (Note 18)
    
    
    (79
    )
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,802
    )
    
    
    (8,802
    )
    
    
    
    
    
    
    (8,802
    )Dividends relating to 2008 (Note 36)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,754
    )
    
    
    (4,754
    )
    
    
    
    
    
    
    (4,754
    )Balance at December 31, 2009
    
    
    2,310
    
    
    
    173,435
    
    
    
    79
    
    
    
    567
    
    
    
    106
    
    
    
    6
    
    
    
    24,251
    
    
    
    (43,097
    )
    
    
    48,808
    
    
    
    206,465
    
    
    
    2
    
    
    
    206,467
  F-10




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (All amounts in RMB millions)
 Year ended December 312007
    
    2008As restated
    
    As restatedNote
    
    (Note 2.2 (a))
    
    (Note 2.2 (a))
    
    2009
    
    2009RMB
    
    RMB
    
    RMB
    
    US$Cash flows from operating activitiesCash generated from continuing operations
    
    
    (a
    )
    
    
    80,252
    
    
    
    67,794
    
    
    
    63,990
    
    
    
    9,375Interest received
    
    
    
    
    
    
    308
    
    
    
    269
    
    
    
    93
    
    
    
    14Interest paid
    
    
    
    
    
    
    (3,511
    )
    
    
    (3,011
    )
    
    
    (1,681
    )
    
    
    (246
    )Income tax paid
    
    
    
    
    
    
    (8,195
    )
    
    
    (7,811
    )
    
    
    (4,669
    )
    
    
    (684
    )Net cash inflow from operating
activities of continuing operations
    
    
    
    
    
    
    68,854
    
    
    
    57,241
    
    
    
    57,733
    
    
    
    8,459Net cash inflow from operating
activities of discontinued operations
    
    
    35
    
    
    
    837
    
    
    
    656
    
    
    
    
    
    
    
    Net cash inflow from operating activities
    
    
    
    
    
    
    69,691
    
    
    
    57,897
    
    
    
    57,733
    
    
    
    8,459Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (41,934
    )
    
    
    (48,127
    )
    
    
    (78,130
    )
    
    
    (11,446
    )Proceeds from disposal of property,
plant and equipment and other assets
    
    
    
    
    
    
    148
    
    
    
    488
    
    
    
    611
    
    
    
    90Dividends received from
available-for-sale financial assets
    
    
    
    
    
    
    4
    
    
    
    3
    
    
    
    177
    
    
    
    26Consideration for purchase of business
and entities under common control
    
    
    
    
    
    
    (3,139
    )
    
    
    (5,880
    )
    
    
    (3,896
    )
    
    
    (571
    )(Increase)/decrease in short-term bank deposits
    
    
    
    
    
    
    (433
    )
    
    
    415
    
    
    
    (659
    )
    
    
    (97
    )Purchase of other assets
    
    
    
    
    
    
    (2,416
    )
    
    
    (1,641
    )
    
    
    (3,411
    )
    
    
    (500
    )Net cash outflow from investing
activities of continuing operations
    
    
    
    
    
    
    (47,770
    )
    
    
    (54,742
    )
    
    
    (85,308
    )
    
    
    (12,498
    )Net cash (outflow) /inflow from
investing activities of discontinued
operations
    
    
    35
    
    
    
    (25
    )
    
    
    29,489
    
    
    
    (5,039
    )
    
    
    (738
    )Net cash outflow from investing
activities
    
    
    
    
    
    
    (47,795
    )
    
    
    (25,253
    )
    
    
    (90,347
    )
    
    
    (13,236
    )
  F-11




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (All amounts in RMB millions)
 Year ended 31 December2007
    
    2008As restated
    
    As restatedNote
    
    (Note 2.2 (a))
    
    (Note 2.2 (a))
    
    2009
    
    2009RMB
    
    RMB
    
    RMB
    
    US$Cash flows from financing activitiesProceeds from exercise of share options
    
    
    
    
    
    
    532
    
    
    
    450
    
    
    
    
    
    
    
    Proceeds from commercial paper
    
    
    
    
    
    
    20,000
    
    
    
    10,000
    
    
    
    
    
    
    
    Proceeds from short-term bank loans
    
    
    
    
    
    
    63,837
    
    
    
    50,714
    
    
    
    96,204
    
    
    
    14,094Proceeds from long-term bank loans
    
    
    
    
    
    
    2,559
    
    
    
    2,888
    
    
    
    
    
    
    
    Proceeds from issuance of corporate bonds
    
    
    
    
    
    
    2,000
    
    
    
    5,000
    
    
    
    
    
    
    
    Proceeds from related party loans
    
    
    
    
    
    
    2,249
    
    
    
    
    
    
    
    2,114
    
    
    
    310Repayment of commercial paper
    
    
    
    
    
    
    (16,646
    )
    
    
    (20,000
    )
    
    
    (10,000
    )
    
    
    (1,465
    )Repayment of short-term bank loans
    
    
    
    
    
    
    (82,965
    )
    
    
    (51,784
    )
    
    
    (43,075
    )
    
    
    (6,311
    )Repayment of long-term bank loans
    
    
    
    
    
    
    (13,416
    )
    
    
    (23,832
    )
    
    
    (1,406
    )
    
    
    (206
    )Repayment of capital element of finance
lease payments
    
    
    
    
    
    
    (890
    )
    
    
    (101
    )
    
    
    
    
    
    
    Repayment of related party loans
    
    
    
    
    
    
    
    
    
    
    (2,222
    )
    
    
    
    
    
    
    Payment of prior year profit transfer
    
    
    
    
    
    
    (1,180
    )
    
    
    (101
    )
    
    
    (266
    )
    
    
    (39
    )Consideration for off-market share repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,802
    )
    
    
    (1,290
    )Dividends paid to equity holders
    
    
    36
    
    
    
    (5,885
    )
    
    
    (6,082
    )
    
    
    (4,572
    )
    
    
    (670
    )Net cash (outflow)/inflow from financing
activities of continuing operations
    
    
    
    
    
    
    (29,805
    )
    
    
    (35,070
    )
    
    
    30,197
    
    
    
    4,423Net cash outflow from financing activities
of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash (outflow)/inflow from financing
activities
    
    
    
    
    
    
    (29,805
    )
    
    
    (35,070
    )
    
    
    30,197
    
    
    
    4,423Net cash (outflow)/inflow from continuing
operations
    
    
    
    
    
    
    (8,721
    )
    
    
    (32,571
    )
    
    
    2,622
    
    
    
    384Net cash inflow/(outflow) from discontinued
operations
    
    
    35
    
    
    
    812
    
    
    
    30,145
    
    
    
    (5,039
    )
    
    
    (738
    )Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (7,909
    )
    
    
    (2,426
    )
    
    
    (2,417
    )
    
    
    (354
    )Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    20,572
    
    
    
    12,663
    
    
    
    10,237
    
    
    
    1,500Cash and cash equivalents, end of year
    
    
    17
    
    
    
    12,663
    
    
    
    10,237
    
    
    
    7,820
    
    
    
    1,146Analysis of the balances of cash and cash
equivalents:Cash balances
    
    
    
    
    
    
    11
    
    
    
    8
    
    
    
    7
    
    
    
    1Bank balances
    
    
    
    
    
    
    12,652
    
    
    
    10,229
    
    
    
    7,813
    
    
    
    1,14512,663
    
    
    
    10,237
    
    
    
    7,820
    
    
    
    1,146
  F-12




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 FOR THE
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (All amounts in RMB millions)
 (a)
    
    The reconciliation of income from continuing operations before income tax to cash generated
from continuing operations is as follows:
 Year ended December 312007
    
    2008As restated
    
    As restated(Note 2.2 (a))
    
    (Note 2.2 (a))
    
    2009
    
    2009RMB
    
    RMB
    
    RMB
    
    US$Income from continuing operations before income tax
    
    
    28,084
    
    
    
    9,653
    
    
    
    12,277
    
    
    
    1,799Adjustments for:Depreciation and amortization
    
    
    47,625
    
    
    
    47,961
    
    
    
    47,587
    
    
    
    6,971Interest income
    
    
    (305
    )
    
    
    (265
    )
    
    
    (91
    )
    
    
    (13
    )Finance costs
    
    
    2,932
    
    
    
    2,153
    
    
    
    828
    
    
    
    121Loss/(gain) on disposal of property, plant and
equipment and other assets
    
    
    140
    
    
    
    (10
    )
    
    
    (91
    )
    
    
    (14
    )Gain on non-monetary assets exchange
    
    
    (386
    )
    
    
    (1,305
    )
    
    
    (38
    )
    
    
    (6
    )Share-based compensation costs
    
    
    170
    
    
    
    84
    
    
    
    27
    
    
    
    4Provision for doubtful debts
    
    
    2,260
    
    
    
    3,025
    
    
    
    2,355
    
    
    
    345Impairment loss on property, plant and equipment
    
    
    
    
    
    
    11,837
    
    
    
    
    
    
    
    Realized loss on changes in fair value of derivative
component of convertible bonds
    
    
    569
    
    
    
    
    
    
    
    
    
    
    
    Realized gain on changes in fair value of derivative
financial instruments
    
    
    
    
    
    
    
    
    
    
    (1,239
    )
    
    
    (182
    )Dividends from available-for-sale financial assets
    
    
    (4
    )
    
    
    (3
    )
    
    
    (215
    )
    
    
    (32
    )Changes in working capital:Increase in accounts receivable
    
    
    (2,021
    )
    
    
    (2,044
    )
    
    
    (1,839
    )
    
    
    (269
    )Decrease /(increase) in inventories and consumables
    
    
    7
    
    
    
    (126
    )
    
    
    (1,320
    )
    
    
    (193
    )Decrease/(increase) in other assets
    
    
    1,638
    
    
    
    834
    
    
    
    (125
    )
    
    
    (18
    )(Increase)/decrease in prepayments and other current
assets
    
    
    (939
    )
    
    
    1,000
    
    
    
    (1,539
    )
    
    
    (225
    )(Increase)/decrease in amounts due from related
parties
    
    
    (34
    )
    
    
    116
    
    
    
    75
    
    
    
    11Decrease/(increase) in amounts due from domestic
carriers
    
    
    52
    
    
    
    267
    
    
    
    (160
    )
    
    
    (23
    )Increase/(decrease) in accounts payable, accrued
liabilities and taxes payable
    
    
    3,338
    
    
    
    (2,156
    )
    
    
    4,659
    
    
    
    682Increase in advances from customers
    
    
    533
    
    
    
    1,653
    
    
    
    4,805
    
    
    
    704Decrease in deferred revenue
    
    
    (2,880
    )
    
    
    (2,993
    )
    
    
    (1,639
    )
    
    
    (240
    )Decrease in other obligations
    
    
    (863
    )
    
    
    (767
    )
    
    
    (2,101
    )
    
    
    (307
    )Increase/(decrease) in amounts due to ultimate
holding company
    
    
    735
    
    
    
    (1,733
    )
    
    
    413
    
    
    
    61(Decrease)/increase in amounts due to related parties
    
    
    (120
    )
    
    
    (551
    )
    
    
    1,942
    
    
    
    284(Decrease)/increase in amounts due to domestic
carriers
    
    
    (279
    )
    
    
    396
    
    
    
    180
    
    
    
    26Increase/(decrease) in payables in relation to
disposal of the CDMA business
    
    
    
    
    
    
    768
    
    
    
    (761
    )
    
    
    (111
    )Cash generated from continuing operations
    
    
    80,252
    
    
    
    67,794
    
    
    
    63,990
    
    
    
    9,375
 F-13




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(All amounts in RMB millions)
 (b)
    
    Major non-cash transactions:
 (i)
    
    Payables to equipment suppliers for construction-in-progress during 2009 increased by
approximately RMB33.1 billion (2007: approximately RMB1.3 billion; 2008: approximately RMB19.8 billion).
 (ii)
    
    On October 21, 2009, the Company and Telefónica S.A. (Telefónica) completed the
mutual investment of the equivalent of USD1 billion in each other, which was implemented by
way of the subscription by Telefónica for 693,912,264 new shares of the Company at a price
of HKD11.17 each, satisfied by the contribution by Telefónica of 40,730,735 Telefónica
treasury shares at a price of Euro17.24 each to the Company. Please refer to Note 18 and
Note 32 for details.
 (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 18 for details.
 (iv)
    
    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.
Please refer to Note 22 for details.
 (v)
    
    For the years ended December 31, 2007, 2008 and 2009, the Group replaced copper cables
in certain 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 2009, the net book value and fair value of copper cables
surrendered were RMB60 million (2007: RMB182 million; 2008: RMB805 million) and RMB98
million (2007:RMB568 million; 2008: RMB2,110 million), respectively. Gain on the
non-monetary assets exchange of RMB38 million (2007:RMB386 million; 2008: RMB1,305 million)
was recognized in the statement of income for the year ended December 31, 2009.
 F-14




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts 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. After disposal of the CDMA business to China Telecom
Corporation Limited (China Telecom) on October 1, 2008, the merger with China Netcom Group
Corporation (Hong Kong) Limited (China Netcom) on October 15, 2008 and the launch of WCDMA
mobile business on October 1, 2009, the principal activities of the Company are investment
holding and the Companys subsidiaries are principally engaged in the provision of cellular and
fixed-line voice and related value-added services, broadband and other Internet-related
services, information communications technology services, and business and data communications
services in the PRC. The GSM cellular voice, WCDMA cellular voice and related value-added
services is referred to as the Mobile business, the services aforementioned other than the
Mobile business is hereinafter collectively referred to as the Fixed-line 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.On November 15, 2008, the Company was notified by its substantial shareholders, namely China
Unicom (BVI) Limited (Unicom BVI) and China Netcom Group Corporation (BVI) Limited (Netcom
BVI), that their respective parent companies, namely, China United Network Communications Group
Company Limited (a state-owned enterprise established in the PRC, the parent company of Unicom
BVI, hereinafter referred to as 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), had 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, had been approved by the
State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and
had 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 have vested in Unicom Group and
Unicom Group remains the ultimate holding company of the Company.
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1.
    
    ORGANISATION AND PRINCIPAL ACTIVITIES (Continued)
 (a)
    
    Acquisitions of certain assets and businesses from Unicom Group and Netcom Group in
2009On January 31, 2009, China United Network Communications Corporation Limited (CUCL, a
wholly-owned subsidiary of the Company) completed the acquisition from Unicom Group and
Netcom Group of (i) the fixed-line business, but not the underlying telecommunications
networks, across the 21 provinces in Southern China and related non-current assets and
liabilities (hereinafter referred to as the Fixed-line Business 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 Science and Technology
Trade Company Limited (Unicom Xingye) owned by Unicom Group; (iv) a 100% equity interest
in China Information Technology Designing & Consulting Institute Company Limited (CITDCI)
owned by Unicom Group and (v) a 100% equity interest in New Guoxin Telecom Corporation of
China Unicom (New Guoxin) owned by Unicom Group at a consideration of approximately
RMB4.43 billion. The businesses 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 the 2009 Business Combination.(b)
    
    Lease of telecommunications networks in Southern China from Unicom New Horizon Mobile
Telecommunications Company Limited in 2009In connection with the 2009 Business Combination, on December 16, 2008, CUCL, Unicom Group,
Netcom Group and Unicom New Horizon Mobile Telecommunications Company Limited (Unicom New
Horizon, a wholly-owned subsidiary of Unicom Group) entered into an agreement (the Network
Lease Agreement) in relation to the lease (the Lease) of the fixed-line
telecommunications networks of the 21 provinces in Southern China (Telecommunications
Networks 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 RMB2.0 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 2009 and the
Lease is renewable at the option of CUCL with at least two months prior notice on the same
terms and conditions, except for the future lease fee which will remain subject to further
negotiations between the parties, taking into account, among others, the then prevailing
market conditions in Southern China. Moreover, in connection with the Lease, Unicom New
Horizon has granted to CUCL an option to purchase the Telecommunications Networks in
Southern China and the purchase price will be referenced to the then appraised value of the
networks determined by an independent appraiser.
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1.
    
    ORGANISATION AND PRINCIPAL ACTIVITIES (Continued)
 (c)
    
    Merger between CUCL and China Netcom (Group) Company Limited in 2009On January 1, 2009, as part of the Companys integration with China Netcom, the Company
completed the reorganization of its wholly-owned subsidiaries, namely (i) CUCL and (ii)
China Netcom (Group) Company Limited (CNC China, a wholly-owned foreign enterprise
established in the PRC and a wholly-owned subsidiary of China Netcom), pursuant to which
CUCL merged with, and absorbed, CNC China. The merged company retains the name of China
United Network Communications Corporation Limited and remains a wholly-owned subsidiary of
the Company. The CNC China mentioned below represents CNC China before the merger with CUCL
on January 1, 2009.The merger between CUCL and CNC China does not have any impact on the consolidated financial
statements.(d)
    
    2008 disposal and business combination activities
 
    
    Disposal of the Groups CDMA business to China Telecom in 2008On October 1, 2008, the Company completed disposal of the CDMA business to China Telecom
in accordance with the CDMA business framework agreement (the Framework Agreement) and
the CDMA business disposal agreement (the Disposal Agreement) entered into among the
Company, CUCL and China Telecom.
    
    Merger between the Company and China Netcom by way of a scheme of arrangement of
China Netcom in 2008 (hereinafter referred to as the 2008 Business Combination)On October 15, 2008, the Company completed its merger with China Netcom by way of a
scheme of arrangement of China Netcom (the Scheme) under Section 166 of the Hong Kong
Companies Ordinance. 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 to the shareholders of China Netcom.
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1.
    
    ORGANISATION AND PRINCIPAL ACTIVITIES (Continued)
 (e)
    
    2007 disposal and business combination activities
 
    
    Disposal of the fixed-line telecommunications and operations in Guangdong province
and Shanghai municipality branches (Guangdong and Shanghai Branches)On February 28, 2007, the Companys wholly-owned subsidiary, CNC China completed its
sale of assets and liabilities in relation to the fixed-line telecommunication
operations in Guangdong and Shanghai Branches in the PRC to Netcom Group at a cash
consideration of RMB 3.5 billion. The Guangdong and Shanghai Branches were reacquired by
the Group during the 2009 Business Combination (Note 1(a) and Note 2.2(c)).
    
