##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF
1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from __________ to __________
 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. 
   Yes þ No o
 o þ
  þ o
 o þ
  Large Accelerated Filer þ
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
  o
 þ
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  o o
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TABLE OF CONTENTS
 PageNote Regarding Forward-looking Statements
    
    iiiCertain Definitions
    
    ivSpecial Note on Our Financial Information and Certain Statistical Information Presented
in This Annual
Report
    
    viPART I
    
    
    1Item 1. Identity of Directors, Senior Management and Advisers
    
    
    1Item 2. Offer Statistics and Expected Timetable
    
    
    1Item 3. Key Information
    
    
    1Item 4. Information on the Company
    
    
    18Item 4A. Unresolved Staff Comments
    
    
    46Item 5. Operating and Financial Review and Prospects
    
    
    46Item 6. Directors, Senior Management and Employees
    
    
    76Item 7. Major Shareholders and Related Party Transactions
    
    
    84Item 8. Financial Information
    
    
    100Item 9. The Offer and Listing
    
    
    101Item 10. Additional Information
    
    
    102Item 11. Quantitative and Qualitative Disclosures about Market Risks
    
    
    113Item 12. Description of Securities Other than Equity Securities
    
    
    116PART II
    
    
    118Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    118Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
    
    
    118Item 15. Controls and Procedures
    
    
    118Item 16A. Audit Committee Financial Expert
    
    
    119Item 16B. Code of Ethics
    
    
    119Item 16C. Principal Accountant Fees and Services
    
    
    119Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    120
  - i -




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PageItem 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
    
    
    120Item 16F. Change in Registrants Certifying Accountant
    
    
    120Item 16G. Corporate Governance
    
    
    120PART III
    
    
    121Item 17. Financial Statements
    
    
    121Item 18. Financial Statements
    
    
    121Item 19. Exhibits
    
    
    122EX-1.3EX-4.57EX-4.58EX-4.59EX-8.1EX-12.1EX-12.2EX-13.1EX-13.2
   - ii -




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Note Regarding Forward-Looking Statements
    
    
    changes in the regulatory regime and policies for the PRC telecommunications
industry, including without limitation changes in the regulatory policies of 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, in particular, 3G 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 discontinuation of the personal handyphone system, or PHS, business in
response to the MIITs request;
  - iii -




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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 recent 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 recovery from the recent global economic downturn 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,
provinces and region 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;
  - iv -




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
    
    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 Southern China under Item 4;
 
    
    references to Hong Kong Stock Exchange 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$ are to the currency of the United States of America, references
to HK dollars or HK$ are to the currency of the Hong Kong Special Administrative
Region of the PRC and references to Euro are to the currency of the eurozone (17 of
the 27 member states of the European Union).
  - v -




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Special Note on Our Financial Information and Certain Statistical Information Presented
in This Annual Report
    - vi -




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PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 A. Selected Financial Data
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As of or for the year ended December 312007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)(in millions, except for per share data)Consolidated Income Statement Data:CONTINUING OPERATIONSRevenue(2)Mobile businessTelecommunications service revenue
    
    
    62,236
    
    
    
    64,240
    
    
    
    69,769
    
    
    
    82,362
    
    
    
    12,479Information communication technology services and other revenue
    
    
    187
    
    
    
    359
    
    
    
    252
    
    
    
    15
    
    
    
    2Sales of mobile telecommunications products
    
    
    14
    
    
    
    532
    
    
    
    1,970
    
    
    
    7,173
    
    
    
    1,087Total mobile telecommunications revenue
    
    
    62,437
    
    
    
    65,131
    
    
    
    71,991
    
    
    
    89,550
    
    
    
    13,568Fixed-line businessTelecommunications service revenue(2)
    
    
    91,093
    
    
    
    88,254
    
    
    
    79,549
    
    
    
    78,896
    
    
    
    11,954Information communication technology services and other revenue
    
    
    4,782
    
    
    
    4,339
    
    
    
    1,611
    
    
    
    1,046
    
    
    
    158Sales of fixed-line telecommunications products
    
    
    980
    
    
    
    1,362
    
    
    
    193
    
    
    
    114
    
    
    
    17Total fixed-line telecommunications revenue
    
    
    96,855
    
    
    
    93,955
    
    
    
    81,353
    
    
    
    80,056
    
    
    
    12,129Unallocated amountsTelecommunications service revenue(2)
    
    
    420
    
    
    
    337
    
    
    
    275
    
    
    
    737
    
    
    
    112Information communication technology services and other revenue
    
    
    228
    
    
    
    364
    
    
    
    326
    
    
    
    955
    
    
    
    145Sales of other telecommunications products
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    648
    
    
    
    706
    
    
    
    601
    
    
    
    1,692
    
    
    
    257Total revenue
    
    
    159,940
    
    
    
    159,792
    
    
    
    153,945
    
    
    
    171,298
    
    
    
    25,954Total costs, expenses and others
    
    
    (136,497
    )
    
    
    (155,733
    )
    
    
    (141,668
    )
    
    
    166,525
    
    
    
    25,231Income from continuing operations before income tax
    
    
    23,443
    
    
    
    4,059
    
    
    
    12,277
    
    
    
    4,773
    
    
    
    723Income tax expenses
    
    
    (7,175
    )
    
    
    (1,828
    )
    
    
    (2,721
    )
    
    
    (922
    )
    
    
    (140
    )Income from continuing operations
    
    
    16,268
    
    
    
    2,231
    
    
    
    9,556
    
    
    
    3,851
    
    
    
    583DISCONTINUED 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
    
    
    16,924
    
    
    
    29,804
    
    
    
    9,556
    
    
    
    3,851
    
    
    
    583Earnings per share for income attributable to owners of the parent during the year-Basic earnings per share(4)
    
    
    0.73
    
    
    
    1.25
    
    
    
    0.40
    
    
    
    0.16
    
    
    
    0.03-Diluted earnings per share(4)
    
    
    0.73
    
    
    
    1.24
    
    
    
    0.40
    
    
    
    0.16
    
    
    
    0.03-Basic earnings per ADS(5)
    
    
    7.33
    
    
    
    12.55
    
    
    
    4.02
    
    
    
    1.63
    
    
    
    0.25-Diluted earnings per ADS(5)
    
    
    7.26
    
    
    
    12.45
    
    
    
    4.00
    
    
    
    1.62
    
    
    
    0.25
  -2-




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As of or for the year ended December 312007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(1)Earnings per share for income from continuing operations attributable to owners of the parent during the year-Basic earnings per share(4)
    
    
    0.70
    
    
    
    0.09
    
    
    
    0.40
    
    
    
    0.16
    
    
    
    0.03-Diluted earnings per share(4)
    
    
    0.70
    
    
    
    0.09
    
    
    
    0.40
    
    
    
    0.16
    
    
    
    0.03-Basic earnings per ADS(5)
    
    
    7.04
    
    
    
    0.94
    
    
    
    4.02
    
    
    
    1.63
    
    
    
    0.25-Diluted earnings per ADS(5)
    
    
    6.98
    
    
    
    0.93
    
    
    
    4.00
    
    
    
    1.62
    
    
    
    0.25Earnings per share for income from discontinued operations attributable to owners of the parent 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
    
    
    
    23,562
    
    
    
    23,562-Number of shares outstanding for diluted earnings per share(4)
    
    
    23,321
    
    
    
    23,941
    
    
    
    23,895
    
    
    
    23,704
    
    
    
    23,704-Number of ADS outstanding for basic earnings per ADS(5)
    
    
    2,308
    
    
    
    2,375
    
    
    
    2,377
    
    
    
    2,356
    
    
    
    2,356-Number of ADS outstanding for diluted earnings per ADS(5)
    
    
    2,332
    
    
    
    2,394
    
    
    
    2,389
    
    
    
    2,370
    
    
    
    2,370Consolidated Balance Sheet Data:AssetsCash and cash equivalent and short-term bank deposits
    
    
    13,555
    
    
    
    10,574
    
    
    
    8,816
    
    
    
    22,768
    
    
    
    3,449Property, plant and equipment
    
    
    306,420
    
    
    
    315,546
    
    
    
    351,157
    
    
    
    366,060
    
    
    
    55,464Inventories and consumables
    
    
    2,816
    
    
    
    1,147
    
    
    
    2,412
    
    
    
    3,728
    
    
    
    565Prepayments and other current assets
    
    
    5,181
    
    
    
    2,876
    
    
    
    4,252
    
    
    
    5,115
    
    
    
    775Available-for-sale financial assets
    
    
    287
    
    
    
    95
    
    
    
    7,977
    
    
    
    6,214
    
    
    
    942Proceeds receivable for the disposal of the CDMA business
    
    
    
    
    
    
    13,140
    
    
    
    5,121
    
    
    
    
    
    
    
    Total assets
    
    
    368,435
    
    
    
    380,318
    
    
    
    417,045
    
    
    
    441,453
    
    
    
    66,887LiabilitiesAmounts payable and accrued liabilities
    
    
    61,331
    
    
    
    73,854
    
    
    
    104,072
    
    
    
    97,659
    
    
    
    14,795Long-term loans due to ultimate holding company
    
    
    27,213
    
    
    
    35,652
    
    
    
    
    
    
    
    
    
    
    
    Payables in relation to the disposal of the CDMA business
    
    
    
    
    
    
    4,232
    
    
    
    7
    
    
    
    
    
    
    
    Short-term bank loans
    
    
    11,850
    
    
    
    10,780
    
    
    
    63,909
    
    
    
    36,727
    
    
    
    5,565Commercial papers
    
    
    20,000
    
    
    
    10,000
    
    
    
    
    
    
    
    23,000
    
    
    
    3,485Current portion of long-term bank loans
    
    
    7,413
    
    
    
    1,216
    
    
    
    62
    
    
    
    58
    
    
    
    9Current portion of other obligations
    
    
    3,381
    
    
    
    3,012
    
    
    
    2,534
    
    
    
    2,637
    
    
    
    400Long-term bank loans
    
    
    16,086
    
    
    
    997
    
    
    
    759
    
    
    
    1,462
    
    
    
    222Promissory notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    2,273Convertible bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,558
    
    
    
    1,751Corporate bonds
    
    
    2,000
    
    
    
    7,000
    
    
    
    7,000
    
    
    
    7,000
    
    
    
    1,061Tax payable
    
    
    5,091
    
    
    
    11,370
    
    
    
    912
    
    
    
    1,484
    
    
    
    225Total liabilities
    
    
    195,146
    
    
    
    183,085
    
    
    
    210,578
    
    
    
    235,612
    
    
    
    35,699Shareholders equity
    
    
    173,289
    
    
    
    197,233
    
    
    
    206,467
    
    
    
    205,841
    
    
    
    31,188Share capital
    
    
    1,437
    
    
    
    2,329
    
    
    
    2,310
    
    
    
    2,310
    
    
    
    350Other Financial Data:CONTINUING OPERATIONSNet cash inflow from operating activities of
continuing operations
    
    
    68,854
    
    
    
    57,241
    
    
    
    57,733
    
    
    
    66,344
    
    
    
    10,052Net cash outflow from investing activities of continuing operations
    
    
    (54,745
    )
    
    
    (61,026
    )
    
    
    (85,308
    )
    
    
    (76,614
    )
    
    
    (11,608
    )Net cash (outflow)/inflow from financing activities of continuing operations
    
    
    (22,830
    )
    
    
    (28,786
    )
    
    
    30,197
    
    
    
    19,824
    
    
    
    3,003Net cash (outflow)/inflow from continuing operations
    
    
    (8,721
    )
    
    
    (32,571
    )
    
    
    2,622
    
    
    
    9,554
    
    
    
    1,447DISCONTINUED 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
    )
    
    
    5,121
    
    
    
    776Net cash outflow from financing activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash inflow/(outflow) from discontinued operations
    
    
    812
    
    
    
    30,145
    
    
    
    (5,039
    )
    
    
    5,121
    
    
    
    776Net (decrease)/increase in cash and cash equivalents
    
    
    (7,909
    )
    
    
    (2,426
    )
    
    
    (2,417
    )
    
    
    14,675
    
    
    
    2,223Dividend declared per share
    
    
    0.20
    
    
    
    0.20
    
    
    
    0.16
    
    
    
    0.08
    
    
    
    0.01
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(1)
    
    The translation of RMB into US dollars has been made at the rate of RMB6.6000 to US$1.00,
representing the exchange rate as set forth in the H.10 statistical release of the Federal
Reserve Board on December 30, 2010. The translations are solely for the convenience of the
reader.(2)
    
    Includes 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 38 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
   Exchange Rate
 RMB per US$1.00
    
    
    HK$ per US$1.00High
    
    
    Low
    
    
    High
    
    
    LowNovember 2010
    
    
    6.6892
    
    
    
    6.6330
    
    
    
    7.7656
    
    
    
    7.7501December 2010
    
    
    6.6745
    
    
    
    6.6000
    
    
    
    7.7833
    
    
    
    7.7612January 2011
    
    
    6.6364
    
    
    
    6.5809
    
    
    
    7.7978
    
    
    
    7.7683February 2011
    
    
    6.5965
    
    
    
    6.5520
    
    
    
    7.7957
    
    
    
    7.7823March 2011
    
    
    6.5743
    
    
    
    6.5483
    
    
    
    7.8012
    
    
    
    7.7750April 2011
    
    
    6.5477
    
    
    
    6.4900
    
    
    
    7.7784
    
    
    
    7.7669May 2011 (up to May 20, 2011)
    
    
    6.5073
    
    
    
    6.4917
    
    
    
    7.7771
    
    
    
    7.7652
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Average Exchange Rate
 RMB per US$1.00
    
    
    HK$ per US$1.002006
    
    
    7.9579
    
    
    
    7.76852007
    
    
    7.5806
    
    
    
    7.80082008
    
    
    6.9193
    
    
    
    7.78142009
    
    
    6.8295
    
    
    
    7.75132010
    
    
    6.7603
    
    
    
    7.7692
 B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 Risks Relating to Our Business
 We face intense competition in all our businesses from other telecommunications service
providers, including China Mobile and China Telecom, which may materially adversely affect
our financial condition, results of operations and growth prospects.
    -5-




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##### Table of Contents



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.
   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.
  -6-




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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, including effectively responding
to a shortage of available Internet Protocol version 4 addresses and timely developing
3GPP Long Term Evolution, or LTE;
 
    
    obtain adequate financing;
 
    
    obtain relevant government licenses, permits and approvals;
 
    
    obtain adequate network equipment and software;
 
    
    retain experienced management and technical personnel;
  -7-




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
    
    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.
  
    
    we will be able to gain access to sufficient sites for 3G network expansion;
 
    
    there will be sufficient demand for 3G services;
 
    
    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.
   -8-




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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.
  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.
    -9-




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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;
 
    
    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.
   -10-




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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.
   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 Network Communications Limited (formerly known as 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.
   -11-




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If we fail to effectively rectify those improper measures and practices identified by the PRC National Audit
Office in our operations, our reputation, business, financial condition and results of
operations may be materially and adversely affected, which could adversely affect the prices
of our shares and ADSs.
   -12-




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Our outstanding convertible bonds may dilute the ownership interest of existing shareholders
and may adversely affect the market price of our ordinary shares.
   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.
   -13-




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##### Table of Contents



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.
    -14-




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##### Table of Contents



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.
    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.
   -15-




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##### Table of Contents



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.
  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.
   -16-




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##### Table of Contents



Since we are a Hong Kong company, you will not have certain investor rights as our
shareholder, such as the right to bring legal action against other shareholders on behalf of
the company.
  You may experience difficulties in effecting service of legal process and enforcing
judgments against us and our management.
  New provisions of the PRC Employment Contract Law 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.
   -17-




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##### Table of Contents



Risk Relating to our ADSs
 Holders of our ADSs will not have the same voting rights as the holders of our shares and
may not receive voting materials in time to be able to exercise their right to vote.
  
 Item 4. Information on the Company
 A. History and Development of the Company
   Restructurings of the Telecommunications Industry
    -18-




---



##### Table of Contents



Sale of CDMA Business, Merger with China Netcom and Related Transactions
 Disposal of CDMA Business and Related Transactions
      -19-




---



##### Table of Contents



Merger with China Netcom and Related Transactions
 Merger with China Netcom
     Change of Company Name
   -20-




---



##### Table of Contents



Related Transactions
  History and Corporate Development of China Netcom
     Our Parent Company and Our Initial Public Offering
    -21-




---



##### Table of Contents



Unicom Acquisitions and Sales
         -22-




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##### Table of Contents



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 New Guoxin Telecom Corporation of China Unicom, or
New Guoxin, a limited liability company incorporated under the laws of the PRC and a
wholly-owned subsidiary of Unicom Group.
    -23-




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##### Table of Contents



Mutual
Investment with Telefónica, S.A.
   Share Repurchase from SK Telecom
  Our Relationship with Unicom Group
    -24-




---



##### Table of Contents



Two-Step Voting Arrangements
   -25-




---



##### Table of Contents




    
    the closing of the initial agreement would be subject to (i) the successful transfer
of all rights and obligations of the A Share Company or Unicom BVI under the initial
agreement to us or our subsidiaries, and (ii) the approval of the further agreement by
our independent shareholders; and
 
    
    Unicom Group or its subsidiaries (excluding the A Share Company and its
subsidiaries) would agree and acknowledge that all rights and obligations under the
initial agreement can be transferred to us or our subsidiaries without any further
consent requirements.
  Capital Expenditures and Divestitures
   -26-




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##### Table of Contents



B. Business Overview
 General
   Mobile Business
   As of or forthe year ended December 31,2008
    
    
    2009(1)
    
    
    2010(1)Number of subscribers (in thousands)
    
    
    133,365
    
    
    
    147,587
    
    
    
    167,426Estimated market share in our service areas(2)
    
    
    20.8
    %
    
    
    19.7
    %
    
    
    19.5
    %Average minutes of usage per subscriber per month (MOU)(3)
    
    
    246.4
    
    
    
    253.1
    
    
    
    280.5Average revenue per subscriber per month (ARPU) (in RMB)(4)
    
    
    42.3
    
    
    
    41.6
    
    
    
    43.7
 
 (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 business 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 revenue of mobile business during the relevant
period by the average number of our mobile business subscribers during the period, and
dividing the result by the number of months in the period.   -27-




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##### Table of Contents



3G Mobile Business
    GSM Mobile Business
  GSM Voice Business
  Subscriber Increase.
 MOU and ARPU
  -28-




---



##### Table of Contents



GSM Value-Added Services
  Fixed-Line Business
   Fixed-Line Broadband Services and Data Communications Services
 Fixed-Line Broadband Services
    -29-




---



##### Table of Contents



As of December 31,2008
    
    
    2009
    
    
    2010Number of fixed-line broadband subscribers
(in thousands)
    
    
    30,081
    
    
    
    38,550
    
    
    
    47,224
 Data Communications Services
  Fixed-Line Voice Business
  As of December 31,2008
    
    
    2009
    
    
    2010(in thousands)Number of fixed-line
subscribers(1)Residential Residential
    
    
    63,824
    
    
    
    61,733
    
    
    
    59,681Business
    
    
    13,586
    
    
    
    14,238
    
    
    
    15,494PHS
    
    
    23,979
    
    
    
    18,742
    
    
    
    13,423Public telephones
    
    
    8,181
    
    
    
    8,109
    
    
    
    8,037Total
    
    
    109,570
    
    
    
    102,822
    
    
    
    96,635
 
 (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.   -30-




---



##### Table of Contents



Local Voice Services
  For the Year Ended December 31,2008
    
    
    2009
    
    
    2010Usage of local calls (pulse in millions)(1)Total usage
    
    
    206,632
    
    
    
    188,116
    
    
    
    156,724Internet dial-up usage
    
    
    2,960
    
    
    
    2,577
    
    
    
    1,162Total usage excluding Internet dial-up usage
    
    
    203,672
    
    
    
    185,539
    
    
    
    155,562
 
 (1)
    
    Pulses are the billing units for calculating local telephone usage fees. Long Distance Voice Services
   For the Year Ended December 31,2008
    
    
    2009
    
    
    2010Total minutes of domestic
long distance calls (minutes
in millions)(1)Traditional
    
    
    25,771
    
    
    
    21,261
    
    
    
    17,349VoIP
    
    
    14,643
    
    
    
    11,698
    
    
    
    8,879Total
    
    
    40,414
    
    
    
    32,959
    
    
    
    26,228
 
 (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 31,2008
    
    
    2009
    
    
    2010International long distance
outbound call minutes
(minutes in
millions)(1)(2)Traditional
    
    
    236
    
    
    
    221
    
    
    
    269VoIP
    
    
    456
    
    
    
    403
    
    
    
    290Total
    
    
    692
    
    
    
    624
    
    
    
    559
 
 (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.  -31-




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##### Table of Contents



Fixed-Line Value-Added Services
  Interconnection and Roaming Arrangements
 Interconnection
     Roaming
   -32-




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##### Table of Contents



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.
   Fixed-Line Networks
    -33-




---



##### Table of Contents



Marketing, Sales and Distribution
  Customer Service
  Information Systems
   -34-




---



##### Table of Contents



Research and Development
  Competition
  Strategic Alliances with Telefónica
   Trademarks
 
  -35-




---



##### Table of Contents



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
    -36-




---



##### Table of Contents



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.
    -37-




---



##### Table of Contents




    
    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
    -38-




---



##### Table of Contents



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
     -39-




---



##### Table of Contents



Fixed-Line Voice Business
   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
  -40-




---



##### Table of Contents



Frame relay services . (1)
 Monthly Fee64kbps
    
    
    256kbps
    
    
    512kbps
    
    
    1Mbps(RMB)Port accessMonthly fees
    
    
    260
    
    
    
    400
    
    
    
    500
    
    
    
    750PVCIntra-district
    
    
    550
    
    
    
    800
    
    
    
    1,000
    
    
    
    1,250Inter-district
    
    
    800
    
    
    
    1,150
    
    
    
    1,450
    
    
    
    2,000Domestic long distance
    
    
    1,700
    
    
    
    2,200
    
    
    
    2,500
    
    
    
    3,000
 
 (1)
    
    One-way tariff for PVCs frame relay services. Leased Line Services
   -41-




---



##### Table of Contents



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 are
    
    Operator at Whose Network
    
    Current Main SettlementOriginated
    
    Calls are Terminated
    
    ArrangementMobile operator
    
    Local fixed-line operator
    
    (1) Mobile operator
collects the usage
fees from its
subscribers;(2) Mobile operator
pays RMB0.06 per
minute to local
fixed-line
operator. 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. From
January 1, 2011,
for calls
originated from
157 or 188
prefix phone
numbers (TD users),
mobile operator
(China Mobile)
continues to pay
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.Mobile 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. For calls
originated from
157 or 188
prefix phone
numbers (TD users)
during the period
from January 1,
2011, 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.
  -42-




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##### Table of Contents



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 (through the long
distance network 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 (through the long
distance network of operator B)
    
    (1) Operator B
collects the tariff
from the
subscribers; and
(2) Operator B pays
operator A RMB0.06
per minute.
  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; and
(3) If operator A
is local usage fees
and 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.
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##### Table of Contents



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
  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
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Quality of Service
  Universal Services
   Convergence Policy of Telecom, Broadcasting and Internet Networks
  Others
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##### Table of Contents



C. Organizational Structure
  Name of Subsidiary
    
    Country of Incorporation
    
    Ownership InterestChina United Network Communications
Corporation Limited
    
    China
    
    
    100
    %China Netcom Group Corporation (Hong Kong)
Limited
    
    Hong Kong
    
    
    100
    %China Unicom (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
    %Billion Express Investments Limited
    
    British Virgin Islands
    
    
    100
    %
 D. Properties
  
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
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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
    Overview
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For the Year Ended December 31,2008
    
    
    2009
    
    
    2010RMB 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)
    
    
    157,914
    
    
    
    100.0
    
    
    
    153,455
    
    
    
    100.0
    
    
    
    171,106
    
    
    
    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)
    
    
    150,953
    
    
    
    95.6
    
    
    
    149,103
    
    
    
    97.2
    
    
    
    161,803
    
    
    
    94.6Include: Mobile business
    
    
    64,240
    
    
    
    40.7
    
    
    
    69,769
    
    
    
    45.5
    
    
    
    82,362
    
    
    
    48.1Fixed-line business
    
    
    86,376
    
    
    
    54.7
    
    
    
    79,059
    
    
    
    51.5
    
    
    
    78,704
    
    
    
    46.0Out of which:Broadband service
    
    
    20,962
    
    
    
    13.3
    
    
    
    23,898
    
    
    
    15.6
    
    
    
    29,822
    
    
    
    17.4Information communication technology
services and other revenue
    
    
    5,062
    
    
    
    3.2
    
    
    
    2,189
    
    
    
    1.4
    
    
    
    2,016
    
    
    
    1.2Total sales of telecommunications products
    
    
    1,899
    
    
    
    1.2
    
    
    
    2,163
    
    
    
    1.4
    
    
    
    7,287
    
    
    
    4.2
 
 (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;
 
    
    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;
  -48-




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##### Table of Contents




    
    revenue for offerings which include the bundled sale of mobile handsets and
provision of services. We recognize revenue allocated to the sale of handset when the
title of the handset is passed to the customer and recognize revenue allocated to the
service element based upon the actual usage of mobile services. The cost of the mobile
handset sold is expensed immediately to the statement of income. Prior to the fourth quarter
of 2010, we determined the amount of revenue allocated to the handset using the
residual value method. Under the residual value method, we determined the revenue
allocated to the sale of the mobile handset by deducting the fair value of the service
element from the total contract consideration. In the fourth quarter of 2010, we
determined to adopt the accounting policy of relative fair value method to account for
the bundled sale of mobile handsets and provision of services retrospectively from
January 1, 2010. Under the relative fair value method, the total revenue from such
bundled sale is allocated to service revenue and sales of handsets based on their
relative fair values. The change in accounting policy resulted in (i) an increase of
our revenue, income before income tax, net income and earnings per share of RMB3,208
million, RMB3,208 million, RMB2,406 million and RMB0.11, respectively for the year
ended December 31, 2010; and (ii) a decrease in advance from customers of RMB3,317
million as of December 31, 2010. The above change in accounting policy did not have a
significant impact on the financial statements for the years ended
December 31, 2009 and 2008,
and accordingly, we did not restate the comparative figures;
 
    
    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, or (ii) if it is probable
that costs incurred will not be recoverable, costs should be recognized as current
expenses immediately and service revenue should not be recognized;
 
    
    revenue from sales of telecommunications products (which mainly represent handsets
and accessories) that are not bundled with mobile services are recognized when title of
such products has been passed to the buyers; 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 31,2008
    
    
    2009
    
    
    2010RMB 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)
    
    
    157,914
    
    
    
    100.0
    
    
    
    153,455
    
    
    
    100.0
    
    
    
    171,106
    
    
    
    100.0Costs, expenses and others
    
    
    155,733
    
    
    
    98.6
    
    
    
    141,668
    
    
    
    92.3
    
    
    
    166,525
    
    
    
    97.3Interconnection charges
    
    
    13,038
    
    
    
    8.3
    
    
    
    12,955
    
    
    
    8.4
    
    
    
    13,727
    
    
    
    8.0Depreciation and amortization
    
    
    51,847
    
    
    
