**Exhibit 4.35**

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**20 JUNE****2006**

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**CHINA UNICOM LIMITED**

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**SK TELECOM CO., LTD.**

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**SUBSCRIPTION AGREEMENT**

**relating to U.S.$1,000,000,000 ZeroCouponConvertible Bonds due 2009convertible into ordinary shares ofCHINA UNICOM LIMITED**

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**TABLEOF CONTENTS**
| Clause | ** ** | ** **                                                                                        | ** ** | **Page** | ** ** |
|--------|------------|---------------------------------------------------------------------------------------------------|------------|----------|------------|
| 1      |       | ISSUE AND  SUBSCRIPTION OF THE BONDS                                                              |       | 1        |       |
|   |       |                                                                                              |       |     |       |
| 2      |       | REPRESENTATIONS  AND WARRANTIES                                                                   |       | 1        |       |
|   |       |                                                                                              |       |     |       |
| 3      |       | COVENANTS                                                                                         |       | 6        |       |
|   |       |                                                                                              |       |     |       |
| 4      |       | EXPENSES                                                                                          |       | 8        |       |
|   |       |                                                                                              |       |     |       |
| 5      |       | CLOSING                                                                                           |       | 8        |       |
|   |       |                                                                                              |       |     |       |
| 6      |       | CONDITIONS  PRECEDENT                                                                             |       | 8        |       |
|   |       |                                                                                              |       |     |       |
| 7      |       | INDEMNIFICATION                                                                                   |       | 9        |       |
|   |       |                                                                                              |       |     |       |
| 8      |       | TERMINATION                                                                                       |       | 9        |       |
|   |       |                                                                                              |       |     |       |
| 9      |       | SURVIVAL OF  REPRESENTATIONS AND OBLIGATIONS                                                      |       | 10       |       |
|   |       |                                                                                              |       |     |       |
| 10     |       | NOTICES                                                                                           |       | 10       |       |
|   |       |                                                                                              |       |     |       |
| 11     |       | GOVERNING LAW  AND SUBMISSION TO JURISDICTION                                                     |       | 11       |       |
|   |       |                                                                                              |       |     |       |
| 12     |       | COUNTERPARTS                                                                                      |       | 12       |       |
|   |       |                                                                                              |       |     |       |
| 13     |       | ASSIGNMENT                                                                                        |       | 12       |       |
|   |       |                                                                                              |       |     |       |
| 14     |       | ENTIRE AGREEMENT                                                                                  |       | 12       |       |
|   |       |                                                                                              |       |     |       |
| 15     |       | TIME OF THE  ESSENCE                                                                              |       | 12       |       |
|   |       | SCHEDULE 1 FORM OF BOND CERTIFICATE                                                          |       | 15       |       |
|   |       |                                                                                              |       |     |       |
| 1      |       | FORM,  DENOMINATION AND STATUS                                                                    |       | 17       |       |
|   |       |                                                                                              |       |     |       |
| 2      |       | NEGATIVE PLEDGE                                                                                   |       | 17       |       |
|   |       |                                                                                              |       |     |       |
| 3      |       | TITLE; TRANSFER  OF BONDS; ISSUE OF CERTIFICATES                                                  |       | 19       |       |
|   |       |                                                                                              |       |     |       |
| 4      |       | ZERO COUPON                                                                                       |       | 21       |       |
|   |       |                                                                                              |       |     |       |
| 5      |       | PAYMENTS                                                                                          |       | 21       |       |
|   |       |                                                                                              |       |     |       |
| 6      |       | CONVERSION                                                                                        |       | 21       |       |
|   |       |                                                                                              |       |     |       |
| 7      |       | COVENANTS IN  RELATION TO THE CONVERSION RIGHT                                                    |       | 33       |       |
|   |       |                                                                                              |       |     |       |
| 8      |       | REPRESENTATIONS AND WARRANTIES OF THE BONDHOLDERS IN  RELATION TO THE CONVERSION SHARES |       | 36       |       |
|   |       |                                                                                              |       |     |       |
| 9      |       | REDEMPTION AND  PURCHASE                                                                          |       | 36       |       |
|   |       |                                                                                              |       |     |       |
| 10     |       | PRESCRIPTION                                                                                      |       | 39       |       |
|   |       |                                                                                              |       |     |       |
| 11     |       | EVENTS OF  DEFAULT                                                                                |       | 39       |       |
|   |       |                                                                                              |       |     |       |
|   |       |                                                                                              |       |     |       |
| 12     |       | REPLACEMENT OF  CERTIFICATES                                                                      |       | 41       |       |
|   |       |                                                                                              |       |     |       |
| 13     |       | NOTICES                                                                                           |       | 41       |       |
|   |       |                                                                                              |       |     |       |
| 14     |       | MODIFICATION AND  WAIVER                                                                          |       | 41       |       |
|   |       |                                                                                              |       |     |       |
| 15     |       | CURRENCY INDEMNITY                                                                                |       | 41       |       |
|   |       |                                                                                              |       |     |       |
| 16     |       | GOVERNING LAW                                                                                     |       | 42       |       |
|   |       |                                                                                              |       |     |       |
| 17     |       | SUBMISSION TO  JURISDICTION                                                                       |       | 42       |       |
|   |       | SCHEDULE 2 PART A CONVERSION MECHANICS                                                       |       | 43       |       |
|   |       | PART B FORM OF LONG FORM CONVERSION  NOTICE                                        |       | 44       |       |
|   |       | PART C  FORM OF SHORT FORM CONVERSION NOTICE                                       |       | 48       |       |