    Purchase of assets and business of Guizhou branch of Unicom GroupOn December 31, 2007, CUCL completed its purchase of 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) of Guizhou branch of Unicom
Group (Guizhou Business) at a cash consideration of RMB880 million. In addition,
pursuant to an 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 31, 2007, China Netcom Group System Integration Limited Corporation (System
Integration Corporation, a wholly-owned subsidiary of CNC China) completed its
acquisition of the entire equity interest of Beijing Telecom P&D Institute from China
Netcom Group Beijing Communications Corporation (Beijing Communications Corporation, a
subsidiary of Netcom Group) at a total consideration of RMB299 million.
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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
    
    Statement of ComplianceThese financial statements have been prepared in accordance with all applicable
International Financial Reporting Standards (IFRSs) 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), are consistent
with IFRSs. These financial statements also comply with HKFRSs.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 Mobile business), available-for-sale
financial assets and derivative financial instrument at fair value through income 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 of the PRC, which became effective from January
1, 2007 with certain transitional provisions. There are certain differences between the
Groups IFRSs/HKFRSs financial statements and PRC statutory financial statements. The
principal adjustments made to the PRC statutory financial statements to conform to
IFRSs/HKFRSs 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;
    
    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 Mobile business) at revalued amounts under
IFRSs/HKFRSs;
    
    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;
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 
    
    capitalization and amortization of upfront non-refundable revenue and the related
direct incremental costs for activating mobile subscribers prior to the adoption of
CAS on January 1, 2007; and
    
    adjustments for deferred taxation in relation to IFRSs/HKFRSs adjustments.(a)
    
    Business Combination of Entities and Business under Common Control and
Purchase of Target AssetsThe 2009 Business Combination was considered a business combination of entities and
businesses under common control as the Target Business before and after the acquisition
was both under the control of Unicom Group, the Groups ultimate holding company.The merger between the Company and China Netcom in 2008 was considered a business
combination of entities under common control as their respective ultimate holding
companies, namely Unicom Group and Netcom Group, were 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 the Ministry of Industry and Information
Technology (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.Under HKFRSs, the above transactions were accounted for using merger accounting in
accordance with the Accounting Guideline 5 Merger accounting for common control
combinations (AG 5) issued by the HKICPA. Upon the adoption of IFRSs by the Group in
2008, 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. Accordingly, the acquired assets and liabilities are stated
at predecessor values, and were included in the consolidated financial statements from
the beginning of the earliest period presented as if the entities and businesses
acquired had always been part of the Group.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 (a)
    
    Business Combination of Entities and Business under Common Control and
Purchase of Target Assets (Continued)Under IFRSs/HKFRSs, the purchase of the Target Assets in 2009 of approximately RMB0.53
billion was accounted for as an asset purchase in accordance with IAS/HKAS 16
Property, plant and equipment in the period of purchase.(b)
    
    Summary of the restatement to 2007 and 2008 comparative financial informationThe impact of the restatement of 2007 and 2008 comparative financial information in
connection with the 2009 Business Combination is summarized as follows:
 As
    
    2009previously
    
    Businessreported
    
    Combination
    
    Eliminations
    
    As restatedFor the year ended
December 31, 2007Results of
continuing
operations:Revenue
    
    
    150,687
    
    
    
    12,618
    
    
    
    (3,365
    )
    
    
    159,940Net income
    
    
    20,158
    
    
    
    799
    
    
    
    (48
    )
    
    
    20,909
 As
    
    2009previously
    
    Businessreported
    
    Combination
    
    Eliminations
    
    As restatedFor the year ended
December 31, 2008Results of
continuing
operations:Revenue
    
    
    148,906
    
    
    
    14,337
    
    
    
    (3,451
    )
    
    
    159,792Net income
    
    
    6,340
    
    
    
    1,537
    
    
    
    (52
    )
    
    
    7,825
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 (b)
    
    Summary of the restatement to 2007 and 2008 comparative financial information
(Continued)
 As previously
    
    2009 Businessreported
    
    Combination
    
    Eliminations
    
    As restatedAs of December 31, 2008Financial position:Non-current assets
    
    
    308,804
    
    
    
    1,959
    
    
    
    (144
    )
    
    
    310,619Current assets
    
    
    36,120
    
    
    
    3,450
    
    
    
    (1,437
    )
    
    
    38,133Total assets
    
    
    344,924
    
    
    
    5,409
    
    
    
    (1,581
    )
    
    
    348,752Non-current liabilities
    
    
    12,995
    
    
    
    97
    
    
    
    
    
    
    
    13,092Current liabilities
    
    
    125,219
    
    
    
    4,062
    
    
    
    (1,348
    )
    
    
    127,933Total liabilities
    
    
    138,214
    
    
    
    4,159
    
    
    
    (1,348
    )
    
    
    141,025Net assets
    
    
    206,710
    
    
    
    1,250
    
    
    
    (233
    )
    
    
    207,727
 (c)
    
    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
operating segment of the Group have been presented as discontinued operations in the
consolidated statements of income and statements of cash flows of the Group for the years
ended December 31, 2007 and 2008. The difference between the consideration received and
receivable and the book value of net assets disposed of is recorded as gain on
disposal of discontinued operations in the consolidated statement of income for the
year ended December 31, 2008.As discussed in Note 1(e), in 2007, CNC China completed its disposal of assets and
liabilities in relation to the fixed-line telecommunication operations in Guangdong and
Shanghai Branches in the PRC to Netcom Group. After considering that the Guangdong and
Shanghai Branches were reacquired by the Group as part of the 2009 Business
Combination, the results and cash flows for the operations of Guangdong and Shanghai
Branches have not 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, and the previously recorded gain on the disposal amounting to
approximately RMB626 million was derecognized in the consolidated statement of income
for the year ended December 31, 2007.For details, please refer to Note 35.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 (d)
    
    Going Concern AssumptionAs of December 31, 2009, current liabilities of the Group exceeded current assets by
approximately RMB169.2 billion (2008: approximately RMB89.8 billion). Given the current
global economic conditions and the Groups expected capital expenditures in the
foreseeable future, management has comprehensively considered the Groups available
sources of funds as follows:
 
    
    The Groups continuous net cash inflow from operating activities;
    
    Revolving banking facilities of approximately RMB113.3 billion, of which
approximately RMB58.8 billion was unutilized as of December 31, 2009; and
    
    Other available sources of financing from domestic banks and other financial
institutions given the Groups credit history.
 In addition, the Group will continue to optimize its fund raising strategy from the
short, medium and long-term perspectives and will consider the opportunities in the
current capital market to take advantage of low interest rates by issuing medium to
long-term debts with low financing cost.Based on the above considerations, the Board of Directors is of the opinion that the
Group has sufficient funds to meet its working capital requirements and debt
obligations. As a result, the consolidated financial statements of the Group for the
year ended December 31, 2009 have been prepared under the going concern basis.(e)
    
    Critical Accounting Estimates and JudgmentThe preparation of the consolidated financial statements in conformity with
IFRSs/HKFRSs requires the use of certain critical accounting estimates. It also
requires management to exercise its judgment in the process of applying the Groups
accounting policies. The areas involving a higher degree of judgment or complexity, or
areas where assumptions and estimates significant to the consolidated financial
statements are disclosed in Note 4.
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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 (f)
    
    New Accounting Standards, Amendments and Interpretations Pronouncements
 (i)
    
    The following revised standard is early adopted by the Group
    
    IAS/HKAS 24 (revised) Related party disclosure (effective from January 1,
2011). The revised standard primarily amends the disclosure requirements
applicable to transactions and balances with government-related entities and the
government. The revised standard also clarifies and simplifies the definition of a
related party. Upon the early adoption of IAS/HKAS 24 (revised), the Group revised
the disclosure on the transactions and balances with the major state-owned
financial institutions in its related party transactions footnote. Please refer to
Note 39 for details.(ii)
    
    The following new and amended IFRSs/HKFRSs are adopted by the Group
as of January 1, 2009
    
    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. These features would need to be included in the grant date
fair value for transactions with employees and others providing similar services;
they 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. The amendment does not have
any material impact on the Groups consolidated financial statements.
    
    IFRS/HKFRS 7 (amendment) Financial instruments  Disclosures (effective from
January 1, 2009). The amendment requires enhanced disclosures about fair value
measurement and liquidity risk. In particular, the amendment requires disclosure
of fair value measurements by level of a fair value measurement hierarchy. As the
change in accounting policy only results in additional disclosures, there is no
impact on net income and earnings per share. Please refer to Note 3 for details.
    
    IFRS/HKFRS 8, Operating segments (effective from January 1, 2009). IFRS/HKFRS
8 replaces IAS/HKAS 14, Segment reporting. The new standard requires a
management approach, under which segment information is presented on the same
basis as that used for internal reporting purposes.The adoption of IFRS/HKFRS 8, the completion of 2009 Business Combination and the
launch of the WCDMA mobile business in 2009 have not resulted in changes in the
number of reportable segments presented and operating segments are reported in a
manner consistent with the internal reporting provided to the chief operating
decision maker (CODM). The CODM has been identified as the Board of Directors.
Starting from 2009, the CODM evaluates results of each operating segment based on
revenue and costs that are directly attributable to the operating segment. Other
statement of income items such as employee benefit expenses, interest income,
income tax expenses, finance costs and other income, which cannot be directly
identified to specific operating segments, are presented as unallocated amounts.
The 2007 and 2008 comparative financial information has been restated to conform to
current years presentation. Please refer to Note 5 for details.
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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 (f)
    
    New Accounting Standards, Amendments and Interpretations Pronouncements
(Continued)
 (ii)
    
    The following new and amended IFRSs/HKFRSs are adopted by the Group
as of January 1, 2009 (Continued)
    
    IAS/HKAS 1 (revised) Presentation of financial statements (effective from
January 1, 2009). The revised standard prohibits 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 in a statement of comprehensive income. As
a result, the Group presents in the consolidated statement of changes in equity
all owner changes in equity, whereas all non-owner changes in equity are presented
in the consolidated statement of comprehensive income. Comparative information has
been re-presented so that it is also in conformity with the revised standard.
Since the change in accounting policy only impacts presentation aspects, there is
no impact on the net income and earnings per share.
    
    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 is
removed. As the Group had previously capitalized borrowing costs directly
attributable to the acquisition, construction or production of a qualifying asset,
the adoption of IAS/HKAS 23 (revised) does not have any impact on the Groups
consolidated financial statements.
 
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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 (f)
    
    New Accounting Standards, Amendments and Interpretations Pronouncements
(Continued)
 (ii)
    
    The following new and amended IFRSs/HKFRSs are adopted by the Group
as of January 1, 2009 (Continued)
    
    IASBs annual improvement project published in May 2008/HKICPAs improvements
to HKFRS published in October 2008
 Ø
    
    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.Ø
    
    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.Ø
    
    There are a number of 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, IAS/HKAS 19, Employee benefits, IAS/HKAS 27,
Consolidated and separate financial statements, IAS/HKAS 34, Interim
financial reporting, IAS/HKAS 36, Impairment of assets and IAS/HKAS 40,
Investment property which are not addressed in details as the amendments are
not relevant to the Groups operations and consolidated financial statements.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 (f)
    
    New Accounting Standards, Amendments and Interpretations Pronouncements
(Continued)
 (iii)
    
    Standards, amendments and interpretations to existing standards that
are not yet effective and have not been early adopted by the Group
    
    IFRS/HKFRS 2 (amendments), Group cash-settled share-based payment
transactions (effective from January 1, 2010). In addition to incorporating
IFRIC/HK(IFRIC)-Int 8, Scope of IFRS/HKFRS 2,and IFRIC/HK(IFRIC)-Int 11,
IFRS/HKFRS 2  Group and treasury share transactions, the amendments expand on
the guidance in IFRIC/HK(IFRIC)-Int 11 to address the classification of group
arrangements that were not covered by the interpretations.
    
    IFRS/HKFRS 3 (revised), Business combinations (effective for annual periods
beginning on or after 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 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 identifiable net assets. All acquisition-related costs
should be expensed.
    
    IFRS/HKFRS 9 Financial instrument (effective from January 1, 2013). Under
IFRS/HKFRS 9, financial assets are required to be classified into two measurement
categories: those to be measured subsequently at fair value, and those to be
measured subsequently at amortized cost. The decision is to be made at initial
recognition. The classification depends on the entitys business model for
managing its financial instruments and the contractual cash flow characteristics
of the instrument.
    
    IAS/HKAS 27 (revised), Consolidated and separate financial statements
(effective for annual periods beginning on or after July 1, 2009). The revised
standard requires the effects of all transactions with non-controlling interest 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.
    
    There are a number of new interpretations including IFRIC/HK (IFRIC) 17
Distribution of non-cash assets to owners, IFRIC/HK (IFRIC) 18 Transfer of
assets from customers and IFRIC/HK(IFRIC) 19 Extinguishing financial liabilities
with equity instruments as well as the amendment to IFRIC/HK(IFRIC) 14
Prepayments of a minimum funding requirement which are not addressed in details
as the interpretations and the amendment are not relevant to the Groups operation
and consolidated financial statements.
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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)New Accounting Standards, Amendments and Interpretations Pronouncements (Continued)
 (iii)
    
    Standards, amendments and interpretations to existing standards that are
not yet effective and have not been early adopted by the Group (Continued)
 
    
    IASBs annual improvement project published in April 2009/HKICPAs improvements
to HKFRS published May 2009
 Ø
    
    IAS/HKAS 7 (Amendment), Cash flow statements (effective from January 1,
2010). The amendment requires that only expenditures that result in a
recognized asset in the statement of financial position can be classified as
investing activities.Ø
    
    IAS/HKAS 17 (Amendment), Leases (effective from January 1, 2010). The
amendment deletes specific guidance regarding classification of leases of
land, so as to eliminate inconsistency with the general guidance on lease
classification. As a result, leases of land should be classified as either
finance lease or operating lease using the general principles of IAS/HKAS 17.Ø
    
    IAS/HKAS 36 (Amendment), Impairment of assets (effective from January 1,
2010). The amendment clarifies that the largest cash-generating unit (or group
of units) to which goodwill should be allocated for the purposes of impairment
testing is an operating segment as defined by paragraph 5 of IFRS/HKFRS 8,
Operating segments (that is, before the aggregation of segments with similar
economic characteristics permitted by paragraph 12 of IFRS/HKFRS 8).Ø
    
    IAS/HKAS 38 (Amendment), Intangible assets (effective for annual periods
beginning on or after July 1, 2009). The amendment clarifies that the
description of the valuation techniques commonly used to measure intangible
assets acquired in a business combination when they are not traded in an
active market. In addition, an intangible asset acquired in a business
combination might be separable but only together with a related contract,
identifiable asset or liability. In such cases, the intangible asset is
recognized separately from goodwill but together with the related item.Ø
    
    There are a number of amendments to IFRS/HKFRS 5, Non-current assets held
for sale and discontinued operations, IFRS /HKFRS 8, Operating segments,
IAS/HKAS 1, Presentation of financial statements and IAS/HKAS 18, Revenue
which are not addressed in details as the amendments are not relevant to the
Groups operation and consolidated financial statements.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 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 de-consolidated 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 at carrying value 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.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.3
    
    Consolidation (Continued)
 (a)
    
    Subsidiaries (Continued)Upon the adoption of IFRSs in 2008, 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.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 incomes 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 that
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.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.4
    
    Segment ReportingOperating segments are reported in a manner consistent with the internal reporting
provided to the chief operating decision-maker. The chief operating decision-maker, who is
responsible for allocating resources and assessing performance of the operating segments
regularly, has been identified as the Board of Directors that makes strategic decisions.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.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.6
    
    Property, Plant and Equipment
 (a)
    
    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.(b)
    
    BuildingsBuildings held by the Group are stated at cost less accumulated depreciation and
accumulated impairment losses, and are depreciated over their expected useful lives.(c)
    
    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 (i) the exchange transactions lacks
commercial substance or (ii) 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.Telecommunications equipment of the Mobile business are stated at cost less accumulated
depreciation and accumulated impairment losses. All other property, plant and equipment
are stated at revalued amounts less accumulated depreciation and accumulated impairment
losses.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.6
    
    Property, Plant and Equipment (Continued)
 (c)
    
    Other property, plant and equipment (Continued)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
directors of the Group. The revalued amount is the fair value at the date of
revaluation.(d)
    
    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
    
    10  30 years
    
    
    3-5
    %Telecommunications equipment
of Mobile business
    
    5  10 years
    
    
    3-5
    %Telecommunications equipment
of Fixed-line business
    
    5  10 years
    
    
    3-5
    %Office furniture, fixtures, motor vehicles
and others
    
    5  10 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 2.11).(e)
    
    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.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 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
mobile subscribers; (ii) capitalized installation costs of fixed-line services; (iii)
computer software and (iv) prepaid rental for premises and leased lines.
 (i)
    
    Capitalized direct incremental costs for activating mobile subscribers,
including costs of SIM/USIM cards and commissions which are directly associated with
upfront non-refundable revenue received upon activation of mobile services, are
deferred and amortized over the expected customer service periods of 3 years except
when the direct incremental costs exceed the corresponding upfront non-refundable
revenue. In such cases, the excess of the direct incremental costs over the
non-refundable revenue are recorded immediately as expenses in the statement of
income.(ii)
    
    Capitalized installation costs of Fixed-line business are deferred and
expensed to the statement of income over the expected customer service 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)
    
    Acquired computer software licenses 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.(iv)
    
    Long-term prepaid rental for premises and leased lines are amortized using
a straight-line method over the lease period.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.10
    
    Financial Assets
 2.10.1
    
    ClassificationThe Group classifies its financial assets in the following categories: loans and
receivables and available-for-sale. The classification depends on the purpose for
which the financial assets were acquired. Management determines the classification
of its financial assets at initial recognition.
 (a)
    
    Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are
included in current assets, except for maturities greater than 12 months after
the end of the reporting period. These are classified as non-current assets.
The Groups loans and receivables comprise accounts receivable and other
receivables, short-term bank deposits and cash and cash equivalents in
the balance sheet (Note 2.14, 2.15 and 2.16).(b)
    
    Available-for-sale financial assetsAvailable-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any of the other categories.
They are included in non-current assets unless the investment matures or
management intends to dispose of it within 12 months of the end of the
reporting period.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.10
    
    Financial Assets (Continued)
 2.10.2
    
    Recognition and measurementAvailable-for-sale financial assets are carried at fair value. Loans and
receivables are recognized initially at fair value and subsequently carried at
amortized cost using the effective interest method.The translation differences on non-monetary securities are recognized in other
comprehensive income/loss. Changes in the fair value of non-monetary securities
classified as available-for-sale are recognized in other comprehensive income/loss
until impairment.When securities classified as available-for-sale are sold or impaired, the
accumulated fair value adjustments recognized in equity are included in the
statement of income as gains and losses from investment securities.Interest on available-for-sale securities calculated using the effective interest
method is recognized in the statement of income as part of other income. Dividends
on available-for-sale equity instruments are recognized in the statement of income
as part of other income when the right to receive payments is established.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.11
    
    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.2.12
    
    Impairment of Financial Assets
 (a)
    
    Accounts receivable and other receivablesThe Group assesses at the end of each reporting period whether there
is objective evidence that accounts receivable and other receivable are
impaired. 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.(b)
    
    Available-for-sale financial assetsThe Group assesses at the end of each reporting period whether there is objective
evidence that available-for-sale financial assets are impaired. For equity
investments classified as available-for-sale, a significant or prolonged decline in
the fair value of the security below its cost is evidence that the assets are
impaired. If any such evidence exists for available-for-sale financial assets, the
cumulative loss  measured as the difference between the acquisition cost and the
current fair value, less any impairment loss on that financial asset previously
recognized in income or loss  is removed from equity and recognized in the
statement of income. Impairment losses recognized in the statement of income on
equity instruments are not reversed.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.13
    
    Inventories and ConsumablesInventories, which primarily comprise handsets, SIM/USIM 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 networks and are charged to the statement of income when brought into
use. Consumables are stated at cost less any provision for obsolescence.2.14
    
    Accounts Receivable and Other ReceivablesAccounts receivable are amounts due from customers for services performed in the ordinary
course of business. If collection of accounts receivable and other receivables is expected
in one year or less (or in the normal operating cycle of the business if longer), they are
classified as current assets. If not, they are presented as non-current assets.2.15
    
    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.2.16
    
    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.2.17
    
    Convertible BondsAs the functional currency of the Company 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 Company, 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.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.17
    
    Convertible Bonds (Continued)When 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 had been redeemed, any difference between the
amount paid and the carrying amounts of both components would have been recognized in
the statement of income.2.18
    
    Deferred Revenue, Advances from Customers and Subscriber Point Rewards Program
 (a)
    
    Deferred revenueDeferred revenue mainly represents upfront non-refundable revenue, including
upfront connection fees and installation fees of fixed-line business and receipts
from the activation of SIM/USIM cards relating to the Mobile 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 point rewards programThe fair value of providing telecommunications services and the subscriber points
reward are allocated based on their relative fair values. The allocated portion
of fair value for 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 fair value of deferred revenue is estimated 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.
 2.19
    
    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.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.20
    
    Share CapitalOrdinary shares are classified as equity.Incremental costs directly attributable to the issuance of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.Where any group company purchases the Companys equity share capital (treasury shares),
the consideration paid, including any directly attributable incremental costs (net of
tax) is deducted from equity attributable to the Companys equity holders and no gain or
loss shall be recognized in the statement of income.2.21
    
    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.(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 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 at the granted
date excluding the impact of any non-market vesting conditions (for example, revenue
and profit targets) and is not subsequently remeasured. 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.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.21
    
    Employee Benefits (Continued)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.
 2.22
    
    Accounts PayableAccounts payable are obligations to pay for goods or services that have been acquired in
the ordinary course of business from suppliers. Accounts payable are classified as current
liabilities if payment is due within one year or less (or in the normal operating cycle of
the business if longer). If not, they are presented as non-current liabilities.Accounts payable are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method.2.23
    
    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.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.24
    
    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 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.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.25
    
    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,
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;
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.25
    
    Revenue Recognition (Continued)
 (a)
    
    Sales of services and goods (Continued)
 
    
    For offerings which include the sale of mobile handset and provision of
service, the amount of revenue allocated to the handset sale is determined using
the residual value method. Under such method, the Group determines the revenue
from the sale of the mobile handset by deducting the fair value of the service
element from the total contract consideration. The Group recognizes revenues
related to the sale of the handset when the title is passed to the customer
whereas service revenues are recognized based upon the actual usage of mobile
services. The cost of the mobile handset is expensed immediately to the statement
of income.
    