    32.8
    
    
    
    47,587
    
    
    
    31.0
    
    
    
    54,433
    
    
    
    31.8Networks, operations and support
expenses
    
    
    18,736
    
    
    
    11.9
    
    
    
    23,728
    
    
    
    15.5
    
    
    
    26,383
    
    
    
    15.4Employee benefit expenses
    
    
    20,758
    
    
    
    13.1
    
    
    
    21,931
    
    
    
    14.3
    
    
    
    23,327
    
    
    
    13.6Selling and marketing
    
    
    19,614
    
    
    
    12.4
    
    
    
    21,020
    
    
    
    13.7
    
    
    
    23,733
    
    
    
    13.9Cost in relation to information
communication technology services
    
    
    3,010
    
    
    
    1.9
    
    
    
    839
    
    
    
    0.5
    
    
    
    895
    
    
    
    0.5General, administrative and other
expenses
    
    
    13,217
    
    
    
    8.4
    
    
    
    12,175
    
    
    
    7.9
    
    
    
    12,953
    
    
    
    7.6Cost of telecommunications products
sold
    
    
    2,156
    
    
    
    1.4
    
    
    
    2,689
    
    
    
    1.8
    
    
    
    10,688
    
    
    
    6.3Finance costs, net of interest income
    
    
    3,004
    
    
    
    1.9
    
    
    
    945
    
    
    
    0.6
    
    
    
    1,607
    
    
    
    0.9Impairment loss on property, plant
and equipment
    
    
    12,494
    
    
    
    7.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Realized gains on changes in fair
value of derivative financial
instrument
    
    
    
    
    
    
    
    
    
    
    (1,239
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    Other income-net
    
    
    (2,141
    )
    
    
    (1.4
    )
    
    
    (962
    )
    
    
    (0.6
    )
    
    
    (1,221
    )
    
    
    (0.7
    )
 
 (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
options;
 
    
    selling and marketing expenses, including commissions, promotion and advertising
expenses, direct incremental costs for activating subscriber services and customer
retention costs;
  -50-




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
    
    cost in relation to information communication technology services, primarily
including cost of hardware sold;
 
    
    general, administrative and other expenses, primarily including provision for
doubtful debts, utilities, general office expenses and travel expenses;
 
    
    cost of telecommunications products sold; and
 
    
    finance costs, net of interest income, primarily including interest expenses, net of
interest income.
 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;
 
    
    Revenue 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;
  -51-




---



##### Table of Contents




    
    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;
 
    
    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 bundled sale of mobile handsets and provision of
services, prior to the fourth quarter of 2010, we determined the amount of revenue
allocated to the handset using the residual value method. Under the residual value
method, we determined the revenue allocated to the sale of the mobile handset by
deducting the fair value of the service element from the total contract consideration.
We recognize revenue related to the sale of handset when the title of the handset is
passed to the customer and recognize revenue allocated to the service element based
upon the actual usage of mobile services. The cost of the mobile
handset sold is expensed
immediately to the statement of income. In 2010, we have offered promotional packages
for the bundled sale of mobile handsets and provision of services with more attractive
terms to new subscribers, and more new subscribers were developed under such
preferential packages during the year. In the fourth quarter of 2010, we determined to
adopt the accounting policy to use relative fair value method to account for the
bundled sale of mobile handsets and provision of services retrospectively from January
1, 2010. The purpose of the change in this accounting policy is to provide reliable and
more relevant information for users of the financial statements given that each of the
handset and service elements in a bundled sale has stand-alone value to the customer
and there is objective and reliable evidence of the fair value of the handset and
service elements in a bundled sale. Under the relative fair value method, the total
revenue from such bundled sale is allocated to service revenue and sales of handsets
based on their relative fair values. The change in accounting policy resulted in (i)
an increase of our revenue, income before income tax, net income and earnings per share
of RMB3,208 million, RMB3,208 million, RMB2,406 million and RMB0.11, respectively for
the year ended December 31, 2010; and (ii) a decrease in advance from customers of
RMB3,317 million as of December 31, 2010. The above change in accounting policy did not
have a significant impact on the financial statements for the years ended December 31,
2009 and 2008, and accordingly, we did not restate the comparative figures; and
 
    
    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; or (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
  -52-




---



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Deferred revenue
  Advances from customers
  Subscriber points reward program
  Critical Accounting Estimates and Judgments
 Recognition of Upfront Non-Refundable Revenue and Direct Incremental Costs
    -53-




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The Acquisition of Target Business (2009 Business Combination)
   -54-




---



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Lease of Telecommunications Networks in Southern China
    -55-




---



##### Table of Contents



Accounting to Available-for-Sale Assets
     Depreciation on Property, Plant and Equipment
  Revaluation of Property, Plant and Equipment
   -56-




---



##### Table of Contents



Impairment of Non-Financial Assets
     Provision for Doubtful Debts
   -57-




---



##### Table of Contents



Income Tax and Deferred Taxation
    Recently Issued International Financial Reporting Standards/Hong Kong Financial Reporting Standards
   Effective for annualaccounting periodbeginning on or afterIFRIC/(HK)IFRIC Int 19 Extinguishing financial liabilities with equity instruments
    
    July 1, 2010
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##### Table of Contents



Operating Results
 Acquisition of Fixed-Line Telecommunications Business in 21 Provinces in Southern China
  Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
 Revenue
  Mobile Business Revenue
    -59-




---



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2009
    
    
    2010RMB in millions
    
    
    As % of total
    
    
    RMB in millions
    
    
    As % of totalTotal revenue from mobile
business
    
    
    71,991
    
    
    
    100.0
    
    
    
    89,550
    
    
    
    100.0Telecommunications service
revenue
    
    
    69,769
    
    
    
    97.0
    
    
    
    82,362
    
    
    
    92.0Usage fees and monthly fees
    
    
    42,297
    
    
    
    58.8
    
    
    
    47,004
    
    
    
    52.5Value-added service revenue
    
    
    19,070
    
    
    
    26.5
    
    
    
    25,852
    
    
    
    28.9Interconnection revenue
    
    
    8,220
    
    
    
    11.4
    
    
    
    9,022
    
    
    
    10.1Other service revenue
    
    
    182
    
    
    
    0.3
    
    
    
    484
    
    
    
    0.5Other revenue
    
    
    252
    
    
    
    0.3
    
    
    
    15
    
    
    
    Sales of mobile
telecommunications products
    
    
    1,970
    
    
    
    2.7
    
    
    
    7,173
    
    
    
    8.0
 Usage Fees and Monthly Fees
 Value-Added Service Revenue
 Interconnection Revenue
 Sales of Telecommunications Products
 Fixed-Line Business Revenue
   -60-




---



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For the Year Ended December 31,2009
    
    
    2010RMB in millions
    
    
    As % of Total
    
    
    RMB in millions
    
    
    As % of TotalTotal revenue from fixed-line business(1)
    
    
    80,863
    
    
    
    100.0
    
    
    
    79,864
    
    
    
    100.0Telecommunications service revenue(1)
    
    
    79,059
    
    
    
    97.8
    
    
    
    78,704
    
    
    
    98.6Usage fee and monthly fee(1)
    
    
    34,369
    
    
    
    42.5
    
    
    
    29,085
    
    
    
    36.4Fixed-line broadband, managed data and other
Internet-related services revenue
    
    
    26,364
    
    
    
    32.6
    
    
    
    32,595
    
    
    
    40.8Interconnection revenue
    
    
    5,599
    
    
    
    6.9
    
    
    
    5,243
    
    
    
    6.6Value-added service revenue
    
    
    5,238
    
    
    
    6.5
    
    
    
    4,860
    
    
    
    6.1Leased line service revenue
    
    
    5,683
    
    
    
    7.0
    
    
    
    5,589
    
    
    
    7.0Others
    
    
    1,806
    
    
    
    2.3
    
    
    
    1,332
    
    
    
    1.7Information communication technology services and
other revenue
    
    
    1,611
    
    
    
    2.0
    
    
    
    1,046
    
    
    
    1.3Sales of fixed-line telecommunications products
    
    
    193
    
    
    
    0.2
    
    
    
    114
    
    
    
    0.1
 
 (1)
    
    Excluding fixed-line upfront connection fees of RMB0.49 billion in 2009 and RMB0.19
billion in 2010. Fixed-line upfront connection fees represent the amortization of deferred
upfront connection fees received from the customers before July 1, 2001. No upfront connection
fee was received from the customers since then. Therefore, we consider that analyses of our
operating results excluding upfront connection fees are more relevant to the readers of this
report. Usage Fees and Monthly Fees.
  Fixed-Line Broadband, managed data and other Internet-related services revenue.
   -61-




---



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Interconnection Revenue
 Value-Added Service Revenue
 Leased Line Service Revenue
 Others
 Information Communication Technology Services and Other Revenue.
 Sales of Telecommunications Products
 Costs, Expenses and Others
   For the Year Ended December 31,2009
    
    
    2010RMB in millions
    
    
    % of Total
    
    
    RMB in millions
    
    
    % of TotalTotal telecommunications services revenue(1)
    
    
    149,103
    
    
    
    100.0
    
    
    
    161,803
    
    
    
    100.0Costs, expenses and others
    
    
    141,668
    
    
    
    95.0
    
    
    
    166,525
    
    
    
    102.9Interconnection charges
    
    
    12,955
    
    
    
    8.7
    
    
    
    13,727
    
    
    
    8.5Depreciation and amortization
    
    
    47,587
    
    
    
    31.9
    
    
    
    54,433
    
    
    
    33.6Networks, operations and support expenses
    
    
    23,728
    
    
    
    15.9
    
    
    
    26,383
    
    
    
    16.3Employee benefit expenses
    
    
    21,931
    
    
    
    14.7
    
    
    
    23,327
    
    
    
    14.4Selling and marketing
    
    
    21,020
    
    
    
    14.1
    
    
    
    23,733
    
    
    
    14.7Cost in relation to information communication
technology services
    
    
    839
    
    
    
    0.6
    
    
    
    895
    
    
    
    0.6General, administrative and other expenses
    
    
    12,175
    
    
    
    8.2
    
    
    
    12,953
    
    
    
    8.0Cost of telecommunications products sold
    
    
    2,689
    
    
    
    1.8
    
    
    
    10,688
    
    
    
    6.6Finance costs, net of interest income
    
    
    945
    
    
    
    0.6
    
    
    
    1,607
    
    
    
    1.0Realized gains on changes in fair value of
derivative financial instrument
    
    
    (1,239
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    Other income-net
    
    
    (962
    )
    
    
    (0.7
    )
    
    
    (1,221
    )
    
    
    (0.8
    )
 
 (1) Excludes fixed-line upfront connection fees of RMB0.49 billion in 2009 and RMB0.19
billion in 2010.
  -62-




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##### Table of Contents



Interconnection Charges
 Depreciation and Amortization
 Networks, Operations and Support Expenses
 Employee Benefit Expenses
 Selling and Marketing Expenses
 Cost in Relation to Information Communication Technology Services
 General, Administrative and Other Expenses
  -63-




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##### Table of Contents



Cost of Telecommunications Products Sold
 Finance Costs, Net of Interest Income
 Realized Gain on Changes in Fair Value of Derivative Financial Instrument
 Other Income-Net
 Income Before Income Tax
   (1)
    
    deferred fixed-line upfront connection fees of RMB0.19 billion for 2010 and
RMB0.49 billion for 2009;
and
 (2)
    
    realized gain of RMB1.24 billion on changes in fair value of derivative
financial instrument in 2009.
  Income Tax
   -64-




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##### Table of Contents



Net Income for the Year
  Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 Revenue
  Mobile Business Revenue
    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
  -65-




---



##### Table of Contents



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
    
    
    
    100.0Telecommunications 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, managed data and other
internet-related service revenue
    
    
    23,624
    
    
    
    25.6
    
    
    
    26,364
    
    
    
    32.6Interconnection 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
    
    
    
    7.0Others
    
    
    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)
    
    Excludes 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.
  -66-




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##### Table of Contents



Usage Fees and Monthly Fees.
  Fixed-Line Broadband, managed data and other Internet-related services revenue.
  Interconnection Revenue
 Value-Added Service Revenue
  -67-




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##### Table of Contents



Leased Line 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
    
    
    155,733
    
    
    
    103.2
    
    
    
    141,668
    
    
    
    95.0Interconnection charges
    
    
    13,038
    
    
    
    8.6
    
    
    
    12,955
    
    
    
    8.7Depreciation and amortization
    
    
    51,847
    
    
    
    34.3
    
    
    
    47,587
    
    
    
    31.9Networks, operations and support expenses
    
    
    18,736
    
    
    
    12.4
    
    
    
    23,728
    
    
    
    15.9Employee 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
    
    
    13,217
    
    
    
    8.8
    
    
    
    12,175
    
    
    
    8.2Cost of telecommunications products sold(1)
    
    
    2,156
    
    
    
    1.4
    
    
    
    2,689
    
    
    
    1.8Finance costs, net of interest income
    
    
    3,004
    
    
    
    2.0
    
    
    
    945
    
    
    
    0.6Impairment loss on property, plant and equipment
    
    
    12,494
    
    
    
    8.3
    
    
    
    
    
    
    
    Realized gains on changes in fair value of derivative
financial instrument
    
    
    
    
    
    
    
    
    
    
    (1,239
    )
    
    
    (0.8
    )Other income-net
    
    
    (2,141
    )
    
    
    (1.4
    )
    
    
    (962
    )
    
    
    (0.7
    )
 
 (1)
    
    Excludes 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.
  -68-




---



##### Table of Contents



Interconnection Charges
 Depreciation and Amortization
 Networks, Operations and Support Expenses
 Employee Benefit Expenses
 Selling and Marketing Expenses
 Cost in Relation to Information Communication Technology Services
  -69-




---



##### Table of Contents



General, Administrative and Other Expenses
 Cost of Telecommunications Products Sold
 Finance Costs, Net of Interest Income
 Impairment Loss on Property, Plant and Equipment
   Realized Gain on Changes in Fair Value of Derivative Financial Instrument
  -70-




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##### Table of Contents



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 non-monetary assets exchange for 2009 and
RMB1.31 billion for 2008;
 (3)
    
    realized gain of RMB1.24 billion on changes in fair value of derivative
financial instrument in 2009; and
   Income Tax
  Net Income for the Year
   -71-




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##### Table of Contents



Liquidity and Capital Resources
 Working Capital and Cash Flows
    For the Year Ended December 31,2008
    
    
    2009
    
    
    2010RMB in millions
    
    
    RMB in millions
    
    
    RMB in millionsNet cash inflow from operating activities of continuing operations
    
    
    57,241
    
    
    
    57,733
    
    
    
    66,344Net cash outflow from investing activities of continuing operations
    
    
    (61,026
    )
    
    
    (85,308
    )
    
    
    (76,614
    )Net cash (outflow)/inflow from financing activities of continuing
operations
    
    
    (28,786
    )
    
    
    30,197
    
    
    
    19,824Net cash (outflow)/inflow from continuing operations
    
    
    (32,571
    )
    
    
    2,622
    
    
    
    9,554Net cash inflow/(outflow) from discontinued operations
    
    
    30,145
    
    
    
    (5,039
    )
    
    
    5,121Net (decrease)/increase in cash and cash equivalents
    
    
    (2,426
    )
    
    
    (2,417
    )
    
    
    14,675
     -72-




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##### Table of Contents



Indebtedness and Capital Structure
  As of December 31,2008
    
    
    2009
    
    
    2010(RMB in millions, except percentages)Cash and cash equivalent and short-term bank deposits
    
    
    10,652
    
    
    
    8,816
    
    
    
    22,768Total assets
    
    
    380,318
    
    
    
    417,045
    
    
    
    441,453Short-term debt
    
    
    21,996
    
    
    
    66,601
    
    
    
    61,944Short-term bank loans
    
    
    10,780
    
    
    
    63,909
    
    
    
    36,727Commercial papers
    
    
    10,000
    
    
    
    
    
    
    
    23,000Current portion of long-term bank loans
    
    
    1,216
    
    
    
    62
    
    
    
    58Amounts due to related parties
    
    
    
    
    
    
    2,104
    
    
    
    2,033Notes payables included in accounts payable and
accrued liabilities
    
    
    
    
    
    
    500
    
    
    
    Current portion of obligations under finance lease
included in other obligations
    
    
    
    
    
    
    26
    
    
    
    126Long-term debt
    
    
    43,649
    
    
    
    7,862
    
    
    
    35,098Long-term loans due to ultimate holding company
    
    
    35,652
    
    
    
    
    
    
    
    Promissory notes
    
    
    
    
    
    
    
    
    
    
    15,000Corporate bonds
    
    
    7,000
    
    
    
    7,000
    
    
    
    7,000Convertible bonds
    
    
    
    
    
    
    
    
    
    
    11,558Non-current portion of long-term bank loans
    
    
    997
    
    
    
    759
    
    
    
    1,462Non-current portion of obligations under finance lease
    
    
    
    
    
    
    103
    
    
    
    78Equity attributable to owners of the parent
    
    
    197,233
    
    
    
    206,467
    
    
    
    205,841Debt-to-capitalization ratio(1)
    
    
    25.0
    %
    
    
    26.5
    %
    
    
    32.0
    %Debt-to-equity ratio(2)
    
    
    33.3
    %
    
    
    36.1
    %
    
    
    47.1
    %
 
 (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 + equity attributable to owners of the parent). (2)
    
    Debt-to-equity ratio = (long-term interest-bearing debt + short-term interest-bearing
debt)/equity attributable to owners of the parent.
    -73-




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-74-




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Less than 1
    
    
    Between 1 and
    
    
    Between 2 andTotal
    
    
    year
    
    
    2 years
    
    
    5 years
    
    
    Over 5 yearsShort-term bank loans (1)*
    
    
    37,319
    
    
    
    37,319
    
    
    
    
    
    
    
    
    
    
    
    Commercial papers (2)*
    
    
    23,621
    
    
    
    23,621
    
    
    
    
    
    
    
    
    
    
    
    Long-term bank loans (3)*
    
    
    1,734
    
    
    
    103
    
    
    
    94
    
    
    
    1,004
    
    
    
    533Corporate bonds (4)*
    
    
    8,425
    
    
    
    355
    
    
    
    355
    
    
    
    5,535
    
    
    
    2,180Convertible bonds (5)*
    
    
    12,634
    
    
    
    91
    
    
    
    91
    
    
    
    12,452
    
    
    
    Promissory notes (6)*
    
    
    16,528
    
    
    
    509
    
    
    
    509
    
    
    
    15,510
    
    
    
    Other obligations
    
    
    2,806
    
    
    
    2,640
    
    
    
    92
    
    
    
    27
    
    
    
    47Capital commitments (7)
    
    
    8,383
    
    
    
    5,792
    
    
    
    811
    
    
    
    456
    
    
    
    1,324Operating leases commitments (7)Telecommunications networks leasing
arrangement in 21 provinces in southern
China
    
    
    5,000
    
    
    
    2,400
    
    
    
    2,600
    
    
    
    
    
    
    
    Other commitments
    
    
    6,403
    
    
    
    1,846
    
    
    
    1,331
    
    
    
    2,276
    
    
    
    950Total obligations
    
    
    122,853
    
    
    
    74,676
    
    
    
    5,883
    
    
    
    37,260
    
    
    
    5,034
 
 *
    
    Interest included(1)
    
    See Note 27 Short-Term Bank Loans to our consolidated financial statements.(2)
    
    See Note 26 Commercial Papers to our consolidated financial statements.(3)
    
    See Note 20 Long-Term Bank Loans to our consolidated financial statements.(4)
    
    See Note 23 Corporate Bonds to our consolidated financial statements.(5)
    
    See Note 22 Convertible Bonds to our consolidated financial statements.(6)
    
    See Note 21 Promissory Notes to our consolidated financial statements.(7)
    
    See Note 41 Contingencies and Commitments to our consolidated financial statements. Trend
Information
  Off-Balance Sheet Arrangements
  Capital Expenditures
  For the Year Ended December 31,2009
    
    
    2010
    
    
    2011(RMB in
    
    
    As a
    
    
    (RMB in
    
    
    As a
    
    
    (RMB in
    
    
    As abillions)
    
    
    percentage
    
    
    billions)
    
    
    Percentage
    
    
    billions)
    
    
    PercentageMobile business
    
    
    56.98
    
    
    
    50.7
    %
    
    
    23.17
    
    
    
    33.0
    %
    
    
    22.88
    
    
    
    31.0
    %Broadband and data business
    
    
    18.80
    
    
    
    16.7
    %
    
    
    22.45
    
    
    
    32.0
    %
    
    
    18.75
    
    
    
    25.4
    %Infrastructure and transmission network
    
    
    25.01
    
    
    
    22.2
    %
    
    
    16.96
    
    
    
    24.2
    %
    
    
    19.48
    
    
    
    26.4
    %Others (1)
    
    
    11.68
    
    
    
    10.4
    %
    
    
    7.61
    
    
    
    10.8
    %
    
    
    12.69
    
    
    
    17.2
    %Total
    
    
    112.47
    
    
    
    100.0
    %
    
    
    70.19
    
    
    
    100.0
    %
    
    
    73.80
    
    
    
    100.0
    %
 
 (1)
    
    Other expenditures consist of innovation and value-added platform, IT system, fixed-line
business and procurement of miscellaneous assets, equipment and spare parts.   -75-




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##### Table of Contents



Item 6. Directors, Senior Management and Employees
 A. Directors and Senior Management
  Name
    
    Age
    
    PositionChang Xiaobing
    
    
    54
    
    
    Chairman of the Board of Directors and Chief Executive OfficerLu Yimin
    
    
    47
    
    
    Executive Director and PresidentTong Jilu(1)
    
    
    53
    
    
    Executive Director and Senior Vice PresidentLi Fushen(2)
    
    
    48
    
    
    Executive Director and Chief Financial OfficerCesareo Alierta Izuel
    
    
    66
    
    
    Non-Executive DirectorCheung Wing Lam Linus
    
    
    62
    
    
    Independent Non-Executive DirectorWong Wai Ming
    
    
    53
    
    
    Independent Non-Executive DirectorJohn Lawson Thornton
    
    
    57
    
    
    Independent Non-Executive DirectorTimpson Chung Shui Ming
    
    
    59
    
    
    Independent Non-Executive DirectorCai Hongbin(3)
    
    
    43
    
    
    Independent Non-Executive DirectorLi Jianguo
    
    
    57
    
    
    Senior Vice PresidentLi Gang
    
    
    53
    
    
    Senior Vice PresidentZhang Junan
    
    
    54
    
    
    Senior Vice PresidentJiang Zhengxin
    
    
    54
    
    
    Senior Vice PresidentShao Guanglu(4)
    
    
    47
    
    
    Senior Vice President
 
 (1)
    
    Mr. Tong Jilu resigned as the Chief Financial Officer of our company and was appointed as a
Senior Vice President of our company, each on March 30, 2011. Mr. Zuo Xunsheng resigned as an
Executive Director and a Senior Vice President of our company on March 30, 2011. Each of Mr.
Pei Aihua and Mr. Zhao Jidong resigned as a Senior Vice President of our company on March 30,
2011.(2)
    
    Mr. Li Fushen resigned as a Senior Vice President of our company and was appointed as an
Executive Director and the Chief Financial Officer of our company, each on March 30, 2011.(3)
    
    Mr. Cai Hongbin was appointed as an Independent Non-Executive Director of our company on May
13, 2010.(4)
    
    Mr. Shao Guanglu was appointed as a Senior Vice President of our company on April 26, 2011. Mr. Chang Xiaobing
  -76-




---



##### Table of Contents



Mr. Lu Yimin
 Mr. Tong Jilu
 Mr. Li Fushen
  -77-




---



##### Table of Contents



Mr. Cesareo Alierta Izuel
 Mr. Cheung Wing Lam Linus
 Mr. Wong Wai Ming
 Mr. John Lawson Thornton
  -78-




---



##### Table of Contents



Mr. Timpson Chung Shui Ming
 Mr. Cai Hongbin
 Ms. Li Jianguo
  -79-




---



##### Table of Contents



Mr. Li Gang
 Mr. Zhang Junan
 Mr. Jiang Zhengxin
 Mr. Shao Guanglu
  -80-




---



##### Table of Contents



B. Compensation
  C. Board Practices
 General
  Resignation orName
    
    Appointment Date
    
    Re-appointment Date
    
    Retirement DateCurrent DirectorsChang Xiaobing
    
    December 21, 2004
    
    May 12, 2006 and May 26, 2009
    
    
    Lu Yimin
    
    October 15, 2008
    
    May 26, 2009 and May 24, 2011
    
    
    Tong Jilu
    
    February 1, 2004
    
    May 12, 2004, May 12, 2006, May 16, 2008 and May 12, 2010
    
    
    Li Fushen
    
    March 30, 2011
    
    May 24, 2011
    
    
    Cesareo Alierta Izuel
    
    October 15, 2008
    
    May 26, 2009 and May 24, 2011
    
    
    Cheung Wing Lam Linus
    
    May 12, 2004
    
    May 12, 2006, May 16, 2008 and May 12, 2010
    
    
    Wong Wai Ming
    
    January 19, 2006
    
    May 12, 2006, May 26, 2009 and May 24, 2011
    
    
    John Lawson Thornton
    
    October 15, 2008
    
    May 26, 2009
    
    
    Timpson Chung Shui Ming
    
    October 15, 2008
    
    May 26, 2009
    
    
    Cai Hongbin
    
    May 13, 2010
    
    May 24, 2011
    
    
    Former DirectorsZuo Xunsheng
    
    October 15, 2008
    
    May 26, 2009 and May 12, 2010
    
    March 30, 2011Wu 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;
 
    
    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.
   -81-




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##### Table of Contents



Remuneration Committee
  D. Employees
  By Function
    
    Number of EmployeesEmployees
    
    
    215,815Management and administration
    
    
    23,211Sales and customer service
    
    
    63,380Product and Marketing
    
    
    18,282Network construction and maintenance
    
    
    81,021Support
    
    
    27,392Others
    
    
    2,529Temporary employees
    
    
    94,215Total
    
    
    310,030
 E. Share Ownership
  Ordinary
    
    
    Percentage of TotalName
    
    Capacity and Nature
    
    
    Shares Held
    
    
    Issued SharesCheung Wing Lam Linus
    
    Beneficial Owner (Personal)
    
    
    400,000
    
    
    
    0.0017
    %Timpson Chung Shui Ming
    
    Beneficial Owner (Personal)
    
    
    6,000
    
    
    
    0.0000
    %
   -82-




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##### Table of Contents



Number ofCapacity and
    
    Shares
    
    
    
    
    Exercise
    
    
    Consideration
    
    
    CompensationName
    
    Nature
    
    Covered(1)
    
    
    Expiration Date
    
    Price
    
    
    Paid
    
    
    for 2010(RMB inthousands)DirectorsChang Xiaobing
    
    Beneficial Owner
    
    
    526,000
    
    
    December 20, 2012(3)
    
    HK$6.20
    
    HK$1.00
    
    
    
    3,206(Personal)
    
    
    746,000
    
    
    February 14, 2013(3)
    
    HK$6.35
    
    HK$1.00Lu Yimin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,637Tong Jilu
    
    Beneficial Owner
    
    
    292,000
    
    
    June 22, 2011(3)
    
    HK$15.42
    
    HK$1.00
    
    
    
    2,408(Personal)
    
    
    92,000
    
    
    July 19, 2012(3)
    
    HK$5.92
    
    HK$1.00460,000
    
    
    February 14, 2013(3)
    
    HK$6.35
    
    HK$1.00Beneficial Owner
    
    
    32,000
    
    
    July 19, 2012(3)
    
    HK$5.92
    
    HK$1.00(Spouse)
    
    
    40,000
    
    
    February 14, 2013(3)
    
    HK$6.35
    
    HK$1.00Li Fushen
    
    Beneficial Owner (Personal)
    
    
    723,840
    
    
    November 16, 2012(3)
    
    HK$5.57
    
    
    
    
    
    
    2,225Cesareo Alierta Izuel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261Cheung Wing Lam Linus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    351Wong Wai Ming
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    366John Lawson Thornton
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    340Timpson Chung Shui Ming
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    340Cai Hongbin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    217Employees(2)
    
    
    
    
    4,058,000
    
    
    June 22, 2011(3)
    
    HK$15.42
    
    HK$1.008,956,000
    
    
    May 20, 2012(3)
    
    HK$4.30
    
    HK$1.0040,900,000
    
    
    July 19, 2012(3)
    
    HK$5.92
    
    HK$1.00128,000
    
    
    December 20, 2012(3)
    
    HK$6.20
    
    HK$1.00150,310,000
    
    
    February 14, 2013(3)
    
    HK$6.35
    
    HK$1.0099,131,916
    
    
    November 16, 2012(3)
    
    HK$5.57
    
    HK$1.0088,929,468
    
    
    December 5, 2012(3)
    
    HK$8.26
    
    HK$1.00
 
 (1)
    
    Each option gives the holder the right to subscribe for one share.(2)
    
    In 2009, the exercise periods of approximately 25,000,000 options were extended by one year
by the Board pursuant to the terms of the Pre-Global Offering Share Option Scheme and the
Share Option Scheme. The reasons for such extension were that (i) the holders of those options
were determined by the Board 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) those options were not exercisable due to a Mandatory Moratorium
under the respective terms of the Pre-Global Offering Share Option Scheme and the Share Option
Scheme. Due to the Mandatory Moratorium continuing to be in force, the Board further
extended the exercise periods of certain options by one year in March 2010 and March 2011
under the respective terms of the Share Option Scheme. As of December 31, 2010, approximately
23,600,000 share options held by Transferred Personnel remained valid.(3)
    
    In March 2010 and March 2011, the expiry dates for certain options were extended by one year
by the Board pursuant to the 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, which is still in force, under the respective terms of each of the Share Option
Scheme and the Special Purpose Share Option Scheme.  -83-




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##### Table of Contents



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.
 