 

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**ThisSUBSCRIPTION AGREEMENT** is made on 20 June 2006

**BETWEEN**

**(1)           CHINA UNICOM LIMITED**(the“**Company**”); and

**(2)           SK TELECOM CO., LTD.**(“**SKT**”).

The Company proposes toissue to SKT an aggregate principal amount of U.S.$1,000,000,000 zero coupon convertible bonds due 2009 (the “**Bonds**”)convertible into ordinary shares (“**Shares**”)of HK$0.10 each in the capital of the Company to be listed on The StockExchange of Hong Kong Limited (the “**StockExchange**”) subject to the conditions herein. The Company’s ordinaryshares in issue (the “**Issued Shares**”)are listed on the Stock Exchange.

Now it is hereby agreedas follows:

**1              Issueand Subscription of the Bonds**

Subject as provided herein, the Company agrees to issue the Bonds andSKT hereby agrees to subscribe and pay for the principal amount of the Bonds,on the terms set out in Schedule 1, at an issue price of 100 per cent. ofthe principal amount of the Bonds (the “**IssuePrice**”) on 5 July 2006 or on such other date as theCompany and SKT may agree (the “**Closing Date**”),which may not be later than 12 July 2006.

**2              Representationsand Warranties**

**2.1          Representations and Warranties of theCompany**

As conditions of theagreement by SKT to subscribe and pay for the Bonds and in considerationthereof, the Company represents and warrants and undertakes to SKT on the datehereof, and shall be deemed to represent and warrant and undertake to SKT onthe Closing Date:

**2.1.1****                        Incorporation**:each of the Company and its Principal Subsidiaries (as defined in theConditions) is duly incorporated and validly existing under the relevant lawsof the place of incorporation, with full power and authority to own itsproperties and to conduct its business as currently conducted and is not inliquidation or receivership;

**2.1.2****                        Agreements**:this Agreement and the Bonds have been duly authorised, executed and deliveredby it and this Agreement constitutes, and the Bonds shall on issue constitute,its valid and legally binding obligations enforceable in accordance with theirrespective terms, and the performance by it of the obligations to be assumed byit under this Agreement and the Bonds have been duly authorised by allnecessary corporate or other action (except in relation to the listing of theShares falling to be allotted and issued upon the exercise of the ConversionRights (the “**Conversion Shares**”)on the Stock Exchange which will be obtained on or prior to the Closing Date);