    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.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.25
    
    Revenue Recognition (Continued)
 (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.
 2.26
    
    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.
 2.27
    
    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.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.27
    
    Borrowing Costs (Continued)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.2.28
    
    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 only to the extent that it is probable that
future taxable profit will be available against which the temporary differences can be
utilized.Deferred income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities and when
the deferred income taxes assets and liabilities relate to income taxes levied by the
same taxation authority on either the taxable entity or different taxable entities
where there is an intention to settle the balances on a net basis.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.29
    
    Government GrantGovernment 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.2.30
    
    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.2.31
    
    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.2.32
    
    Earnings per Share and per American Depositary Share (ADS)Basic earnings per share is computed by dividing the profit 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 profit 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, price 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 minimize 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, HK dollars and Euro. Exchange risk mainly 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.
From time to time, the Group may consider entering into forward exchange contracts
or currency swap contracts to mitigate the foreign exchange risk. During the year,
the Group had not entered into any forward exchange contracts or currency swap
contracts.As of December 31, 2009 and 2008, the Group had cash and cash equivalents and
short-term bank deposits denominated in foreign currencies amounting to RMB1,545
million and RMB1,315 million, respectively. As of December 31, 2009 and 2008, the
Group had borrowings denominated in foreign currencies amounting to RMB11,730
million and RMB1,099 million, respectively.As of December 31, 2009, if the RMB had strengthened/weakened by 10% against
foreign currencies, primarily with respect to US dollars, HK dollars and Euro,
while all other variables are held constant, the Group would have recognized
additional exchange gains/losses of approximately RMB1, 019 million (2008: exchange
losses/gains of approximately RMB22 million) for cash and cash equivalents,
short-term bank deposits and borrowings denominated in foreign currencies.
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3.
    
    FINANCIAL RISK MANAGEMENT (Continued)
 3.1
    
    Financial risk factors (Continued)
 (a)
    
    Market risk (Continued)
 (ii)
    
    Price riskThe Group is exposed to equity securities price risk because investments held by
the Group are classified in the consolidated balance sheet as available-for-sale
financial assets.The available-for-sale financial assets comprise primarily equity securities of
Telefónica. As of December 31, 2009, if the share price of Telefónica had
increased/decreased by 10%, while all other variables are held constant, the Group
would have reversed the recognized losses or recognized additional losses of
approximately RMB584 million in available-for-sale fair value reserve.(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, commercial paper and related party loan. 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 2009 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 2009 and 2008.As of December 31, 2009, the Group had approximately RMB62,925 million (2008:
approximately RMB28,879 million) of bank loans, commercial paper and corporate bonds
at fixed rates and approximately RMB10,909 million (2008: approximately RMB1,114
million) of bank loans and related party loan at floating rates.For the year ended December 31, 2009, 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 RMB3 million
(2008: approximately RMB125 million).
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3.
    
    FINANCIAL RISK MANAGEMENT (Continued)
 3.1
    
    Financial risk factors (Continued)
 (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, 2008 and 2009:
 2008(As restated)
    
    2009Short-term bank depositsState-owned banks in the PRC
    
    
    337
    
    
    
    861Other banks
    
    
    
    
    
    
    135337
    
    
    
    996Cash and cash equivalentsState-owned banks in the PRC
    
    
    9,671
    
    
    
    7,485Other banks
    
    
    566
    
    
    
    33510,237
    
    
    
    7,820
 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 including short-term bank loans, 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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3.
    
    FINANCIAL RISK MANAGEMENT (Continued)
 3.1
    
    Financial risk factors (Continued)
 (c)
    
    Liquidity risk (Continued)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, 2008
(As restated)Long-term bank loans
    
    
    1,299
    
    
    
    108
    
    
    
    315
    
    
    
    635Corporate bonds
    
    
    355
    
    
    
    355
    
    
    
    6,064
    
    
    
    2,360Other obligations
    
    
    3,012
    
    
    
    400
    
    
    
    1,052
    
    
    
    924Accounts payable and accrued
liabilities
    
    
    65,248
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to related parties
    
    
    1,658
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to domestic
carriers
    
    
    956
    
    
    
    
    
    
    
    
    
    
    
    Payables in relation to
disposal of the CDMA business
    
    
    4,232
    
    
    
    
    
    
    
    
    
    
    
    Commercial paper
    
    
    10,447
    
    
    
    
    
    
    
    
    
    
    
    Short-term bank loans
    
    
    11,013
    
    
    
    
    
    
    
    
    
    
    
    98,220
    
    
    
    863
    
    
    
    7,431
    
    
    
    3,919At December 31, 2009Long-term bank loans
    
    
    72
    
    
    
    62
    
    
    
    185
    
    
    
    562Corporate bonds
    
    
    355
    
    
    
    355
    
    
    
    5,726
    
    
    
    2,229Other obligations
    
    
    2,537
    
    
    
    111
    
    
    
    18
    
    
    
    60Accounts payable and accrued
liabilities
    
    
    101,551
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to related parties
    
    
    5,448
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to ultimate
holding company
    
    
    308
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to domestic
carriers
    
    
    1,136
    
    
    
    
    
    
    
    
    
    
    
    Payables in relation to
disposal of the CDMA business
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Short-term bank loans
    
    
    64,752
    
    
    
    
    
    
    
    
    
    
    
    176,166
    
    
    
    528
    
    
    
    5,929
    
    
    
    2,851
 Regarding the Groups use of the going concern basis for the preparation of its
financial statements, please refer to
Note 2.2(d) for details.
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3.
    
    FINANCIAL RISK MANAGEMENT (Continued)
 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 commercial paper, short-term bank
loans, long-term bank loans, obligations under finance lease (included in other
obligations), notes payables (included in accounts payable and accrued liabilities),
certain 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.
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3.
    
    FINANCIAL RISK MANAGEMENT (Continued)
 3.2
    
    Capital risk management (Continued)The Groups debt-to-capitalization ratios at December 31, 2008 and 2009 are as
follows:
 2008(As restated)
    
    2009Interest bearing debts: Commercial paper
    
    
    10,000
    
    
    
     Short-term bank loans
    
    
    10,780
    
    
    
    63,909 Long-term bank loans
    
    
    997
    
    
    
    759 Obligation
under finance lease included in other obligations
    
    
    
    
    
    
    103 Amounts due to related parties
    
    
    
    
    
    
    2,104 Notes payables included in accounts payable and
accrued liabilities
    
    
    
    
    
    
    500 Corporate bonds
    
    
    7,000
    
    
    
    7,000 Current portion of long-term bank loans
    
    
    1,216
    
    
    
    62 Current portion of obligation under finance lease
    
    
    
    
    
    
    2629,993
    
    
    
    74,463Minority interest
    
    
    2
    
    
    
    2Interest bearing debts plus minority interest
    
    
    29,995
    
    
    
    74,465Total equity: Capital and reserves attributable to the
Companys equity holders
    
    
    207,725
    
    
    
    206,465 Minority interest
    
    
    2
    
    
    
    2207,727
    
    
    
    206,467Interest bearing debts plus total equity
    
    
    237,720
    
    
    
    280,930Debt-to-capitalization ratio
    
    
    12.6
    %
    
    
    26.5
    %
 The increase in debt-to-capitalization ratio during 2009 resulted primarily from the
borrowing of short-term bank loans to finance the telecommunications networks construction
and the off-market share repurchase completed during the year.
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3.
    
    FINANCIAL RISK MANAGEMENT (Continued)
 3.3
    
    Fair value estimationEffective from January 1, 2009, the Group adopted the amendment to IFRS/HKFRS 7 for
financial instruments that are measured in the balance sheet at fair value, this requires
disclosure of fair value measurements by level of the following fair value measurement
hierarchy:
 
    
    Quoted prices (unadjusted) in active markets for identical assets or liabilities (level
1).
    
    Inputs other than quoted prices included within level 1 that are observable
for the asset or liability, either directly (that is, as prices) or indirectly (that
is, derived from prices) (level 2).
    
    Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3).
 The following table presents the Groups assets that are measured at fair value at
December 31, 2009:
 Level 1
    
    Level 2
    
    Level 3
    
    TotalAvailable-for-sale financial assets Equity securities
    
    
    7,977
    
    
    
    
    
    
    
    
    
    
    
    7,977
 The fair value of financial instruments traded in active markets is based on quoted
market prices at the balance sheet date. A market is regarded as active if quoted prices
are readily and regularly available from an exchange, dealer, broker, industry group,
pricing service, or regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arms length basis. The quoted market price used for
financial assets held by the Group is the current bid price. These instruments are
included in level 1 and comprise primarily equity securities of Telefónica which are
classified as available-for-sale.During the year ended December 31, 2009, there were no transfers of financial instruments
between Level 1 and Level 2 of the fair value hierarchy.In addition, the 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. For
details, please refer to Note 34.
 
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4.
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTSEstimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under
the circumstances.
 4.1
    
    Critical accounting estimates and assumptions
 The 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 Mobile business (Note 2.6 (c)) is carried at revalued amounts, being the fair value
at the date of revaluation, less subsequent accumulated depreciation and accumulated
impairment losses. Such equipment is revalued on a depreciated replacement cost or open
market value approach, as appropriate, by an independent valuer on a regular basis.During the intervals of independent revaluations, management performs the analysis and
assessment annually to determine whether the fair value of property, plant and equipment
carried at revalued amounts are materially different from their carrying amount. If the
revalued amounts differ significantly from the carrying amounts of such property, plant
and 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 property, plant and
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 property, plant and equipment change as a result of the
revaluation.Most of the Groups property, plant and equipment which are carried at revalued amounts
were revaluated as of December 31, 2006 by an independent valuation firm. The directors
of the Company consider the fair values of these revalued property, plant and equipment
were not materially different from their carrying values as of December 31, 2009.
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4.
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
 4.1
    
    Critical accounting estimates and assumptions (Continued)
 (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 2.11. 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.No impairment loss on property, plant and equipment was recognized for the years ended
December 31, 2007 and 2009. An impairment loss of RMB11,837 million on equipment in
relation to the Personal Handyphone System (PHS) services was recognized for the year
ended December 31, 2008. 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, historical
collection patterns, 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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##### Table of Contents



4.
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
 4.1
    
    Critical accounting estimates and assumptions (Continued)
 (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 on property, plant and equipment, unrecognized
revaluation surplus on property, plant and equipment under PRC tax regulations, and
provision for doubtful debts. Due to the effects of these temporary differences on
income tax, the Group has recorded deferred tax assets amounting to approximately
RMB5,202 million as of December 31, 2009 (2008: approximately RMB5,334 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 income 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 income tax and deferred taxation may be necessary which would
impact the Groups results or financial position.
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##### Table of Contents



4.
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
 4.2
    
    Critical judgments in applying the Groups accounting policies
 (a)
    
    Recognition of upfront non-refundable revenue and direct incremental costsThe Group defers and amortizes upfront activation fees of SIM/USIM cards of the Mobile
business over the expected customer service period of 3 years (2007: approximately 3
years; 2008: approximately 3 years). The related direct incremental costs of acquiring
and activating mobile subscribers, including costs of SIM/USIM cards and commissions,
are also capitalized and amortized over the same expected customer service period of 3
years.The Group defers and amortizes upfront customer connection and installation fees
of the Fixed-line business over the expected customer service period of 10 years (2007:
approximately 10 years; 2008: approximately 10 years). The related direct incremental
installation costs are deferred and amortized over the same expected customer service
period of 10 years.The Group only capitalizes 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 Group estimates the expected customer service 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 service 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 and direct incremental costs may change for
future periods.
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##### Table of Contents



4.
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
 4.2
    
    Critical judgments in applying the Groups accounting policies (Continued)
 (b)
    
    2009 Business CombinationThe 2009 Business Combination was considered as a business combination of entities and
business under common control, and has been accounted for using merger accounting under
HKFRS, which is consistent with the predecessor values method under IFRS.Pursuant to the agreement dated December 16, 2008, the 2009 Business Combination
excluded the Telecommunications Networks in Southern China, which are retained by
Unicom New Horizon and are leased from Unicom New Horizon to CUCL effective from
January 2009. To better reflect the economic substance that the Group has not taken on
the risks and rewards associated with the property, plant and equipment and related
non-current assets and liabilities relating to the Fixed-line business in Southern
China, the consolidated balance sheet as of December 31, 2008, restated in accordance
with the principle of the merger accounting/predecessor values method, therefore
included only the relevant current assets of approximately RMB999 million and current
liabilities of approximately RMB2,841 million of the Fixed-line Business in Southern
China but excluded the underlying property, plant and equipment and related non-current
assets with net book value of approximately RMB31,350 million, the related long-term
intercompany loans from Unicom Group for the financing of the construction of the
Telecommunications Networks in Southern China of approximately RMB35,652 million and
the related payables to network contractors and equipment suppliers of approximately
RMB6,176 million. In addition, the consolidated statements of income for the years
ended December 31, 2007 and 2008, again restated in accordance with the principle of
the merger accounting/predecessor values method, included all the revenues and
operating costs of the Fixed-line Business in Southern China, but
excluded the
depreciation and amortization charges of approximately RMB3,650 million and RMB3,886
million, respectively, and the finance costs associated with the long-term intercompany
loans for the financing of the construction of the Telecommunications Networks in
Southern China of approximately RMB499 million and RMB846 million, respectively.The 2009 Business Combination was completed on January 31, 2009 and therefore the
consolidated statement of income for the year ended December 31, 2009 has excluded the
depreciation and amortization charges of approximately RMB308 million of the property,
plant and equipment and related non-current assets relating to the Fixed-line business in Southern China and the finance costs associated with the long-term intercompany
loans for the financing of the construction of the Telecommunications Networks in
Southern China of approximately RMB26 million for the period from January 1, 2009 to
January 31, 2009. After the completion of the 2009 Business Combination, the Group
recorded leasing fees amounting to approximately RMB2.0 billion charged by Unicom New
Horizon for the lease of the Telecommunications Networks in Southern China for the year
ended December 31, 2009 (2007:Nil; 2008:Nil) (Note 4.2(c)).
 F-59




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##### Table of Contents



4.
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
 4.2
    
    Critical judgments in applying the Groups accounting policies (Continued)
 (c)
    
    Lease of Telecommunications Networks in Southern ChinaPursuant to the Network Lease Agreement (Note 1(b)), Unicom New Horizon has the legal
ownership of the Telecommunications Networks in Southern China. The Group believes it
only bears the risks associated with the operation of the Fixed-line business in
Southern China during the relevant leasing periods and is free from any ownership risks
of the telecommunications networks, and the risks and rewards of ownership of the
leased assets rest substantially with the lessor. Accordingly, the Group has accounted
for the leasing of the aforementioned telecommunications networks as an operating
lease.(d)
    
    PRC Tax Resident EnterprisePursuant to the PRC enterprise income tax law, a 10% withholding income tax is 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). On April 22, 2009, the PRC State Administration of
Taxation issued a notice regarding the determination of PRC TRE status and provided
implementation guidance in withholding income tax for non-TRE enterprise shareholders.
The Company performed an assessment and concluded that it meets the definition of PRC
TRE. Therefore, as of December 31, 2008 and 2009, the Companys subsidiaries in the
PRC did not accrue for withholding tax on dividends distributed to the Company and
there has been no deferred tax liability accrued in the Groups consolidated financial
statements for the undistributed income of the Companys subsidiaries in the PRC.If the results of the Companys assessment change, the amount of current income tax and
deferred income tax will change in future periods.
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##### Table of Contents



5.
    
    SEGMENT INFORMATIONThe CODM has been identified as the Board of Directors (the BOD) of the Company which
regularly reviews the Groups internal reporting in order to assess performance and allocate
resources; and determines the operating segments based on these reports. The BOD considers the
business from the provision of services perspective instead of the geographic perspective.
Accordingly, the Groups continuing operations comprise two operating segments based on the
various types of telecommunications services, mainly provided to customers in Mainland China.The major operating segments of the Group are classified as follows:Continuing operations:
 
    
    Mobile business  the provision of GSM and WCDMA cellular 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, 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.
 Discontinued operations:
 
    
    CDMA business  the provision of the CDMA telephone and related services, through a
leasing arrangement for the CDMA network capacity from Unicom New Horizon. The CDMA
business was disposed of in October 2008.
 Starting from 2009, the CODM evaluates results of each operating segment based on revenue and
costs that are directly attributable to the operating segments. The unallocated amounts
primarily represent corporate and shared service expenses that are not directly allocated to one
of the aforementioned operating segments. The unallocated amounts also included other statement
of income items such as employee benefit expenses, interest income, income tax expenses, finance
costs and other income, which cannot be directly identified to specific operating segments.
Segment assets primarily comprise property, plant and equipment, other assets, inventories and
receivables. Segment liabilities primarily comprise operating liabilities. The 2007 and 2008
comparative financial information has been restated to conform to current years presentation.Revenues between segments are carried out on terms comparable to those that prevail in arms
length transactions or at standards promulgated by relevant government authorities. Revenue from
external customers reported to the CODM is measured in a manner consistent with that in the
consolidated statement of income.
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##### Table of Contents



5.
    