 Item 7. Major Shareholders and Related Party Transactions
 A. Major Shareholders
   -84-




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B. Related Party Transactions
        -85-




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##### Table of Contents



Continuing Related Party Transactions under the 2010 Comprehensive Services Agreement
    Telecommunications Resources Leasing
   Property Leasing
    -86-




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Provision of Value-added Telecommunications Services
   Provision of Equipment Procurement Services
    (a)
    
    up to 3% of the contract value of those procurement contracts in the case of
domestic equipment procurement; and
 (b)
    
    up to 1% of the contract value of those procurement contracts in the case of
imported equipment procurement.
  (A)
    
    the government fixed price;
 (B)
    
    where there is no government fixed price but a government guidance price
exists, the government guidance price;
 (C)
    
    where there is neither a government fixed price nor a government guidance
price, the market price; or
 (D)
    
    where none of the above is applicable, the price to be agreed between the
parties and determined on a cost-plus basis.
  (I)
    
    the price charged by an independent third party providing the services in the
same or nearby location in an ordinary business transaction; or
 (II)
    
    the price charged by an independent third party providing the services in
mainland China in an ordinary business transaction.
   -87-




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##### Table of Contents



Provision of Engineering Design and Construction Services
   (a)
    
    the price charged by an independent third party providing the services in the
same or nearby location in an ordinary business transaction; or
 (b)
    
    the price charged by an independent third party providing the services in
mainland China in an ordinary business transaction.
  Provision of Ancillary Telecommunications Services
   (a)
    
    the government fixed price;
 (b)
    
    where there is no government fixed price but a government guidance price
exists, the government guidance price;
 (c)
    
    where there is neither a government fixed price nor a government guidance
price, the market price; or
 (d)
    
    where none of the above is applicable, the price to be agreed between the
parties and determined on a cost-plus basis.
   -88-




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##### Table of Contents



Provision of Comprehensive Support Services
   (a)
    
    the government fixed price;
 (b)
    
    where there is no government fixed price but a government guidance price
exists, the government guidance price;
 (c)
    
    where there is neither a government fixed price nor a government guidance
price, the market price; or
 (d)
    
    where none of the above is applicable, the price to be agreed between the
parties and determined on a cost-plus basis.
  Provision of Shared Services
  (a)
    
    CUCL will provide headquarter human resources services to Unicom Group;
 (b)
    
    Unicom Group and CUCL will provide central business support services to each
other;
 (c)
    
    CUCL will provide trust services related to the services referred to in
paragraphs (a) and (b) above to Unicom Group; and
 (d)
    
    Unicom Group will provide premises to CUCL and other shared services requested
by its headquarters.
    -89-




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Historical Related Party Transactions between China Unicoms Subsidiaries and Unicom Group
  Domestic Interconnection Settlement Agreement
    International Long Distance Voice Services Settlement Agreement
       -90-




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##### Table of Contents



Framework Agreement for Interconnection Settlement
      Engineering and Information Technology Services Agreement and Framework Agreement for Engineering
and Information Technology Services
      -91-




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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 revenue 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.
    -92-




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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;
 
    
    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.
  -93-




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##### Table of Contents



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.
   -94-




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##### Table of Contents



Support Services Agreement and Framework Agreement for Support Services
     
    
    the price fixed by the PRC Government;
 
    
    where there is no price fixed by the PRC Government but there is a price recommended
by the PRC Government, the government-recommended price;
 
    
    where there is neither a government-fixed price nor a government-recommended price,
the market price; or
 
    
    where none of the above is applicable, the price to be agreed between the relevant
parties and determined on a cost-plus basis.
  Telecommunications Facilities Leasing Agreement and Framework Agreement for Telecommunication
Facilities Leasing
    -95-




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(a)
    
    Unicom Group agrees to lease certain inter-provincial fiber optic cables within
CUCLs service regions to CUCL;
 (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.
  -96-




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##### Table of Contents




    
    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.
 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
   -97-




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##### Table of Contents



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:
 
    
    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;
  -98-




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##### Table of Contents




    
    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
   -99-




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##### Table of Contents




    
    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
  Policy on Dividend Distribution
   -100-




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##### Table of Contents



Item 9. The Offer and Listing
 Market Price Information
   Price per Ordinary Share(HK$)
    
    
    Price per ADS (US$)High
    
    
    Low
    
    
    High
    
    
    LowAnnual:2006
    
    
    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
    
    
    
    8.722010
    
    
    12.16
    
    
    
    8.31
    
    
    
    15.54
    
    
    
    10.58Quarterly:First 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
    
    
    
    10.58Second Quarter, 2010
    
    
    10.76
    
    
    
    8.84
    
    
    
    13.55
    
    
    
    11.09Third Quarter, 2010
    
    
    12.16
    
    
    
    9.96
    
    
    
    15.54
    
    
    
    12.55Fourth Quarter, 2010
    
    
    11.68
    
    
    
    10.32
    
    
    
    15.06
    
    
    
    13.34First Quarter, 2011
    
    
    13.58
    
    
    
    11.04
    
    
    
    17.49
    
    
    
    14.11Monthly:November 2010
    
    
    11.46
    
    
    
    10.32
    
    
    
    14.58
    
    
    
    13.17December 2010
    
    
    11.68
    
    
    
    10.44
    
    
    
    15.00
    
    
    
    13.52January 2011
    
    
    13.00
    
    
    
    11.04
    
    
    
    16.52
    
    
    
    14.11February 2011
    
    
    13.50
    
    
    
    12.40
    
    
    
    17.49
    
    
    
    15.99March 2011
    
    
    13.58
    
    
    
    12.34
    
    
    
    17.32
    
    
    
    15.30April 2011
    
    
    16.14
    
    
    
    13.40
    
    
    
    20.46
    
    
    
    17.26May 2011(through May 25, 2011)
    
    
    16.64
    
    
    
    15.12
    
    
    
    21.24
    
    
    
    19.50
  -101-




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##### Table of Contents



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 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.
  -102-




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##### Table of Contents



Remuneration and Pensions
   Borrowing Powers
  Qualification of Directors
  Rotation of Directors
   -103-




---



##### Table of Contents



Rights Attached to Ordinary Shares
 Voting Rights
     Issue of Shares
   Dividends
     -104-




---



##### Table of Contents



Winding Up
   Miscellaneous
   Modification of Rights
  Annual General and Extraordinary General Meetings
   Limitations on Rights to Own Securities
   -105-




---



##### Table of Contents



Changes in Capital
   
    
    consolidate and divide all or any of our share capital into shares of a larger
amount than our existing shares;
 
    
    divide our shares into several classes and attach to them any preferential,
deferred, qualified or special rights, privileges or conditions;
 
    
    cancel any shares that at the date of the passing of the resolution have not been
taken or agreed to be taken by any person, and diminish the amount of our share capital
by the amount of the shares so cancelled;
 
    
    sub-divide our shares or any of them into shares of a smaller amount than is fixed
by our Memorandum of Association, subject nevertheless to the provisions of the
Companies Ordinance; and
 
    
    make provision for the issue and allotment of shares which do not carry any voting
rights.
 Miscellaneous
  C. Material Contracts
  
    
    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.
 
    
    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.
  -106-




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##### Table of Contents




    
    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.
 
    
    Network Leasing Agreement, dated October 29, 2010, entered into between CUCL and
Unicom New Horizon.
 
    
    Comprehensive Services Agreement, dated October 20, 2010, entered into between CUCL
and Unicom Group.
 
    
    Agreement to Enhance the Strategic Alliance, dated January 23, 2011, entered into
between the Company and Telefónica.
 D. Exchange Controls
   E. Taxation
   -107-




---



##### Table of Contents



Peoples Republic of China
  Taxation of Dividends
    Taxation of Capital Gains
  Additional PRC Tax Considerations
 Stamp duty
 Estate tax
  -108-




---



##### Table of Contents



Hong Kong
 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,
  -109-




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##### Table of Contents




    
    a tax-exempt organization,
 
    
    an insurance company,
 
    
    a person liable for alternative minimum tax,
 
    
    a person that actually or constructively owns 10% or more of our voting stock,
 
    
    a person that holds shares or ADSs that are a hedge or 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
   -110-




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##### Table of Contents



Taxation of Capital Gains
   Passive Foreign Investment Company Rules
  -111-




---



##### Table of Contents




    
    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.
   
    
    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.
    -112-




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##### Table of Contents



F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
   I. Subsidiary Information
  
 Item 11. Quantitative and Qualitative Disclosures about Market Risks
  Interest Rate Risk
   -113-




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##### Table of Contents



As ofDecemberExpected Maturity
    
    
    31, 20102011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value(RMB equivalent in millions, except interest rates)Liabilities:RMB-denominated loansFixed rate
    
    
    2,610
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,610
    
    
    
    2,610Average rate (1)
    
    
    2.21
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Variable rate
    
    
    23,225
    
    
    
    
    
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,025
    
    
    
    24,025Average rate
    
    
    2.34
    %
    
    
    4.59
    %
    
    
    4.59
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    HK dollar-denominated loansVariable rate
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,925
    
    
    
    12,925Average rate
    
    
    0.37
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. dollar-denominated loansFixed rate
    
    
    30
    
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    325
    
    
    
    455
    
    
    
    314Average rate
    
    
    0.53
    %
    
    
    0.47
    %
    
    
    0.47
    %
    
    
    0.46
    %
    
    
    0.46
    %
    
    
    0.45
    %
    
    
    
    
    
    
    Euro-denominated loansFixed rate
    
    
    28
    
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    137
    
    
    
    265
    
    
    
    255Average rate
    
    
    2.21
    %
    
    
    2.20
    %
    
    
    2.18
    %
    
    
    2.17
    %
    
    
    2.14
    %
    
    
    1.56
    %
    
    
    
    
    
    
    RMB-denominated commercial
papersFixed rate
    
    
    23,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,000
    
    
    
    23,000Average rate
    
    
    2.70
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RMB-denominated promissory
notesFixed rate
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    14,881Average rate
    
    
    3.39
    %
    
    
    3.39
    %
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RMB-denominated corporate
bondsFixed rate
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    7,000
    
    
    
    7,205Average rate
    
    
    5.06
    %
    
    
    5.06
    %
    
    
    5.06
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    
    
    
    
    U.S. dollar-denominated
convertible bondsFixed rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,178
    
    
    
    
    
    
    
    12,178
    
    
    
    11,558Average rate
    
    
    1.90
    %
    
    
    1.90
    %
    
    
    1.90
    %
    
    
    1.90
    %
    
    
    1.90
    %
    
    
    
    
    
    
    
    
    
    
    U.S. dollar-denominated
finance leaseFixed rate
    
    
    129
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211
    
    
    
    204Average rate
    
    
    2.41
    %
    
    
    2.51
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The average interest rates for variable rate loans are calculated based on the rates reported
as of December 31, 2010.  -114-




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##### Table of Contents



Exchange Rate Risk
    As ofDecemberExpected Maturity
    
    
    31, 20102011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value(RMB equivalent in millions)Assets:Cash and cash equivalentsU.S. dollars
    
    
    11,661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,661
    
    
    
    11,661HK dollars
    
    
    393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    393
    
    
    
    393Japanese yen
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Euro dollars
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213
    
    
    
    213GBP
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    8Short-term bank depositsU.S. dollars
    
    
    148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    148HK dollars
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    43Liabilities:U.S. dollar-denominated loans
    
    
    30
    
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    325
    
    
    
    455
    
    
    
    284Euro-denominated loans
    
    
    28
    
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    137
    
    
    
    265
    
    
    
    227HK dollars-denominated loans
    
    
    12,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,925
    
    
    
    12,925U.S. dollar-denominated
convertible bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,178
    
    
    
    
    
    
    
    12,178
    
    
    
    11,558U.S. dollar-denominated
finance lease
    
    
    129
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    211
    
    
    
    204Off-balance sheet commitments:Capital commitments
authorized and contracted
for in U.S. dollars
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  -115-




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##### Table of Contents



Risk Relating to Available-for-Sale Financial Assets
  
 Item 12. Description of Securities Other than Equity Securities
  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
  -116-




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##### Table of Contents



ADR holders must pay:
    
    For:    Expenses of the depositary
    
       Conversion of Hong
Kong dollars to U.S. dollars   Cable, telex and
facsimile transmission expenses    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
   -117-




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##### 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
   -118-




---



##### 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 31,2009
    
    
    2010(in RMB thousands)Audit services
    
    
    73,200
    
    
    
    67,700Audit-related services
    
    
    2,200
    
    
    
    2,154Tax services
    
    
    560
    
    
    
    223Other
    
    
    472
    
    
    
    401Total
    
    
    76,432
    
    
    
    70,478
      -119-




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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
     -120-




---



##### Table of Contents



PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
   -121-




---



##### Table of Contents



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)1.3
    
    
    Amended Articles of Association of Unicom (as amended on May 24, 2011).*2.1
    
    
    Deposit Agreement, among Unicom, The Bank of New York, as Depositary, and Owners and Beneficial
Owners of American Depositary Receipts issued thereunder, including the form of American Depositary
Receipt.(2)2.2
    
    
    Form of specimen certificate for the shares.(1)4.1
    
    
    Reorganization Agreement between Unicom Group and CUCL, dated April 21, 2000 (together with English
translation).(1)4.2
    
    
    Equity Transfer Agreement among Unicom Group, Unicom HK, Unicom BVI and Unicom, dated April 21,
2000.(1)4.3
    
    
    Trademark License Agreement between Unicom Group and CUCL, dated May 25, 2000 (together with English
translation).(1)4.4
    
    
    Transmission Line Lease and Services Agreement between Unicom Group, CUCL and Guoxin Paging, dated
August 1, 2001 (together with English translation).(1)4.5
    
    
    Reorganization Agreement between Unicom Group and Unicom New Century, dated November 18, 2002.
(English translation)(3)4.6
    
    
    Conditional Sale and Purchase Agreement between Unicom BVI and us in connection with the sale of
Unicom New Century, dated November 20, 2002. (English translation)(3)4.7
    
    
    Reorganization Agreement between Unicom Group and Unicom New World, dated November 4, 2003. (English
translation)(4)4.8
    
    
    Conditional Sale and Purchase Agreement between Unicom BVI and us in connection with the sale of
Unicom New World, dated November 20, 2003. (English translation)(4)4.9
    
    
    Conditional Sales and Purchase Agreement between China Unicom (Hong Kong) Group Limited and our
Company with respect to the acquisition of Unicom International, dated July 28, 2004.(5)4.10
    
    
    Subscription Agreement between Unicom and SK Telecom, 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)
  -122-




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit4.18
    
    
    Transfer Agreement between the A Share Company and CUCL, relating to acquisitions of certain
business and assets, including the fixed-line business in 21 provinces in southern China, dated
December 16, 2008. (English translation)(9)4.19
    
    
    Network Lease Agreement between CUCL and Unicom New Horizon, relating to the lease of
telecommunications networks in 21 provinces in southern China by CUCL from Unicom New Horizon, dated
December 16, 2008. (English translation)(9)4.20
    
    
    Assets and Liabilities Transfer Agreement between CNC China and Netcom Group, dated June 23, 2004.
(English translation)(10)4.21
    
    
    Asset Injection Agreement among Netcom Group, Netcom BVI, CNC China and China Netcom, dated June 29,
2004. (English translation)(10)4.22
    
    
    Letter of Undertakings by Netcom Group, dated September 5, 2005. (English translation)(10)4.23
    
    
    Restructuring Agreement among CNC China, Netcom Group and China Netcom, dated September 6, 2004.
(English translation)(10)4.24
    
    
    Non-Competition Agreement among CNC China, Netcom Group and China Netcom, dated September 6, 2004.
(English translation)(10)4.25
    
    
    Trademark Licensing Agreement among CNC China, Netcom Group and China Netcom, dated October 8, 2004.
(English translation)(10)4.26
    
    
    Conditional Sale and Purchase Agreement among China Netcom, Netcom BVI and Netcom Group, relating to
the acquisition of CNC New Horizon BVI, dated September 12, 2005.(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)
  -123-




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit4.38
    
    
    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)4.45
    
    
    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, dated September
6, 2009.(13)4.52
    
    
    Strategic Alliance Agreement between us and Telefónica, dated September 6, 2009.(13)4.53
    
    
    Irrevocable Offer by SK Telecom, dated September 25, 2009.(13)4.54
    
    
    Irrevocable voting undertaking from China Netcom Group Corporation (BVI) Limited in favor of SK
Telecom, dated September 25, 2009.(13)4.55
    
    
    Share Repurchase Agreement, dated November 3, 2009.(13)4.56
    
    
    Amendment Agreement to Share Repurchase Agreement, dated November 3, 2009.(13)4.57
    
    
    2011-2012 Network Lease Agreement between Unicom New Horizon and CUCL, dated October 29, 2010.
(English translation)*4.58
    
    
    2011-2013 Comprehensive Services Agreement between Unicom Group and CUCL, dated October 29, 2010.
(English translation)*
  -124-




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##### Table of Contents



ExhibitNumber
    
    Description of Exhibit4.59
    
    
    Agreement to Enhance the Strategic Alliance between China Unicom (Hong Kong) Limited and Telefónica, dated January 23, 2011.*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.(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.(13)
    
    Incorporated by reference to our Annual Report on Form 20-F (File No. 1-15028) for the year
ended December 31, 2009.*
    
    Filed herewith.  -125-




---



##### Table of Contents



SIGNATURE
   CHINA UNICOM (HONG KONG) LIMITEDBy:

/s/
Chang XiaobingName:
    Chang XiaobingTitle:
    Chairman and Chief Executive Officer  -126-




---



##### Table of Contents



INDEX OF CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting FirmConsolidated balance sheets as of December 31, 2009 and 2010Consolidated statements of income for the years ended December 31, 2008, 2009 and 2010Consolidated statements of comprehensive income for the years ended December 31, 2008, 2009 and 2010Consolidated statements of changes in equity for the years ended December 31, 2008, 2009 and 2010Consolidated statements of cash flows for the years ended December 31, 2008, 2009 and 2010Notes to the consolidated financial statements
  F-1




---



##### Table of Contents



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




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2009 AND 2010
 (All amounts in Renminbi (RMB) millions)
 As of December 31Note
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    US$ASSETSNon-current assetsProperty, plant and equipment
    
    6
    
    
    351,157
    
    
    
    366,060
    
    
    
    55,464Lease prepayments
    
    7
    
    
    7,729
    
    
    
    7,607
    
    
    
    1,153Goodwill
    
    8
    
    
    2,771
    
    
    
    2,771
    
    
    
    420Deferred income tax assets
    
    9
    
    
    5,202
    
    
    
    4,840
    
    
    
    733Available-for-sale financial assets
    
    10
    
    
    7,977
    
    
    
    6,214
    
    
    
    942Other assets
    
    12
    
    
    11,596
    
    
    
    11,753
    
    
    
    1,780386,432
    
    
    
    399,245
    
    
    
    60,492Current assetsInventories and consumables
    
    13
    
    
    2,412
    
    
    
    3,728
    
    
    
    565Accounts receivable, net
    
    14
    
    
    8,825
    
    
    
    9,286
    
    
    
    1,407Prepayments and other current assets
    
    15
    
    
    4,252
    
    
    
    5,115
    
    
    
    775Amounts due from related parties
    
    40.1
    
    
    53
    
    
    
    50
    
    
    
    8Amounts due from domestic carriers
    
    40.2
    
    
    1,134
    
    
    
    1,261
    
    
    
    191Proceeds receivable for disposal of
the CDMA business
    
    36, 40.2
    
    
    5,121
    
    
    
    
    
    
    
    Short-term bank deposits
    
    16
    
    
    996
    
    
    
    273
    
    
    
    41Cash and cash equivalents
    
    17
    
    
    7,820
    
    
    
    22,495
    
    
    
    3,40830,613
    
    
    
    42,208
    
    
    
    6,395Total assets
    
    
    
    
    417,045
    
    
    
    441,453
    
    
    
    66,887EQUITYEquity attributable to owners of the parentShare capital
    
    18
    
    
    2,310
    
    
    
    2,310
    
    
    
    350Share premium
    
    18
    
    
    173,435
    
    
    
    173,436
    
    
    
    26,278Reserves
    
    19
    
    
    (18,088
    )
    
    
    (18,273
    )
    
    
    (2,769
    )Retained profits- Proposed final dividend
    
    37
    
    
    3,770
    
    
    
    1,885
    
    
    
    286- Others
    
    
    
    
    45,038
    
    
    
    46,483
    
    
    
    7,043206,465
    
    
    
    205,841
    
    
    
    31,188Non-controlling interests
    
    
    
    
    2
    
    
    
    
    
    
    
    Total equity
    
    
    
    
    206,467
    
    
    
    205,841
    
    
    
    31,188
   F-3




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED BALANCE SHEETS (Continued)
AS OF DECEMBER 31, 2009 AND 2010
(All amounts in RMB millions)
 As of December 31Note
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    US$LIABILITIESNon-current liabilitiesLong-term bank loans
    
    20
    
    
    759
    
    
    
    1,462
    
    
    
    222Promissory notes
    
    21
    
    
    
    
    
    
    15,000
    
    
    
    2,273Convertible bonds
    
    22
    
    
    
    
    
    
    11,558
    
    
    
    1,751Corporate bonds
    
    23
    
    
    7,000
    
    
    
    7,000
    
    
    
    1,061Deferred income tax liabilities
    
    9
    
    
    245
    
    
    
    22
    
    
    
    3Deferred revenue
    
    
    
    
    2,562
    
    
    
    2,171
    
    
    
    328Other obligations
    
    24
    
    
    187
    
    
    
    162
    
    
    
    2510,753
    
    
    
    37,375
    
    
    
    5,663Current liabilitiesAccounts payable and accrued liabilities
    
    25
    
    
    104,072
    
    
    
    97,659
    
    
    
    14,795Taxes payable
    
    
    
    
    912
    
    
    
    1,484
    
    
    
    225Amounts due to ultimate holding company
    
    40.1
    
    
    308
    
    
    
    229
    
    
    
    35Amounts due to related parties
    
    40.1
    
    
    5,438
    
    
    
    5,191
    
    
    
    787Amounts due to domestic carriers
    
    40.2
    
    
    1,136
    
    
    
    873
    
    
    
    132Payables in
relation to disposal of the CDMA business
    
    40.2
    
    
    7
    
    
    
    
    
    
    
    Commercial papers
    
    26
    
    
    
    
    
    
    23,000
    
    
    
    3,485Short-term bank loans
    
    27
    
    
    63,909
    
    
    
    36,727
    
    
    
    5,565Current portion of long-term bank loans
    
    20
    
    
    62
    
    
    
    58
    
    
    
    9Dividend payable
    
    37
    
    
    331
    
    
    
    431
    
    
    
    65Current portion of deferred revenue
    
    
    
    
    1,397
    
    
    
    1,042
    
    
    
    158Current portion of other obligations
    
    24
    
    
    2,534
    
    
    
    2,637
    
    
    
    400Advances from customers
    
    
    
    
    19,719
    
    
    
    28,906
    
    
    
    4,380199,825
    
    
    
    198,237
    
    
    
    30,036Total liabilities
    
    
    
    
    210,578
    
    
    
    235,612
    
    
    
    35,699Total equity and liabilities
    
    
    
    
    417,045
    
    
    
    441,453
    
    
    
    66,887Net current liabilities
    
    
    
    
    (169,212
    )
    
    
    (156,029
    )
    
    
    (23,641
    )Total assets less current liabilities
    
    
    
    
    217,220
    
    
    
    243,216
    
    
    
    36,851
   F-4




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 
 CONSOLIDATED STATEMENTS OF INCOME
 FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (All amounts in RMB millions, except per share data)
 Year ended December 31Note
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Continuing operationsRevenue
    
    5, 28, 40
    
    
    159,792
    
    
    
    153,945
    
    
    
    171,298
    
    
    
    25,954Interconnection charges
    
    
    
    
    (13,038
    )
    
    
    (12,955
    )
    
    
    (13,727
    )
    
    
    (2,082
    )Depreciation and amortization
    
    
    
    
    (51,847
    )
    
    
    (47,587
    )
    
    
    (54,433
    )
    
    
    (8,247
    )Networks, operations and support
expenses
    
    29, 43
    
    
    (18,736
    )
    
    
    (23,728
    )
    
    
    (26,383
    )
    
    
    (3,997
    )Employee benefit expenses
    
    30
    
    
    (20,758
    )
    
    
    (21,931
    )
    
    
    (23,327
    )
    
    
    (3,534
    )Other operating expenses
    
    31
    
    
    (37,997
    )
    