**2.1.3****                        Authorisation**:it has the necessary power and authority to enter into this Agreement and issuethe Bonds;

**2.1.4****                     AuthorisedShare Capital:**the Company has sufficient authorised but unissued sharecapital to satisfy the issue of such number of Conversion Shares as would berequired to be issued on conversion of all the Bonds at the initial conversionprice;

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**2.1.5****                     ConversionShares:**the Conversion Shares, when issued and delivered in the mannercontemplated by the Bonds:

(i)                                   will be dulyand validly issued, fully-paid and non-assessable;

(ii)                                will rank *pari passu* and carry the same rights andprivileges in all respects as any other class of ordinary share capital of theCompany and shall be entitled to all dividends and other distributionsdeclared, paid or made thereon save as provided for in the Conditions; and

(iii)                             will befreely transferable, free and clear of all liens, charges, encumbrances,security interests or claims of third parties and will not be subject to callsfor further funds;

**2.1.6        Pre-emptiveRights and Options:**

(i)                                   the issue ofthe Conversion Shares will not be subject to any pre-emptive or similar rights;

(ii)                                except theoptions outstanding under the Company’s****publicly disclosed share option schemes,there are no outstanding securities issued by the Company or its PrincipalSubsidiaries convertible into or exchangeable for, or warrants, rights oroptions, or agreements to grant warrants, rights or options, to purchase or tosubscribe for Shares from the Company or its Principal Subsidiaries;

(iii)                             other than:

(aa)                                 the issue ofthe Bonds (and the Conversion Shares upon conversion of the Bonds);

(bb)                               any sharerepurchase mandate approved by the shareholders of the Company; and

(cc)                                 any publiclydisclosed share option schemes,

there are noarrangements approved by the Board of Directors of the Company or a generalmeeting of shareholders of the Company providing for the issue or purchase ofShares or the subscription for Shares; and

(iv)                            other thanthe issue of the Bonds, no unissued share capital of the Company is underoption or agreed conditionally or unconditionally to be put under option exceptpursuant to the Company’s****publiclydisclosed share option schemes;

**2.1.7****                     SubsidiaryHolding**: all the outstanding shares of capital stock or other equity orcooperative interests of each Principal Subsidiary of the Company have beenduly and validly authorised and issued, are fully paid or contributed and areowned directly or indirectly by the Company, free and clear of all liens,charges, encumbrances, security interests, restrictions on voting or transferor claims of any third party;

**2.1.8****                     ListingRules:** the****Company is incompliance with and will comply with all applicable laws and the applicablerequirements of the Rules Governing the Listing of Securities on The StockExchange of Hong Kong Limited (the “**ListingRules**”) with respect to the Shares and in particular the Company hascomplied at all times with the disclosure requirements under the Listing Rules andthe Company****willcomply with all applicable laws and the applicable requirements of the StockExchange in connection with the issue of the Bonds and the Conversion Shares;

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**2.1.9****                     FinancialStatements:**the consolidated financial statements of the Company and itsSubsidiaries taken as a whole (the “**Consolidated****Group**”) for the three years ended 31 December 2005 andfor the financial quarters ended 31 March 2005 and 31 March 2006,in each case, publicly available on the date hereof were prepared in accordancewith the Hong Kong Financial Reporting Standards and the Hong Kong AccountingStandards and present a true and fair view of the financial position of the Companyand of the Consolidated Group as at the dates, and the results of operationsand changes in financial position of the Company and of the Consolidated Groupfor the periods in respect of which they have been prepared;