    SEGMENT INFORMATION (Continued)
 5.1
    
    Operating Segments (Continued)
 2007 (As restated)Continuing operations
    
    Discontinued operationsReconciling itemsMobile
    
    Fixed-line
    
    
    
    
    
    Unallocated
    
    
    
    
    
    Totalbusiness
    
    business
    
    Subtotal
    
    amounts
    
    Eliminations
    

continuing operations
    
    CDMA business
    
    TotalTelecommunications service revenue
    
    
    62,236
    
    
    
    91,093
    
    
    
    153,329
    
    
    
    420
    
    
    
    
    
    
    
    153,749
    
    
    
    25,943
    
    
    
    179,692Information communication technology
services and other revenue
    
    
    187
    
    
    
    4,782
    
    
    
    4,969
    
    
    
    228
    
    
    
    
    
    
    
    5,197
    
    
    
    318
    
    
    
    5,515Sales of telecommunications products
    
    
    14
    
    
    
    980
    
    
    
    994
    
    
    
    
    
    
    
    
    
    
    
    994
    
    
    
    4,888
    
    
    
    5,882Total revenue from external customers
    
    
    62,437
    
    
    
    96,855
    
    
    
    159,292
    
    
    
    648
    
    
    
    
    
    
    
    159,940
    
    
    
    31,149
    
    
    
    191,089Intersegment revenue
    
    
    276
    
    
    
    3,779
    
    
    
    4,055
    
    
    
    980
    
    
    
    (5,035
    )
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    62,713
    
    
    
    100,634
    
    
    
    163,347
    
    
    
    1,628
    
    
    
    (5,035
    )
    
    
    159,940
    
    
    
    31,149
    
    
    
    191,089Interconnection charges
    
    
    (10,022
    )
    
    
    (6,152
    )
    
    
    (16,174
    )
    
    
    
    
    
    
    3,976
    
    
    
    (12,198
    )
    
    
    (2,116
    )
    
    
    (14,314
    )Depreciation and amortization
    
    
    (18,843
    )
    
    
    (27,399
    )
    
    
    (46,242
    )
    
    
    (1,383
    )
    
    
    
    
    
    
    (47,625
    )
    
    
    (632
    )
    
    
    (48,257
    )Networks, operations and support
expenses
    
    
    (2,905
    )
    
    
    (6,228
    )
    
    
    (9,133
    )
    
    
    (8,817
    )
    
    
    73
    
    
    
    (17,877
    )
    
    
    (10,203
    )
    
    
    (28,080
    )Employee benefit expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,549
    )
    
    
    151
    
    
    
    (19,398
    )
    
    
    (1,823
    )
    
    
    (21,221
    )Other operating expenses
    
    
    (6,779
    )
    
    
    (15,218
    )
    
    
    (21,997
    )
    
    
    (15,159
    )
    
    
    803
    
    
    
    (36,353
    )
    
    
    (15,227
    )
    
    
    (51,580
    )Finance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,897
    )
    
    
    656
    
    
    
    (3,241
    )
    
    
    (15
    )
    
    
    (3,256
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    961
    
    
    
    (656
    )
    
    
    305
    
    
    
    15
    
    
    
    320Realized loss on changes in fair value
of derivative component of convertible
bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (569
    )
    
    
    
    
    
    
    (569
    )
    
    
    
    
    
    
    (569
    )Other income  net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,100
    
    
    
    
    
    
    
    5,100
    
    
    
    7
    
    
    
    5,107Segment income/(loss) before income tax
    
    
    24,164
    
    
    
    45,637
    
    
    
    69,801
    
    
    
    (41,685
    )
    
    
    (32
    )
    
    
    28,084
    
    
    
    1,155
    
    
    
    29,239Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,175
    )
    
    
    (499
    )
    
    
    (7,674
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,909
    
    
    
    656
    
    
    
    21,565Attributable to:Equity holders of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,909
    
    
    
    656
    
    
    
    21,565Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,909
    
    
    
    656
    
    
    
    21,565Other information:Provision for doubtful debts
    
    
    (1,258
    )
    
    
    (994
    )
    
    
    (2,252
    )
    
    
    (8
    )
    
    
    
    
    
    
    (2,260
    )
    
    
    (395
    )
    
    
    (2,655
    )Capital expenditures for segment
assets (a)
    
    
    16,332
    
    
    
    20,040
    
    
    
    36,372
    
    
    
    9,812
    
    
    
    
    
    
    
    46,184
    
    
    
    
    
    
    
    46,184
 F-62




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##### Table of Contents



5.
    
    SEGMENT INFORMATION (Continued)
 5.1
    
    Operating Segments (Continued)
 2008 (As restated)Continuing operations
    
    Discontinued operations(up to effective date of disposal)Reconciling itemsMobile
    
    Fixed-line
    
    
    
    
    
    Unallocated
    
    
    
    
    
    Totalbusiness
    
    business
    
    Subtotal
    
    amounts
    
    Eliminations
    

continuing operations
    
    CDMA business
    
    TotalTelecommunications service revenue
    
    
    64,240
    
    
    
    88,254
    
    
    
    152,494
    
    
    
    337
    
    
    
    
    
    
    
    152,831
    
    
    
    18,951
    
    
    
    171,782Information communication technology
services and other revenue
    
    
    359
    
    
    
    4,339
    
    
    
    4,698
    
    
    
    364
    
    
    
    
    
    
    
    5,062
    
    
    
    92
    
    
    
    5,154Sales of telecommunications products
    
    
    532
    
    
    
    1,362
    
    
    
    1,894
    
    
    
    5
    
    
    
    
    
    
    
    1,899
    
    
    
    3,253
    
    
    
    5,152Total revenue from external customers
    
    
    65,131
    
    
    
    93,955
    
    
    
    159,086
    
    
    
    706
    
    
    
    
    
    
    
    159,792
    
    
    
    22,296
    
    
    
    182,088Intersegment revenue
    
    
    265
    
    
    
    3,407
    
    
    
    3,672
    
    
    
    1,214
    
    
    
    (4,886
    )
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    65,396
    
    
    
    97,362
    
    
    
    162,758
    
    
    
    1,920
    
    
    
    (4,886
    )
    
    
    159,792
    
    
    
    22,296
    
    
    
    182,088Interconnection charges
    
    
    (10,753
    )
    
    
    (5,776
    )
    
    
    (16,529
    )
    
    
    
    
    
    
    3,491
    
    
    
    (13,038
    )
    
    
    (1,661
    )
    
    
    (14,699
    )Depreciation and amortization
    
    
    (18,551
    )
    
    
    (27,782
    )
    
    
    (46,333
    )
    
    
    (1,628
    )
    
    
    
    
    
    
    (47,961
    )
    
    
    (411
    )
    
    
    (48,372
    )Networks, operations and support
expenses
    
    
    (2,279
    )
    
    
    (5,757
    )
    
    
    (8,036
    )
    
    
    (10,873
    )
    
    
    173
    
    
    
    (18,736
    )
    
    
    (7,777
    )
    
    
    (26,513
    )Employee benefit expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,967
    )
    
    
    209
    
    
    
    (20,758
    )
    
    
    (1,600
    )
    
    
    (22,358
    )Other operating expenses
    
    
    (9,054
    )
    
    
    (13,901
    )
    
    
    (22,955
    )
    
    
    (15,746
    )
    
    
    953
    
    
    
    (37,748
    )
    
    
    (8,966
    )
    
    
    (46,714
    )Finance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,137
    )
    
    
    714
    
    
    
    (2,423
    )
    
    
    (6
    )
    
    
    (2,429
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    979
    
    
    
    (714
    )
    
    
    265
    
    
    
    10
    
    
    
    275Impairment loss on property, plant and
equipment
    
    
    
    
    
    
    (11,837
    )
    
    
    (11,837
    )
    
    
    
    
    
    
    
    
    
    
    (11,837
    )
    
    
    
    
    
    
    (11,837
    )Other income  net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,097
    
    
    
    
    
    
    
    2,097
    
    
    
    22
    
    
    
    2,119Segment income/(loss) before income tax
    
    
    24,759
    
    
    
    32,309
    
    
    
    57,068
    
    
    
    (47,355
    )
    
    
    (60
    )
    
    
    9,653
    
    
    
    1,907
    
    
    
    11,560Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,828
    )
    
    
    (469
    )
    
    
    (2,297
    )Gain on disposal of the CDMA business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,135
    
    
    
    26,135Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,825
    
    
    
    27,573
    
    
    
    35,398Attributable to:Equity holders of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,826
    
    
    
    27,572
    
    
    
    35,398Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    7,825
    
    
    
    27,573
    
    
    
    35,398Other information:Provision for doubtful debts
    
    
    (1,371
    )
    
    
    (1,639
    )
    
    
    (3,010
    )
    
    
    (15
    )
    
    
    
    
    
    
    (3,025
    )
    
    
    (383
    )
    
    
    (3,408
    )Capital expenditures for segment
assets (a)
    
    
    33,852
    
    
    
    31,540
    
    
    
    65,392
    
    
    
    5,471
    
    
    
    
    
    
    
    70,863
    
    
    
    
    
    
    
    70,863
 F-63




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##### Table of Contents



5.
    
    SEGMENT INFORMATION (Continued)
 5.1
    
    Operating Segments (Continued)
 2009Continuing operationsReconciling itemsMobile
    
    Fixed-line
    
    
    
    
    
    Unallocated
    
    
    
    
    
    Totalbusiness
    
    business
    
    Subtotal
    
    amounts
    
    Eliminations
    
    continuing operationsTelecommunications service revenue
    
    
    69,769
    
    
    
    79,549
    
    
    
    149,318
    
    
    
    275
    
    
    
    
    
    
    
    149,593Information communication technology
services and other revenue
    
    
    252
    
    
    
    1,611
    
    
    
    1,863
    
    
    
    326
    
    
    
    
    
    
    
    2,189Sales of telecommunications products
    
    
    1,970
    
    
    
    193
    
    
    
    2,163
    
    
    
    
    
    
    
    
    
    
    
    2,163Total revenue from external customers
    
    
    71,991
    
    
    
    81,353
    
    
    
    153,344
    
    
    
    601
    
    
    
    
    
    
    
    153,945Intersegment revenue
    
    
    219
    
    
    
    4,237
    
    
    
    4,456
    
    
    
    1,587
    
    
    
    (6,043
    )
    
    
    Total revenue
    
    
    72,210
    
    
    
    85,590
    
    
    
    157,800
    
    
    
    2,188
    
    
    
    (6,043
    )
    
    
    153,945Interconnection charges
    
    
    (13,104
    )
    
    
    (4,292
    )
    
    
    (17,396
    )
    
    
    
    
    
    
    4,441
    
    
    
    (12,955
    )Depreciation and amortization
    
    
    (17,847
    )
    
    
    (28,264
    )
    
    
    (46,111
    )
    
    
    (1,505
    )
    
    
    29
    
    
    
    (47,587
    )Networks, operations and support expenses
    
    
    (2,496
    )
    
    
    (5,780
    )
    
    
    (8,276
    )
    
    
    (13,471
    )
    
    
    19
    
    
    
    (21,728
    )Leasing fee for telecommunications
networks in Southern China
    
    
    
    
    
    
    (2,000
    )
    
    
    (2,000
    )
    
    
    
    
    
    
    
    
    
    
    (2,000
    )Employee benefit expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,104
    )
    
    
    173
    
    
    
    (21,931
    )Other operating expenses
    
    
    (11,671
    )
    
    
    (8,783
    )
    
    
    (20,454
    )
    
    
    (17,465
    )
    
    
    1,196
    
    
    
    (36,723
    )Finance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,214
    )
    
    
    178
    
    
    
    (1,036
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269
    
    
    
    (178
    )
    
    
    91Realised gain on changes in fair value of
derivative financial instrument
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,239
    
    
    
    
    
    
    
    1,239Other income  net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    962
    
    
    
    
    
    
    
    962Segment income/(loss) before income tax
    
    
    27,092
    
    
    
    36,471
    
    
    
    63,563
    
    
    
    (51,101
    )
    
    
    (185
    )
    
    
    12,277Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,721
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,556Attributable to:Equity holders of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,556Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,556Other information:Provision for doubtful debts
    
    
    (1,494
    )
    
    
    (858
    )
    
    
    (2,352
    )
    
    
    (3
    )
    
    
    
    
    
    
    (2,355
    )Capital expenditures for segment assets (a)
    
    
    56,984
    
    
    
    46,494
    
    
    
    103,478
    
    
    
    8,996
    
    
    
    
    
    
    
    112,474
 F-64




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##### Table of Contents



5.
    
    SEGMENT INFORMATION (Continued)
 5.1
    
    Operating Segments
 December 31, 2008(As restated)Fixed-
    
    
    
    
    
    
    Reconciling itemsMobile
    
    
    line
    
    
    
    
    
    
    Unallocatedbusiness
    
    
    business
    
    
    Subtotal
    
    
    amounts
    
    
    Eliminations
    
    
    TotalTotal segment assets
    
    
    130,041
    
    
    
    184,127
    
    
    
    314,168
    
    
    
    35,071
    
    
    
    (487
    )
    
    
    348,752Total segment liabilities
    
    
    53,496
    
    
    
    34,484
    
    
    
    87,980
    
    
    
    53,390
    
    
    
    (345
    )
    
    
    141,025
 December 31, 2009Fixed-
    
    
    
    
    
    
    Reconciling itemsMobile
    
    
    line
    
    
    
    
    
    
    Unallocatedbusiness
    
    
    business
    
    
    Subtotal
    
    
    amounts
    
    
    Eliminations
    
    
    TotalTotal segment assets
    
    
    170,577
    
    
    
    213,172
    
    
    
    383,749
    
    
    
    34,470
    
    
    
    (1,174
    )
    
    
    417,045Total segment liabilities
    
    
    74,411
    
    
    
    51,066
    
    
    
    125,477
    
    
    
    85,948
    
    
    
    (847
    )
    
    
    210,578
 (a)
    
    Capital expenditures under unallocated amounts represent capital expenditures on
common facilities, which benefit all operating segments.
 F-65




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##### Table of Contents



6.
    
    PROPERTY, PLANT AND EQUIPMENTThe movement of property, plant and equipment for the years ended December 31, 2008 and 2009 is
as follows:
 2008 (As restated)OfficeTele-
    
    furniture,Tele-
    
    communications
    
    fixtures,communications
    
    equipment of
    
    motorequipment of
    
    Fixed-line
    
    vehicles and
    
    Leasehold
    
    Construction-Buildings
    
    Mobile business
    
    business
    
    others
    
    improvements
    
    in-progress
    
    TotalCost or valuation:Beginning of year (As previously reported)
    
    
    44,094
    
    
    
    151,660
    
    
    
    327,711
    
    
    
    32,418
    
    
    
    1,657
    
    
    
    18,966
    
    
    
    576,5062009 Business Combination under common
control (Note 1)
    
    
    394
    
    
    
    
    
    
    
    
    
    
    
    7,895
    
    
    
    23
    
    
    
    471
    
    
    
    8,783Beginning of year (As restated)
    
    
    44,488
    
    
    
    151,660
    
    
    
    327,711
    
    
    
    40,313
    
    
    
    1,680
    
    
    
    19,437
    
    
    
    585,289Additions
    
    
    200
    
    
    
    234
    
    
    
    1,272
    
    
    
    1,078
    
    
    
    12
    
    
    
    68,067
    
    
    
    70,863Transfer from CIP
    
    
    2,566
    
    
    
    17,931
    
    
    
    21,797
    
    
    
    3,954
    
    
    
    362
    
    
    
    (46,610
    )
    
    
    Disposals
    
    
    (489
    )
    
    
    (3,077
    )
    
    
    (5,637
    )
    
    
    (6,867
    )
    
    
    (390
    )
    
    
    
    
    
    
    (16,460
    )Disposal of discontinued operations
    
    
    (1,077
    )
    
    
    (3,469
    )
    
    
    
    
    
    
    (284
    )
    
    
    (6
    )
    
    
    (23
    )
    
    
    (4,859
    )End of year
(As restated)
    
    
    45,688
    
    
    
    163,279
    
    
    
    345,143
    
    
    
    38,194
    
    
    
    1,658
    
    
    
    40,871
    
    
    
    634,833Representing:At cost
    
    
    45,688
    
    
    
    163,279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,871
    
    
    
    249,838At valuation
    
    
    
    
    
    
    
    
    
    
    345,143
    
    
    
    38,194
    
    
    
    1,658
    
    
    
    
    
    
    
    384,99545,688
    
    
    
    163,279
    
    
    
    345,143
    
    
    
    38,194
    
    
    
    1,658
    
    
    
    40,871
    
    
    
    634,833Accumulated
depreciation and
impairment:Beginning of year (As previously reported)
    
    
    (11,809
    )
    
    
    (85,446
    )
    
    
    (184,801
    )
    
    
    (17,423
    )
    
    
    (893
    )
    
    
    (24
    )
    
    
    (300,396
    )2009 Business Combination under common
control (Note 1)
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    (7,001
    )
    
    
    (5
    )
    
    
    
    
    
    
    (7,106
    )Beginning of year (As restated)
    
    
    (11,909
    )
    
    
    (85,446
    )
    
    
    (184,801
    )
    
    
    (24,424
    )
    
    
    (898
    )
    
    
    (24
    )
    
    
    (307,502
    )Charge for the year
    
    
    (1,638
    )
    
    
    (15,110
    )
    
    
    (25,589
    )
    
    
    (4,417
    )
    
    
    (274
    )
    
    
    
    
    
    
    (47,028
    )Disposals
    
    
    272
    
    
    
    3,068
    
    
    
    4,733
    
    
    
    6,725
    
    
    
    339
    
    
    
    4
    
    
    
    15,141Disposal of discontinued operations
    
    
    190
    
    
    
    1,546
    
    
    
    
    
    
    
    126
    
    
    
    
    
    
    
    
    
    
    
    1,862Impairment loss for the year
    
    
    
    
    
    
    
    
    
    
    (11,825
    )
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    (11,837
    )End of year
(As restated)
    
    
    (13,085
    )
    
    
    (95,942
    )
    
    
    (217,482
    )
    
    
    (21,990
    )
    
    
    (833
    )
    
    
    (32
    )
    
    
    (349,364
    )Net book value:End of year
(As restated)
    
    
    32,603
    
    
    
    67,337
    
    
    
    127,661
    
    
    
    16,204
    
    
    
    825
    
    
    
    40,839
    
    
    
    285,469Beginning of year (As restated)
    
    
    32,579
    
    
    
    66,214
    
    
    
    142,910
    
    
    
    15,889
    
    
    
    782
    
    
    
    19,413
    
    
    
    277,787
 F-66




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##### Table of Contents



6.
    