    
    (36,723
    )
    
    
    (48,269
    )
    
    
    (7,313
    )Finance costs
    
    32
    
    
    (3,269
    )
    
    
    (1,036
    )
    
    
    (1,749
    )
    
    
    (265
    )Interest income
    
    
    
    
    265
    
    
    
    91
    
    
    
    142
    
    
    
    22Impairment loss on property, plant
and equipment
    
    6
    
    
    (12,494
    )
    
    
    
    
    
    
    
    
    
    
    Realized gain on changes in fair
value of derivative financial
instrument
    
    33
    
    
    
    
    
    
    1,239
    
    
    
    
    
    
    
    Other income  net
    
    34
    
    
    2,141
    
    
    
    962
    
    
    
    1,221
    
    
    
    185Income from continuing operations
before income tax
    
    
    
    
    4,059
    
    
    
    12,277
    
    
    
    4,773
    
    
    
    723Income tax expenses
    
    9
    
    
    (1,828
    )
    
    
    (2,721
    )
    
    
    (922
    )
    
    
    (140
    )Income from continuing operations
    
    
    
    
    2,231
    
    
    
    9,556
    
    
    
    3,851
    
    
    
    583Discontinued operationsIncome from discontinued operations
    
    36
    
    
    1,438
    
    
    
    
    
    
    
    
    
    
    
    Gain on disposal of discontinued
operations
    
    36
    
    
    26,135
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    29,804
    
    
    
    9,556
    
    
    
    3,851
    
    
    
    583Attributable to:Owners of the parent
    
    
    
    
    29,804
    
    
    
    9,556
    
    
    
    3,851
    
    
    
    583Non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,804
    
    
    
    9,556
    
    
    
    3,851
    
    
    
    583
   F-5




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF INCOME (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions, except per share data)
 Year ended December 31Note
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Earnings per share for income
attributable to owners of the
parent during the yearBasic earnings per share (RMB)
    
    38
    
    
    1.25
    
    
    
    0.40
    
    
    
    0.16
    
    
    
    0.03Diluted earnings per share (RMB)
    
    38
    
    
    1.24
    
    
    
    0.40
    
    
    
    0.16
    
    
    
    0.03Earnings per ADS for income
attributable to owners of the
parent during the yearBasic earnings per ADS (RMB)
    
    38
    
    
    12.55
    
    
    
    4.02
    
    
    
    1.63
    
    
    
    0.25Diluted earnings per ADS (RMB)
    
    38
    
    
    12.45
    
    
    
    4.00
    
    
    
    1.62
    
    
    
    0.25Earnings per share for income
from continuing operations
attributable to owners of the
parent during the yearBasic earnings per share (RMB)
    
    38
    
    
    0.09
    
    
    
    0.40
    
    
    
    0.16
    
    
    
    0.03Diluted earnings per share (RMB)
    
    38
    
    
    0.09
    
    
    
    0.40
    
    
    
    0.16
    
    
    
    0.03Earnings per ADS for income
from continuing operations
attributable to owners of the
parent during the yearBasic earnings per ADS (RMB)
    
    38
    
    
    0.94
    
    
    
    4.02
    
    
    
    1.63
    
    
    
    0.25Diluted earnings per ADS (RMB)
    
    38
    
    
    0.93
    
    
    
    4.00
    
    
    
    1.62
    
    
    
    0.25Earnings per share for income
from discontinued operations
attributable to owners of the
parent during the yearBasic earnings per share (RMB)
    
    38
    
    
    1.16
    
    
    
    
    
    
    
    
    
    
    
    Diluted earnings per share (RMB)
    
    38
    
    
    1.15
    
    
    
    
    
    
    
    
    
    
    
    Earnings per ADS for income
from discontinued operations
attributable to owners of the
parent during the yearBasic earnings per ADS (RMB)
    
    38
    
    
    11.61
    
    
    
    
    
    
    
    
    
    
    
    Diluted earnings per ADS (RMB)
    
    38
    
    
    11.52
    
    
    
    
    
    
    
    
    
    
    
    
    F-6




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (All amounts in RMB millions)
 Year ended December 312008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Net income
    
    
    29,804
    
    
    
    9,556
    
    
    
    3,851
    
    
    
    583Other comprehensive lossChanges in fair value on
available-for-sale financial
assets
    
    
    (188
    )
    
    
    (71
    )
    
    
    (1,777
    )
    
    
    (269
    )Tax effect on changes in fair
value on available-for-sale
financial assets
    
    
    47
    
    
    
    33
    
    
    
    437
    
    
    
    66Changes in fair value on
available-for-sale financial
assets, net of tax
    
    
    (141
    )
    
    
    (38
    )
    
    
    (1,340
    )
    
    
    (203
    )Currency translation differences
    
    
    (29
    )
    
    
    
    
    
    
    6
    
    
    
    1Other comprehensive loss for
the year, net of tax
    
    
    (170
    )
    
    
    (38
    )
    
    
    (1,334
    )
    
    
    (202
    )Total comprehensive income for
the year
    
    
    29,634
    
    
    
    9,518
    
    
    
    2,517
    
    
    
    381Total comprehensive income
attributable to:Owners of the parent
    
    
    29,634
    
    
    
    9,518
    
    
    
    2,517
    
    
    
    381Non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,634
    
    
    
    9,518
    
    
    
    2,517
    
    
    
    381
   F-7




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY



 (Continued)
 FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (All amounts in RMB millions)
 Attributable to owners of the parentEmployee
    
    
    
    
    
    
    Available-share-based
    
    
    
    
    
    
    for-sale fair
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Share
    
    
    Share
    
    
    compensation
    
    
    Revaluation
    
    
    value
    
    
    Statutory
    
    
    Other
    
    
    Retained
    
    
    
    
    
    
    controlling
    
    
    Totalcapital
    
    
    premium
    
    
    reserve
    
    
    reserve
    
    
    reserve
    
    
    reserves
    
    
    reserve
    
    
    profits
    
    
    Total
    
    
    interests
    
    
    equityBalance at January 1, 2008
    
    
    1,437
    
    
    
    64,320
    
    
    
    516
    
    
    
    1,145
    
    
    
    185
    
    
    
    18,765
    
    
    
    56,770
    
    
    
    30,144
    
    
    
    173,282
    
    
    
    7
    
    
    
    173,289Total comprehensive (loss)/income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    (29
    )
    
    
    29,804
    
    
    
    29,634
    
    
    
    
    
    
    
    29,634Effect of 2009 Business Combination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201
    )
    
    
    (3,532
    )
    
    
    3,733
    
    
    
    
    
    
    
    
    
    
    
    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 35)
    
    
    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 37)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,231
    )
    
    
    (6,231
    )
    
    
    
    
    
    
    (6,231
    )Balance at December 31, 2008
    
    
    2,329
    
    
    
    166,784
    
    
    
    540
    
    
    
    161
    
    
    
    44
    
    
    
    22,992
    
    
    
    (49,695
    )
    
    
    54,076
    
    
    
    197,231
    
    
    
    2
    
    
    
    197,233
   F-8




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##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
 Attributable to owners of the parentEmployee
    
    
    
    
    
    
    Available-Capital
    
    
    share-based
    
    
    
    
    
    
    for-sale fair
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Share
    
    
    Share
    
    
    redemption
    
    
    compensation
    
    
    Revaluation
    
    
    value
    
    
    Statutory
    
    
    Other
    
    
    Retained
    
    
    
    
    
    
    controlling
    
    
    Totalcapital
    
    
    premium
    
    
    reserve
    
    
    reserve
    
    
    reserve
    
    
    reserve
    
    
    reserves
    
    
    reserve
    
    
    profits
    
    
    Total
    
    
    interests
    
    
    equityBalance at January 1, 2009
    
    
    2,329
    
    
    
    166,784
    
    
    
    
    
    
    
    540
    
    
    
    161
    
    
    
    44
    
    
    
    22,992
    
    
    
    (49,695
    )
    
    
    54,076
    
    
    
    197,231
    
    
    
    2
    
    
    
    197,233Total 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
    )Transfer of assets and liabilities under common control to Unicom Group in relation to 2009 Business Combination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,494
    
    
    
    
    
    
    
    10,494
    
    
    
    
    
    
    
    10,494Consideration 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 33)
    
    
    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 37)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (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-9




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
 Attributable to owners of the parentEmployeeCapital
    
    
    share-based
    
    
    
    
    
    
    Available-
    
    
    
    
    
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Share
    
    
    Share
    
    
    redemption
    
    
    compensation
    
    
    Revaluation
    
    
    for-sale fair
    
    
    Statutory
    
    
    bonds
    
    
    Other
    
    
    Retained
    
    
    
    
    
    
    controlling
    
    
    Totalcapital
    
    
    premium
    
    
    reserve
    
    
    reserve
    
    
    reserve
    
    

value reserve
    
    
    reserves
    
    
    reserve
    
    
    reserve
    
    
    profits
    
    
    Total
    
    
    interests
    
    
    equityBalance at January 1, 2010
    
    
    2,310
    
    
    
    173,435
    
    
    
    79
    
    
    
    567
    
    
    
    106
    
    
    
    6
    
    
    
    24,251
    
    
    
    
    
    
    
    (43,097
    )
    
    
    48,808
    
    
    
    206,465
    
    
    
    2
    
    
    
    206,467Total comprehensive (loss)/income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,340
    )
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    3,851
    
    
    
    2,517
    
    
    
    
    
    
    
    2,517Transfer to retained profits in respect of
depreciation on revalued assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    Transfer to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192
    
    
    
    
    
    
    
    
    
    
    
    (192
    )
    
    
    
    
    
    
    
    
    
    
    Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    
    
    
    
    (379
    )
    
    
    
    
    
    
    
    
    
    
    Equity-settled share option schemes:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    -Value of employee services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    56-Issuance of shares upon exercise of options
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Disposal of non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Issuance of convertible bonds (Note 22)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    572
    
    
    
    
    
    
    
    
    
    
    
    572
    
    
    
    
    
    
    
    572Dividends relating to 2009 (Note 37)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,770
    )
    
    
    (3,770
    )
    
    
    
    
    
    
    (3,770
    )Balance at December 31, 2010
    
    
    2,310
    
    
    
    173,436
    
    
    
    79
    
    
    
    623
    
    
    
    56
    
    
    
    (1,334
    )
    
    
    24,822
    
    
    
    572
    
    
    
    (43,091
    )
    
    
    48,368
    
    
    
    205,841
    
    
    
    
    
    
    
    205,841
   F-10




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (All amounts in RMB millions)
 Year ended December 31Note
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Cash flows from operating activitiesCash generated from continuing operations
    
    (a)
    
    
    67,794
    
    
    
    63,990
    
    
    
    69,260
    
    
    
    10,494Interest received
    
    
    
    
    269
    
    
    
    93
    
    
    
    148
    
    
    
    22Interest paid
    
    
    
    
    (3,011
    )
    
    
    (1,681
    )
    
    
    (2,025
    )
    
    
    (307
    )Income tax paid
    
    
    
    
    (7,811
    )
    
    
    (4,669
    )
    
    
    (1,039
    )
    
    
    (157
    )Net cash inflow from operating
activities of continuing operations
    
    
    
    
    57,241
    
    
    
    57,733
    
    
    
    66,344
    
    
    
    10,052Net cash inflow from operating
activities of discontinued operations
    
    36
    
    
    656
    
    
    
    
    
    
    
    
    
    
    
    Net cash inflow from operating activities
    
    
    
    
    57,897
    
    
    
    57,733
    
    
    
    66,344
    
    
    
    10,052Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    (54,496
    )
    
    
    (78,130
    )
    
    
    (75,555
    )
    
    
    (11,448
    )Proceeds from disposal of property,
plant and equipment and other assets
    
    
    
    
    573
    
    
    
    611
    
    
    
    375
    
    
    
    57Dividends received from
available-for-sale financial assets
    
    
    
    
    3
    
    
    
    177
    
    
    
    416
    
    
    
    63Consideration for purchase of entities
and businesses under common control
    
    
    
    
    (5,880
    )
    
    
    (3,896
    )
    
    
    
    
    
    
    Decrease/(increase) in short-term bank
deposits
    
    
    
    
    415
    
    
    
    (659
    )
    
    
    723
    
    
    
    110Purchase of other assets
    
    
    
    
    (1,641
    )
    
    
    (3,411
    )
    
    
    (2,573
    )
    
    
    (390
    )Net cash outflow from investing
activities of continuing operations
    
    
    
    
    (61,026
    )
    
    
    (85,308
    )
    
    
    (76,614
    )
    
    
    (11,608
    )Net cash inflow/(outflow) from investing
activities of discontinued operations
    
    36
    
    
    29,489
    
    
    
    (5,039
    )
    
    
    5,121
    
    
    
    776Net cash outflow from investing
activities
    
    
    
    
    (31,537
    )
    
    
    (90,347
    )
    
    
    (71,493
    )
    
    
    (10,832
    )
   F-11




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
 Year ended December 31Note
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Cash flows from financing activitiesProceeds from exercise of share options
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from commercial papers
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    22,928
    
    
    
    3,474Proceeds from short-term bank loans
    
    
    
    
    
    
    50,714
    
    
    
    96,204
    
    
    
    114,182
    
    
    
    17,300Proceeds from long-term bank loans
    
    
    
    
    
    
    2,888
    
    
    
    
    
    
    
    800
    
    
    
    120Proceeds from issuance of promissory notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,954
    
    
    
    2,266Proceeds from issuance of convertible bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,145
    
    
    
    1,840Proceeds from issuance of corporate bonds
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from related party loan
    
    
    
    
    
    
    6,284
    
    
    
    2,114
    
    
    
    
    
    
    
    Repayment of commercial papers
    
    
    
    
    
    
    (20,000
    )
    
    
    (10,000
    )
    
    
    
    
    
    
    Repayment of short-term bank loans
    
    
    
    
    
    
    (51,784
    )
    
    
    (43,075
    )
    
    
    (141,364
    )
    
    
    (21,418
    )Repayment of long-term bank loans
    
    
    
    
    
    
    (23,832
    )
    
    
    (1,406
    )
    
    
    (51
    )
    
    
    (8
    )Repayment of capital element of finance
lease payments
    
    
    
    
    
    
    (101
    )
    
    
    
    
    
    
    (36
    )
    
    
    (5
    )Repayment of related party loan
    
    
    
    
    
    
    (2,222
    )
    
    
    
    
    
    
    
    
    
    
    Payment of prior year profit transfer
    
    
    
    
    
    
    (101
    )
    
    
    (266
    )
    
    
    (64
    )
    
    
    (10
    )Consideration for off-market share repurchase
    
    
    
    
    
    
    
    
    
    
    (8,802
    )
    
    
    
    
    
    
    Dividends paid to owners of the parent
    
    
    37
    
    
    
    (6,082
    )
    
    
    (4,572
    )
    
    
    (3,670
    )
    
    
    (556
    )Net cash (outflow)/inflow from financing
activities of continuing operations
    
    
    
    
    
    
    (28,786
    )
    
    
    30,197
    
    
    
    19,824
    
    
    
    3,003Net cash outflow from financing activities
of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash (outflow)/inflow from financing
activities
    
    
    
    
    
    
    (28,786
    )
    
    
    30,197
    
    
    
    19,824
    
    
    
    3,003Net cash (outflow)/inflow from continuing
operations
    
    
    
    
    
    
    (32,571
    )
    
    
    2,622
    
    
    
    9,554
    
    
    
    1,447Net cash inflow/(outflow) from discontinued
operations
    
    
    36
    
    
    
    30,145
    
    
    
    (5,039
    )
    
    
    5,121
    
    
    
    776Net (decrease)/ increase in cash and cash
equivalents
    
    
    
    
    
    
    (2,426
    )
    
    
    (2,417
    )
    
    
    14,675
    
    
    
    2,223Cash and cash equivalents, beginning of year
    
    
    
    
    
    
    12,663
    
    
    
    10,237
    
    
    
    7,820
    
    
    
    1,185Cash and cash equivalents, end of year
    
    
    17
    
    
    
    10,237
    
    
    
    7,820
    
    
    
    22,495
    
    
    
    3,408Analysis of the balances of cash and cash
equivalents:Cash balances
    
    
    
    
    
    
    8
    
    
    
    7
    
    
    
    6
    
    
    
    1Bank balances
    
    
    
    
    
    
    10,229
    
    
    
    7,813
    
    
    
    22,489
    
    
    
    3,40710,237
    
    
    
    7,820
    
    
    
    22,495
    
    
    
    3,408
   F-12




---



##### Table of Contents



CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(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 312008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Income from continuing operations before income tax
    
    
    4,059
    
    
    
    12,277
    
    
    
    4,773
    
    
    
    723Adjustments for:Depreciation and amortization
    
    
    51,847
    
    
    
    47,587
    
    
    
    54,433
    
    
    
    8,247Interest income
    
    
    (265
    )
    
    
    (91
    )
    
    
    (142
    )
    
    
    (22
    )Finance costs
    
    
    2,999
    
    
    
    828
    
    
    
    1,736
    
    
    
    263Loss/(gain) on disposal of property, plant and
equipment and other assets
    
    
    239
    
    
    
    (91
    )
    
    
    (11
    )
    
    
    (2
    )Gain on non-monetary assets exchange
    
    
    (1,305
    )
    
    
    (38
    )
    
    
    (10
    )
    
    
    (2
    )Share-based compensation costs
    
    
    84
    
    
    
    27
    
    
    
    56
    
    
    
    8Provision for doubtful debts
    
    
    3,025
    
    
    
    2,355
    
    
    
    2,583
    
    
    
    391Impairment loss on property, plant and equipment
    
    
    12,494
    
    
    
    
    
    
    
    
    
    
    
    Realized gain on changes in fair value of derivative
financial instruments
    
    
    
    
    
    
    (1,239
    )
    
    
    
    
    
    
    Dividends from available-for-sale financial assets
    
    
    (3
    )
    
    
    (215
    )
    
    
    (485
    )
    
    
    (73
    )Changes in working capital:Increase in accounts receivable
    
    
    (2,044
    )
    
    
    (1,839
    )
    
    
    (3,044
    )
    
    
    (461
    )Increase in inventories and consumables
    
    
    (126
    )
    
    
    (1,320
    )
    
    
    (1,316
    )
    
    
    (199
    )Decrease/(increase) in other assets
    
    
    834
    
    
    
    (125
    )
    
    
    755
    
    
    
    114Decrease/(increase) in prepayments and other current
assets
    
    
    1,000
    
    
    
    (1,539
    )
    
    
    (868
    )
    
    
    (132
    )Decrease in amounts due from related parties
    
    
    116
    
    
    
    75
    
    
    
    3
    
    
    
    Decrease/(increase) in amounts due from domestic
carriers
    
    
    267
    
    
    
    (160
    )
    
    
    (127
    )
    
    
    (19
    )(Decrease)/increase in accounts payable and accrued
liabilities
    
    
    (1,935
    )
    
    
    3,480
    
    
    
    1,616
    
    
    
    248(Decrease)/increase in taxes payable
    
    
    (265
    )
    
    
    1,179
    
    
    
    1,328
    
    
    
    201Increase in advances from customers
    
    
    1,653
    
    
    
    4,805
    
    
    
    9,187
    
    
    
    1,392Decrease in deferred revenue
    
    
    (2,993
    )
    
    
    (1,639
    )
    
    
    (746
    )
    
    
    (113
    )Decrease in other obligations
    
    
    (767
    )
    
    
    (2,101
    )
    
    
    
    
    
    
    (Decrease)/increase in amounts due to ultimate
holding company
    
    
    (1,733
    )
    
    
    413
    
    
    
    (79
    )
    
    
    (12
    )(Decrease)/increase in amounts due to related parties
    
    
    (551
    )
    
    
    1,942
    
    
    
    (112
    )
    
    
    (17
    )Increase/(decrease) in amounts due to domestic
carriers
    
    
    396
    
    
    
    180
    
    
    
    (263
    )
    
    
    (40
    )Increase/(decrease) in payables in relation to
disposal of the CDMA business
    
    
    768
    
    
    
    (761
    )
    
    
    (7
    )
    
    
    (1
    )Cash generated from continuing operations
    
    
    67,794
    
    
    
    63,990
    
    
    
    69,260
    
    
    
    10,494
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CHINA UNICOM (HONG KONG) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(All amounts in RMB millions)
 (b)
    
    Major non-cash transactions:
 (i)
    
    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
for details.
 (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 33 for details.
 (iii)
    
    For the years ended December 31, 2008, 2009 and 2010, the Group replaced copper cables
in some fixed-line network infrastructure with optical fibers and related equipment. Some
of this replacement was done through non-monetary assets exchanges with suppliers, through
which optical fibers and related equipment were received in exchange for the Groups own
copper cables. The cost of the assets received was recorded at the fair value of the assets
surrendered. In 2010, the net book value and fair value of copper cables surrendered were
RMB18 million (2008: RMB805 million; 2009: RMB60 million) and RMB24 million (2008: RMB2,110
million; 2009:RMB98 million), respectively. A gain on the non-monetary assets exchange of
RMB6 million (2008: RMB1,305 million; 2009:RMB38 million) was recognized in the statement
of income for the year ended December 31, 2010.
 (c)
    
    Payables to equipment suppliers for construction-in-progress during 2010 decreased by
approximately RMB8.9 billion (2008: increased approximately RMB14.1 billion; 2009: increased
approximately RMB26.8 billion).
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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 ACTIVITIES
 China 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. The principal activities of the Company are investment holding.
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s subsidiaries are 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.
 The substantial shareholders of the Company are Unicom BVI and Netcom BVI. The majority of
equity interests in Unicom BVI is owned by China United Network Communications Limited (A Share
Company, a joint stock company incorporated in the PRC on December 31, 2001, with its A shares
listed on the Shanghai Stock Exchange on October 9, 2002). The majority of the equity interest
in A Share Company is owned by Unicom Group. Netcom BVI is a wholly-owned subsidiary of Unicom
Group. As a result, the directors of the Company consider Unicom Group to be the ultimate
holding company.
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##### Table of Contents



1.
    
    ORGANISATION AND PRINCIPAL ACTIVITIES (Continued)
 (a)
    
    Acquisitions of certain assets and businesses from Unicom Group and Netcom Group in
2009
 On 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 2009
 In 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 ended 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 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.
 On October 29, 2010, CUCL and Unicom New Horizon entered into a new network lease agreement
(2011-2012 Network Lease Agreement) to renew the Lease for a term of two years expiring on
December 31, 2012 on the same terms and conditions as the Network Lease Agreement dated
December 16, 2008, except that the annual fee payable by CUCL for the Lease for the two
financial years ending December 31, 2011 and 2012 is RMB2.4 billion and RMB2.6 billion,
respectively.
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##### Table of Contents



1.
    
    ORGANISATION AND PRINCIPAL ACTIVITIES (Continued)
 (c)
    
    Merger between CUCL and China Netcom (Group) Company Limited in 2009
 On 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 2008
 On 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.
  F-17




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##### Table of Contents



2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 The 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 Compliance
 These 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 Preparation
 The 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;
 
    
    additional capitalization of borrowing costs and corresponding impact on
depreciation prior to the adoption of CAS on January 1, 2007; and
 
    
    adjustments for deferred taxation in relation to IFRSs/HKFRSs adjustments.
  F-18




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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 (a)
    
    Business Combination of Entities and Businesses under Common Control and
Purchase of Target Assets
 The 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.
 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.
 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.
  F-19




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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 (b)
    
    Discontinued Operations
 On 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
year ended December 31, 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.
 For details, please refer to Note 36.
 (c)
    
    Going Concern Assumption
 As of December 31, 2010, current liabilities of the Group exceeded current assets by
approximately RMB156.0 billion (2009: approximately RMB169.2 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 inflows from operating activities;
 
    
    Revolving banking facilities of approximately RMB114.0 billion, of which
approximately RMB88.4 billion was unutilized as of December 31, 2010; 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 maintain reasonable financing costs
through appropriate financing portfolio.
 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, 2010 have been prepared under the going concern basis.
 (d)
    
    Critical Accounting Estimates and Judgment
 The 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)
 (e)
    
    New Accounting Standards, Amendments and Interpretations Pronouncements
 (i)
    
    The following new and amended IFRSs/HKFRSs are adopted by the Group
as of January 1, 2010
 
    
    IFRS/HKFRS 3 (revised), Business Combinations. The revised standard
continues to apply the acquisition method to business combinations with some
significant changes compared with IFRS/HKFRS 3. For example, all payments to
purchase a business are recorded at fair value at the acquisition date, with
contingent payments classified as debt subsequently re-measured through the
statement of comprehensive income. There is a choice on an
acquisition-by-acquisition basis to measure the non-controlling interests in the
acquiree either at fair value or at the non-controlling interests proportionate
share of the acquirees net assets. All acquisition-related costs should be
expensed. The revised standard does not have any significant impact on the
Groups financial statements, as it will be applied prospectively.
 
    
    IAS/HKAS 27 (revised), Consolidated and separate financial statements. The
revised standard requires the effects of all transactions with non-controlling
interests to be recorded in equity if there is no change in control and these
transactions will no longer result in goodwill or gains and losses. The standard
also specifies the accounting when control is lost. Any remaining interest in the
entity is remeasured to fair value, and the resulting gain or loss is recognized
in income or loss. The revised standard does not have any significant impact on
the Groups financial statements.
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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.2
    
    Basis of Preparation (Continued)
 (e)
    
    New Accounting Standards, Amendments and Interpretations Pronouncements
(Continued)
 (i)
    
    The following new and amended IFRSs/HKFRSs are adopted by the Group
as of January 1, 2010 (Continued)
 
    
    IASBs annual improvement project published in April 2009/HKICPAs improvements
to HKFRS published in May 2009
 
    
    IAS/HKAS 1 (Amendment), Presentation of financial statements. Regarding
the liability component of convertible instruments, it clarifies that the
holders option which will result in the settlement by the issuance of equity
instruments, is not relevant to its classification as current or non-current.
By amending the definition of current liability, the amendment permits a
liability to be classified as non-current (provided that the entity has an
unconditional right to defer settlement by transfer of cash or other assets
for at least 12 months after the accounting period) notwithstanding the fact
that the entity could be required by the counterparty to settle in shares at
any time.
 
    
    IAS/HKAS 17 (Amendment), Leases. 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.
 
    
    IAS/HKAS 36 (Amendment), Impairment of assets. 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).
 
    
    IAS/HKAS 38 (Amendment), Intangible assets. 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.
 The adoption of the IASBs/HKICPAs improvements does not have a
significant 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)
 (e)
    
    New Accounting Standards, Amendments and Interpretations Pronouncements
(Continued)
 (ii)
    
    The following new and amended IFRSs/HKFRSs are not yet effective and
have not been early adopted by the Group
 
    
    IFRIC/HK (IFRIC)  Int 19, Extinguishing financial liabilities with equity
instruments (effective for annual periods beginning on or after July 1, 2010).
The interpretation clarifies the accounting by an entity when the terms of a
financial liability are renegotiated and result in the entity issuing equity
instruments to a creditor of the entity to extinguish all or part of the financial
liability (debt for equity swap). It requires a gain or loss to be recognized in
income or loss, which is measured as the difference between the carrying amount of
the financial liability and the fair value of the equity instruments issued. If
the fair value of the equity instruments issued cannot be reliably measured, the
equity instruments should be measured to reflect the fair value of the financial
liability extinguished. The Group will apply the interpretation from January 1,
2011 and is currently evaluating the impact of adopting such interpretation on the
Groups consolidated financial statements.
 
    
    IFRS/HKFRS 9, Financial instruments: Classification and measurement
(effective January 1, 2013). It replaces the parts of IAS/HKAS 39 that relate to
the classification and measurement of financial assets. IFRS/HKFRS 9 requires
financial assets to be classified into two measurement categories: those measured
as at fair value and those measured at amortized cost. The determination is 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. In addition, classification and measurement
requirements for financial liabilities and the derecognition requirements for
financial instruments has been relocated from IAS/HKAS 39 without change, except
for financial liabilities that are designated at fair value through income or loss
and the cost exemption is removed for derivative liabilities linked to unquoted
equity instruments. The Group early adopted this standard in 2011. Upon adoption
of this standard, the balance of available-for-sale fair value reserve was
transferred to investment revaluation reserve. The Company made an irrevocable
election upon initial adoption of the standard to recognize changes in fair value
of available-for-sale financial assets only through other comprehensive
income/loss, there will be no subsequent recycling of fair value gains and losses
to the statement of income. Upon adoption, IFRS/HKFRS 9 will be applied retrospectively to all
periods presented.
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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.3
    
    Consolidation
 The consolidated financial statements include the financial statements of the Company and
all of its subsidiaries made up to December 31.
 (a)
    
    Subsidiaries
 Subsidiaries 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.
 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. Acquisition-related costs are expensed as incurred.
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 non-controlling 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 IFRSs in 2008, 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.
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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.3
    
    Consolidation (Continued)
 (b)
    
    Non-controlling interests
 Non-controlling 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 owners of the parent. Non-controlling 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 non-controlling interests
and owners of the parent.
 The Group treats transactions with non-controlling interests as transactions with
equity owners of the Group. For purchases from non-controlling interests, the
difference between any consideration paid and the relevant share acquired of the
carrying value of net assets of the subsidiary is recorded in equity. Gains or losses
on disposals to non-controlling interests are also recorded in equity.
 When the Group ceases to have control or significant influence, any retained interest
in the entity is remeasured to its fair value, with the change in carrying amount
recognized in income or loss. The fair value is the initial carrying amount for the
purposes of subsequently accounting for the retained interest as an associate, joint
venture or financial asset. In addition, any amounts previously recognized in other
comprehensive income in respect of that entity are accounted for as if the Group had
directly disposed of the related assets or liabilities. This may mean that amounts
previously recognized in other comprehensive income are reclassified to income or loss.
 The Group has changed its accounting policy for transactions with non-controlling
interests and the accounting for loss of control or significant influence from January
1, 2010 when revised IAS/HKAS 27, Consolidated and separate financial statements,
became effective. The revision to IAS/HKAS 27 contained consequential amendments to
IAS/HKAS 28, Investments in associates, and IAS/HKAS 31, Interests in joint
ventures.
 Previously, transactions with non-controlling interests were treated as transactions
with parties external to the Group. Disposals therefore resulted in gains or losses in
income or loss and purchases resulted in the recognition of goodwill. On disposal or
partial disposal, a proportionate interest in reserves attributable to the subsidiary
was reclassified to income or loss or directly to retained profits.
 Previously, when the Group ceased to have control or significant influence over an
entity, the carrying amount of the investment at the date of loss of control or
significant influence became its cost for the purposes of subsequently accounting for
the retained interests as associates, jointly controlled entity or financial assets.
 The Group has applied the new policy prospectively to transactions occurring on or
after January 1, 2010. As a consequence, no adjustments were necessary to any of the
amounts previously recognized in the financial statements.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.4
    
    Segment Reporting
 Operating segments are reported in a manner consistent with the internal reporting
provided to the chief operating decision-maker (CODM). 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 currency
 Items 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 balances
 Foreign 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 companies
 The 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.
 On consolidation, exchange differences arising from the translation of the net
investment in foreign operations, and of borrowings and other currency instruments
designated as hedges of such investments, are taken to shareholders equity. When a
foreign operation is sold, such exchange differences are recognized in the statement of
income as part of the gain or loss on disposal.
 For the convenience of the reader, the translation of RMB into United States dollars
(US$) has been made at the rate of RMB6.6000 to US$1.00, representing the rate as
certified by the H.10 weekly statistical release of Federal Reserve Board on December
31, 2010.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.6
    
    Property, Plant and Equipment
 (a)
    
    Construction-in-progress
 Construction-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)
    
    Buildings
 Buildings 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 equipment
 Other 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)
    
    Depreciation
 Depreciation 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 equipment
 Gains or losses on disposal of 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
    
    Goodwill
 Goodwill 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 Prepayments
 Lease 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 Assets
 Other assets mainly represent (i) capitalized direct incremental costs for activating
mobile subscribers; (ii) capitalized installation costs of Fixed-line business; (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 receivables
 Loans 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 assets
 Available-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.
 2.10.2
    
    Recognition and measurement
 Available-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 Assets
 Assets 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 receivables
 The 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 assets
 The 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 Consumables
 Inventories, 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 Receivables
 Accounts 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 Deposits
 Short-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 Equivalents
 Cash 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 Bonds
 Compound financial instruments issued by the Group comprise convertible bonds that can be
converted to share capital at the option of the holder, and the number of shares to be
issued does not vary with changes in their fair value.
 The liability component of convertible bonds is recognized initially at the fair value of
a similar liability that does not have an equity conversion option. The equity component
is recognized initially at the difference between the fair value of the convertible bonds
as a whole and the fair value of the liability component. Any directly attributable
transaction costs are allocated to the liability and equity components in proportion to
their initial carrying amounts.
 Subsequent to initial recognition, the liability component of convertible bonds is
measured at amortized cost using the effective interest method. The equity component of a
convertible bond is not re-measured subsequent to initial recognition except on conversion
or expiry.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.18
    
    Deferred Revenue, Advances from Customers and Subscriber Point Rewards Program
 (a)
    
    Deferred revenue
 Deferred 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 customers
 Advances from customers are amounts paid by customers for prepaid cards, other
calling cards and prepaid service fees, which cover future telecommunications
services. Advances from customers are stated at the amount of proceeds received
less the amount already recognized as revenue upon the rendering of services.
 (c)
    
    Subscriber point rewards program
 The 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
    
    Borrowings
 Borrowings 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 Capital
 Ordinary 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 owners of the parent and no gain or loss
shall be recognized in the statement of income. The par value of the Companys shares
cancelled is transferred from share capital to the capital redemption reserve.
 2.21
    
    Employee Benefits
 (a)
    
    Retirement benefits
 The 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 benefits
 Early retirement benefits are recognized as expenses when the Group reaches agreement
with the relevant employees for early retirement.
 (c)
    
    Housing benefits
 One-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 costs
 The 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 grant
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)
 (d)
    
    Share-based compensation costs (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 Payable
 Accounts 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
    
    Provisions
 Provisions 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 Operations
 A 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.
 2.25
    
    Revenue Recognition
 Revenue 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;
 
    
    Revenue from the provision of broadband, data and other
Internet-related 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)
 
    
    The Group offers promotional packages to the customers which include
the bundled sale of mobile handset and provision of service. Prior to the fourth
quarter of 2010, the Group determined the amount of revenue allocated to the
handset using the residual value method. Under such method, the Group determined
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 recognised
revenue related to the sale of the handset when the title is passed to the
customer whereas service revenue was recognized based upon the actual usage of
mobile services. The cost of the mobile handset sold was expensed immediately to the
statement of income.
 During 2010, the Group has offered preferential promotional packages with more
attractive terms to new subscribers, and more new subscribers were developed under
such preferential packages during the year. In order to provide reliable and more
relevant information to users of the financial statements, starting from the fourth
quarter of 2010, the Group determined to adopt the accounting policy of relative
fair value method retrospectively from January 1, 2010 to account for such
preferential promotional packages, considering that each deliverable in the
promotional packages has standalone value to the customer and there is objective
and reliable evidence of the fair value regarding each deliverable in the services
packages. Under the relative fair value method, the total contract consideration of
such preferential packages is allocated to service revenue and sales of handsets
based on their relative fair values. The Group recognizes revenue relating to the
sale of the handset when the title is passed to the customer whereas service
revenue is recognised based upon the actual usage of mobile services. The cost of
the mobile handset sold is expensed immediately to the statement of income upon revenue
recognition.
 This change in accounting policy resulted in an increase in the Groups revenue,
income before income tax, net income and earnings per share of RMB3,208 million,
RMB3,208 million, RMB2,406 million and RMB0.11, respectively, for the year ended
December 31, 2010; and a decrease in advance from customers of RMB3,317 million as
of December 31, 2010. In addition, this change in accounting policy resulted in an
increase in the Groups revenue, income before income tax, income for the period
and earnings per share of RMB527 million, RMB527 million, RMB396 million and
RMB0.02, respectively, for the six months ended June 30, 2010 (unaudited); and a
decrease in advance from customers of RMB545 million as of June 30, 2010
(unaudited). The above change in accounting policy did not have significant impact
on the financial statements for the years ended December 31,
2009 and 2008, and accordingly,
the Group did not restate the comparative figures.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.25
    
    Revenue Recognition (Continued)
 (a)
    
    Sales of services and goods (Continued)
 
    
    Revenue from information communications technology services are recognized when
goods are delivered to the customers (which generally coincides with the time when
the customers have accepted the goods and the related risks and rewards of
ownership have been transferred to the customers) or when services are rendered to
the customers using the percentage of completion method when the outcome
of the services provided can be estimated reliably. If the outcome of the services
provided cannot be estimated reliably, the treatment should be as follows: (i) if
it is probable that the costs incurred for the services provided is recoverable,
services revenue should be recognized only to the extent of recoverable costs
incurred, and costs should be recognized as current expenses in the period in
which they are incurred; (ii) if it is probable that costs incurred will not be
recoverable, costs should be recognized as current expenses immediately and
services revenue should not be recognized.
 (b)
    
    Interest income
 Interest income from deposits in banks or other financial institutions is recognized on
a time proportion basis, using the effective interest method.
 (c)
    
    Dividend income
 Dividend income is recognized when the right to receive payment is established.
 2.26
    
    Leases (as the lessee)
 (a)
    
    Operating lease
 Leases 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 lease
 Leases 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.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 2.27
    
    Borrowing Costs (Continued)
 Borrowing costs are expensed as incurred, except for interest directly attributable to the
acquisition, construction or production of an asset that necessarily takes a substantial
period of time to get ready for its intended use, in which case they are capitalized as
part of the cost of that asset. Capitalization of borrowing costs commences when
expenditures for the asset and borrowing costs are being incurred and the activities to
prepare the asset for its intended use are in progress. Borrowing costs are capitalized up
to the date when the project is completed and ready for its intended use.
 To the extent that funds are borrowed specifically for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalization is determined
at the actual borrowing costs incurred on that borrowing during the period less any
investment income on the temporary investment of those borrowings.
 To the extent that funds are borrowed generally and used for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalization is determined
by applying a capitalization rate to the expenditures on that asset. The capitalization
rate is the weighted average of the borrowing costs applicable to the borrowings of the
Group that are outstanding during the period, other than borrowings made specifically for
the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized
during a period should not exceed the amount of borrowing cost incurred during that
period. Other borrowing costs are recognized as expenses when incurred.
 2.28
    
    Taxation
 (a)
    
    Current income tax
 The 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 tax
 Deferred 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 income 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
    
    Dividend Distribution
 Dividend 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.
 2.30
    
    Contingent Liabilities and Contingent Assets
 A 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.
 2.31
    
    Earnings per Share and per American Depositary Share (ADS)
 Basic earnings per share is computed by dividing the income attributable to owners of the
parent by the weighted average number of ordinary shares outstanding during the year.
 Diluted earnings per share is computed by dividing the income attributable to owners of
the parent 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 factors
 The Groups operating activities expose it to a variety of financial risks: market risk
(including foreign exchange risk, price risk, cash flow 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 risk
 The 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, 2010 and 2009, the Group had cash and cash equivalents and
short-term bank deposits denominated in foreign currencies amounting to RMB12,467
million and RMB1,545 million, respectively. As of December 31, 2010 and 2009, the
Group had borrowings, convertible bonds and other obligations under finance lease
included in other obligations denominated in foreign currencies amounting to
RMB25,407 million and RMB11,859 million, respectively.
 As of December 31, 2010, 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 RMB1,294 million (2009: exchange
losses/gains of approximately RMB1,031 million; 2008:
exchange
losses/gains of approximately RMB22 million) for cash and cash equivalents,
short-term bank deposits, borrowings, convertible bonds and other obligations under
finance lease included in other obligations 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 risk
 The 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, 2010, if the share price of Telefónica had changed
by 10%, while all other variables are held constant, the Group would have recorded
additional change in fair value of approximately RMB609 million in
available-for-sale fair value reserve.
 (iii)
    
    Cash flow and fair value interest rate risk
 The 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 mainly arises from interest-bearing borrowings
including bank loans, commercial papers, promissory notes, convertible
bonds, corporate bonds,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 2010 and 2009, the Groups borrowings were mainly at fixed rates
and 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 2010 and 2009.
 As of December 31, 2010, the Group had approximately RMB60,092 million (2009:
approximately RMB62,925 million) of bank loans, commercial papers, promissory
notes, convertible bonds, corporate bonds and other obligations under
finance lease included in other obligations at fixed rates and approximately
RMB36,950 million (2009: approximately RMB10,909 million) of bank loans and related
party loan at floating rates.
 For the year ended December 31, 2010, 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 RMB27 million
(2008: approximately RMB125 million; 2009: approximately RMB3 million).
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3.
    
    FINANCIAL RISK MANAGEMENT (Continued)
 3.1
    
    Financial risk factors (Continued)
 (b)
    
    Credit risk
 Credit 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, 2009 and 2010:
 2009
    
    
    2010Short-term bank depositsState-owned banks in the PRC
    
    
    861
    
    
    
    131Other banks
    
    
    135
    
    
    
    142996
    
    
    
    273Cash and cash equivalentsState-owned banks in the PRC
    
    
    7,485
    
    
    
    21,937Other banks
    
    
    335
    
    
    
    5587,820
    
    
    
    22,495
 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.
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3.
    
    FINANCIAL RISK MANAGEMENT (Continued)
 3.1
    
    Financial risk factors (Continued)
 (c)
    
    Liquidity risk
 Prudent liquidity risk management includes maintaining sufficient cash and availability
of funds including raising of bank loans, and issuance of commercial papers, promissory
notes, corporate bonds and convertible 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.
 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, 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
    
    
    
    2,851At December 31, 2010Long-term bank loans
    
    
    103
    
    
    
    94
    
    
    
    1,004
    
    
    
    533Corporate bonds
    
    
    355
    
    
    
    355
    
    
    
    5,535
    
    
    
    2,180Convertible bonds
    
    
    91
    
    
    
    91
    
    
    
    12,452
    
    
    
    Promissory notes
    
    
    509
    
    
    
    509
    
    
    
    15,510
    
    
    
    Other obligations
    
    
    2,640
    
    
    
    92
    
    
    
    27
    
    
    
    47Accounts payable and accrued liabilities
    
    
    94,928
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to related parties
    
    
    5,191
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to ultimate holding company
    
    
    229
    
    
    
    
    
    
    
    
    
    
    
    Amounts due to domestic carriers
    
    
    873
    
    
    
    
    
    
    
    
    
    
    
    Commercial papers
    
    
    23,621
    
    
    
    
    
    
    
    
    
    
    
    Short-term bank loans
    
    
    37,319
    
    
    
    
    
    
    
    
    
    
    
    165,859
    
    
    
    1,141
    
    
    
    34,528
    
    
    
    2,760
 Regarding the Groups use of the going concern basis for the preparation of its
financial statements, please refer to Note 2.2(c) 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 non-controlling interests over interest bearing
debts plus total equity. Interest bearing debts represent commercial papers, short-term
bank loans, long-term bank loans, promissory notes, convertible bonds, corporate bonds,
obligations under finance lease included in other obligations, notes payables (included in
accounts payable and accrued liabilities) and certain amounts due to related parties, as
shown in the consolidated balance sheet. Total equity represents equity attributable to
owners of the parent plus non-controlling interests 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, 2009 and 2010 are as
follows:
 2009
    
    
    2010Interest bearing debts:- Commercial papers
    
    
    
    
    
    
    23,000- Short-term bank loans
    
    
    63,909
    
    
    
    36,727- Promissory notes
    
    
    
    
    
    
    15,000- Long-term bank loans
    
    
    759
    
    
    
    1,462- Convertible bonds
    
    
    
    
    
    
    11,558- Corporate bonds
    
    
    7,000
    
    
    
    7,000- Obligation under finance lease
    
    
    103
    
    
    
    78- Amounts due to related parties
    
    
    2,104
    
    
    
    2,033- Notes payables included in accounts payable and
accrued liabilities
    
    
    500
    
    
    
    - Current portion of long-term bank loans
    
    
    62
    
    
    
    58- Current portion of obligation under finance lease
    
    
    26
    
    
    
    12674,463
    
    
    
    97,042Non-controlling interests
    
    
    2
    
    
    
    Interest bearing debts plus non-controlling interests
    
    
    74,465
    
    
    
    97,042Total equity:- Equity attributable to owners of the parent
    
    
    206,465
    
    
    
    205,841- Non-controlling interests
    
    
    2
    
    
    
    206,467
    
    
    
    205,841Interest bearing debts plus total equity
    
    
    280,930
    
    
    
    302,883Debt-to-capitalization ratio
    
    
    26.5
    %
    
    
    32.0
    %
 The increase in debt-to-capitalization ratio during 2010 resulted primarily from the
issuance of commercial papers, promissory notes and convertible bonds to finance the
telecommunications networks construction which partially offset by repayment of short-term
bank loans.
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3.
    
    FINANCIAL RISK MANAGEMENT (Continued)
 3.3
    
    Fair value estimation
 The table below analyzes financial instruments carried at fair value, by valuation method.
The different levels have been defined as follows:
 
    
    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 following table presents the Groups assets that are measured at fair value at
December 31, 2010:
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAvailable-for-sale financial assets- Equity securities
    
    
    6,214
    
    
    
    
    
    
    
    
    
    
    
    6,214
 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 years ended December 31, 2009 and 2010, there were no transfers of financial
instruments between Level 1 and Level 2 of the fair value hierarchy.
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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 equipment
 Depreciation 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 equipment
 Property, 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 revalued property, plant and
equipment are materially different from their carrying amounts. If the revalued amounts
differ significantly from the carrying amounts of such equipment in the future, the
carrying amounts will be adjusted to the revalued amounts. The key assumptions made to
determine the revalued amounts include the estimated replacement costs and the estimated
useful lives of the equipment. This will have an impact on the Groups future results,
since any subsequent decreases in valuation are first set off against increases on
earlier valuations in respect of the same item and thereafter are charged as an expense
to the statement of income and any subsequent increases are credited as income to the
statement of income up to the amount previously charged to the statement of income and
thereafter are credited to equity. In addition, the depreciation expenses in future
periods will change as the carrying amounts of such equipment change as a result of the
revaluation.
 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, 2010.
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4.
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
 4.1
    
    Critical accounting estimates and assumptions (Continued)
 (c)
    
    Impairment of non-financial assets
 The Group tests whether non-financial 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-financial 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-financial assets.
 Impairment loss on property, plant and equipment of RMB12,494 was recognized for the
year ended December 31, 2008. No impairment loss was recognized for the years ended
December 31, 2008 and 2009. For details, please refer to Note 6.
 (d)
    
    Provision for doubtful debts
 Accounts 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.
  F-49




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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 taxation
 The 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 unrecognized revaluation surplus on property, plant and equipment under
PRC regulations, impairment loss on property, plant and equipment, 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
RMB4,840 million as of December 31, 2010 (2009: approximately RMB5,202 million).
Deferred tax assets are recognized based on the Groups estimates and assumptions that
they will be recovered from taxable income arising from continuing operations in the
foreseeable future.
 The Group believes it has recorded adequate current tax provision and deferred taxes
based on the prevailing tax rules and regulations and its current best estimates and
assumptions. In the event that future tax rules and regulations or related circumstances
change, adjustments to current and deferred taxation may be necessary which would impact
the Groups results or financial position.
  F-50




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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 costs
 The Group defers and amortizes upfront activation fees of SIM/USIM cards of the Mobile
business over the expected customer service period of 3 years (2008: approximately 3
years; 2009: 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 (2008:
approximately 10 years; 2009: 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 revenue and direct incremental costs may change for
future periods.
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4.
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
 4.2
    
    Critical judgments in applying the Groups accounting policies (Continued)
 (b)
    
    2009 Business Combination
 The 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.
 When applying the merger accounting/predecessor values method to account for 2009
Business Combination, the Group included all the assets and liabilities, revenue and
expenses associated with the Target Business and the Telecommunications Networks in
Southern China in the consolidated balance sheet and the consolidated statement of
income throughout the periods presented. 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 reflect the economic substance that the
Group has not taken on the risks and rewards associated with the property, plant and
equipment and related assets and liabilities relating to the Fixed-line business in
Southern China, the Group is deemed to have disposed of the assets not acquired and
liabilities not assumed and has recorded the deemed disposal of these assets and
liabilities as a distribution from reserves by the Group to Unicom Group upon the
completion of the 2009 Business Combination effective from January 2009.
 Subsequent to the completion of the 2009 Business Combination, the Group recorded
leasing fees amounting to approximately RMB2.2 billion (2009: RMB2.0 billion) charged
by Unicom New Horizon for the lease of the Telecommunications Networks in Southern
China for the year ended December 31, 2010 (Note 4.2(c)).
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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 China
 Pursuant to the Network Lease Agreement dated December 16, 2008 (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. In addition, at
the inception of the Network Lease Agreement, there was a high degree of uncertainty
related to the market condition and operating results of the fixed line business in
Southern China. It was highly uncertain whether the Group would continue to lease the
network in the future, and was also unable to determine whether or not it would
exercise the purchase option in future. Given these uncertainties and due to the fact
that the risks associated with the ownership of the Telecommunications Networks in
Southern China substantially remained with Unicom New Horizon, accordingly, the Group
accounted for the leasing of the Telecommunications Networks in Southern China as an
operating lease. The operating lease expense was recorded in the consolidated statement
of income for the years ended December 31, 2009 and 2010, but the carrying value of the
Telecommunications Networks in Southern China and the related liabilities were not
reflected in the consolidated balance sheets as of December 31, 2009 and 2010.
 At the beginning of each lease term, the Group assesses the appropriate
classification based on the relevant factors and circumstances at that time. The
2011-2012 Network Lease Agreement has a term of two years expiring on December 31, 2012
on the same terms and conditions as the Network Lease Agreement, except that the annual
fee payable by CUCL for such lease for the two years ending December 31, 2011 and 2012
is RMB2.4 billion and RMB2.6 billion, respectively. At the time of entering the
2011-2012 Network Lease Agreement, the Group still believed the uncertainties of the
fixed line business in Southern China continue to exist, particularly due to the fact
that (i) the growth of the fixed line business in Southern China was not significant;
(ii) the uncertainty of the future success of the Fixed-line business in Southern China
arising from keen market competition; and (iii) the uncertainty in the future changes
in technology, technological standards and government regulatory environment.
Accordingly, at the inception of the 2011-2012 Network Lease Agreement, the Group was
still unable to determine whether it would renew the lease after the initial two-year
lease term or whether it would exercise the purchase option. As a result, the Group
considered the risks associated with the ownership of the Telecommunications Networks
in Southern China still substantially remain with Unicom New Horizon, and concluded the
leasing of Telecommunications Networks in Southern China in accordance with the
2011-2012 Network Lease Agreement will be accounted for as an operating lease.
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4.
    
    CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (Continued)
 4.2
    
    Critical judgments in applying the Groups accounting policies (Continued)
 (d)
    
    Impairment of available-for-sale financial assets
 The 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
available-for-sale equity investments are impaired, the accumulated reduction in fair
value will be reclassified from equity to the statement of income as impairment loss of
available-for-sale financial assets. The Group considers all available relevant
factors, including the fair value of the shares, the period of the decline of fair
value, exchange rate and share price volatility and future business prospects, when
determining whether there is any impairment.
 As of December 31, 2010, the Groups available-for-sale financial assets are
principally the equity investment in Telefónica (Refer to Note 33 for details). The net
decline in fair value during 2010 was partially due to the depreciation of Euro against
RMB of approximately 10% in 2010. In addition, the quoted Euro market price of
Telefónica shares experienced fluctuations as a result of the credit rating downgrades
for certain Euro zone countries in the middle of 2010. The Euro share price of
Telefónica increased and exceeded the initial Euro share value in a certain period
during the third quarter of 2010 but it had decreased on a net basis by approximately
13% for the year 2010. Subsequently, during the period from
January 1, 2011 to May 24, 2011, there was an appreciation of Euro against RMB of
approximately 4%, and a decrease in share price in Euro of
approximately 2%, as compared to December 31, 2010.
 In addition, the Group received cash dividends of RMB209 million and RMB480
million from this strategic investment for the years ended December 31, 2009 and 2010,
respectively. Based on the judgment of the Group, the observed decline in the fair
value below the cost of the equity investments in Telefónica was not considered to be
significant or prolonged, in light of the ongoing exchange rate and share price
volatility, the solid operating results and business prospects of Telefónica, its
regular dividend distribution and strategic relationships with the Group, and therefore
did not indicate any impairment as of December 31, 2010.
  F-54




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5.
    
    SEGMENT INFORMATION
 The 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.
 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.
 Revenues between segments are carried out on terms comparable to those transactions conducted
with third parties 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.
  F-55




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##### Table of Contents



5.
    
    SEGMENT INFORMATION (Continued)
 5.1
    
    Operating Segments (Continued)
 2008Continuing 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
    )
    
    
    (31,668
    )
    
    
    (50,219
    )
    
    
    (1,628
    )
    
    
    
    
    
    
    (51,847
    )
    
    
    (411
    )
    
    
    (52,258
    )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
    )
    
    
    (14,150
    )
    
    
    (23,204
    )
    
    
    (15,746
    )
    
    
    953
    
    
    
    (37,997
    )
    
    
    (8,966
    )
    
    
    (46,963
    )Finance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,983
    )
    
    
    714
    
    
    
    (3,269
    )
    
    
    (6
    )
    
    
    (3,275
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    979
    
    
    
    (714
    )
    
    
    265
    
    
    
    10
    
    
    
    275Impairment loss on property, plant and
equipment
    
    
    
    
    
    
    (12,494
    )
    
    
    (12,494
    )
    
    
    
    
    
    
    
    
    
    
    (12,494
    )
    
    
    
    
    
    
    (12,494
    )Other income  net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,141
    
    
    
    
    
    
    
    2,141
    
    
    
    22
    
    
    
    2,163Segment income/(loss) before income tax
    
    
    24,759
    
    
    
    27,517
    
    
    
    52,276
    
    
    
    (48,157
    )
    
    
    (60
    )
    
    
    4,059
    
    
    
    1,907
    
    
    
    5,966Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,828
    )
    
    
    (469
    )
    
    
    (2,297
    )Gain on disposal of the CDMA business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,135
    
    
    
    26,135Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,231
    
    
    
    27,573
    
    
    
    29,804Attributable to:Owners of the parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,232
    
    
    
    27,572
    
    
    
    29,804Non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    2,231
    
    
    
    27,573
    
    
    
    29,804Other 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
    
    
    
    37,774
    
    
    
    71,626
    
    
    
    5,471
    
    
    
    
    
    
    
    77,097
    
    
    
    
    
    
    
    77,097
  F-56




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##### Table of Contents



5.
    