    PROPERTY, PLANT AND EQUIPMENT (Continued)
 2009OfficeTele-
    
    furniture,Tele-
    
    communications
    
    fixtures,communications
    
    equipment of
    
    motorequipment of
    
    Fixed-line
    
    vehicles and
    
    Leasehold
    
    Construction-Buildings
    
    Mobile business
    
    business
    
    others
    
    improvements
    
    in-progress
    
    TotalCost or valuation:Beginning of year
(As previously
reported)
    
    
    44,950
    
    
    
    163,279
    
    
    
    345,143
    
    
    
    36,086
    
    
    
    1,627
    
    
    
    40,783
    
    
    
    631,8682009 Business
Combination under
common control
(Note 1)
    
    
    738
    
    
    
    
    
    
    
    
    
    
    
    2,108
    
    
    
    31
    
    
    
    88
    
    
    
    2,965Beginning of year
(As restated)
    
    
    45,688
    
    
    
    163,279
    
    
    
    345,143
    
    
    
    38,194
    
    
    
    1,658
    
    
    
    40,871
    
    
    
    634,833Additions
    
    
    644
    
    
    
    430
    
    
    
    1,518
    
    
    
    503
    
    
    
    208
    
    
    
    109,171
    
    
    
    112,474Transfer from CIP
    
    
    3,329
    
    
    
    54,031
    
    
    
    24,565
    
    
    
    3,674
    
    
    
    271
    
    
    
    (85,870
    )
    
    
    Disposals
    
    
    (297
    )
    
    
    (10,817
    )
    
    
    (2,203
    )
    
    
    (957
    )
    
    
    (251
    )
    
    
    
    
    
    
    (14,525
    )End of year
    
    
    49,364
    
    
    
    206,923
    
    
    
    369,023
    
    
    
    41,414
    
    
    
    1,886
    
    
    
    64,172
    
    
    
    732,782Representing:At cost
    
    
    49,364
    
    
    
    206,923
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,172
    
    
    
    320,459At valuation
    
    
    
    
    
    
    
    
    
    
    369,023
    
    
    
    41,414
    
    
    
    1,886
    
    
    
    
    
    
    
    412,32349,364
    
    
    
    206,923
    
    
    
    369,023
    
    
    
    41,414
    
    
    
    1,886
    
    
    
    64,172
    
    
    
    732,782Accumulated
depreciation and
impairment:Beginning of year
(As previously
reported)
    
    
    (13,019
    )
    
    
    (95,942
    )
    
    
    (217,482
    )
    
    
    (20,668
    )
    
    
    (813
    )
    
    
    (32
    )
    
    
    (347,956
    )2009 Business
Combination under
common control
(Note 1)
    
    
    (66
    )
    
    
    
    
    
    
    
    
    
    
    (1,322
    )
    
    
    (20
    )
    
    
    
    
    
    
    (1,408
    )Beginning of year
(As restated)
    
    
    (13,085
    )
    
    
    (95,942
    )
    
    
    (217,482
    )
    
    
    (21,990
    )
    
    
    (833
    )
    
    
    (32
    )
    
    
    (349,364
    )Charge for the year
    
    
    (1,859
    )
    
    
    (12,286
    )
    
    
    (27,693
    )
    
    
    (4,077
    )
    
    
    (327
    )
    
    
    
    
    
    
    (46,242
    )Disposals
    
    
    286
    
    
    
    10,387
    
    
    
    1,969
    
    
    
    930
    
    
    
    251
    
    
    
    
    
    
    
    13,823Impairment
transfer out
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    158End of year
    
    
    (14,658
    )
    
    
    (97,841
    )
    
    
    (243,055
    )
    
    
    (25,137
    )
    
    
    (909
    )
    
    
    (25
    )
    
    
    (381,625
    )Net book value:End of year
    
    
    34,706
    
    
    
    109,082
    
    
    
    125,968
    
    
    
    16,277
    
    
    
    977
    
    
    
    64,147
    
    
    
    351,157Beginning of year
(As restated)
    
    
    32,603
    
    
    
    67,337
    
    
    
    127,661
    
    
    
    16,204
    
    
    
    825
    
    
    
    40,839
    
    
    
    285,469
 F-67




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##### Table of Contents



6.
    
    PROPERTY, PLANT AND EQUIPMENT (Continued)As of December 31, 2009, the net book value of all the revalued property, plant and equipment
would have been approximately RMB149,960 million (2008: approximately RMB153,772 million) had
they been stated at cost less accumulated depreciation and accumulated impairment losses.As of December 31, 2009, the net book value of assets held under finance leases was
approximately RMB128 million (2008: approximately 52 million).For the year ended December 31, 2009, interest expense of approximately RMB806 million (2007:
approximately RMB439 million; 2008: approximately RMB260 million) was capitalized to
construction-in-progress. The capitalized borrowing rate represents the cost of capital for
raising the related borrowings externally and varied from 4.27% to 4.80% for the year ended
December 31, 2009 (2007: 3.60% to 5.80%; 2008: 3.51% to 6.80%).For the year ended December 31, 2009, the Group recognized a gain on disposal of property,
plant and equipment of approximately RMB79 million (2007: a loss of approximately RMB142
million; 2008: a loss of approximately RMB50 million).After the completion of the merger with China Netcom (Note 1) in 2008, management reconsidered
the Groups strategy regarding the PHS services business at the end of 2008 and expected to
gradually phase out this operation over the subsequent 3 years. Accordingly, it was expected
that the economic performance of PHS services business would deteriorate significantly. The
test for impairment was conducted for the PHS services related equipment, after considering the
expected significant decline in revenue and profitability in 2009 and onwards. The impaired PHS
services related equipment was written down to their recoverable values, which was determined
based on their estimated value in use. Estimated value in use was determined based on the
present value of estimated future net cash flows expected to arise from the continuing use of
the PHS services related equipment. In estimating the future net cash flows, the Group has made
key assumptions and estimates on the appropriate discount rate of 15%, the period covered by
the cash flow forecast of 3 years, the future loss of customers at an annual rate of decline
ranging from 60% to 80%, and the decrease in average revenue per subscriber at an annual rate
of decline of 15%.These assumptions and estimates are made after considering the historical trends, the
prevailing market trends, expected remaining life of the PHS services business and the physical
conditions of the PHS services related equipment. Based on the above, the Group recognized an
impairment loss on PHS services related equipment of approximately RMB11,837 million for the
year ended December 31, 2008.As of December 31, 2009, management updated the impairment analysis for the PHS services related
equipment and concluded there was no need for additional recognition or reversal of the
impairment provision on PHS services related equipment.
 F-68




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##### Table of Contents



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:
 2008(As restated)
    
    2009Held on:Leases of between 10 to 50 years
    
    
    7,798
    
    
    
    7,653Leases of less than 10 years
    
    
    65
    
    
    
    767,863
    
    
    
    7,729
 For the year ended December 31, 2009, the long-term prepayment for land use rights expensed
in the statement of income amounted to approximately RMB224 million (2007: approximately 262
million; 2008: approximately RMB226 million).8.
    
    GOODWILL
 2008
    
    2009Cost:Beginning of year
    
    
    3,144
    
    
    
    2,771Disposal of CDMA business
    
    
    (373
    )
    
    
    End of year
    
    
    2,771
    
    
    
    2,771
 Goodwill arising from the acquisitions of Unicom New Century Telecommunications Co., Ltd.
and Unicom New World Telecommunications Co., Ltd. by the Group 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). As of December 31, 2008 and
2009, all the carrying value of goodwill was attributable to the Mobile 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, 2008 and 2009 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-69




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##### Table of Contents



9.
    
    TAXATIONHong Kong income tax has been provided at the rate of 16.5% (2007: 17.5%; 2008: 16.5%) 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 mainly operated in the
PRC and the applicable standard enterprise income tax rate is 25% (2007: 33%; 2008: 25%).
 2007
    
    2008(As restated)
    
    (As restated)
    
    2009Provision for enterprise
income tax on the estimated
taxable income for the year Hong Kong
    
    
    
    
    
    
    18
    
    
    
    24
    
    
    
    45 Outside Hong Kong
    
    
    
    
    
    
    7,229
    
    
    
    4,661
    
    
    
    2,2827,247
    
    
    
    4,685
    
    
    
    2,327Deferred taxation
    
    
    
    
    
    
    (72
    )
    
    
    (2,857
    )
    
    
    394Income tax expense
    
    
    
    
    
    
    7,175
    
    
    
    1,828
    
    
    
    2,721Reconciliation
between applicable statutory tax rate and the effective tax rate:2007
    
    2008Note
    
    (As restated)
    
    (As restated)
    
    2009Applicable PRC statutory tax rate
    
    
    
    
    
    
    33.0
    %
    
    
    25.0
    %
    
    
    25.0
    %Non-deductible expenses
    
    
    
    
    
    
    0.6
    %
    
    
    2.2
    %
    
    
    1.7
    %Tax effect of 2009 Business Combination
    
    
    (a
    )
    
    
    (0.7
    %)
    
    
    (3.5
    %)
    
    
    Non-taxable income Upfront connection and installation fees
arising from Fixed-line business
    
    
    
    
    
    
    (2.7
    %)
    
    
    (3.3
    %)
    
    
    (1.4
    %) Tax refund on reinvestment in subsidiaries
    
    
    
    
    
    
    (4.7
    %)
    
    
    
    
    
    
    Impact of PRC preferential tax rates and tax
holiday
    
    
    
    
    
    
    (0.8
    %)
    
    
    (0.9
    %)
    
    
    (1.1
    %)Utilization of previously unrecognized tax losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.6
    %)Effect of change of tax rate under the new PRC
enterprise income tax law
    
    
    
    
    
    
    0.3
    %
    
    
    
    
    
    
    Realized loss on changes in fair value of
derivative component of convertible bonds
    
    
    
    
    
    
    0.7
    %
    
    
    
    
    
    
    Others
    
    
    
    
    
    
    (0.2
    %)
    
    
    (0.6
    %)
    
    
    (1.4
    %)Effective tax rate
    
    
    
    
    
    
    25.5
    %
    
    
    18.9
    %
    
    
    22.2
    %
 
 (a):
    
    The income tax of Fixed-line business in Southern China, local access telephone business
in Tianjin Municipality and New Guoxin was reported on a consolidated basis with Netcom Group
and Unicom Group prior to the 2009 Business Combination and no separate tax returns were
prepared. No income tax expenses were therefore recorded for the Fixed-line Business in
Southern China, local access telephone business in Tianjin Municipality and New Guoxin in 2008
or prior years in accounting for the Fixed-line business in Southern China, local access
telephone business in Tianjin Municipality and New Guoxin using merger accounting/predecessor
values method. F-70




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##### Table of Contents



9.
    
    TAXATION (Continued)The analysis of deferred tax assets and deferred tax liabilities are as follow:
 2008(As restated)
    
    2009Deferred tax assets: Deferred tax asset to be recovered after 12 months
    
    
    4,903
    
    
    
    3,254 Deferred tax asset to be recovered within 12 months
    
    
    1,601
    
    
    
    2,9136,504
    
    
    
    6,167Deferred tax liabilities: Deferred tax liabilities to be settled after 12 months
    
    
    (931
    )
    
    
    (699
    ) Deferred tax liabilities to be settled within 12 months
    
    
    (239
    )
    
    
    (266
    )(1,170
    )
    
    
    (965
    )Net deferred tax assets after offsetting
    
    
    5,334
    
    
    
    5,202Deferred tax assets: Deferred tax asset to be recovered after 12 months
    
    
    16
    
    
    
    6 Deferred tax asset to be recovered within 12 months
    
    
    10
    
    
    
    5926
    
    
    
    65Deferred tax liabilities: Deferred tax liabilities to be settled after 12 months
    
    
    (23
    )
    
    
    (16
    ) Deferred tax liabilities to be settled within 12 months
    
    
    (19
    )
    
    
    (294
    )(42
    )
    
    
    (310
    )Net deferred tax liabilities after offsetting
    
    
    (16
    )
    
    
    (245
    )
 There were no material unrecognized deferred tax assets as of December 31, 2008 and 2009.
 F-71




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9.
    
    TAXATION (Continued)The movement of the net deferred tax assets/liabilities is as follows:
 2007
    
    2008(As restated)
    
    (As restated)
    
    2009Net deferred tax assets after offsetting: Beginning of year
    
    
    3,018
    
    
    
    2,473
    
    
    
    5,334 Deferred tax credited/(charged) to the
statement of income Continuing operations
    
    
    74
    
    
    
    2,856
    
    
    
    (132
    ) Discontinued operations
    
    
    (28
    )
    
    
    (35
    )
    
    
     Deferred tax (charged)/credited to equity
    
    
    (591
    )
    
    
    46
    
    
    
     Disposal of discontinued operation
    
    
    
    
    
    
    (6
    )
    
    
     End of year
    
    
    2,473
    
    
    
    5,334
    
    
    
    5,202Net deferred tax liabilities after offsetting: Beginning of year
    
    
    (16
    )
    
    
    (18
    )
    
    
    (16
    ) Deferred tax (charged)/credited to the
statement of income
    
    
    (2
    )
    
    
    1
    
    
    
    (262
    ) Deferred tax credited to equity
    
    
    
    
    
    
    1
    
    
    
    33 End of year
    
    
    (18
    )
    
    
    (16
    )
    
    
    (245
    )
 F-72




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##### Table of Contents



9.
    
    TAXATION (Continued)Deferred 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:
 2008Note
    
    (As restated)
    
    2009Net deferred tax assets after offsetting:Deferred tax assets:Provision for doubtful debts
    
    
    
    
    
    
    789
    
    
    
    1,064Impairment loss on property, plant and equipment
    
    
    6
    
    
    
    2,924
    
    
    
    2,034Unrecognized revaluation surplus on property, plant and
equipment under PRC regulations
    
    
    i
    
    
    
    1,991
    
    
    
    1,917Revaluation deficit on property, plant and equipment
    
    ii
    
    
    170
    
    
    
    116Accruals of expenses not yet deductible for tax purpose
    
    
    
    
    
    
    179
    
    
    
    418Deferral and amortisation of upfront non-refundable
revenue
    
    
    
    
    
    
    177
    
    
    
    142Deferred revenue on subscriber points reward program
    
    
    
    
    
    
    43
    
    
    
    48Deferred revenue in relation to the provision of
supporting services upon disposal of the CDMA business
    
    
    
    
    
    
    102
    
    
    
    32Accruals of retirement benefits
    
    
    
    
    
    
    55
    
    
    
    25Unrealized profit for the inter-company transactions
    
    
    
    
    
    
    43
    
    
    
    214Others
    
    
    
    
    
    
    31
    
    
    
    1576,504
    
    
    
    6,167Deferred tax liabilities:Capitalization and amortization of direct incremental costs
    
    
    
    
    
    
    (124
    )
    
    
    (108
    )Capitalized interest already deducted for tax purpose
    
    
    
    
    
    
    (703
    )
    
    
    (528
    )Revaluation surplus on property, plant and equipment
    
    ii
    
    
    (343
    )
    
    
    (299
    )Others
    
    
    
    
    
    
    
    
    
    
    (30
    )(1,170
    )
    
    
    (965
    )5,334
    
    
    
    5,202Net deferred tax liabilities after offsetting:Deferred tax assets:Accumulated tax loss carried forward
    
    
    
    
    
    
    
    
    
    
    37Fair value losses on available-for-sale financial assets
    
    
    
    
    
    
    
    
    
    
    41Others
    
    
    
    
    
    
    26
    
    
    
    2826
    
    
    
    106Deferred tax liabilities:Realized gain on changes in fair value of derivative
financial instrument
    
    
    
    
    
    
    
    
    
    
    (310
    )Fair value gains on available-for-sale financial assets
    
    
    
    
    
    
    (15
    )
    
    
    (23
    )Accelerated depreciation for tax purpose
    
    
    
    
    
    
    (27
    )
    
    
    (18
    )(42
    )
    
    
    (351
    )(16
    )
    
    
    (245
    )
 F-73




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##### Table of Contents



9.
    
    TAXATION (Continued)
 (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 IFRSs/HKFRSs. Accordingly, deferred tax assets were recorded by the Group
under IFRSs/HKFRSs.(ii)
    
    The property, plant and equipment other than buildings and telecommunications equipment
of Mobile business are carried at revalued amount under IFRSs/HKFRSs, 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 IFRSs/HKFRSs.
 10.
    
    OTHER ASSETS
 2008(As restated)
    
    2009Direct incremental costs for activating mobile subscribers
    
    
    499
    
    
    
    433Installation costs of Fixed-line business
    
    
    2,251
    
    
    
    1,732Prepaid rental for premises and leased lines
    
    
    2,121
    
    
    
    3,454Purchased software
    
    
    2,877
    
    
    
    3,954Others
    
    
    1,339
    
    
    
    2,0239,087
    
    
    
    11,596
 11.
    
    SUBSIDIARIESAs of December 31, 2009, the details of the Companys subsidiaries are as follows:
 PercentagePlace and date of
    
    of equity
    
    Particulars
    
    Principal activitiesincorporation and
    
    interests held
    
    of issued
    
    and place ofName
    
    nature of legal entity
    
    Direct    Indirect
    
    share capital
    
    operationChina United
Network
Communications
Corporation Limited
(merged with CNC
China on January 1,
2009)
    
    The PRC,
April 21, 2000, 
limited liability
company
    
    
    100
    %
    
    
    
    RMB
138,091,677,828
    
    Telecommunications
operation in the
PRCChina 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 Kong
 F-74




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##### Table of Contents



11.
    
    SUBSIDIARIES (Continued)
 PercentagePlace and date of
    
    of equity
    
    Particulars of
    
    Principal activitiesincorporation and
    
    interests held
    
    issued share
    
    and place ofName
    
    nature of legal entity
    

Direct    Indirect
    
    capital
    
    operationUnicom New World
(BVI) Limited
    
    British Virgin
Islands (BVI), 
November 5, 2003,
 limited company
    
    
    100
    %
    
    
    
    
    
    1,000 shares,
HKD1 each
    
    Investment holding
in BVIChina Unicom (Hong
Kong) Operations
Limited (formerly
known as China
Unicom
International
Limited)
    
    Hong Kong,
 May 24, 2000, 

limited company
    
    
    100
    %
    
    
    
    
    
    60,100,000 shares,
HKD1 each
    
    Telecommunications
service in Hong
KongChina Netcom (Hong
Kong) Operations
Limited
    
    Hong Kong, 
May 2, 2001, 
limited company
    
    
    
    
    
    
    100
    %
    
    1,000 shares,
HKD1 each
    
    Telecommunications
service in Hong
KongChina Unicom
(Americas) 
Operations Limited
(formerly known as
China Unicom USA
Corporation and
merged with China
Netcom (USA)
Operations Limited
on August 31, 2009)
    
    The United States of
America (the USA),
May 24, 2002,
limited company
    
    
    100
    %
    
    
    
    
    
    5,000 shares,
USD100 each
    
    Telecommunications
service in USAChina Unicom
(Europe) Operations
Limited
    
    United Kingdom,
November 8, 2006, 

limited company
    
    
    100
    %
    
    
    
    
    
    4,861,000 shares,
GBP1 each
    
    Telecommunications
operation in the
United KingdomChina Unicom
(Japan)
 Operations 
Corporation
    
    Japan,

January 25, 2007, 

limited company
    
    
    100
    %
    
    
    
    
    
    1,000 shares,
JPY366,000 each
    
    Telecommunications
operation in JapanChina Unicom
(Singapore) 
Operations Pte
Limited
    
    Singapore, 

August 5, 2009, 

limited company
    
    
    100
    %
    
    
    
    
    
    1 share,
USD1 each
    
    Telecommunications
operation in
Singapore (Business
not yet commenced)
 F-75




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##### Table of Contents



11.
    
    SUBSIDIARIES (Continued)
 Percentage ofPlace and date of
    
    equity
    
    Particulars of
    
    Principal activitiesincorporation and
    
    interests held
    
    issued share
    
    and place ofName
    
    nature of legal entity
    
    Direct    Indirect
    
    capital
    
    operationBillion Express
Investments Limited
    
    British Virgin Islands,
August 15, 2007, 
limited company
    
    
    100
    %
    
    
    
    
    
    1 share,
USD1 each
    
    Investment holding
in BVIChina Unicom 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 PRCChina Netcom
Corporation 
International Limited
    
    Bermuda, 
October 15, 2002, 
limited company
    
    
    
    
    
    
    100
    %
    
    USD
12,000
    
    Provision of
investing service
in BermudaChina Unicom System
Integration Limited 
Corporation
    
    The PRC, 
April 30, 2006, 
limited liability
company
    
    
    
    
    
    
    100
    %
    
    RMB
550,000,000
    
    Provision of
information
communications
technology services
in the PRCChina Unicom
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
    
    Provision of
telecommunications
network
construction,
planning and
technical
consulting services
in the PRC
 F-76




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##### Table of Contents



11.
    