    SEGMENT INFORMATION (Continued)
 5.1
    
    Operating Segments (Continued)
 2009Reconciling itemsMobile
    
    
    Fixed-line
    
    
    
    
    
    
    Unallocatedbusiness
    
    
    business
    
    
    Subtotal
    
    
    amounts
    
    
    Eliminations
    
    
    TotalTelecommunications 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
    )
    
    
    (7,780
    )
    
    
    (10,276
    )
    
    
    (13,471
    )
    
    
    19
    
    
    
    (23,728
    )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
    )
    
    
    91Realized 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:Owners of the parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,556Non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
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##### Table of Contents



5.
    
    SEGMENT INFORMATION (Continued)
 5.1
    
    Operating Segments (Continued)
 2010Reconciling itemsMobile
    
    
    Fixed-line
    
    
    
    
    
    
    Unallocatedbusiness
    
    
    business
    
    
    Subtotal
    
    
    amounts
    
    
    Eliminations
    
    
    TotalTelecommunications service revenue
    
    
    82,362
    
    
    
    78,896
    
    
    
    161,258
    
    
    
    737
    
    
    
    
    
    
    
    161,995Information communication technology
services and other revenue
    
    
    15
    
    
    
    1,046
    
    
    
    1,061
    
    
    
    955
    
    
    
    
    
    
    
    2,016Sales of telecommunications products
    
    
    7,173
    
    
    
    114
    
    
    
    7,287
    
    
    
    
    
    
    
    
    
    
    
    7,287Total revenue from external customers
    
    
    89,550
    
    
    
    80,056
    
    
    
    169,606
    
    
    
    1,692
    
    
    
    
    
    
    
    171,298Intersegment revenue
    
    
    205
    
    
    
    4,233
    
    
    
    4,438
    
    
    
    742
    
    
    
    (5,180
    )
    
    
    Total revenue
    
    
    89,755
    
    
    
    84,289
    
    
    
    174,044
    
    
    
    2,434
    
    
    
    (5,180
    )
    
    
    171,298Interconnection charges
    
    
    (14,452
    )
    
    
    (3,706
    )
    
    
    (18,158
    )
    
    
    
    
    
    
    4,431
    
    
    
    (13,727
    )Depreciation and amortization
    
    
    (23,358
    )
    
    
    (28,830
    )
    
    
    (52,188
    )
    
    
    (2,317
    )
    
    
    72
    
    
    
    (54,433
    )Networks, operations and support expenses
    
    
    (3,102
    )
    
    
    (9,409
    )
    
    
    (12,511
    )
    
    
    (13,876
    )
    
    
    4
    
    
    
    (26,383
    )Employee benefit expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,517
    )
    
    
    190
    
    
    
    (23,327
    )Other operating expenses
    
    
    (22,056
    )
    
    
    (8,491
    )
    
    
    (30,547
    )
    
    
    (18,032
    )
    
    
    310
    
    
    
    (48,269
    )Finance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,985
    )
    
    
    236
    
    
    
    (1,749
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    378
    
    
    
    (236
    )
    
    
    142Other income  net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,221
    
    
    
    
    
    
    
    1,221Segment income/(loss) before income tax
    
    
    26,787
    
    
    
    33,853
    
    
    
    60,640
    
    
    
    (55,694
    )
    
    
    (173
    )
    
    
    4,773Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (922
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,851Attributable to:Owners of the parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,851Non-controlling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,851Other information:Provision for doubtful debts
    
    
    (1,927
    )
    
    
    (649
    )
    
    
    (2,576
    )
    
    
    (7
    )
    
    
    
    
    
    
    (2,583
    )Capital expenditures for segment assets (a)
    
    
    29,620
    
    
    
    34,393
    
    
    
    64,013
    
    
    
    6,176
    
    
    
    
    
    
    
    70,189
  F-58




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##### Table of Contents



5.
    
    SEGMENT INFORMATION (Continued)
 5.1
    
    Operating Segments
 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
 December 31, 2010Fixed-
    
    
    
    
    
    
    Reconciling itemsMobile
    
    
    line
    
    
    
    
    
    
    Unallocatedbusiness
    
    
    business
    
    
    Subtotal
    
    
    amounts
    
    
    Eliminations
    
    
    TotalTotal segment assets
    
    
    170,839
    
    
    
    225,769
    
    
    
    396,608
    
    
    
    46,446
    
    
    
    (1,601
    )
    
    
    441,453Total segment liabilities
    
    
    74,141
    
    
    
    48,386
    
    
    
    122,527
    
    
    
    114,184
    
    
    
    (1,099
    )
    
    
    235,612
 (a)
    
    Capital expenditures under unallocated amounts represent capital expenditures on
common facilities, which benefit all operating segments.
  F-59




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##### Table of Contents



6.
    
    PROPERTY, PLANT AND EQUIPMENTThe movement of property, plant and equipment for the years ended December 31, 2009 and 2010 is
as follows:
 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
    
    
    48,160
    
    
    
    163,279
    
    
    
    382,091
    
    
    
    39,035
    
    
    
    1,975
    
    
    
    44,995
    
    
    
    679,535Additions
    
    
    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
    )Effect of 2009
Business Combination
    
    
    (2,472
    )
    
    
    
    
    
    
    (36,948
    )
    
    
    (841
    )
    
    
    (317
    )
    
    
    (4,124
    )
    
    
    (44,702
    )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
    
    
    (13,561
    )
    
    
    (95,942
    )
    
    
    (230,949
    )
    
    
    (22,406
    )
    
    
    (1,021
    )
    
    
    (110
    )
    
    
    (363,989
    )Charge for the year
    
    
    (1,859
    )
    
    
    (12,286
    )
    
    
    (27,693
    )
    
    
    (4,077
    )
    
    
    (327
    )
    
    
    
    
    
    
    (46,242
    )Disposals
    
    
    286
    
    
    
    10,387
    
    
    
    1,969
    
    
    
    930
    
    
    
    251
    
    
    
    
    
    
    
    13,823Effect of 2009 Business
Combination
    
    
    476
    
    
    
    
    
    
    
    13,467
    
    
    
    416
    
    
    
    188
    
    
    
    78
    
    
    
    14,625Impairment 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
    
    
    34,599
    
    
    
    67,337
    
    
    
    151,142
    
    
    
    16,629
    
    
    
    954
    
    
    
    44,885
    
    
    
    315,546
  F-60




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##### Table of Contents



6.
    
    PROPERTY, PLANT AND EQUIPMENT (Continued)
 2010OfficeTele-
    
    
    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
    
    
    49,364
    
    
    
    206,923
    
    
    
    369,023
    
    
    
    41,414
    
    
    
    1,886
    
    
    
    64,172
    
    
    
    732,782Additions
    
    
    147
    
    
    
    536
    
    
    
    1,260
    
    
    
    82
    
    
    
    114
    
    
    
    65,778
    
    
    
    67,917Transfer from CIP
    
    
    4,336
    
    
    
    33,505
    
    
    
    30,199
    
    
    
    2,087
    
    
    
    578
    
    
    
    (70,705
    )
    
    
    Disposals
    
    
    (65
    )
    
    
    (1,360
    )
    
    
    (2,142
    )
    
    
    (689
    )
    
    
    (257
    )
    
    
    
    
    
    
    (4,513
    )End of year
    
    
    53,782
    
    
    
    239,604
    
    
    
    398,340
    
    
    
    42,894
    
    
    
    2,321
    
    
    
    59,245
    
    
    
    796,186Representing:At cost
    
    
    53,782
    
    
    
    239,604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,245
    
    
    
    352,631At valuation
    
    
    
    
    
    
    
    
    
    
    398,340
    
    
    
    42,894
    
    
    
    2,321
    
    
    
    
    
    
    
    443,55553,782
    
    
    
    239,604
    
    
    
    398,340
    
    
    
    42,894
    
    
    
    2,321
    
    
    
    59,245
    
    
    
    796,186Accumulated
depreciation and
impairment:Beginning of year
    
    
    (14,658
    )
    
    
    (97,841
    )
    
    
    (243,055
    )
    
    
    (25,137
    )
    
    
    (909
    )
    
    
    (25
    )
    
    
    (381,625
    )Charge for the year
    
    
    (2,075
    )
    
    
    (16,345
    )
    
    
    (29,519
    )
    
    
    (4,315
    )
    
    
    (408
    )
    
    
    
    
    
    
    (52,662
    )Disposals
    
    
    62
    
    
    
    1,236
    
    
    
    1,940
    
    
    
    656
    
    
    
    257
    
    
    
    
    
    
    
    4,151Impairment transfer out
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    10End of year
    
    
    (16,671
    )
    
    
    (112,950
    )
    
    
    (270,633
    )
    
    
    (28,796
    )
    
    
    (1,060
    )
    
    
    (16
    )
    
    
    (430,126
    )Net book value:End of year
    
    
    37,111
    
    
    
    126,654
    
    
    
    127,707
    
    
    
    14,098
    
    
    
    1,261
    
    
    
    59,229
    
    
    
    366,060Beginning of year
    
    
    34,706
    
    
    
    109,082
    
    
    
    125,968
    
    
    
    16,277
    
    
    
    977
    
    
    
    64,147
    
    
    
    351,157
  F-61




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##### Table of Contents



6.
    
    PROPERTY, PLANT AND EQUIPMENT (Continued)
 The last valuation was performed as of December 31, 2006 by an independent valuation firm on a
depreciated replacement cost basis. As of December 31, 2010, the carrying value of all the
revalued property, plant and equipment would have been approximately RMB147,148 million (2009:
approximately RMB149,960 million) had they been stated at cost less accumulated depreciation and
accumulated impairment losses. 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, 2010.
 As of December 31, 2010, the net book value of assets held under finance leases was
approximately RMB219 million (2009: approximately RMB128 million).
 For the year ended December 31, 2010, interest expense of approximately RMB804 million (2008:
approximately RMB430 million; 2009: approximately RMB806 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 3.60% to 4.56% for the year ended
December 31, 2010 (2008: 3.51% to 6.80%; 2009: 4.27% to 4.80%).
 For the year ended December 31, 2010, the Group recognized a loss on disposal of property,
plant and equipment of approximately RMB17 million (2008: a loss of approximately RMB273
million; 2009: a gain of approximately RMB79 million).
 After the completion of the merger with China Netcom (Note 1) in 2008, management reconsidered
the Groups strategy regarding the Personal Handyphone System (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 and 2010, 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-62




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##### Table of Contents



7.
    
    LEASE PREPAYMENTS
 The 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:
 2009
    
    
    2010Held on:Leases of between 10 to 50 years
    
    
    7,653
    
    
    
    7,533Leases of less than 10 years
    
    
    76
    
    
    
    747,729
    
    
    
    7,607
 For the year ended December 31, 2010, the long-term prepayment for land use rights expensed
in the statement of income amounted to approximately RMB249 million (2008: approximately RMB253
million; 2009: approximately 224 million).
 8.
    
    GOODWILL
 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.
 Goodwill is allocated to the Groups cash-generating units (CGU). As of December 31, 2009 and
2010, 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 operating 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, 2009 and 2010 and no reasonable change to the
assumptions would lead to an impairment charge.
  F-63




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##### Table of Contents



9.
    
    TAXATION
 Hong Kong income tax has been provided at the rate of 16.5% (2008: 16.5%; 2009: 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% (2008: 25%; 2009: 25%).
 2008
    
    
    2009
    
    
    2010Provision for income tax on the estimated
taxable income for the year- Hong Kong
    
    
    24
    
    
    
    45
    
    
    
    18- Outside Hong Kong
    
    
    4,661
    
    
    
    2,282
    
    
    
    3284,685
    
    
    
    2,327
    
    
    
    346Deferred taxation
    
    
    (2,857
    )
    
    
    394
    
    
    
    576Income tax expense
    
    
    1,828
    
    
    
    2,721
    
    
    
    922
 Reconciliation between applicable statutory tax rate and the effective tax rate:
 Note
    
    
    2008
    
    
    2009
    
    
    2010Applicable PRC statutory tax rate
    
    
    
    
    
    
    25.0
    %
    
    
    25.0
    %
    
    
    25.0
    %Non-deductible expenses
    
    
    
    
    
    
    5.2
    %
    
    
    1.7
    %
    
    
    1.7
    %Tax effect of 2009 Business Combination
    
    
    (a)
    
    
    
    26.1
    %
    
    
    
    
    
    
    Non-taxable income- Upfront installation fees arising from
Fixed-line business
    
    
    
    
    
    
    (7.8
    %)
    
    
    (1.4
    %)
    
    
    (1.9
    %)Impact of PRC preferential tax rates and tax holiday
    
    
    
    
    
    
    (2.1
    %)
    
    
    (1.1
    %)
    
    
    (2.1
    %)Utilization of previously unrecognized tax losses
    
    
    
    
    
    
    
    
    
    
    (0.6
    %)
    
    
    (1.7
    %)Others
    
    
    
    
    
    
    (1.4
    %)
    
    
    (1.4
    %)
    
    
    (1.7
    %)Effective tax rate
    
    
    
    
    
    
    45.0
    %
    
    
    22.2
    %
    
    
    19.3
    %
 (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/benefits 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-64




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##### Table of Contents



9.
    
    TAXATION (Continued)
 The analysis of deferred tax assets and deferred tax liabilities are as follow:
 2009
    
    
    2010Deferred tax assets:- Deferred tax asset to be recovered after 12 months
    
    
    3,254
    
    
    
    4,364- Deferred tax asset to be recovered within 12 months
    
    
    2,913
    
    
    
    1,2116,167
    
    
    
    5,575Deferred tax liabilities:- Deferred tax liabilities to be settled after 12 months
    
    
    (699
    )
    
    
    (505
    )- Deferred tax liabilities to be settled within 12 months
    
    
    (266
    )
    
    
    (230
    )(965
    )
    
    
    (735
    )Net deferred tax assets after offsetting
    
    
    5,202
    
    
    
    4,840Deferred tax assets:- Deferred tax asset to be recovered after 12 months
    
    
    6
    
    
    
    18- Deferred tax asset to be recovered within 12 months
    
    
    59
    
    
    
    765
    
    
    
    25Deferred tax liabilities:- Deferred tax liabilities to be settled after 12 months
    
    
    (16
    )
    
    
    (43
    )- Deferred tax liabilities to be settled within 12 months
    
    
    (294
    )
    
    
    (4
    )(310
    )
    
    
    (47
    )Net deferred tax liabilities after offsetting
    
    
    (245
    )
    
    
    (22
    )
 There were no material unrecognized deferred tax assets and liabilities as of December 31,
2009 and 2010.
  F-65




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##### Table of Contents



9.
    
    TAXATION (Continued)
 The movement of the net deferred tax assets/liabilities is as follows:
 2008
    
    
    2009
    
    
    2010Net deferred tax assets after offsetting:- Beginning of year
    
    
    2,473
    
    
    
    5,334
    
    
    
    5,202- Deferred tax credited/(charged) to the statement
of income- Continuing operations
    
    
    2,856
    
    
    
    (132
    )
    
    
    (519
    )- Discontinued operations
    
    
    (35
    )
    
    
    
    
    
    
    - Deferred tax credited to other comprehensive income
    
    
    46
    
    
    
    
    
    
    
    157- Disposal of discontinued operation
    
    
    (6
    )
    
    
    
    
    
    
    - End of year
    
    
    5,334
    
    
    
    5,202
    
    
    
    4,840Net deferred tax liabilities after offsetting:- Beginning of year
    
    
    (18
    )
    
    
    (16
    )
    
    
    (245
    )- Deferred tax credited/(charged) to the statement
of income
    
    
    1
    
    
    
    (262
    )
    
    
    (57
    )- Deferred tax credited to other comprehensive income
    
    
    1
    
    
    
    33
    
    
    
    280- End of year
    
    
    (16
    )
    
    
    (245
    )
    
    
    (22
    )
  F-66




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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:
 Note
    
    
    2009
    
    
    2010Net deferred tax assets after offsetting:Deferred tax assets:Provision for doubtful debts
    
    
    
    
    
    
    1,064
    
    
    
    1,047Impairment loss on property, plant and equipment
    
    
    
    
    
    
    2,034
    
    
    
    1,093Unrecognized revaluation surplus on property, plant and
equipment under PRC regulations
    
    
    i
    
    
    
    1,917
    
    
    
    1,835Revaluation deficit on property, plant and equipment
    
    
    ii
    
    
    
    116
    
    
    
    67Accruals of expenses not yet deductible for tax purpose
    
    
    
    
    
    
    418
    
    
    
    709Deferral and amortization of upfront non-refundable revenue
    
    
    
    
    
    
    142
    
    
    
    126Deferred revenue on subscriber points reward programme
    
    
    
    
    
    
    48
    
    
    
    63Deferred revenue in relation to the provision of supporting
services upon the disposal of the CDMA business
    
    
    
    
    
    
    32
    
    
    
    28Accruals of retirement benefits
    
    
    
    
    
    
    25
    
    
    
    13Unrealized profit for the inter-company transactions
    
    
    
    
    
    
    214
    
    
    
    224Deductible tax losses
    
    
    
    
    
    
    
    
    
    
    203Changes in fair value on available-for-sale financial assets
    
    
    33
    
    
    
    
    
    
    
    467Others
    
    
    
    
    
    
    157
    
    
    
    426,167
    
    
    
    5,917Deferred tax liabilities:Capitalization and amortization of direct incremental costs
    
    
    
    
    
    
    (108
    )
    
    
    (106
    )Capitalized interest already deducted for tax purpose
    
    
    
    
    
    
    (528
    )
    
    
    (392
    )Revaluation surplus on property, plant and equipment
    
    
    ii
    
    
    
    (299
    )
    
    
    (242
    )Realized gain on changes in fair value of
derivative financial instrument
    
    
    33
    
    
    
    
    
    
    
    (310
    )Others
    
    
    
    
    
    
    (30
    )
    
    
    (27
    )(965
    )
    
    
    (1,077
    )5,202
    
    
    
    4,840Net deferred tax liabilities after offsetting:Deferred tax assets:Deductible tax losses carried forward
    
    
    
    
    
    
    37
    
    
    
    Changes in fair value on available-for-sale financial assets
    
    
    33
    
    
    
    41
    
    
    
    Others
    
    
    
    
    
    
    28
    
    
    
    25106
    
    
    
    25Deferred tax liabilities:Realized gain on changes in fair value of derivative
financial instrument
    
    
    33
    
    
    
    (310
    )
    
    
    Changes in fair value on available-for-sale financial assets
    
    
    
    
    
    
    (23
    )
    
    
    (12
    )Accelerated depreciation for tax purpose
    
    
    
    
    
    
    (18
    )
    
    
    (35
    )(351
    )
    
    
    (47
    )(245
    )
    
    
    (22
    )
  F-67




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##### Table of Contents



9.
    
    TAXATION (Continued)
 (i)
    
    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.
    
    AVAILABLE-FOR-SALE FINANCIAL ASSETS
 Note
    
    
    2009
    
    
    2010Equity securities issued by corporates
    
    
    
    
    
    
    7,977
    
    
    
    6,214Analyzed by place of listing:Listed in the PRC
    
    
    
    
    
    
    188
    
    
    
    127Listed outside the PRC
    
    
    33
    
    
    
    7,789
    
    
    
    6,0877,977
    
    
    
    6,214
 For the year ended December 31, 2010, changes in fair value of available-for-sale financial
assets amounted to approximately RMB1,777 million (2008: approximately RMB188 million; 2009:
approximately RMB71 million). The changes in fair value, net of tax impact of approximately
RMB437 million (2008: approximately RMB47 million; 2009: approximately RMB33 million) were
recorded in the consolidated statement of comprehensive income.
 11.
    
    SUBSIDIARIES
 As of December 31, 2010, 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
(merge with China
Netcom (Group)
Company Limited
(CNC China)
on January 1, 2009)
    
    The PRC,
April 21, 2000,
lilimited 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
ordinary shares,
USD0.04 each
    
    Investment holding
 in Hong Kong
  F-68




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11.
    
    SUBSIDIARIES (Continued)
 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
    
    operationUnicom New World
(BVI) Limited
    
    British Virgin
Islands (BVI),
November 5, 2003,
limited company
    
    
    100
    %
    
    
    
    
    
    1,000 shares,
HKD1 each
    
    DormantChina Unicom (Hong 
Kong) Operations 
Limited
    
    Hong Kong,
May 24, 2000,
limited company
    
    
    100
    %
    
    
    
    
    
    60,100,000 ordinary
shares,
HKD1 each
    
    Telecommunications
service in Hong
KongChina Netcom (Hong 
Kong) Operations 
Limited
    
    Hong Kong,
May 2, 2001,
limited company
    
    
    
    
    
    
    100
    %
    
    1,000 ordinary
shares,
HKD1 each
    
    DormantChina Unicom
(Americas) 
Operations Limited
    
    The United States
of America (the
USA),
May 24, 2002,
limited company
    
    
    100
    %
    
    
    
    
    
    5,000 shares,
USD100 each
    
    Telecommunications
service in the 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 and
15,000,000 shares,
RMB1 each
    
    Telecommunications
operation in
Singapore
  F-69




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11.
    
    SUBSIDIARIES (Continued)
 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
    
    operationBillion Express
Investments Limited
(Billion Express)
    
    British Virgin Islands,
August 15, 2007,
limited company
    
    
    100
    %
    
    
    
    
    
    1 share,
USD1 each
    
    Investment holding
and financing
subsidiary of the
CompanyChina Unicom Limited
    
    Hong Kong,
August 31, 2007,
limited company
    
    
    100
    %
    
    
    
    
    
    2 ordinary 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
    
    DormantChina 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-70




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11.
    
    SUBSIDIARIES (Continued)
 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
    
    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
430,000,000
    
    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
in the PRC
  F-71




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11.      SUBSIDIARIES (Continued)
 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
    
    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
Publishing Company
    
    The PRC,
February 17, 2003,
limited liability
company
    
    
    
    
    100
    %
    
    RMB
300,000
    
    Provision of
magazine publishing
services in the PRC
  F-72




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12.
    
    OTHER ASSETS
 2009
    
    
    2010Direct incremental costs for activating mobile subscribers
    
    
    433
    
    
    
    423Installation costs of Fixed-line business
    
    
    1,732
    
    
    
    1,309Prepaid rental for premises and leased lines
    
    
    3,454
    
    
    
    3,521Purchased software
    
    
    3,954
    
    
    
    4,440Others
    
    
    2,023
    
    
    
    2,06011,596
    
    
    
    11,753
 13.
    
    INVENTORIES AND CONSUMABLES
 2009
    
    
    2010Handsets and other customer end products
    
    
    1,637
    
    
    
    2,461Telephone cards
    
    
    264
    
    
    
    308Consumables
    
    
    449
    
    
    
    860Others
    
    
    62
    
    
    
    992,412
    
    
    
    3,728
  F-73




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14.
    
    ACCOUNTS RECEIVABLE, NET
 2009
    
    
    2010Accounts receivable for Mobile business
    
    
    3,850
    
    
    
    5,022Accounts receivable for Fixed-line business
    
    
    8,783
    
    
    
    8,042Accounts receivable for other business
    
    
    262
    
    
    
    202Sub-total
    
    
    12,895
    
    
    
    13,266Less: Provision for doubtful debts for Mobile business
    
    
    (1,874
    )
    
    
    (2,074
    )Provision for doubtful debts for Fixed-line business
    
    
    (2,115
    )
    
    
    (1,829
    )Provision for doubtful debts for other business
    
    
    (81
    )
    
    
    (77
    )8,825
    
    
    
    9,286
 The aging analysis of accounts receivable is as follows:
 2009
    
    
    2010Within one month
    
    
    6,384
    
    
    
    6,625More than one month to three months
    
    
    1,235
    
    
    
    1,316More than three months to one year
    
    
    2,936
    
    
    
    3,054More than one year
    
    
    2,340
    
    
    
    2,27112,895
    
    
    
    13,266
 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, 2010, accounts receivable of approximately RMB2,661 million (2009:
approximately RMB2,441 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:
 2009
    
    
    2010More than one month to three months
    
    
    1,235
    
    
    
    1,316More than three months to one year
    
    
    882
    
    
    
    1,056More than one year
    
    
    324
    
    
    
    2892,441
    
    
    
    2,661
  F-74




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##### Table of Contents



14.
    
    ACCOUNTS RECEIVABLE, NET (Continued)
 As of December 31, 2010, accounts receivable of approximately RMB3,980 million (2009:
approximately RMB4,070 million) were impaired. The individually impaired receivables mainly
relate to subscriber service fees. The aging of these receivables is as follows:
 2009
    
    
    2010More than three months to one year
    
    
    2,054
    
    
    
    1,998More than one year
    
    
    2,016
    
    
    
    1,9824,070
    
    
    
    3,980
 Provision for doubtful debts is analyzed as follows:
 2009
    
    
    2010Balance, beginning of year
    
    
    3,462
    
    
    
    4,070Provision for the year
    
    
    2,334
    
    
    
    2,573Written-off during the year
    
    
    (1,726
    )
    
    
    (2,663
    )Balance, end of year
    
    
    4,070
    
    
    
    3,980
 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-75




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15.
    
    PREPAYMENTS AND OTHER CURRENT ASSETS
 2009
    
    
    2010Prepaid rental
    
    
    845
    
    
    
    1,318Deposits and prepayments
    
    
    1,379
    
    
    
    2,006Prepaid income taxes
    
    
    1,060
    
    
    
    620Advances to employees
    
    
    274
    
    
    
    321Others
    
    
    694
    
    
    
    8504,252
    
    
    
    5,115
 The aging analysis of prepayments and other current assets is as follows:
 2009
    
    
    2010Within one year
    
    
    3,806
    
    
    
    4,629More than one year
    
    
    446
    
    
    
    4864,252
    
    
    
    5,115
 As of December 31, 2010, there was no impairment for the prepayments and other current
assets.
 16.
    
    SHORT-TERM BANK DEPOSITS
 2009
    
    
    2010Bank deposits with maturity exceeding three months
    
    
    970
    
    
    
    254Restricted bank deposits
    
    
    26
    
    
    
    19996
    
    
    
    273
 As of December 31, 2010, restricted bank deposits primarily represented deposits that were
subject to externally imposed restrictions as requested by contractors in relation to payables
owed to the contractors.
  F-76




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17.
    