    SUBSIDIARIES (Continued)
 Percentage ofPlace and date of
    
    equity
    
    Particulars of
    
    Principal activitiesincorporation and
    
    interests held
    
    issued share
    
    and place ofName
    
    nature of legal entity
    

Direct    Indirect
    
    capital
    
    operationZhongrong
Information Service 
Limited Corporation
    
    The PRC,
March 31, 2008
limited liability
company
    
    
    
    
    100
    %
    
    RMB
50,000,000
    
    Provision of
information
consulting and
technology
development
outsourcing
services in the PRCChina Information
Technology 
Designing &
Consulting
Institute Company
Limited
    
    The PRC,
September 27, 2008
limited liability
company
    
    
    
    
    100
    %
    
    RMB
60,000,000
    
    Provision of
consultancy,
survey, design and
contract services
relating to
information
projects and
construction
projects in the
telecommunications
industry in the PRCUnicom Xingye
Science and
Technology Trade
Company Limited
    
    The PRC,
October 30, 2000,
limited liability
company
    
    
    
    
    100
    %
    
    RMB
30,000,000
    
    Provision of
technical support,
manufacturing,
research and design
services for
SIM/USIM cards and
other
telecommunication
cards in the PRCNew Guoxin Telecom
Corporation of
China Unicom
    
    The PRC,
September 17, 1998,
limited liability
company
    
    
    
    
    100
    %
    
    RMB
6,825,087,800
    
    Provision of
customer services
and hotline
businesses in the
PRC
 F-77




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##### Table of Contents



11.
    
    SUBSIDIARIES (Continued)
 Percentage ofPlace and date of
    
    equity
    
    Particulars of
    
    Principal activitiesincorporation and
    
    interests held
    
    issued share
    
    and place ofName
    
    nature of legal entity
    
    Direct    Indirect
    
    capital
    
    operationHuaxia P&T Project
Consultation and
Management Company
Limited
    
    The PRC, 
March 5, 1998, 
limited liability
company
    
    
    
    
    100
    %
    
    RMB
10,000,000
    

Provision of
project
consultation and
management services
in the PRCZhengzhou Kaicheng
Industrial Company
Limited
    
    The PRC, 
December 21, 2005, 
limited liability
company
    
    
    
    
    100
    %
    
    RMB
2,200,000
    
    Provision of
property management
services in the
PRCZhengzhou Information
and Design Technology
Publication Company
    
    The PRC,
February 17, 2003, 
limited liability
company
    
    
    
    
    100
    %
    
    RMB
300,000
    
    Provision of
magazine publishing
services in the PRCBeijing Tonghexing 
Telecommunications 
Technologies Company
Limited
    
    The PRC, 
December 28, 2000, 
limited liability
company
    
    
    
    
    51
    %
    
    RMB
7,000,000
    
    Provision of
technical support
in the PRC
 F-78




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##### Table of Contents



12.
    
    AVAILABLE-FOR-SALE FINANCIAL ASSETS
 2008Note
    
    (As restated)
    
    2009Equity securities issued by corporates
    
    
    
    
    
    
    95
    
    
    
    7,977Analyzed by place of listing:Listed in the PRC
    
    
    
    
    
    
    95
    
    
    
    188Listed outside the PRC
    
    
    32
    
    
    
    
    
    
    
    7,78995
    
    
    
    7,977
 For the year ended December 31, 2009, losses on changes in fair value of available-for-sale
financial assets amounted to approximately RMB71 million (2007: gains of approximately RMB246
million; 2008: losses of approximately RMB188 million). The losses, net of tax impact of
approximately RMB33 million (2007: gains of approximately RMB81 million; 2008: losses of
approximately RMB47 million) were recorded in the consolidated statement of comprehensive
income.
 13.
    
    INVENTORIES AND CONSUMABLES
 2008(As restated)
    
    2009Handsets and other customer end products
    
    
    302
    
    
    
    1,637Telephone cards
    
    
    317
    
    
    
    264Consumables
    
    
    429
    
    
    
    449Others
    
    
    44
    
    
    
    621,092
    
    
    
    2,412
 F-79




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##### Table of Contents



14.
    
    ACCOUNTS RECEIVABLE, NET
 2008(As restated)
    
    2009Accounts receivable for Mobile business
    
    
    3,100
    
    
    
    3,850Accounts receivable for Fixed-line business
    
    
    9,494
    
    
    
    8,783Accounts receivable for other business
    
    
    209
    
    
    
    262Sub-total
    
    
    12,803
    
    
    
    12,895Less: Provision for doubtful debts for Mobile business
    
    
    (1,347
    )
    
    
    (1,874
    )Provision for doubtful debts for Fixed-line business
    
    
    (2,037
    )
    
    
    (2,115
    )Provision for doubtful debts for other business
    
    
    (78
    )
    
    
    (81
    )9,341
    
    
    
    8,825
 The aging analysis of accounts receivable is as follows:
 2008(As restated)
    
    2009Within one month
    
    
    6,750
    
    
    
    6,384More than one month to three months
    
    
    1,560
    
    
    
    1,235More than three months to one year
    
    
    2,944
    
    
    
    2,936More than one year
    
    
    1,549
    
    
    
    2,34012,803
    
    
    
    12,895
 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 customer receivables, as
the Group has a large number of customers.
 As of December 31, 2009, accounts receivable of approximately RMB2,441 million (2008:
approximately RMB2,591 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 was as
follows:
 2008(As restated)
    
    2009More than one month to three months
    
    
    1,560
    
    
    
    1,235More than three months to one year
    
    
    736
    
    
    
    882More than one year
    
    
    295
    
    
    
    3242,591
    
    
    
    2,441
 F-80




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##### Table of Contents



14.
    
    ACCOUNTS RECEIVABLE, NET (Continued)As of December 31, 2009, accounts receivable of approximately RMB4,070 million (2008:
approximately RMB3,462 million) were impaired. The individually impaired receivables mainly
relate to subscriber service fees. The aging of these receivables is as follows:
 2008(As restated)
    
    2009More than three months to one year
    
    
    2,208
    
    
    
    2,054More than one year
    
    
    1,254
    
    
    
    2,0163,462
    
    
    
    4,070
 Provision for doubtful debts is analyzed as follows:
 2008(As restated)
    
    2009Balance, beginning of year
    
    
    3,206
    
    
    
    3,462Provision for the year:-Continuing operations
    
    
    3,016
    
    
    
    2,334-Discontinued operations
    
    
    383
    
    
    
    Written-off during the year
    
    
    (2,483
    )
    
    
    (1,726
    )Disposal of discontinued operations
    
    
    (660
    )
    
    
    Balance, end of year
    
    
    3,462
    
    
    
    4,070
 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 carrying value of accounts
receivable mentioned above. The Group does not hold any collateral as security.
 F-81




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##### Table of Contents



15.
    
    PREPAYMENTS AND OTHER CURRENT ASSETS
 2008(As restated)
    
    2009Prepaid rental
    
    
    738
    
    
    
    845Deposits and prepayments
    
    
    857
    
    
    
    1,379Prepaid income taxes
    
    
    
    
    
    
    1,060Advances to employees
    
    
    241
    
    
    
    274Others
    
    
    879
    
    
    
    6942,715
    
    
    
    4,252
 The aging analysis of prepayments and other current assets is as follows:
 2008(As restated)
    
    2009Within one year
    
    
    2,384
    
    
    
    3,806More than one year
    
    
    331
    
    
    
    4462,715
    
    
    
    4,252
 As of December 31, 2009, there was no impairment for the prepayments and other current
assets.
 16.
    
    SHORT-TERM BANK DEPOSITS
 2008(As restated)
    
    2009Bank deposits with maturity exceeding three months
    
    
    307
    
    
    
    970Restricted bank deposits
    
    
    30
    
    
    
    26337
    
    
    
    996
 As of December 31, 2009, restricted bank deposits primarily represented deposits that were
subject to externally imposed restrictions as requested by a contractor in relation to
construction payables owed to the contractor.
 F-82




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17.
    
    CASH AND CASH EQUIVALENTS
 2008(As restated)
    
    2009Cash at bank and in hand
    
    
    9,720
    
    
    
    7,210Bank deposits with original maturities
of three months or less
    
    
    517
    
    
    
    61010,237
    
    
    
    7,820
 18.
    
    SHARE CAPITAL
 2008
    
    2009HKD millions
    
    HKD millionsAuthorised:30,000,000,000 ordinary shares of HKD0.10 each
    
    
    3,000
    
    
    
    3,000
 Ordinaryshares, parNumber of
    
    
    value ofshares
    
    
    HKD0.1 each
    
    
    Share
    
    
    Sharemillions
    
    
    HKD millions
    
    
    capital
    
    
    premium
    
    
    TotalIssued and fully paid:At January 1, 2008
    
    
    13,635
    
    
    
    1,363
    
    
    
    1,437
    
    
    
    64,320
    
    
    
    65,757Issuance of shares
upon exercise of
options (Note 34)
    
    
    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
    
    
    
    169,113Issuance of shares
for mutual investment
by the Company and
Telefónica (Note b)
    
    
    694
    
    
    
    69
    
    
    
    60
    
    
    
    6,651
    
    
    
    6,711Off-market share
repurchase (Note c)
    
    
    (900
    )
    
    
    (90
    )
    
    
    (79
    )
    
    
    
    
    
    
    (79
    )At December 31, 2009
    
    
    23,562
    
    
    
    2,355
    
    
    
    2,310
    
    
    
    173,435
    
    
    
    175,745
 
 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.Note b :
    
    On October 21, 2009, the Company issued 693,912,264 ordinary shares of HKD0.10 each
at a price of HKD11.17 per share in exchange for 40,730,735 Telefónica treasury shares at a
price of Euro17.24 each. Please refer to Note 32 for details. F-83




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18.
    
    SHARE CAPITAL(Continued)
 
 Note c:
    
    Pursuant to a special resolution passed at the extraordinary general meeting held on
November 3, 2009, the Company repurchased 899,745,075 shares, being all the shares owned by
SK Telecom Co., Ltd, by way of an off-market share repurchase. The total consideration of
HKD9,991,669,058, being HKD11.105 for each share, was satisfied in cash upon completion.
The total consideration of HKD9,991,669,058 (equivalent to RMB8,801,661,273) was charged to
retained profits. The repurchased shares were cancelled subsequently.
In addition, pursuant to Section 49H of the Hong Kong Companies Ordinance, an amount
equivalent to the par value of the shares cancelled of HKD89,974,508 (equivalent to
RMB79,258,544) was transferred from share capital to the capital redemption reserve. 19.
    
    RESERVES
 (i)
    
    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 income 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 appropriated approximately RMB769 million (2007: approximately RMB718
million and RMB868 million by CUCL and CNC China, respectively; 2008: approximately
RMB3,523 million and RMB19 million by CUCL and CNC China, respectively) to the general
reserve fund for the year ended December 31, 2009.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
IFRSs/HKFRSs, 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, 2008 and 2009, no
appropriation to staff bonus and welfare fund has been made by CUCL nor CNC China.According to the 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 the Fixed-line business are not subject to the 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 the statutory reserve. Up to December 31, 2009, the
Group has made an accumulated appropriation of approximately RMB12,082 million to the
statutory reserve (Up to December 31, 2007: approximately RMB10,706 million; up to
December 31, 2008 : approximately RMB11,592 million).
 F-84




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19.
    
    RESERVES (Continued)
 (ii)
    
    Share premium and capital redemption reserveThe application of the share premium account and the capital redemption reserve is
governed by Sections 48B and 49H, respectively, of the Hong Kong Companies Ordinance and
these reserves cannot be distributed to shareholders by way of dividend.(iii)
    
    Available-for-sale fair value reserveThe available-for-sale fair value reserve represents the changes in the fair value of
available-for-sale financial assets, net of tax, until the financial assets are
derecognized or impaired.
 F-85




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20.
    
    LONG-TERM BANK LOANS
 Interest rates and final maturity
    
    2008
    
    2009RMB denominated bank loans
    
    Floating interest rates ranging from 4.86% to 6.80% per annum with maturity through 2009 unsecured
    
    
    
    
    1,114
    
    
    
    USD denominated bank loans
    
    Fixed interest rates ranging from Nil to 5.00% (2008: Nil to 5.65%) per annum with maturity through 2039 (2008: maturity through 2039) secured
    
    
    
    
    146
    
    
    
    137 unsecured
    
    
    
    
    377
    
    
    
    357523
    
    
    
    494Japanese Yen denominated bank loans
    
    Fixed interest rates of 2.12% per annum with maturity through 2014 unsecured
    
    
    
    
    234
    
    
    
    Euro denominated bank loans
    
    Fixed interest rates ranging from 1.10% to 2.50% (2008: 0.50% to 2.50%) per annum with maturity through 2034 (2008: maturity through 2034) unsecured
    
    
    
    
    342
    
    
    
    327Sub-total
    
    
    
    
    2,213
    
    
    
    821Less: Current portion
    
    
    
    
    (1,216
    )
    
    
    (62
    )997
    
    
    
    759
 The repayment schedule of the long-term bank loans is as follows:
 2008
    
    2009Balances due: not later than one year
    
    
    1,216
    
    
    
    62 later than one year and
not later than two years
    
    
    96
    
    
    
    54 later than two years and
not later than five years
    
    
    287
    
    
    
    165 later than five years
    
    
    614
    
    
    
    5402,213
    
    
    
    821Less: Portion classified as current liabilities
    
    
    (1,216
    )
    
    
    (62
    )997
    
    
    
    759
 F-86




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##### Table of Contents



20.
    
    LONG-TERM BANK LOANS (Continued)
 (a)
    
    The fair values of the Groups non-current portion of long-term bank loans at December
31, 2008 and 2009 were as follows:
 2008
    
    2009Long-term bank loans
    
    
    690
    
    
    
    552
 The fair value is based on cash flows discounted using rates based on the market rates
ranging from 4.48% to 4.72% (December 31, 2008: 4.59% to 6.56%).(b)
    
    As of December 31, 2009, bank loans of approximately RMB137 million (2008:
approximately RMB146 million) were secured by corporate guarantees granted by third
parties.
 21.
    
    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.The fair values of the Groups corporate bonds at December 31, 2008 and 2009 were as follows:
 2008
    
    2009Corporate bonds
    
    
    7,494
    
    
    
    7,143
 The fair value is based on cash flows discounted using rates based on the market rates
ranging from 4.18% to 4.86% (December 31, 2008: 3.32% to 3.98%).
 22.
    
    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
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.
 F-87




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23.
    
    OTHER OBLIGATIONS
 2008Note
    
    (As restated)
    
    2009Early retirement benefits
    
    
    (a
    )
    
    
    2,109
    
    
    
    One-off cash housing subsidies
    
    
    (a
    )
    
    
    2,502
    
    
    
    2,502Obligations under finance lease
    
    
    (b
    )
    
    
    
    
    
    
    129Others
    
    
    
    
    
    
    82
    
    
    
    90Sub-total
    
    
    
    
    
    
    4,693
    
    
    
    2,721Less: Current portion
    
    
    
    
    
    
    (3,012
    )
    
    
    (2,534
    )1,681
    
    
    
    187
 
 (a)
    
    The movement of early retirement benefits and one-off cash housing subsidies is as
follows: Early retirement benefits
    
    One-off cash housing subsidiesNote (ii)
    
    Note (i) & (ii)As of January 1, 2008
    
    
    2,532
    
    
    
    2,856Additions during the year
    
    
    
    
    
    
    Payments during the year
    
    
    (423
    )
    
    
    (354
    )As of December 31, 2008
    
    
    2,109
    
    
    
    2,502As of January 1, 2009
    
    
    2,109
    
    
    
    2,502Additions during the year
    
    
    
    
    
    
    Payments during the year
    
    
    (2,109
    )
    
    
    As of December 31, 2009
    
    
    
    
    
    
    2,502
 (i)
    
    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
amounted 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-88




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##### Table of Contents



23.
    
    OTHER OBLIGATIONS (Continued)
 
 (ii)
    
    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) in 2005, if the actual payments required for housing 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 the Parent Merger, Unicom Group has assumed all the rights and
obligations of Netcom Group. In 2009, the Group fully repaid the amount in relation to
early retirement benefits to Unicom Group. (b)
    
    Obligations under finance leaseThe obligations under finance lease represent the payables for the finance lease of
telecommunications equipment. The lease payment under finance lease are analyzed as follows: 2008
    
    2009Total minimum lease payments under finance lease: not later than one year
    
    
    
    
    
    
    29 later than one year and not later than two years
    
    
    
    
    
    
    105
    
    
    
    134Less: Future finance charges
    
    
    
    
    
    
    (5
    )Present value of minimum obligations
    
    
    
    
    
    
    129Representing obligations under finance lease: current liabilities
    
    
    
    
    
    
    26 non-current liabilities
    
    
    
    
    
    
    103
 F-89




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24.
    
    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 2008(As restated)
    
    2009Payables to contractors and equipment suppliers
    
    
    52,800
    
    
    
    85,941Payables to telecommunications product suppliers
    
    
    1,685
    
    
    
    3,193Customer/contractor deposits
    
    
    2,261
    
    
    
    2,522Repair and maintenance expense payables
    
    
    1,650
    
    
    
    1,900Salary and welfare payables
    
    
    1,129
    
    
    
    1,364Interest payable
    
    
    263
    
    
    
    212Amounts due to services providers / content
providers
    
    
    984
    
    
    
    1,069Accrued expenses
    
    
    3,298
    
    
    
    4,268Others
    
    
    3,439
    
    
    
    3,60367,509
    
    
    
    104,072
 The aging analysis of payables and accrued liabilities is as follows:
 2008(As restated)
    
    2009Less than six months
    
    
    56,238
    
    
    
    90,983Six months to one year
    
    
    4,232
    
    
    
    4,031More than one year
    
    
    7,039
    
    
    
    9,05867,509
    
    
    
    104,072
 F-90




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##### Table of Contents



25.
    
    COMMERCIAL PAPERCNC 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. The commercial paper was
fully repaid on October 8, 2009.
 26.
    
    SHORT-TERM BANK LOANS
 Interest rates and final maturity
    
    2008
    
    2009RMB denominated bank loans
    
    Fixed interest rates ranging from 3.50% to 4.37% (2008: 4.54% to 6.80%) per annum with maturity through 2010 (2008: maturity through 2009) unsecured
    
    
    
    
    10,780
    
    
    
    55,104HKD denominated bank loans
    
    Floating interest rates of HKD HIBOR plus interest margin 0.42% per annum with maturity through 2010 unsecured
    
    
    
    
    
    
    
    
    8,805Total
    
    
    
    
    10,780
    
    
    
    63,909
 (i)
    
    The carrying values of short-term bank loans approximate their fair values as of
the balance sheet date.
 F-91




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##### Table of Contents



27.
    
    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 RMB4,487 million for
the year ended December 31, 2009 (2007: approximately RMB4,549 million; 2008: approximately
RMB4,598 million).The major components of revenue for continuing operations are as follows:
 2007
    
    2008(As restated)
    
    (As restated)
    
    2009Continuing operations:Mobile business Usage and monthly fees
    
    
    42,077
    
    
    
    40,462
    
    
    
    42,297 Value-added services revenue
    
    
    13,528
    
    
    
    16,263
    
    
    
    19,070 Interconnection fee
    
    
    5,767
    
    
    
    6,775
    
    
    
    8,220 Other service revenue
    
    
    864
    
    
    
    740
    
    
    
    182Total mobile telecommunications service
revenue
    
    
    62,236
    
    
    
    64,240
    
    
    
    69,769Fixed-line business Usage and monthly fees
    
    
    48,905
    
    
    
    41,489
    
    
    
    34,369 Broadband services revenue
    
    
    16,450
    
    
    
    20,962
    
    
    
    23,898 Interconnection fees
    
    
    7,799
    
    
    
    7,342
    
    
    
    5,599 Value-added services revenue
    
    
    7,084
    
    
    
    7,074
    
    
    
    5,238 Leased line income
    
    
    4,433
    
    
    
    5,492
    
    
    
    5,683 Other Internet-related services and managed
data services revenue
    
    
    2,363
    
    
    
    2,662
    
    
    
    2,466 Upfront connection fees
    
    
    1,517
    
    
    
    886
    
    
    
    490 Other service revenue
    
    
    2,542
    
    
    
    2,347
    
    
    
    1,806Total fixed-line telecommunications
service revenue
    
    
    91,093
    
    
    
    88,254
    
    
    
    79,549Unallocated telecommunications service revenue
    
    
    420
    
    
    
    337
    
    
    
    275Total telecommunications service revenue
    
    
    153,749
    
    
    
    152,831
    
    
    
    149,593Information communication technology services
and other revenue
    
    
    5,197
    
    
    
    5,062
    
    
    
    2,189Sales of telecommunications products
    
    
    994
    
    
    
    1,899
    
    
    
    2,163Total revenue from external customers
    
    
    159,940
    
    
    
    159,792
    
    
    
    153,945
 F-92




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28.
    
    NETWORKS, OPERATIONS AND SUPPORT EXPENSES
 2007
    
    2008Note
    
    (As restated)
    
    (As restated)
    
    2009Continuing operations:Repair and maintenance
    
    
    
    
    
    
    6,183
    
    
    
    6,373
    
    
    
    7,093Power and water charges
    
    
    
    
    
    
    5,307
    
    
    
    5,901
    
    
    
    7,414Operating leases
    
    
    (a
    )
    
    
    4,119
    
    
    
    4,362
    
    
    
    4,778Consumables
    
    
    
    
    
    
    1,629
    
    
    
    1,388
    
    
    
    1,513Others
    
    
    
    
    
    
    639
    
    
    
    712
    
    
    
    930Total networks, operations and support expenses
    
    
    
    
    
    
    17,877
    
    
    
    18,736
    
    
    
    21,728
 
 (a):
    
    The operating lease expenses represent the rental charges for premises, equipment and
facilities. 29.
    
    EMPLOYEE BENEFIT EXPENSES
 2007
    
    2008Note
    
    (As restated)
    
    (As restated)
    
    2009Continuing operations:Salaries and wages
    
    
    
    
    
    
    15,755
    
    
    
    17,115
    
    
    
    17,842Contributions to defined
contribution pension schemes
    
    
    
    
    
    
    2,010
    
    
    
    2,288
    
    
    
    2,558Contributions to housing fund
    
    
    
    
    
    
    1,004
    
    
    
    1,099
    
    
    
    1,321Other housing benefits
    
    
    
    
    
    
    459
    
    
    
    172
    
    
    
    183Share-based compensation
    
    
    34
    
    
    
    170
    
    
    
    84
    
    
    
    27Total employee benefit expenses
    
    
    
    
    
    
    19,398
    
    
    
    20,758
    
    
    
    21,931
 30.
    
    OTHER OPERATING EXPENSES
 2007
    
    2008(As restated)
    
    (As restated)
    
    2009Continuing operations:Provision for doubtful debts
    
    
    2,260
    
    
    
    3,025
    
    
    
    2,355Cost of telecommunications products sold
    
    
    1,109
    
    
    
    2,156
    
    
    
    2,689Cost in relation to information
communications technology services
    
    
    3,808
    
    
    
    3,010
    
    
    
    839Commission expenses
    
    
    11,396
    
    
    
    11,773
    
    
    
    11,994Advertising and promotion expenses
    
    
    2,799
    
    
    
    3,036
    
    
    
    4,290Customer installation cost
    
    
    2,243
    
    
    
    2,256
    
    
    
    2,449Customer acquisition and retention cost
    
    
    3,222
    
    
    
    2,549
    
    
    
    2,287Auditors remuneration
    
    
    123
    
    
    
    131
    
    
    
    73Property management fee
    
    
    1,010
    
    
    
    1,186
    
    
    
    1,434Office and administrative expenses
    
    
    3,013
    
    
    
    2,831
    
    
    
    2,915Transportation expense
    
    
    1,594
    
    
    
    1,892
    
    
    
    1,825Miscellaneous taxes and fees
    
    
    546
    
    
    
    581
    
    
    
    583Others
    
    
    3,230
    
    
    
    3,322
    
    
    
    2,990Total other operating expenses
    
    
    36,353
    
    
    
    37,748
    
    
    
    36,723
 F-93




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31.
    
    FINANCE COSTS
 2007
    
    2008Note
    
    (As restated)
    
    (As restated)
    
    2009Continuing operations:Finance costs: Interest on bank loans repayable within 5 years
    
    
    
    
    
    
    2,766
    
    
    
    1,787
    
    
    
    927 Interest on corporate bonds and commercial
paper repayable within 5 years
    
    
    
    
    
    
    226
    
    
    
    580
    
    
    
    607 Interest on bank loans repayable over 5 years
    
    
    
    
    
    
    147
    
    
    
    54
    
    
    
    5 Interest on corporate bonds repayable over 5
years
    
    
    
    
    
    
    51
    
    
    
    90
    
    
    
    90 Interest on convertible bonds
    
    
    
    
    
    
    242
    
    
    
    
    
    
    
     Interest on deferred consideration
    
    
    (a
    )
    
    
    375
    
    
    
    224
    
    
    
     Less: Amounts capitalized in
construction-in-progress
    
    
    6
    
    
    
    (439
    )
    
    
    (260
    )
    
    
    (806
    )Total interest expense
    
    
    
    
    
    
    3,368
    
    
    
    2,475
    
    
    
    823 Exchange (gain)/loss, net
    
    
    
    
    
    
    (457
    )
    
    
    (270
    )
    
    
    15 Others
    
    
    
    
    
    
    330
    
    
    
    218
    
    
    
    198Total finance costs
    
    
    
    
    
    
    3,241
    
    
    
    2,423
    
    
    
    1,036
 
 (a):
    
    In 2005, China Netcom completed the Acquisition of New Horizon. The consideration for
the Acquisition of New Horizon was RMB12,800 million which consisted of an initial cash
payment of RMB3,000 million and deferred payments of RMB9,800 million. The deferred
payments were being settled in half-yearly installments over five years. The interest
charged on the deferred payments was calculated at 5.265% per annum. In 2008, the Group
fully repaid the amount. F-94




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32.
    
    MUTUAL INVESTMENT OF US$1 BILLION BY THE COMPANY AND TELEFÓNICA IN EACH OTHEROn September 6, 2009, the Company announced that in order to strengthen the cooperation between
the Company and Telefónica, the parties entered into a subscription agreement (Subscription
Agreement), pursuant to which each party conditionally agreed to invest an equivalent of USD1
billion in each other through an acquisition of each others shares. On October 21, 2009
(Completion Date), the Company and Telefónica completed the mutual investment of the
equivalent of USD1 billion in each other, which was implemented by way of the subscription by
Telefónica for 693,912,264 new shares of the Company at a price of HKD11.17 each, satisfied by
the contribution by Telefónica of 40,730,735 Telefónica treasury shares at a price of Euro17.24
each to the Company.At the inception of the subscription agreement on September 6, 2009, the Companys agreement to
undertake the above mutual investment with Telefónica is treated as a derivative financial
instrument in accordance with IAS/HKAS 39 Financial instrument: Recognition and measurement as
it represents a forward contract for the purchase of shares by the Company and Telefónica in
each other at predetermined fixed prices and is denominated in a foreign currency. The
derivative financial instrument would be remeasured at fair value at each balance sheet date
with all subsequent changes in fair value being charged or credited to the statement of income
in the period when the change occurs until the completion of the mutual investment by the
Company and Telefónica in each other. Upon settlement of the derivative financial instrument on
completion of the mutual investment by the Company and Telefónica in each other at the
Completion Date, October 21, 2009, the derivative financial instrument was derecognized and an
available-for-sale financial asset, representing the investment in the Telefónica shares, was
recognized correspondingly at the then fair value of the Telefónica shares.As of the Completion Date, October 21, 2009, the fair value of the Telefónica shares was
determined to be approximately RMB7,952 million and the changes in the fair value of the
derivative financial instrument during the period from September 6, 2009 to October 21, 2009
resulted in a fair value gain of approximately RMB1,239 million, which has been recorded as
Realized gain on changes in fair value of derivative financial instrument in the consolidated
statement of income for the year ended December 31, 2009.As of December 31, 2009, the related available-for-sale financial asset amounted to
approximately RMB7,789 million. For the period from October 21, 2009 to December 31, 2009, loss
on changes in fair value of available-for-sale financial asset amounted to approximately RMB163
million. The loss, net of tax impact of approximately RMB41 million, was recorded in the
consolidated statement of comprehensive income.
 33.
    
    OTHER INCOME  NET
 2007
    
    2008Note
    
    (As restated)
    
    (As restated)
    
    2009Continuing operations:Tax refund on reinvestment in subsidiaries
    
    
    (a
    )
    
    
    4,001
    
    
    
    
    
    
    
    Dividend income from available-for-sale financial assets
    
    
    
    
    
    
    2
    
    
    
    3
    
    
    
    215Gain on the non-monetary assets exchange
    
    
    (b
    )
    
    
    386
    
    
    
    1,305
    
    
    
    38Others
    
    
    
    
    
    
    711
    
    
    
    789
    
    
    
    7095,100
    
    
    
    2,097
    
    
    
    962
 F-95




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33.
    
    OTHER INCOME  NET (Continued)
 
 Note (a):
    
    During 2007, the Company and China Netcom reinvested the undistributed profits
of certain PRC subsidiaries into these 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)(v) to the consolidated statement of cash flows for
details. 34.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES
 34.1
    
    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 34.2) on May 13, 2002, May 11, 2007 and May 26,
2009, respectively. Apart from the above two terms, the principal terms are substantially
the same as the amended Share Option Scheme in all material aspects.34.2
    
    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.
  F-96




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34.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
 34.2
    
    Share option scheme (the Share Option Scheme) (Continued)The terms of the Share Option Scheme were amended on May 13, 2002 to comply with the
requirements set out in the Chapter 17 of the Listing Rules which came into effect on
September 1, 2001 with the following major amendments:
 (i)
    
    share options 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.
   F-97




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34.  EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
 34.3
    
    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 (First Grant) and
2005 (Second Grant) pursuant to a shareholders resolution passed on September 30, 2004.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.
    F-98




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34.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
 34.3
    
    Special Purpose Unicom Share Option Scheme (the Special Purpose Share Option Scheme)
(Continued)Details of share options granted and outstanding by China Netcom, 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
    
    
    
    
    
    
    
    
 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
 F-99




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34. EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
 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
 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, change 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
    
    2005Special Purpose
    
    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, 2009, share-based compensation expense of approximately RMB10 million (2008:
approximately RMB9 million) was recorded by the Group as a result of this modification.
 F-100




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34.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
 34.4
    
    Share Option InformationMovements in the number of share options outstanding and their related weighted average
exercise prices are as follows:
 2007
    
    2008
    
    2009Average
    
    
    
    
    
    Average
    
    
    
    
    
    Averageexercise
    
    Number of
    
    exercise
    
    Number of
    
    exercise
    
    Number ofprice
    
    share
    
    price
    
    share
    
    price
    
    sharein HKD
    
    options
    
    in HKD
    
    options
    
    in HKD
    
    optionsper share
    
    involved
    
    per share
    
    involved
    
    per share
    
    involvedBalance, beginning of year
    
    
    6.95
    
    
    
    314,256,000
    
    
    
    7.12
    
    
    
    257,279,600
    
    
    
    6.95
    
    
    
    413,074,166Granted
    
    
    
    
    
    
    
    
    
    
    6.83
    
    
    
    189,760,900
    
    
    
    
    
    
    
    Forfeited
    
    
    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
    
    
    
    413,074,166
    
    
    
    6.95
    
    
    
    413,074,166Exercisable at end of year
    
    
    8.48
    
    
    
    92,713,600
    
    
    
    7.14
    
    
    
    245,359,027
    
    
    
    6.88
    
    
    
    390,841,799
 No options were exercised during the year ended December 31, 2009. Exercise of share
options during the year ended December 31, 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).
 F-101




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34.
    
    EQUITY-SETTLED SHARE OPTION SCHEME (Continued)
 34.4
    
    Share Option Information (Continued)
  Number of
    
    
    Number ofThe price
    
    share options
    
    
    share optionsper share to
    
    outstanding
    
    
    outstandingbe paid on
    
    as of
    
    
    as ofexercise of
    
    December
    
    
    DecemberDate of options grant
    
    Vesting period
    
    Exercisable period
    
    options
    
    31, 2008
    
    
    31, 2009Share options granted under the Pre-Global Offering Share Option Scheme (Note i):June 22, 2000 to
    
    June 22, 2002 toJune 22, 2000
    
    June 21, 2002
    
    June 21, 2010
    
    HKD15.42
    
    
    16,977,600
    
    
    
    16,977,600Share options granted under the Share Option Scheme (Note i and Note iii):June 30, 2001 toJune 30, 2001
    
    June 30, 2001
    
    June 22, 2010
    
    HKD15.42
    
    
    4,350,000
    
    
    
    4,350,000May 21, 2003 to
    
    May 21, 2004 toMay 21, 2003 (Note ii)
    
    May 21, 2006
    
    May 20, 2010
    
    HKD4.30
    
    
    8,956,000
    
    
    
    8,956,000July 20, 2004 to
    
    July 20, 2005 toJuly 20, 2004
    
    July 20, 2007
    
    July 19, 2010
    
    HKD5.92
    
    
    41,024,000
    
    
    
    41,024,000December 21, 2004 to
    
    December 21, 2005 toDecember 21, 2004
    
    December 21, 2007
    
    December 20, 2010
    
    HKD6.20
    
    
    654,000
    
    
    
    654,000February 15, 2006 to
    
    February 15, 2008 toFebruary 15, 2006
    
    February 15, 2009
    
    February 14, 2012
    
    HKD6.35
    
    
    151,556,000
    
    
    
    151,556,000Share options granted under the Special Purpose Share Option Scheme:October 15, 2008
(2004 Special
Purpose Share Options) (Note iii)
    
    October 15, 2008 to
    
    October 15, 2008 toMay 17, 2009
    
    November 16, 2010
    
    HKD5.57
    
    
    100,627,098
    
    
    
    100,627,098October 15, 2008
(2005 Special
Purpose Share Options)
    
    October 15, 2008 to
    
    October 15, 2008 toDecember 6, 2010
    
    December 5, 2011
    
    HKD8.26
    
    
    88,929,468
    
    
    
    88,929,468413,074,166
    
    
    
    413,074,166
  F-102




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34.
    
    EQUITY-SETTLED SHARE OPTION SCHEME (Continued)
 34.4
    
    Share Option Information (Continued)
 
 Note i:
    
    The exercise periods of approximately 25,000,000 options were extended by one year by
the Board of Directors pursuant to the amended terms of each of the Pre-Global Offering
Share Option Scheme and the Share Option Scheme as approved by shareholders on May 26, 2009.
The main reasons for such extension were (i) that the holders of those options were
determined by the Board of Directors as Transferred Personnel under the respective terms
of the Pre-Global Offering Share Option Scheme and the Share Option Scheme due to the
transfers of those option holders to other telecommunications operators as part of the 2008
industry restructuring, and (ii) that those options were not exercisable due to a Mandatory
Moratorium under the respective terms of each of the Pre-Global Offering Share Option
Scheme and the Share Option Scheme. The modifications did not have significant impact on the
consolidated financial statements for the year ended December 31, 2009. In March
2010, due to the Mandatory Moratorium continuing to be in force, the Board of Directors
further extended the exercise periods of such options by another year on March 24, 2010.
This modification did not have significant impact on the Groups consolidated financial
statements.Note ii:
    
    The original expiration date for these options was May 20, 2009. As these options
were not exercisable due to a Mandatory Moratorium as set forth in the Share Option
Scheme, they were extended to May 20, 2010 pursuant to amendment of the Share Option Scheme
approved by the shareholders of the Company on May 26, 2009. The modifications did not have
significant impact on the consolidated financial statements for the year ended December 31,
2009.Note iii:
    
    The exercise period of these options were extended by one year by the Board of
Directors on March 24, 2010 pursuant to the amended terms of each of the Share Option Scheme
and the Special Purpose Share Option Scheme as they were not exercisable due to a Mandatory
Moratorium under the respective terms of each of the Share Option Scheme and the Special
Purpose Share Option Scheme. This modification did not have significant impact on the
Groups consolidated financial statements.
 F-103




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34.
    
    EQUITY-SETTLED SHARE OPTION SCHEME (Continued)
    Weighted averageclosing price pershare at respectivedays immediatelybefore date ofExercise price
    
    exercise of options
    
    Proceeds received
    
    Number ofGrant
    
    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
  Weighted averageclosing price pershare at respectivedays immediatelybefore days ofExercise price
    
    exercise of options
    
    
    Proceeds received
    
    
    Number ofGrant date
    
    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
  F-104




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35
    
    DISPOSAL GROUP AND DISCONTINUED OPERATIONS
   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
    )Accounts payable and accrued liabilities
    
    
    
    
    
    
    (1,144
    )Advances from customers
    
    
    
    
    
    
    (4,428
    )Minority interest
    
    
    
    
    
    
    (5
    )7,948Fair value of future service agreed in the Disposal Agreement
    
    
    39.2(c)
    
    
    
    517Transaction cost and taxation
    
    
    
    
    
    
    184Income tax expense arising from the disposal of the CDMA
business
    
    
    
    
    
    
    9,016Gain on disposal of the CDMA business recognized in the
statement of income
    
    
    
    
    
    
    26,135Cash consideration on disposal of the CDMA business
    
    
    
    
    
    
    43,800Less: Cash consideration receivable from disposal of the
CDMA business
    
    
    
    
    
    
    (13,140
    )Cash and cash equivalents transferred
    
    
    
    
    
    
    (1,148
    )Net cash inflow
    
    
    
    
    
    
    29,512
 
 Note a:
    
    The balance represents cash and cash equivalent 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 39.2(c).
 F-105




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35
    
    DISPOSAL GROUP AND DISCONTINUED OPERATIONS
(Continued)
   For the periodfrom January 1,For the year
    
    
    2008 toended December
    
    
    September31, 2007
    
    
    30, 2008(As restated)
    
    
    (As restated)Revenue
    
    
    31,149
    
    
    
    22,296Expenses
    
    
    (29,994
    )
    
    
    (20,389
    )Income from discontinued operations before income tax
    
    
    1,155
    
    
    
    1,907Income tax expenses
    
    
    (499
    )
    
    
    (469
    )Income for the year/period from discontinued operations
    
    
    656
    
    
    
    1,438Gain on disposal of discontinued operations before income tax
    
    
    
    
    
    
    35,151Income tax expenses
    
    
    
    
    
    
    (9,016
    )Gain on disposal of discontinued operations after income tax
    
    
    
    
    
    
    26,135Income for the year/period from discontinued operations
    
    
    656
    
    
    
    27,573
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35
    
    DISPOSAL GROUP AND DISCONTINUED OPERATIONS
(Continued)
  For the year
    
    
    For the periodended
    
    
    fromDecember
    
    
    January 1, 200831, 2007
    
    
    to September(As restated)
    
    
    30, 2008Net cash inflow from operating activities
    
    
    837
    
    
    
    656Net cash outflow from investing activities
    
    
    (25
    )
    
    
    (23
    )Cash inflow from disposal of discontinued operations
    
    
    
    
    
    
    29,512Net cash inflow from investing activities
    
    
    (25
    )
    
    
    29,489Net cash inflow from financing activities
    
    
    
    
    
    
    Net cash inflow from discontinued operations
    
    
    812
    
    
    
    30,145
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36.
    