    CASH AND CASH EQUIVALENTS
 2009
    
    
    2010Cash at bank and in hand
    
    
    7,210
    
    
    
    12,520Bank deposits with original maturities
of three months or less
    
    
    610
    
    
    
    9,9757,820
    
    
    
    22,495
 18.      SHARE CAPITAL
 2009
    
    
    2010HKD millions
    
    
    HKD millionsAuthorized:30,000,000,000 ordinary shares of HKD0.10 each
    
    
    3,000
    
    
    
    3,000
 Ordinaryshares, parNumber of
    
    
    value ofshares
    
    
    HKD0.1 each
    
    
    Share
    
    
    ShareIssued and fully paid:
    
    millions
    
    
    HKD millions
    
    
    capital
    
    
    premium
    
    
    TotalAt January 1, 2009
    
    
    23,768
    
    
    
    2,376
    
    
    
    2,329
    
    
    
    166,784
    
    
    
    169,113Issuance of shares for
mutual investment by the
Company and Telefónica
(Note a)
    
    
    694
    
    
    
    69
    
    
    
    60
    
    
    
    6,651
    
    
    
    6,711Off-market share repurchase
(Note b)
    
    
    (900
    )
    
    
    (90
    )
    
    
    (79
    )
    
    
    
    
    
    
    (79
    )At December 31, 2009
    
    
    23,562
    
    
    
    2,355
    
    
    
    2,310
    
    
    
    173,435
    
    
    
    175,745Issuance of shares upon
exercise of options (Note
35)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1At December 31, 2010
    
    
    23,562
    
    
    
    2,355
    
    
    
    2,310
    
    
    
    173,436
    
    
    
    175,746
 Note a :
    
    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 33 for details.Note b:
    
    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.
  F-77




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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 non-controlling interests but
before dividend distribution.CUCL and CNC China are required to allocate at least 10% of their income after tax and
non-controlling 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 RMB379 million (2008: approximately
RMB3,523 million and RMB19 million by CUCL and CNC China, respectively; 2009:
approximately RMB769 million) to the general reserve fund for the year ended December
31, 2010.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, 2008, 2009 and 2010, 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, 2010, the
Group has made an accumulated appropriation of approximately RMB12,274 million to the
statutory reserve (Up to December 31, 2008 : approximately RMB11,592 million; up to
December 31, 2009: approximately RMB12,082 million;).
  F-78




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##### Table of Contents



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.(iv)
    
    Convertible bonds reserveThe convertible bonds reserve represents the equity component of the convertible bonds
at initial recognition.
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20.
    
    LONG-TERM BANK LOANS
 Interest rates and final maturity
    
    2009
    
    
    2010RMB denominated 
bank loans
    
    Floating interest rate, 15% downward
on the benchmark interest rate issued
by the Peoples Bank of China for
three years bank borrowings on
quarterly basis with maturity through
2013- secured
    
    
    
    
    
    
    
    
    800USD denominated 
bank loans
    
    Fixed interest rates ranging from Nil
to 5.00% (2009: Nil to 5.00%) per
annum with maturity through 2039
(2009: maturity through 2039)- secured
    
    
    
    
    137
    
    
    
    128- unsecured
    
    
    
    
    357
    
    
    
    327494
    
    
    
    455Euro denominated 
bank loans
    
    Fixed interest rates ranging from
1.10% to 2.50% (2009: 1.10% to 2.50%)
per annum with maturity through 2034
(2009: maturity through 2034)- unsecured
    
    
    
    
    327
    
    
    
    265Sub-total
    
    
    
    
    821
    
    
    
    1,520Less: Current portion
    
    
    
    
    (62
    )
    
    
    (58
    )759
    
    
    
    1,462
 The repayment schedule of the long-term bank loans is as follows:
 2009
    
    
    2010Balances due:- not later than one year
    
    
    62
    
    
    
    58- later than one year and
not later than two years
    
    
    54
    
    
    
    50- later than two years and
not later than five years
    
    
    165
    
    
    
    950- later than five years
    
    
    540
    
    
    
    462821
    
    
    
    1,520Less: Portion classified as current liabilities
    
    
    (62
    )
    
    
    (58
    )759
    
    
    
    1,462
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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, 2009 and 2010 were as follows:
 2009
    
    
    2009Long-term bank loans
    
    
    552
    
    
    
    1,311
 The fair value is based on cash flows discounted using rates based on the market rates
ranging from 4.28% to 4.97% (2009: 4.48% to 4.72%) per annum.
 (b)
    
    As of December 31, 2010, bank loans of approximately RMB128 million (2009:
approximately RMB137 million) were secured by corporate guarantees granted by third
parties.
 21.
    
    PROMISSORY NOTES
 On April 2, 2010, CUCL issued tranche one of a promissory note in the amount of RMB3 billion,
with a maturity date of 3 years from the date of issue and carries interests at 3.73% per annum.
 On September 20, 2010, CUCL issued tranche two of a promissory note in the amount of RMB12
billion, with a maturity date of 3 years from the date of issue and carries interests at 3.31%
per annum.
 The fair value of the Groups promissory notes at December 31, 2010 amounted to approximately
RMB14,881 million. The fair value is computed based on the expected cash flows discounted on
market rates ranging from 4.15% to 4.25% per annum.
 22.
    
    CONVERTIBLE BONDS
 On October 18, 2010, Billion Express, a wholly-owned subsidiary of the Company, issued 0.75%
guaranteed convertible bonds in an aggregate principal amount of USD1,838,800,000 (at the fixed
exchange rate of USD1 equivalent to HKD7.7576) which are due in October 2015 at a redemption
price of 100% of the principal amount. The bonds are guaranteed by the Company as to repayments,
and are convertible into ordinary shares of HKD0.10 per share of the Company at an initial
conversion price of HKD15.85 per share. The conversion price is subject to adjustment in certain
events set out in the Trust deed dated October 18, 2010. The bondholders may exercise conversion
rights at any time on or after November 28, 2010 up to the close of business on October 8, 2015
or, if such convertible bonds shall have been called for redemption by the Company before
October 18, 2015, then up to the close of business on a date not later than seven days prior to
the date fixed for redemption thereof. Billion Express will, at the option of a bondholder,
redeem all and not some only of such bondholders convertible bonds on October 18, 2013 at their
principal amount together with interest accrued and unpaid to the date fixed for redemption. In
addition, on or at any time after October 18, 2013 and prior to October 18, 2015, Billion
Express may redeem all and not some only of the convertible bonds for the time being outstanding
at their principal amount together with interest accrued and unpaid to the date fixed for
redemption.
 During the year ended
December 31, 2010, there was no conversion of the convertible bonds into shares of the Company by the bondholders and no redemption of the convertible bonds made by
Billion Express.
 The fair value of the liability component, which was calculated using market interest rate for a
bond with the same tenure but with no conversion features, was determined upon the issuance of
the convertible bonds. The difference between the face value (net of direct issue costs) and the
fair value of the liability component represented the equity component,
which was credited to the convertible bonds reserve under equity
attributable to owners of the parent.
  F-81




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22.
    
    CONVERTIBLE BONDS (Continued)
 The convertible bonds recognized in the consolidated balance sheet are calculated as follows:
 2010Face value of convertible bonds at issue date
    
    
    12,236Less: direct issue costs
    
    
    (96
    )Face value of convertible bonds at issue date, net
    
    
    12,140Including:Equity component on initial recognition
    
    
    572Liability component on initial recognition
    
    
    11,56812,140Movement of liability component:Liability component on initial recognition
    
    
    11,568Less: effect of exchange gain on liability component
    
    
    (55
    )Add: imputed finance cost
    
    
    45Liability component at December 31, 2010
    
    
    11,558
 The liability component of the convertible bonds at December 31, 2010 amounted to approximately
RMB11,558 million (equivalent to USD1,745 million) and was calculated using cash flows
discounted at a rate based on the borrowing rate of 1.90% per annum taking into the effect of
direct issue costs.
  F-82




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23.
    
    CORPORATE BONDS
 On 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, 2009 and 2010 were as follows:
 2009
    
    
    2010Corporate bonds
    
    
    7,143
    
    
    
    7,205
 The fair value is based on cash flows discounted using rates based on the market rates
ranging from 4.28% to 5.01% (2009: 4.18% to 4.86%) per annum.
 24.
    
    OTHER OBLIGATIONS
 Note
    
    
    2009
    
    
    2010One-off cash housing subsidies
    
    
    (a)
    
    
    
    2,502
    
    
    
    2,502Obligations under finance lease
    
    
       (b)
    
    
    
    129
    
    
    
    204Others
    
    
    
    
    
    
    90
    
    
    
    93Sub-total
    
    
    
    
    
    
    2,721
    
    
    
    2,799Less: Current portion
    
    
    
    
    
    
    (2,534
    )
    
    
    (2,637
    )187
    
    
    
    162
  F-83




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24.
    
    OTHER OBLIGATIONS (Continued)
 (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, 2009
    
    
    2,109
    
    
    
    2,502Additions during the year
    
    
    
    
    
    
    Payments during the year
    
    
    (2,109
    )
    
    
    As of December 31, 2009
    
    
    
    
    
    
    2,502As of January 1, 2010 and
December 31, 2010
    
    
    
    
    
    
    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 has determined 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).(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.
  F-84




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24.
    
    OTHER OBLIGATIONS (Continued)
 (b)
    
    Obligations under finance leaseThe obligations under finance lease represent the payables for the finance lease of
telecommunications equipment. The lease payments under finance lease are analyzed as
follows:
 2009
    
    
    2010Total minimum lease payments under finance lease:- not later than one year
    
    
    29
    
    
    
    129- later than one year and not later than two years
    
    
    105
    
    
    
    82134
    
    
    
    211Less: Future finance charges
    
    
    (5
    )
    
    
    (7
    )Present value of minimum obligations
    
    
    129
    
    
    
    204Representing obligations under finance lease:- current liabilities
    
    
    26
    
    
    
    126- non-current liabilities
    
    
    103
    
    
    
    78
  F-85




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25.
    
    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 2009
    
    
    2010Payables to contractors and equipment suppliers
    
    
    85,941
    
    
    
    76,534Payables to telecommunications product suppliers
    
    
    3,193
    
    
    
    3,189Customer/contractor deposits
    
    
    2,522
    
    
    
    3,200Repair and maintenance expense payables
    
    
    1,900
    
    
    
    2,449Salary and welfare payables
    
    
    1,364
    
    
    
    1,017Interest payable
    
    
    212
    
    
    
    740Amounts due to services providers / content providers
    
    
    1,069
    
    
    
    1,034Accrued expenses
    
    
    4,268
    
    
    
    5,394Others
    
    
    3,603
    
    
    
    4,102104,072
    
    
    
    97,659
 The aging analysis of payables and accrued liabilities is as follows:
 2009
    
    
    2010Less than six months
    
    
    90,983
    
    
    
    85,485Six months to one year
    
    
    4,031
    
    
    
    3,866More than one year
    
    
    9,058
    
    
    
    8,308104,072
    
    
    
    97,659
  F-86




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26.
    
    COMMERCIAL PAPERS
 CNC China issued RMB10 billion unsecured commercial paper with repayment periods of 365 days on
October 6, 2008 in the PRC capital market. The effective interest rate is 4.47% per annum. The
net cash proceeds raised in the PRC capital market were RMB10 billion. The commercial paper was
fully repaid on October 8, 2009.
 On April 1, 2010, CUCL issued tranche one of a commercial paper in the amount of RMB15 billion,
with a maturity date of 365 days from the date of issue and carries interests at 2.64% per
annum.
 On September 20, 2010, CUCL issued tranche two of a commercial paper in the amount of RMB8
billion, with a maturity date of 365 days from the date of issue and carries interests at 2.81%
per annum.
 27.
    
    SHORT-TERM BANK LOANS
 Interest rates and final maturity
    
    2009
    
    
    2010RMB denominated 
bank loans
    
    Fixed interest rates ranging from
2.88% to 4.59% (2009: 3.50% to 4.37%)
per annum with maturity through 2011
(2009: maturity through 2010)- unsecured
    
    
    
    
    55,104
    
    
    
    2,610RMB denominated 
bank loans
    
    Floating interests rates, 10%
downward on the benchmark interest
rate issued by the Peoples Bank of
China with maturity through 2011- unsecured
    
    
    
    
    
    
    
    
    23,195- secured
    
    
    
    
    
    
    
    
    30
    
    
    
    23,225HKD denominated 
bank loans
    
    Floating interest rates of HKD HIBOR
plus interest margin from 0.4% to
1.0% (2009: plus 0.42%) per annum
with maturity through 2011 (2009: maturity through 2010)- unsecured
    
    
    
    
    8,805
    
    
    
    10,892Total
    
    
    
    
    63,909
    
    
    
    36,727
 (i)
    
    The carrying values of short-term bank loans approximate their fair values as of the
balance sheet date.
  F-87




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28.
    
    REVENUE
 The 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 RMB4,870 million for
the year ended December 31, 2010 (2008: approximately RMB4,598 million; 2009: approximately
RMB4,487 million).
 The major components of revenue for continuing operations are as follows:
 2008
    
    
    2009
    
    
    2010Continuing operations:Mobile business- Usage and monthly fees
    
    
    40,462
    
    
    
    42,297
    
    
    
    47,004- Value-added services revenue
    
    
    16,263
    
    
    
    19,070
    
    
    
    25,852-
Interconnection fees
    
    
    6,775
    
    
    
    8,220
    
    
    
    9,022- Other service revenue
    
    
    740
    
    
    
    182
    
    
    
    484Total mobile telecommunications service revenue
    
    
    64,240
    
    
    
    69,769
    
    
    
    82,362Fixed-line business- Usage and monthly fees
    
    
    41,489
    
    
    
    34,369
    
    
    
    29,085- Broadband, data and other Internet-related services revenue
    
    
    23,624
    
    
    
    26,364
    
    
    
    32,595- Interconnection fees
    
    
    7,342
    
    
    
    5,599
    
    
    
    5,243- Value-added services revenue
    
    
    7,074
    
    
    
    5,238
    
    
    
    4,860- Leased line income
    
    
    5,492
    
    
    
    5,683
    
    
    
    5,589- Upfront connection fees
    
    
    886
    
    
    
    490
    
    
    
    192- Other service revenue
    
    
    2,347
    
    
    
    1,806
    
    
    
    1,332Total fixed-line telecommunications service revenue
    
    
    88,254
    
    
    
    79,549
    
    
    
    78,896Unallocated telecommunications service revenue
    
    
    337
    
    
    
    275
    
    
    
    737Total telecommunications service revenue
    
    
    152,831
    
    
    
    149,593
    
    
    
    161,995Information communication technology services and other revenue
    
    
    5,062
    
    
    
    2,189
    
    
    
    2,016Sales of telecommunications products
    
    
    1,899
    
    
    
    2,163
    
    
    
    7,287Total revenue from external customers
    
    
    159,792
    
    
    
    153,945
    
    
    
    171,298
  F-88




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29.
    
    NETWORKS, OPERATIONS AND SUPPORT EXPENSES
 2008
    
    
    2009
    
    
    2010Continuing operations:Repair and maintenance
    
    
    7,761
    
    
    
    8,606
    
    
    
    8,781Power and water charges
    
    
    5,901
    
    
    
    7,414
    
    
    
    8,884Operating leases for networks, premises,
equipment and facilities
    
    
    4,362
    
    
    
    6,778
    
    
    
    7,848Others
    
    
    712
    
    
    
    930
    
    
    
    870Total networks, operations and support expenses
    
    
    18,736
    
    
    
    23,728
    
    
    
    26,383
 30.
    
    EMPLOYEE BENEFIT EXPENSES
 Note
    
    
    2008
    
    
    2009
    
    
    2010Continuing operations:Salaries and wages
    
    
    
    
    
    
    17,115
    
    
    
    17,842
    
    
    
    18,993Contributions to defined
contribution pension schemes
    
    
    
    
    
    
    2,288
    
    
    
    2,558
    
    
    
    2,670Contributions to housing fund
    
    
    
    
    
    
    1,099
    
    
    
    1,321
    
    
    
    1,422Other housing benefits
    
    
    
    
    
    
    172
    
    
    
    183
    
    
    
    186Share-based compensation
    
    
    35
    
    
    
    84
    
    
    
    27
    
    
    
    56Total employee benefit expenses
    
    
    
    
    
    
    20,758
    
    
    
    21,931
    
    
    
    23,327
 31.
    
    OTHER OPERATING EXPENSES
 2008
    
    
    2009
    
    
    2010Continuing operations:Provision for doubtful debts
    
    
    3,025
    
    
    
    2,355
    
    
    
    2,583Cost of telecommunications products sold
    
    
    2,156
    
    
    
    2,689
    
    
    
    10,688Cost in relation to information
communications technology services
    
    
    3,010
    
    
    
    839
    
    
    
    895Commission expenses
    
    
    11,773
    
    
    
    11,994
    
    
    
    13,776Advertising and promotion expenses
    
    
    3,036
    
    
    
    4,290
    
    
    
    3,931Customer installation cost
    
    
    2,256
    
    
    
    2,449
    
    
    
    2,435Customer acquisition and retention cost
    
    
    2,549
    
    
    
    2,287
    
    
    
    3,591Auditors remuneration
    
    
    131
    
    
    
    73
    
    
    
    68Property management fee
    
    
    1,186
    
    
    
    1,434
    
    
    
    1,503Office and administrative expenses
    
    
    2,831
    
    
    
    2,915
    
    
    
    3,422Transportation expense
    
    
    1,892
    
    
    
    1,825
    
    
    
    1,805Miscellaneous taxes and fees
    
    
    607
    
    
    
    583
    
    
    
    653Others
    
    
    3,545
    
    
    
    2,990
    
    
    
    2,919Total other operating expenses
    
    
    37,997
    
    
    
    36,723
    
    
    
    48,269
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32.
    
    FINANCE COSTS
 Note
    
    
    2008
    
    
    2009
    
    
    2010Continuing operations:Finance costs:- Interest on bank loans repayable within 5 years
    
    
    
    
    
    
    1,787
    
    
    
    911
    
    
    
    1,726- Interest on long-term loans due to ultimate holding
company
    
    
    40.1(c)
    
    
    
    1,016
    
    
    
    
    
    
    
    - Interest on corporate bonds, promissory notes and
commercial papers repayable within 5 years
    
    
    
    
    
    
    580
    
    
    
    607
    
    
    
    824- Interest on convertible bonds repayable within 5 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45- Interest on related party loan repayable within 5 years
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    25- Interest on bank loans repayable over 5 years
    
    
    
    
    
    
    54
    
    
    
    5
    
    
    
    4- Interest on corporate bonds repayable over 5 years
    
    
    
    
    
    
    90
    
    
    
    90
    
    
    
    90- Interest on deferred consideration
    
    
  (a)
    
    
    
    224
    
    
    
    
    
    
    
    - Less: Amounts capitalized in construction-in-progress
    
    
      6
    
    
    
    (430
    )
    
    
    (806
    )
    
    
    (804
    )Total interest expense
    
    
    
    
    
    
    3,321
    
    
    
    823
    
    
    
    1,910- Exchange (gain)/loss, net
    
    
    
    
    
    
    (270
    )
    
    
    15
    
    
    
    (388
    )- Others
    
    
    
    
    
    
    218
    
    
    
    198
    
    
    
    227Total finance costs
    
    
    
    
    
    
    3,269
    
    
    
    1,036
    
    
    
    1,749
 (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-90




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33.
    
    MUTUAL INVESTMENT OF THE COMPANY AND TELEFÓNICA IN EACH OTHER
 On 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 at the Completion Date. On 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, 2010, the related available-for-sale financial asset amounted to
approximately RMB6,087 million (2009: approximately RMB7,789 million). For the year ended
December 31, 2010, changes in fair value of available-for-sale financial asset amounted to
approximately RMB1,702 million (2009: approximately RMB163 million). The changes in fair value,
net of tax impact of approximately RMB426 million (2009: approximately RMB41 million), was
recorded in the consolidated statement of comprehensive income.
 34.
    
    OTHER INCOME  NET
 2008
    
    
    2009
    
    
    2010Continuing operations:Dividend income from available-for-sale financial assets
    
    
    3
    
    
    
    215
    
    
    
    485Gain on the non-monetary assets exchange
    
    
    1,305
    
    
    
    38
    
    
    
    10Others
    
    
    833
    
    
    
    709
    
    
    
    7262,141
    
    
    
    962
    
    
    
    1,221
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35.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES
 35.1
    
    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 35.2) in May 2002, May 2007 and May 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.
 35.2
    
    Share option scheme (the Share Option Scheme)
 On June 1, 2000, the Company adopted the Share Option Scheme pursuant to which the
directors of the Company may, at their discretion, invite employees, including executive
directors, of the Company or any of its subsidiaries, to take up share options to
subscribe for shares up to a maximum aggregate number of shares (including those that
could be subscribed for under the Pre-Global Offering Share Option Scheme as described
above) not exceeding 10% of the total issued share capital of the Company. Pursuant to the
Share Option Scheme, the nominal consideration payable by a participant for the grant of
share options will be HKD1.00. The exercise price payable by a participant upon the
exercise of an option will be determined by the directors at their discretion at the date
of grant, except that such price may not be set below a minimum price which is the higher
of:
 (i)
    
    the nominal value of the share; and(ii)
    
    80% of the average of the closing prices of shares on the SEHK on the five
trading days immediately preceding the date of grant of the option on which there
were dealings in the shares on the SEHK.
 The period during which an option may be exercised will be determined by the Board of
Directors at their discretion, except that no option may be exercised later than 10 years
from June 22, 2000.
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35.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
 35.2
    
    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 of SEHK 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.
 In May 2007 and May 2009, the Company further amended the Share Option Scheme with major
amendments related to the exercise period.
 All of the share options granted under Note 35.1 and 35.2 are governed by the amended
terms of the Pre-Global Share Option Scheme and the Share Option Scheme as mentioned
above.
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35.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
 35.3
    
    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.
 The above formula ensures that the value of options granted under this scheme received by a
holder of China Netcom options is equivalent to the see-through price of that holders
outstanding China Netcom options.
 In May 2009, the Company amended the Special Purpose Share Option Scheme relating to the
exercise period.
 No further options can be granted under the Special Purpose Share Option Scheme.
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35.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
 35.3
    
    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, 2008 toOctober 14, 2008Average exerciseprice
    
    
    Number of sharein HKD per share
    
    
    options involvedBalance, beginning of the year
    
    
    10.32
    
    
    
    150,844,560Granted
    
    
    
    
    
    
    Forfeited/cancelled
    
    
    9.55
    
    
    
    (139,620
    )Cancelled in exchange for the Companys options
    
    
    10.30
    
    
    
    (125,836,140
    )Exercised
    
    
    10.45
    
    
    
    (24,868,800
    )Balance, end of the period
    
    
    
    
    
    
    
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35.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
 Details of share options of China Netcom exercised during the period from January 1, 2008
to October 14, 2008 is as follows:
 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, 2010, share-based compensation expense of approximately RMB2
million (2008: approximately RMB9 million; 2009: approximately RMB10 million) was recorded
by the Group as a result of this modification.
 
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35.
    
    EQUITY-SETTLED SHARE OPTION SCHEMES (Continued)
 35.4
    
    Share option information
 Movements in the number of share options outstanding and their related weighted average
exercise prices are as follows:
 2008
    
    
    2009
    
    
    2010Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    Averageexercise
    
    
    
    
    
    
    exercise
    
    
    Number of
    
    
    exerciseprice
    
    
    Number of
    
    
    price
    
    
    share
    
    
    price
    
    
    Number ofin HKD
    
    
    share options
    
    
    in HKD
    
    
    options
    
    
    in HKD
    
    
    share optionsper share
    
    
    involved
    
    
    per share
    
    
    involved
    
    
    per share
    
    
    involvedBalance, beginning of year
    
    
    7.12
    
    
    
    257,279,600
    
    
    
    6.95
    
    
    
    413,074,166
    
    
    
    6.95
    
    
    
    413,074,166Granted
    
    
    6.83
    
    
    
    189,760,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited/lapsed
    
    
    6.37
    
    
    
    (2,720,334
    )
    
    
    
    
    
    
    
    
    
    
    15.42
    
    
    
    (16,977,600
    )Exercised
    
    
    7.62
    
    
    
    (31,246,000
    )
    
    
    
    
    
    
    
    
    
    
    5.57
    
    
    
    (84,448
    )Balance, end of year
    
    
    6.95
    
    
    
    413,074,166
    
    
    
    6.95
    
    
    
    413,074,166
    
    
    
    6.59
    
    
    
    396,012,118Exercisable at end of year
    
    
    7.14
    
    
    
    245,359,027
    
    
    
    6.88
    
    
    
    390,841,799
    
    
    
    6.59
    
    
    
    396,012,118
 Exercise of share options during the year ended December 31, 2010 resulted in 84,448
shares being issued (2008: 31,246,000 shares; 2009: nil), with exercise proceeds of
approximately RMB0.41 million (2008: approximately RMB216 million; 2009: nil).
  F-97




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35.
    
    EQUITY-SETTLED SHARE OPTION SCHEME (Continued)
 35.4
    
    Share option information (Continued)
 As of balance sheet date, information of outstanding share options is summarized as follows:
 The price
    
    Number of
    
    
    Number ofper share to
    
    share options
    
    
    share optionsbe paid on
    
    outstanding as
    
    
    outstanding asExercisable period
    
    exercise of
    
    of December
    
    
    of DecemberDate of options grant
    
    Vesting period
    
    (Note i)
    
    options
    
    31, 2009
    
    
    31, 2010Share options granted under the Pre-Global Offering Share Option Scheme (Note iii):June 22, 2000
    
    June 22, 2000 to
June 21, 2002
    
    June 22, 2002 to 
June 21, 2010
    
    HKD15.42
    
    
    16,977,600
    
    
    
    Share options granted under the Share Option Scheme (Note ii):June 30, 2001
    
    June 30, 2001
    
    June 30, 2001 to
June 22, 2011
    
    HKD15.42
    
    
    4,350,000
    
    
    
    4,350,000May 21, 2003
    
    May 21, 2003 to
May 21, 2006
    
    May 21, 2004 to
May 20, 2011
    
    HKD4.30
    
    
    8,956,000
    
    
    
    8,956,000July 20, 2004
    
    July 20, 2004 to
July 20, 2007
    
    July 20, 2005 to
July 19, 2011
    
    HKD5.92
    
    
    41,024,000
    
    
    
    41,024,000December 21, 2004
    
    December 21, 2004 to
December 21, 2007
    
    December 21, 2005 to 
December 20, 2011
    
    HKD6.20
    
    
    654,000
    
    
    
    654,000February 15, 2006
    
    February 15, 2006 to
February 15, 2009
    
    February 15, 2008 to
February 14, 2012
    
    HKD6.35
    
    
    151,556,000
    
    
    
    151,556,000Share options granted under the Special Purpose Share Option Scheme (Note ii):October 15, 2008
(2004 Special
Purpose Share
Options)
    
    October 15, 2008 to
May 17, 2009
    
    October 15, 2008 to
November 16, 2011
    
    HKD5.57
    
    
    100,627,098
    
    
    
    100,542,650October 15, 2008
(2005 Special
Purpose Share
Options)
    
    October 15, 2008 to
December 6, 2010
    
    October 15, 2008 to
December 5, 2011
    
    HKD8.26
    
    
    88,929,468
    
    
    
    88,929,468413,074,166
    
    
    
    396,012,118
 The options outstanding as of December 31, 2010 had a weighted average remaining
contractual life of 0.93 years (2009: 1.50 years).
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35.
    