    DIVIDENDS
   2007
    
    
    2008
    
    
    2009Proposed final dividend:RMB0.16 (2007:RMB0.20; 2008: RMB0.20) per
ordinary share by the Company
    
    
    2,727
    
    
    
    4,754
    
    
    
    3,770HKD nil (2007:HKD0.592; 2008:HKD nil) per
ordinary share by China Netcom (Note a)
    
    
    3,700
    
    
    
    
    
    
    
    6,427
    
    
    
    4,754
    
    
    
    3,770Dividend paid:By the Company
    
    
    2,285
    
    
    
    2,732
    
    
    
    4,754By China Netcom (Note a)
    
    
    3,600
    
    
    
    3,499
    
    
    
    5,885
    
    
    
    6,231
    
    
    
    4,754
 
 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
include the proposed final dividend and dividend paid by China Netcom as if it had always
been part of the Group.
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37.
    
    EARNINGS PER SHARE AND ADS
    F-109




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37.
    
    EARNINGS PER SHARE AND ADS (Continued)The following table sets forth the computation of basic and diluted earnings per share and ADS:
 2007
    
    2008(As restated)
    
    (As restated)
    
    2009Numerator (in RMB millions):Income attributable to equity holders of the Company Continuing operations
    
    
    20,909
    
    
    
    7,825
    
    
    
    9,556 Discontinued operations
    
    
    656
    
    
    
    27,573
    
    
    
    21,565
    
    
    
    35,398
    
    
    
    9,556Denominator (in millions):Weighted average number of ordinary shares
outstanding used in computing basic earnings per
share
    
    
    23,075
    
    
    
    23,751
    
    
    
    23,767Dilutive equivalent shares arising from share options
    
    
    246
    
    
    
    190
    
    
    
    128Shares used in computing diluted earnings per share
    
    
    23,321
    
    
    
    23,941
    
    
    
    23,895Basic earnings per share (in RMB) Continuing operations
    
    
    0.90
    
    
    
    0.33
    
    
    
    0.40 Discontinued operations
    
    
    0.03
    
    
    
    1.16
    
    
    
    0.93
    
    
    
    1.49
    
    
    
    0.40Basic earnings per ADS (in RMB) Continuing operations
    
    
    9.06
    
    
    
    3.29
    
    
    
    4.02 Discontinued operations
    
    
    0.29
    
    
    
    11.61
    
    
    
    9.35
    
    
    
    14.90
    
    
    
    4.02Diluted earnings per share (in RMB) Continuing operations
    
    
    0.89
    
    
    
    0.33
    
    
    
    0.40 Discontinued operations
    
    
    0.03
    
    
    
    1.15
    
    
    
    0.92
    
    
    
    1.48
    
    
    
    0.40Diluted earnings per ADS (in RMB) Continuing operations
    
    
    8.97
    
    
    
    3.27
    
    
    
    4.00 Discontinued operations
    
    
    0.28
    
    
    
    11.52
    
    
    
    9.25
    
    
    
    14.79
    
    
    
    4.00
 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-110




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38.
    
    FAIR VALUE OF FINANCIAL INSTRUMENTSFinancial assets of the Group mainly include cash and cash equivalents, short-term bank deposits,
available-for-sale financial assets, accounts receivable, amounts due from ultimate holding
company, related parties and domestic carriers. Financial liabilities of the Group mainly include
accounts payable and accrued liabilities, short-term bank loans, commercial paper, corporate
bonds, long-term bank loans, other obligations and amounts due to ultimate holding company,
related parties and domestic carriers.Cash and cash equivalents, short-term bank deposits and available-for-sale financial assets
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, 2008 and 2009.
 2008
    
    2009Original
    
    
    
    
    
    RMB
    
    Original
    
    
    
    
    
    RMBcurrency
    
    
    
    
    
    equivalent
    
    currency
    
    
    
    
    
    equivalentmillions
    
    Exchange rate
    
    millions
    
    millions
    
    Exchange rate
    
    millionsCash and cash equivalents: denominated in HK dollars
    
    
    223
    
    
    
    0.88
    
    
    
    197
    
    
    
    324
    
    
    
    0.88
    
    
    
    285 denominated in US dollars
    
    
    134
    
    
    
    6.83
    
    
    
    914
    
    
    
    86
    
    
    
    6.83
    
    
    
    585 denominated in Euro
    
    
    4
    
    
    
    9.66
    
    
    
    43
    
    
    
    26
    
    
    
    9.80
    
    
    
    258 denominated in Japanese Yen
    
    
    50
    
    
    
    0.08
    
    
    
    4
    
    
    
    14
    
    
    
    0.07
    
    
    
    1 denominated in GBP
    
    
    2
    
    
    
    9.88
    
    
    
    20
    
    
    
    0.4
    
    
    
    10.98
    
    
    
    4Sub-total
    
    
    
    
    
    
    
    
    
    
    1,178
    
    
    
    
    
    
    
    
    
    
    
    1,133Short-term bank deposits: denominated in HK dollars
    
    
    
    
    
    
    0.88
    
    
    
    
    
    
    
    86
    
    
    
    0.88
    
    
    
    76 denominated in US dollars
    
    
    20
    
    
    
    6.83
    
    
    
    137
    
    
    
    49
    
    
    
    6.83
    
    
    
    336Sub-total
    
    
    
    
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    412Available-for-sale financial
assets: denominated in Euro
    
    
    
    
    
    
    9.66
    
    
    
    
    
    
    
    795
    
    
    
    9.80
    
    
    
    7,789Total
    
    
    
    
    
    
    
    
    
    
    1,315
    
    
    
    
    
    
    
    
    
    
    
    9,334
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38.
    
    FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)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,
available-for-sale financial assets, other current financial assets and liabilities approximated
their fair values as of December 31, 2008 and 2009 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 the balance sheet date.In connection with the fair value of the Groups non-current portion of long-term bank loans and
corporate bonds, please refer to Note 20 (a) and Note 21 respectively for details.
 F-112




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39.
    
    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. 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, which mainly include other telecommunications
service operators, have material transactions with the Group in its ordinary course of business.
These transactions are carried out on terms that are the same as similar arms length
transactions or at standards promulgated by relevant government authorities 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 disclosed below.
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39.
    
    RELATED PARTY TRANSACTIONS (Continued)
 39.1
    
    Transactions with Unicom Group, Netcom Group and their subsidiaries
 (a)
    
    Significant recurring transactions
 The 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.
 2007
    
    2008Note
    
    (As restated)
    
    (As restated)
    
    2009Transactions with Unicom Group, Netcom
Group and their subsidiaries:Continuing operations:Leasing fee of Telecommunications
Networks in Southern China
    
    (ii)
    
    
    
    
    
    
    
    
    
    
    2,000Charges for mobile subscriber
value-added service
    
    (i), (iii)
    
    
    37
    
    
    
    153
    
    
    
    122Rental charges for premises,
equipment and facilities
    
    (i), (iv), (viii)
    
    
    678
    
    
    
    678
    
    
    
    820Charges for the international
gateway services
    
    (i), (v)
    
    
    15
    
    
    
    7
    
    
    
    5Agency fee incurred for procurement
of telecommunications equipment
    
    (i), (vi)
    
    
    19
    
    
    
    21
    
    
    
    12Charge for engineering and
information technology-related
services
    
    (i), (vii)
    
    
    1,946
    
    
    
    2,603
    
    
    
    2,786Common corporate services income
    
    (ix)
    
    
    121
    
    
    
    140
    
    
    
    3Charges for common corporate services
    
    (ix)
    
    
    477
    
    
    
    563
    
    
    
    266Rental income from properties
    
    (viii)
    
    
    1
    
    
    
    10
    
    
    
    1Purchases of materials
    
    (x)
    
    
    668
    
    
    
    516
    
    
    
    375Charges for ancillary
telecommunications support services
    
    (xi)
    
    
    448
    
    
    
    558
    
    
    
    689Charges for support services
    
    (xii)
    
    
    536
    
    
    
    461
    
    
    
    273Charges for lease of
telecommunications facilities
    
    (xiii)
    
    
    309
    
    
    
    306
    
    
    
    148Income from information
communication technologies services
    
    (i), (xiv)
    
    
    130
    
    
    
    118
    
    
    
    70Income for engineering design and
technical services
    
    (i), (xv)
    
    
    23
    
    
    
    40
    
    
    
    15
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39.
    
    RELATED PARTY TRANSACTIONS (Continued)
 39.1
    
    Transactions with Unicom Group, Netcom Group and their subsidiaries (Continued)
 (a)
    
    Significant recurring transactions (Continued)
 2007
    
    2008Note
    
    (As restated)
    
    (As restated)
    
    2009Transactions with
Unicom Group, Netcom
Group and their
subsidiaries:Discontinued operations:Charges for mobile
subscriber
value-added services
    
    (i), (iii)
    
    
    17
    
    
    
    46
    
    
    
    CDMA network capacity
lease rental charges
    
    (xvi)
    
    
    8,382
    
    
    
    6,009
    
    
    
    Constructed capacity
related cost of the
CDMA network
    
    (xvii)
    
    
    215
    
    
    
    234
    
    
    
    
 F-115




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39.
    
    RELATED PARTY TRANSACTIONS (Continued)
 39.1
    
    Transactions with Unicom Group, Netcom Group and their subsidiaries (Continued)
 (a)
    
    Significant recurring transactions (Continued)
 (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 become effective from January 1, 2007.Pursuant to the ordinary resolution passed at the extraordinary general meeting
held on September 16, 2008, the independent shareholders of the Company
approved the amendment of the 2006 Comprehensive Services Agreement 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
 As mentioned in Note 1, as a result of the merger between CUCL and CNC China and the
Parent Merger on January 1, 2009 and January 6, 2009, respectively, the continuing
connected transactions (and all associated rights and obligations thereunder) of CNC
China and Netcom Group were assumed by CUCL and Unicom Group, respectively.Under HKFRSs and IFRSs, the 2009 Business Combination has been accounted for using
merger accounting/predecessor values method. Accordingly, the transactions between
the Target Business (See Note 1) and the Group were eliminated and not disclosed as
related party transactions in the consolidated financial statements.(ii)
    
    On December 16, 2008, CUCL, Unicom Group, Netcom Group and Unicom
New Horizon entered into the Network Lease Agreement in relation to the Lease of
the Telecommunications Networks 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 RMB2.0 billion and RMB2.2 billion for the
years ended December 31, 2009 and 2010, respectively. The Lease was effective in
January 2009.
 F-116




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39.
    
    RELATED PARTY TRANSACTIONS (Continued)
 39.1
    
    Transactions with Unicom Group, Netcom Group and their subsidiaries (Continued)
 (a)
    
    Significant recurring transactions (Continued)
 (iii)
    
    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 mobile 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.(iv)
    
    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.(v)
    
    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.(vi)
    
    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.l5% (for contracts with an amount of more than RMB200
million) of the value of domestic equipment for such services.
 F-117




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39.
    
    RELATED PARTY TRANSACTIONS (Continued)
 39.1
    
    Transactions with Unicom Group, Netcom Group and their subsidiaries (Continued)
 (a)
    
    Significant recurring transactions (Continued)
 (vii)
    
    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.(viii)
    
    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, CUCL and
Netcom Group 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.(ix)
    
    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.(x)
    
    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.(xi)
    
    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 are settled as and when the relevant services are provided.(xii)
    
    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 are
settled as and when the relevant services are provided.(xiii)
    
    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-118




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39.
    
    RELATED PARTY TRANSACTIONS (Continued)
 39.1
    
    Transactions with Unicom Group, Netcom Group and their subsidiaries (Continued)
 (a)
    
    Significant recurring transactions (Continued)
 (xiv)
    
    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.(xv)
    
    The service fee standards for the engineering design and technical
services provided to Unicom Group are determined based on standards promulgated by
the relevant government authorities.(xvi)
    
    On October 26, 2006, CUCL entered into the new agreement 2006 CDMA
Lease Agreement with Unicom Group and Unicom New Horizon to continue to lease the
CDMA networks. 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.(xvii)
    
    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.(xviii)
    
    Unicom Group is the registered proprietor of the Unicom trademark in English
and the trademark bearing the Unicom logo, which are registered at the PRC State
Trademark Bureau. Pursuant to an exclusive PRC trademark licence agreement between
Unicom Group and the Group, the Group has been granted the right to use these
trademarks on a royalty free and periodic renewal basis.
 F-119




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39.
    
    RELATED PARTY TRANSACTIONS (Continued)
 39.1
    
    Transactions with Unicom Group, Netcom Group and their subsidiaries (Continued)
 (b)
    
    Other significant transactionIn January 2009, CUCL completed the acquisitions of the Target Business and the Target
Assets from Unicom Group and Netcom Group while in 2008, the Company completed the
merger with China Netcom by way of a scheme of arrangement. For details, please refer to
Note 1.(c)
    
    Amounts due from and to related parties/Unicom Group, Netcom Group and their
subsidiariesAmounts due to related parties as of December 31, 2009 included an unsecured
short-term loan from Netcom BVI of approximately RMB2,104 million obtained for the
purpose of payment of the 2008 final dividend of the Company. The loan carries an
interest rate of six-month HIBOR plus 0.8% per annum and is repayable on June 16,
2010.Apart from the short-term loan from Netcom BVI as aforementioned, amounts due from
and to related parties, 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 transactions with related parties/Unicom
Group, Netcom Group or their subsidiaries as described in (a) and (b) above.
 F-120




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39.
    
    RELATED PARTY TRANSACTIONS (Continued)
 39.2
    
    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 for the continuing operations:
 The Group2007
    
    2008Note
    
    (As restated)
    
    (As restated)
    
    2009Interconnection revenue
    
    
    (i
    )
    
    
    10,165
    
    
    
    11,135
    
    
    
    12,083Interconnection charges
    
    
    (i
    )
    
    
    9,939
    
    
    
    10,901
    
    
    
    11,740Leased line revenue
    
    (ii)
    
    
    549
    
    
    
    608
    
    
    
    433Leased line charges
    
    (ii)
    
    
    334
    
    
    
    252
    
    
    
    102Engineering design and technical service revenue
    
    (iii)
    
    
    231
    
    
    
    197
    
    
    
    287
 
 (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 networks 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.(iii)
    
    Engineering design and technical service revenue mainly represents the
amounts due from domestic carriers for the provision of engineering design and
technical services based on their demands and requirements. The prices are
determined based on standards promulgated by the relevant government authorities. F-121




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39.
    
    RELATED PARTY TRANSACTIONS (Continued)
 39.2
    
    Domestic carriers
 (b)
    
    Amounts due from and to domestic carriers
 2008(As restated)
    
    2009Amounts due from domestic carriers Receivables for interconnection revenue,
leased line revenue and engineering design
and technical service revenue
    
    
    1,033
    
    
    
    1,205 Less: Provision for doubtful debts
    
    
    (59
    )
    
    
    (71
    )974
    
    
    
    1,134Amounts due to domestic carriers Payables for interconnection charges and
leased lines charges
    
    
    956
    
    
    
    1,136
 All amounts due from and to domestic carriers are unsecured, interest-free and
repayable within one year.
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39.
    
    RELATED PARTY TRANSACTIONS (Continued)
 39.2
    
    Domestic carriers (Continued)
 (c)
    
    Disposal of the Groups CDMA business to China TelecomIn 2008, the Company completed disposal of the CDMA business to China Telecom. For
details, please refer to Note 1 and Note 35.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 are estimated by the Group based on the costs of the
underlying equipment or properties plus a margin. A portion of the consideration for
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 entered 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. Based on the agreements, the Group concluded
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 and 2009, the balances due from/to China Telecom in relation
to disposal of the CDMA business are as follows:
 2008
    
    2009Payables Advances from customers received on behalf of
China Telecom
    
    
    (768
    )
    
    
    (7
    ) 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
    )
    
    
    (4,232
    )
    
    
    (7
    )Proceeds receivable
    
    
    13,140
    
    
    
    5,121
 All the proceeds receivable was subsequently settled in cash in January 2010.
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40.
    
    CONTINGENCIES AND COMMITMENTS
 40.1
    
    Capital commitmentsAs of December 31, 2008 and 2009, the Group had capital commitments, mainly in relation to
the construction of telecommunications networks, as follows:
 2008(As restated)
    
    2009Land andTotal
    
    buildings
    
    Equipment
    
    TotalAuthorized and contracted for
    
    
    6,149
    
    
    
    403
    
    
    
    8,407
    
    
    
    8,810Authorized but not contracted for
    
    
    6,938
    
    
    
    198
    
    
    
    3,832
    
    
    
    4,030Total
    
    
    13,087
    
    
    
    601
    
    
    
    12,239
    
    
    
    12,840
 As of December 31, 2009, no capital commitment was denominated in US dollars (2008:
approximately USD23 million).
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40.
    
    CONTINGENCIES AND COMMITMENTS (Continued)
 40.2
    
    Operating lease commitmentsAs of December 31, 2008 and 2009, the Group had total future aggregate minimum lease
payments under non-cancellable operating leases as follows:
 2008(As restated)
    
    
    2009Tele-communicationsnetworks inLand and
    
    
    
    
    
    
    Southern ChinaTotal
    
    
    buildings
    
    
    Equipment
    
    
    (a)
    
    
    TotalLeases expiring: not later than one year
    
    
    1,851
    
    
    
    1,324
    
    
    
    585
    
    
    
    2,200
    
    
    
    4,109 later than one year
and not later than five
years
    
    
    4,657
    
    
    
    3,100
    
    
    
    515
    
    
    
    
    
    
    
    3,615 later than five years
    
    
    1,957
    
    
    
    1,095
    
    
    
    84
    
    
    
    
    
    
    
    1,179Total
    
    
    8,465
    
    
    
    5,519
    
    
    
    1,184
    
    
    
    2,200
    
    
    
    8,903
 
 (a)
    
    The lease commitment in relation to telecommunications networks related to the
lease arrangement of the Telecommunications Networks in Southern China between CUCL
and Unicom New Horizon and was estimated based on the annual leasing fees pursuant
to the Network Lease Agreement. Please refer to Note 1 (b) for details. 40.3
    
    Contingent liabilitiesAs aforementioned in Note 27, 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 complied with the regulations issued by the relevant government
authorities, and the likelihood of a cash outflow as a result of the investigation is
remote. Accordingly, no provisions were recorded as of December 31, 2008 and 2009.
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41.
    
    EVENTS AFTER BALANCE SHEET DATE
 (a)
    
    Proposed dividend
 After the balance sheet date, the Board of Directors proposed a final dividend for 2009. For
details, please refer to Note 36.
 (b)
    
    Issue of commercial paper and promissory note
 On April 1, 2010, CUCL completed the issue of the first tranche of commercial paper for the
year 2010 in an amount of RMB15 billion, with a maturity period of 365 days and at an
interest rate of 2.64% per annum.In addition, on April 2, 2010, CUCL completed the issue of the first tranche of promissory note
for the year 2010 in an amount of RMB3 billion, with a maturity period of 3 years and at an
interest rate of 3.73% per annum.
 42.
    
    COMPARATIVE FIGURESAs stated in Note 2.2(a), the 2007 and 2008 comparative figures have been restated to reflect the
effects of the 2009 Business Combination between entities and businesses under common control,
which is accounted for using merger accounting/predecessor values method. In addition, upon the
adoption of IFRS/HKFRS 8 Operating Segment in 2009, the 2007 and 2008 comparative financial
information of segment information has been restated to conform to the current years
presentation. For details, please refer to Note 5.
 43.
    
    APPROVAL OF FINANCIAL STATEMENTSThe financial statements were approved by the Board of Directors on June 18, 2010.
 F-126