    EQUITY-SETTLED SHARE OPTION SCHEME (Continued)
 35.4
    
    Share option information (Continued)
 Note i:
    
    In 2009, the exercise periods of approximately 25,000,000 share options were
extended by one year by the Board of Directors pursuant to the terms of each of the
Pre-Global Offering Share Option Scheme and the Share Option Scheme. The reasons for such
extension were that (i) the holders of those share 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) those share 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. Due to the Mandatory Moratorium continuing to be in force, the
Board of Directors further extended the exercise periods of certain share options by one
year in each of March 2010 and March 2011 under the respective terms of the Share Option
Scheme. As of December 31, 2010, approximately 23,600,000 share options held by Transferred
Personnel remained valid.
 Note ii:
    
    In each of March 2010 and March 2011, the expiry dates for certain share options
were extended by one year by the Board of Directors pursuant to the terms of each of the
Share Option Scheme and the Special Purpose Share Option Scheme, because those share
options were not exercisable due to a Mandatory Moratorium, which is still in effect,
under the respective terms of each of the Share Option Scheme and the Special Purpose Share
Option Scheme. The modifications did not expect to have significant impact on the
consolidated statement of income for the year ending December 31, 2011.
 Note iii:
    
    All share options remained outstanding on June 21, 2010 have been expired on the
same date.
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35.
    
    EQUITY-SETTLED SHARE OPTION SCHEME (Continued)
 No option was exercised for the year ended December 31, 2009.
 Details of share options exercised for the years ended December 31, 2008 and 2010 are as
follows:
 For the year ended December 31, 2008:
 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
 For the year ended December 31, 2010:
 Weighted averageclosing price pershare at respectivedays immediatelybefore days ofExercise price
    
    
    exercise of options
    
    
    Proceeds received
    
    
    Number ofGrant date
    
    HKD
    
    
    HKD
    
    
    HKD
    
    
    shares involvedOctober 15, 2008
    
    
    5.57
    
    
    
    11.76
    
    
    
    470,375
    
    
    
    84,448470,375
    
    
    
    84,448
 For the year ended December 31, 2010, employee share-based compensation expense recorded
for continuing operations amounted to approximately RMB56 million (2008: approximately RMB84
million; 2009: approximately RMB27 million).
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36
    
    DISPOSAL GROUP AND DISCONTINUED OPERATIONS
 On June 2, 2008 and July 27, 2008, the Company, CUCL and China Telecom entered into the
Framework Agreement and the Disposal Agreement, respectively, to sell the CDMA business to China
Telecom. The disposal was completed on October 1, 2008. The gain on disposal, net of
corresponding income tax of approximately RMB9.0 billion, amounted to approximately RMB26.1
billion.
 The net assets of the CDMA business as of the effective date of disposal of the CDMA business
were as listed below:
 As ofNet assets disposed of:
    
    Note
    
    
    October 1, 2008Cash 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
    )Non-controlling interests
    
    
    
    
    
    
    (5
    )7,948Fair value of future service agreed in the Disposal Agreement
    
    
    40.2(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 40.2(c).
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36
    
    DISPOSAL GROUP AND DISCONTINUED OPERATIONS (Continued)
 Discontinued operations
 The results and cash flows
of the CDMA business for the period from January 1, 2008 to September 30, 2008 are
presented as discontinued operations as follows:
 For the period fromJanuary 1, 2008 toSeptember30, 2008Revenue
    
    
    22,296Expenses
    
    
    (20,389
    )Income from discontinued operations before income tax
    
    
    1,907Income tax expenses
    
    
    (469
    )Income for the period from discontinued operations
    
    
    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 period from discontinued operations
    
    
    27,573
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36
    
    DISPOSAL GROUP AND DISCONTINUED OPERATIONS (Continued)
 Discontinued operations (Continued)
 For the periodfromJanuary 1, 2008to September30, 2008Net cash inflow from operating activities
    
    
    656Net cash outflow from investing activities
    
    
    (23
    )Cash inflow from disposal of discontinued operations
    
    
    29,512Net cash inflow from investing activities
    
    
    29,489Net cash inflow from financing activities
    
    
    Net cash inflow from discontinued operations
    
    
    30,145
 The net cash outflow of approximately RMB5,039 million for discontinued operations for the year
ended December 31, 2009 represents the income tax paid on the gain on disposal of the CDMA
business in 2008 and related professional service fees paid totaling RMB9,329 million, offset by
proceeds received of approximately RMB4,290 million from the disposal of the CDMA business.
 In addition, for the year ended December 31, 2009, proceeds receivable from disposal of the CDMA
business of approximately RMB3,729 million was offset against payables in relation to disposal
of the CDMA business in accordance with a settlement agreement entered into in 2009.
 For the year ended December 31, 2010, the Group received the proceeds of approximately RMB5,121
million from China Telecom in relation to disposal of the CDMA business.
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37.
    
    DIVIDENDS
 At the annual general meeting held on May 26, 2009, the shareholders of the Company approved the
payment of a final dividend of RMB0.20 per ordinary share for the year ended December 31, 2008
totaling approximately RMB4,754 million which has been reflected as a reduction of retained
profits for the year ended December 31, 2009. As of December 31, 2009, such dividends have been
paid by the Company, except for dividends payable of approximately RMB307 million and RMB24
million due to Unicom BVI and Netcom BVI, respectively.
 At the annual general meeting held on May 12, 2010, the shareholders of the Company approved the
payment of a final dividend of RMB0.16 per ordinary share for the year ended December 31, 2009
totaling approximately RMB3,770 million which has been reflected as a reduction of retained
profits for the year ended December 31, 2010. As of December 31, 2010, such dividends have been
paid by the Company, except for dividends payable of approximately RMB431 million due to Unicom
BVI.
 At a meeting held on March 29, 2011, the Board of Directors of the Company proposed the payment
of a final dividend of RMB0.08 per ordinary share to the shareholders for the year ended
December 31, 2010 totaling approximately RMB1,885 million. This proposed dividend has not been
reflected as a dividend payable in the financial statements as of December 31, 2010, but will be
reflected as an appropriation of retained profits in the financial statements for the year
ending December 31, 2011.
 2008
    
    
    2009
    
    
    2010Proposed final dividend:RMB0.08 (2008: RMB0.20; 2009:RMB0.16) per
ordinary share by the Company
    
    
    4,754
    
    
    
    3,770
    
    
    
    1,885Dividend paid:By the Company
    
    
    2,732
    
    
    
    4,754
    
    
    
    3,770By China Netcom (Note a)
    
    
    3,499
    
    
    
    
    
    
    
    6,231
    
    
    
    4,754
    
    
    
    3,770
 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.
 Pursuant 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 November 11, 2010, the Company obtained an approval from State
Administration of Taxation, pursuant to which the Company qualifies as a PRC TRE from January
1, 2008. Therefore, as of December 31, 2010, 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.
 For the Companys non-TRE enterprise shareholders, the Company would distribute dividends after
deducting the amount of enterprise income tax payable by these non-TRE enterprise shareholders
thereon and reclassify the related dividend payable to withholding tax payable upon the
declaration of such dividends. The requirement to withhold tax does not apply to the Companys
shareholders appearing as individuals in its share register.
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38.
    
    EARNINGS PER SHARE AND ADS
 Basic earnings per share for the years ended December 31, 2008, 2009 and 2010 were computed by
dividing the income attributable to owners of the parent by the weighted average number of
ordinary shares outstanding during the years, as adjusted by the number of ordinary shares in
issue had the merger with China Netcom been completed on January 1, 2008.
 Diluted earnings per share for the years ended December 31, 2008, 2009 and 2010 were computed by
dividing the income attributable to owners of the parent by the weighted average number of
ordinary shares outstanding during the years, as adjusted by the number of ordinary shares in
issue had the merger with China Netcom been completed on January 1, 2008, after adjusting for
the effects of the dilutive potential ordinary shares. All potential ordinary shares for the
year ended December 31, 2010 arose from (i) share options granted under the amended Share Option
Scheme, (ii) share options granted under the amended Special Purpose Share Option Scheme, and
(iii) the convertible bonds, while all potential ordinary shares
for the years ended December 31,
2008 and 2009 arose from (i) share options granted under the amended Pre-Global Offering Share
Option Scheme; (ii) share options granted under the amended Share Option Scheme, (iii) share
options granted under the amended Special Purpose Share Option Scheme.
 The potential ordinary shares which are not dilutive for the year ended December 31, 2010 arose
from (i) share options with exercise price of HKD15.42 granted under the amended Share Option
Scheme and (ii) the convertible bonds with initial conversion price of HKD15.85, while the
potential ordinary shares which are not dilutive for the years ended December 31, 2008 and 2009
arose from share options with exercise price of HKD15.42 granted under the amended Pre-Global
Offering Share Option Scheme and amended Share Option Scheme, which are excluded from the
weighted average number of ordinary shares for the purpose of computation of diluted earnings
per share.
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38.
    
    EARNINGS PER SHARE AND ADS (Continued)
 The following table sets forth the computation of basic and diluted earnings per share and ADS:
 2008
    
    
    2009
    
    
    2010Numerator (in RMB millions):Income attributable to owners of the parent- Continuing operations
    
    
    2,231
    
    
    
    9,556
    
    
    
    3,851- Discontinued operations
    
    
    27,573
    
    
    
    
    
    
    
    29,804
    
    
    
    9,556
    
    
    
    3,851Denominator (in millions):Weighted average number of ordinary shares
outstanding used in computing basic earnings per
share
    
    
    23,751
    
    
    
    23,767
    
    
    
    23,562Dilutive equivalent shares arising from share options
    
    
    190
    
    
    
    128
    
    
    
    142Shares used in computing diluted earnings per share
    
    
    23,941
    
    
    
    23,895
    
    
    
    23,704Basic earnings per share (in RMB)- Continuing operations
    
    
    0.09
    
    
    
    0.40
    
    
    
    0.16- Discontinued operations
    
    
    1.16
    
    
    
    
    
    
    
    1.25
    
    
    
    0.40
    
    
    
    0.16Basic earnings per ADS (in RMB)- Continuing operations
    
    
    0.94
    
    
    
    4.02
    
    
    
    1.63- Discontinued operations
    
    
    11.61
    
    
    
    
    
    
    
    12.55
    
    
    
    4.02
    
    
    
    1.63Diluted earnings per share (in RMB)- Continuing operations
    
    
    0.09
    
    
    
    0.40
    
    
    
    0.16- Discontinued operations
    
    
    1.15
    
    
    
    
    
    
    
    1.24
    
    
    
    0.40
    
    
    
    0.16Diluted earnings per ADS (in RMB)- Continuing operations
    
    
    0.93
    
    
    
    4.00
    
    
    
    1.62- Discontinued operations
    
    
    11.52
    
    
    
    
    
    
    
    12.45
    
    
    
    4.00
    
    
    
    1.62
 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.
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39.
    
    FAIR VALUE OF FINANCIAL INSTRUMENTS
 Financial assets of the Group mainly include cash and cash equivalents, short-term bank
deposits, available-for-sale financial assets, accounts receivable, amounts due from related
parties and domestic carriers. Financial liabilities of the Group mainly include accounts
payable and accrued liabilities, short-term bank loans, commercial papers, corporate bonds,
promissory notes, long-term bank loans, convertible bonds, 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 prevailing as of December 31, 2009 and 2010.
 2009
    
    
    2010Original
    
    
    
    
    
    
    RMB
    
    
    Original
    
    
    
    
    
    
    RMBcurrency
    
    
    
    
    
    
    equivalent
    
    
    currency
    
    
    
    
    
    
    equivalentmillions
    
    
    Exchange rate
    
    
    millions
    
    
    millions
    
    
    Exchange rate
    
    
    millionsCash and cash equivalents:- denominated in HK dollars
    
    
    324
    
    
    
    0.88
    
    
    
    285
    
    
    
    462
    
    
    
    0.85
    
    
    
    393- denominated in US dollars
    
    
    86
    
    
    
    6.83
    
    
    
    585
    
    
    
    1,761
    
    
    
    6.62
    
    
    
    11,661- denominated in Euro
    
    
    26
    
    
    
    9.80
    
    
    
    258
    
    
    
    24
    
    
    
    8.81
    
    
    
    213- denominated in Japanese Yen
    
    
    14
    
    
    
    0.07
    
    
    
    1
    
    
    
    12
    
    
    
    0.08
    
    
    
    1- denominated in GBP
    
    
    0.4
    
    
    
    10.98
    
    
    
    4
    
    
    
    0.8
    
    
    
    10.22
    
    
    
    8Sub-total
    
    
    
    
    
    
    
    
    
    
    1,133
    
    
    
    
    
    
    
    
    
    
    
    12,276Short-term bank deposits:- denominated in HK dollars
    
    
    86
    
    
    
    0.88
    
    
    
    76
    
    
    
    51
    
    
    
    0.85
    
    
    
    43- denominated in US dollars
    
    
    49
    
    
    
    6.83
    
    
    
    336
    
    
    
    22
    
    
    
    6.62
    
    
    
    148Sub-total
    
    
    
    
    
    
    
    
    
    
    412
    
    
    
    
    
    
    
    
    
    
    
    191Available-for-sale financial assets:- denominated in Euro
    
    
    795
    
    
    
    9.80
    
    
    
    7,789
    
    
    
    691
    
    
    
    8.81
    
    
    
    6,087Total
    
    
    
    
    
    
    
    
    
    
    9,334
    
    
    
    
    
    
    
    
    
    
    
    18,554
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39.
    
    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. 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, 2009 and 2010 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 values as of the balance sheet date.
 In connection with the fair
values of the Groups non-current portion of long-term bank loans,
promissory notes, corporate bonds and the convertible bonds, please refer to respective notes
for details.
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40.
    
    RELATED PARTY TRANSACTIONS
 Unicom Group is a state-owned enterprise directly controlled by the PRC government. The PRC
government is the Companys ultimate controlling party. Neither Unicom 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 certain 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 mainly carried out on terms comparable to
those conducted with third parties or 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 networks 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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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.1
    
    Transactions with Unicom Group and its subsidiaries
 (a)
    
    Recurring transactions
 The following is a summary of significant recurring transactions carried out by the Group
with Unicom Group and its subsidiaries. In the directors opinion, these transactions were
carried out in the ordinary course of business.
 Note
    
    2008
    
    
    2009
    
    
    2010Transactions with Unicom Group, Netcom Group
and their subsidiaries:Continuing operations:Leasing fee of Telecommunications Networks
in Southern China
    
    (ii)
    
    
    
    
    
    
    2,000
    
    
    
    2,200Charges for mobile subscriber value-added
service
    
    (i), (iii)
    
    
    153
    
    
    
    122
    
    
    
    103Rental charges for premises, equipment and
facilities
    
    (i), (iv)
    
    
    678
    
    
    
    820
    
    
    
    867Charges for the international gateway services
    
    (i), (v)
    
    
    7
    
    
    
    5
    
    
    
    2Agency fee incurred for procurement of
telecommunications equipment
    
    (i), (vi)
    
    
    21
    
    
    
    12
    
    
    
    Charge for engineering and information
technology-related services
    
    (i), (vii)
    
    
    2,603
    
    
    
    2,786
    
    
    
    2,248Common corporate services income
    
    (viii)
    
    
    140
    
    
    
    3
    
    
    
    3Charges for common corporate services
    
    (viii)
    
    
    563
    
    
    
    266
    
    
    
    308Charges for purchases of materials
    
    (ix)
    
    
    516
    
    
    
    375
    
    
    
    382Charges for ancillary telecommunications
support services
    
    (x)
    
    
    558
    
    
    
    689
    
    
    
    953Charges for support services
    
    (xi)
    
    
    461
    
    
    
    273
    
    
    
    162Charges for lease of telecommunications
facilities
    
    (xii)
    
    
    306
    
    
    
    148
    
    
    
    149Income from information communication
technologies services
    
    (i), (xiii)
    
    
    118
    
    
    
    70
    
    
    
    8Interest expenses for long-term loans due to
ultimate holding company
    
    40.1(c)
    
    
    1,016
    
    
    
    
    
    
    
    
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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.1
    
    Transactions with Unicom Group and its subsidiaries (Continued)
 (a)
    
    Recurring transactions (Continued)
 Note
    
    
    2008
    
    
    2009
    
    
    2010Transactions with Unicom Group, Netcom
Group and their subsidiaries:Discontinued operations:Charges for mobile subscriber value-added
services
    
    (i), (iii)
    
    
    46
    
    
    
    
    
    
    
    CDMA network capacity lease rental charges
    
    (xiv)
    
    
    6,009
    
    
    
    
    
    
    
    Constructed capacity related cost of the
CDMA network
    
    (xv)
    
    
    234
    
    
    
    
    
    
    
    
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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.1
    
    Transactions with Unicom Group and its subsidiaries (Continued)
 (a)
    
    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
 (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 became effective
in January 2009.
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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.1
    
    Transactions with Unicom Group and its subsidiaries (Continued)
 (a)
    
    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 0.15% (for contracts with an amount of
more than RMB200 million) of the value of domestic equipment for such services.
 
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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.1
    
    Transactions with Unicom Group and its subsidiaries (Continued)
 (a)
    
    Recurring transactions (Continued)
 (vii)
    
    Pursuant to the Framework Agreement for Engineering and Information
Technology Services dated August 12, 2008 and Engineering and Information
Technology Services Agreement 2008-2010 entered between CUCL and Unicom Group, the
charges payable by CUCL for the above services are determined with reference to
market rates and are settled when the relevant services are provided.(viii)
    
    Pursuant to Master Sharing Agreement 2008-2010 entered between CUCL and Unicom
Group, expenses associated with common corporate services is allocated between CUCL
and Unicom Group based on total assets as appropriate.(ix)
    
    Pursuant to Materials Procurement Agreement 2008-2010 entered between
CUCL and Unicom Group, the charges payable by CUCL to Unicom Group are based on
market rates or cost-plus basis.(x)
    
    Pursuant to the Framework Agreement for Ancillary Telecommunications
Services dated August 12, 2008 and Ancillary Telecommunications Services Agreement
2008-2010 entered between CUCL and Unicom Group, Unicom 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.(xi)
    
    Pursuant to the Framework Agreement for Support Services dated August
12, 2008 and Support Services Agreement 2008-2010 entered between CUCL and Unicom
Group, Unicom 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.(xii)
    
    Pursuant to the Framework Agreement for Telecommunications Facilities
Leasing dated August 12, 2008 and Telecommunications Facilities Leasing Agreement
2008-2010 entered between CUCL and Unicom Group, CUCL agreed to lease the
international telecommunications facilities and inter-provincial transmission optic
fibers from Unicom Group. The lease payment is based on the depreciation charge of
the leased assets.
 
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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.1
    
    Transactions with Unicom Group and its subsidiaries (Continued)
 (a)
    
    Recurring transactions (Continued)
 (xiii)
    
    Pursuant to Information and Communications Technology Agreement 2008-2010 entered
between System Integration Corporation and Unicom Group, System Integration
Corporation, agreed to provide information communications technology services to
Unicom 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 Unicom Group in Unicom
Groups southern service region in the PRC. The charges payable by Unicom Group are
based on market value.(xiv)
    
    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.
The Group accounted for the lease of the CDMA networks as an
operating lease.
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.(xv)
    
    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.(xvi)
    
    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.
 
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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.1
    
    Transactions with Unicom Group and its subsidiaries (Continued)
 (b)
    
    None-recurring 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 and its subsidiariesAmounts due to related parties as of December 31, 2010 included an unsecured
short-term loan from Netcom BVI of approximately HKD2,390 million
(equivalent to RMB2,033 million) (2009: HKD2,390 million
(equivalent to 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. The loan was
extended for another one year on June 12, 2010 and is repayable on June 16, 2011 with
an interest rate of HIBOR plus 0.8% per annum.Long-term loans due to ultimate holding company primarily represented the long-term
intercompany loans for the financing of the construction of the Telecommunications
Networks in Southern China, amounting to approximately RMB35,652 million as of
December 31, 2008. The loans are unsecured, interest bearing, and repayable on demand
after the period of twelve months from the balance sheet date as of December 31,
2008. The interest expenses in relation to the long-term loans due to ultimate
holding company were calculated based on the interest rate of 5.40% per annum for the
years ended December 31, 2008. Upon the completion of the 2009 Business Combination
effective from January 2009, the long-term loans have been treated as a distribution
from reserves by the Group to ultimate holding company. For details, please refer to
note 4.2(b).Apart from the short-term loan from Netcom BVI and long-term loans due to ultimate
holding company as aforementioned, amounts due from and to related parties, Unicom
Group, and its 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 and its subsidiaries as described in
(a) and (b) above.
 
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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.1
    
    Transactions with Unicom Group and its subsidiaries (Continued)
 (d)
    
    Renewal of continuing connected transactions in October 2010The agreements governing the recurring related party transactions disclosed in (a)
above between the Group and Unicom Group and its subsidiaries were expired on
December 31, 2010. Accordingly, on October 29, 2010, CUCL entered into the new
agreements, 2011-2012 Network Lease Agreement with Unicom New Horizon, and 2011
Comprehensive Services Agreement with Unicom Group to renew certain continuing
connected transactions. Major changes of the key terms between the new agreements and
the previous agreements are set out as follows:  2011-2012 Network Lease AgreementPursuant to 2011-2012 Network Lease Agreement, the Lease has extended to another two
years effective from January 1, 2011 to December 31, 2012 and 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. The annual fee payable by CUCL for
the Lease for the two years ending December 31, 2011 and 2012 is RMB2.4 billion and
RMB2.6 billion, respectively.  2011 Comprehensive Services Agreement2011 Comprehensive Services Agreement has a term of three years commencing on January
1, 2011 and expiring on December 31, 2013, and the service fees payable shall be
calculated on the same basis as under previous agreements. In addition, as a result
of the 2009 Business Combination, certain connected transactions under previous
agreements are not regarded as related party transactions under 2011 Comprehensive
Services Agreement, but as inter-company transactions within the Group.
 
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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.2
    
    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 GroupNote
    
    2008
    
    
    2009
    
    
    2010Interconnection revenue
    
    (i)
    
    
    11,135
    
    
    
    12,083
    
    
    
    12,165Interconnection charges
    
    (i)
    
    
    10,901
    
    
    
    11,740
    
    
    
    12,564Leased line revenue
    
    (ii)
    
    
    608
    
    
    
    433
    
    
    
    346Leased line charges
    
    (ii)
    
    
    252
    
    
    
    102
    
    
    
    113Engineering design and technical service revenue
    
    (iii)
    
    
    197
    
    
    
    287
    
    
    
    208
 (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.
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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.2
    
    Domestic carriers
 (b)
    
    Amounts due from and to domestic carriers
 2009
    
    
    2010Amounts due from domestic carriers- Receivables for interconnection
revenue, leased line revenue and
engineering design and technical
service revenue
    
    
    1,205
    
    
    
    1,296- Less: Provision for doubtful debts
    
    
    (71
    )
    
    
    (35
    )1,134
    
    
    
    1,261Amounts due to domestic carriers- Payables for interconnection
charges and leased lines charges
    
    
    1,136
    
    
    
    873
 All amounts due from and to domestic carriers are unsecured, interest-free and
repayable within one year.
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40.
    
    RELATED PARTY TRANSACTIONS (Continued)
 40.2
    
    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 36.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, 2009 and 2010, the balances due (to)/from China Telecom in
relation to disposal of the CDMA business are as follows:
 2009
    
    
    2010Payables- Advances from customers received on behalf of
China Telecom
    
    
    (7
    )
    
    
    Proceeds receivable
    
    
    5,121
    
    
    
    
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41.
    
    CONTINGENCIES AND COMMITMENTS
 41.1
    
    Capital commitments
 As of December 31, 2009 and 2010, the Group had capital commitments, mainly in relation
to the construction of telecommunications networks, as follows:
 2009
    
    
    2010Land andTotal
    
    
    buildings
    
    
    Equipment
    
    
    TotalAuthorized and contracted for
    
    
    8,810
    
    
    
    393
    
    
    
    5,687
    
    
    
    6,080Authorized but not contracted for
    
    
    4,030
    
    
    
    180
    
    
    
    2,123
    
    
    
    2,303Total
    
    
    12,840
    
    
    
    573
    
    
    
    7,810
    
    
    
    8,383
 As of December 31, 2009 and 2010, no capital commitments were denominated in US
dollars.
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41.
    
    CONTINGENCIES AND COMMITMENTS (Continued)
 41.2
    
    Operating lease commitments
 As of December 31, 2009 and 2010, the Group had total future aggregate minimum lease
payments under non-cancellable operating leases as follows:
 2009
    
    
    2010Tele-communicationsnetworks inLand and
    
    
    
    
    
    
    Southern ChinaTotal
    
    
    buildings
    
    
    Equipment
    
    
    (Note 1(b))
    
    
    TotalLeases expiring:- not later than one year
    
    
    4,109
    
    
    
    1,713
    
    
    
    133
    
    
    
    2,400
    
    
    
    4,246- later than one year
and not later than five
years
    
    
    3,615
    
    
    
    3,401
    
    
    
    206
    
    
    
    2,600
    
    
    
    6,207- later than five years
    
    
    1,179
    
    
    
    907
    
    
    
    43
    
    
    
    
    
    
    
    950Total
    
    
    8,903
    
    
    
    6,021
    
    
    
    382
    
    
    
    5,000
    
    
    
    11,403
 41.3
    
    Contingent liabilities
 As aforementioned in Note 28, 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 continuous discussions with MIIT and NDRC,
management considered that the Group complied with the regulations issued by the
relevant government authorities, and the likelihood of material future cash outflow as a
result of the investigation is remote. Accordingly, no provisions were recorded as of
December 31, 2009 and 2010.
 41.4
    
    Guarantee
 The Company provides guarantee in favour of the convertible bondholders in respect
of the outstanding convertible bonds issued by Billion Express amounted to
USD1,838,800,000 as of December 31, 2010 (Note 22).
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42.
    
    EVENTS AFTER THE REPORTING PERIOD
 (a)
    
    Proposed dividend
 After the reporting period, the Board of Directors proposed a final dividend for 2010. For
details, please refer to Note 37.(b)
    
    Agreement of additional investments between the Company and Telefónica
 On January 23, 2011, the Company entered into a strategic agreement with Telefónica that:
(a) Telefónica would purchase ordinary shares of the Company for a consideration of USD500
million through acquisition from third parties; and (b) the Company would acquire from
Telefónica 21,827,499 ordinary shares of Telefónica held in treasury (Telefónica Treasury
Shares) for an aggregate purchase price of Euro374,559,882.84. On January 25, 2011, the
Company completed the purchase of Telefónica Treasury Shares in accordance with the
strategic agreement.(c)
    
    Issue of super and short-term commercial papers
 On March 10, 2011, CUCL issued two tranches of super and short-term commercial papers in the
amount of RMB8 billion for each tranche. The paper has a maturity period of 180 days and
carries interests at 3.88% per annum.
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43.
    
    COMPARATIVE FIGURES
 The comparative figure has been reclassified to conform to current year presentation by
including Leasing fee for telecommunications networks in Southern China of RMB2.0 billion into
Networks, operations and support expenses in the consolidated statement of income for the year
ended December 31, 2009.
 44.
    
    APPROVAL OF FINANCIAL STATEMENTS
 The financial statements were approved by the Board of Directors on May 24, 2011.
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