**2.1.10****                 ContingentLiabilities**: there are no material outstanding guarantees or contingentpayment obligations of the Company and its Principal Subsidiaries in respect ofindebtedness of third parties as disclosed in the financial statements referredto in Clause 2.1.9; each of the Company and its Principal Subsidiaries is incompliance with all of its obligations under any outstanding guarantees orcontingent payment obligations disclosed in such financial statements exceptfor any non-compliance which would not singly or in the aggregate, (i) have a material adverseeffect on the financial condition, prospects, results of operations, generalaffairs or properties of the Company or the Consolidated Group, or (ii) materiallyand adversely affect the ability of the Company to perform its obligationsunder this Agreement or the Bonds, or (iii) otherwise be consideredmaterial in the context of the issue of the Bonds (a “**Material Adverse Effect**”);

**2.1.11****                 Liquidity andCapital Resources**: other than as has previously been publicly disclosed,neither the Company nor any of its Principal Subsidiaries has any materialrelationships with unconsolidated entities that are contractually limited tonarrow activities that facilitate the transfer of or access to assets by theCompany or any of its Principal Subsidiaries, such as structured financeentities and special purpose entities that are reasonably likely to have amaterial effect on the liquidity of the Company or any of its PrincipalSubsidiaries or the availability thereof or the requirements of the Company orany of its Principal Subsidiaries for capital resources;

**2.1.12****                 Title:**otherthan as has previously been publicly disclosed,****the Company and its Principal Subsidiaries have such title toall properties and assets necessary to conduct the business now operated bythem in each case free from liens, encumbrances and title defects that wouldadversely affect the value thereof or interfere with the use made or to be madethereof by them such as to cause a Material Adverse Effect;

**2.1.13****                 Approvals:**each of the Company and its PrincipalSubsidiaries:

(i)                                     possessesor has obtained all licenses, permits, concessions, certificates, consents,orders, approvals and other authorisations (the “**Authorisations**”)from, and has made all declarations and filings with, all national, state,local and other governmental authorities (including foreign regulatoryagencies), all self-regulatory organisations and all courts and othertribunals, domestic or foreign, necessary to own or lease, as the case may be,and to operate its properties and to carry on its business as conducted as ofthe date hereof;

(ii)                                  hasnot received and does not expect to receive any notice of proceedings relatingto the revocation or modification of any such Authorisations; and

(iii)                               is in compliance withsuch Authorisations and all laws and regulations relating to the conduct of itsbusiness as conducted as of the date hereof,

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except (in each case of (i), (ii) and (iii) above) for anynon-compliance which would not singly or in the aggregate, have a MaterialAdverse Effect;

**2.1.14****                 Payment of Taxes:**other than as has previously been publicly disclosed, the Company and itsPrincipal Subsidiaries have duly and timely filed all tax returns that arerequired to be filed in all jurisdictions or have duly requested extensionsthereof and have paid all taxes required to be paid by any of them in alljurisdictions and any related assessments, fines or penalties, except for anysuch tax, assessment, fine or penalty that is being contested in good faith andby appropriate proceedings or where the failure to file or make payment wouldnot, singly or in the aggregate, have a Material Adverse Effect;

**2.1.15****                 IntellectualProperty:**

(i)                                  each of theCompany and its Principal Subsidiaries owns or possesses, has the right to usepursuant to licence, sublicence, agreement, permission or otherwise, or canacquire on reasonable terms, adequate patents, patent rights, licences,inventions, copyrights, know-how (including trade secrets and other unpatentedand/or unpatentable proprietary or confidential information, systems orprocedures), trademarks, service marks, domain names, trade names or otherintellectual property (collectively, “**IntellectualProperty**”) necessary to carry on the business now operated by it ineach country in which it operates, and neither the Company nor any of itsPrincipal Subsidiaries has received any notice or is otherwise aware of anyinfringement of or conflict in any jurisdiction with asserted rights of otherswith respect to any Intellectual Property or of any facts or circumstanceswhich would render any Intellectual Property invalid or inadequate to protectthe interest of the Company or any of its Principal Subsidiaries therein, andwhich infringement or conflict (if the subject of any unfavourable decision,ruling or finding) or invalidity or inadequacy, singly or in the aggregate,would have a Material Adverse Effect;

(ii)                               each of theCompany and its Principal Subsidiaries is not infringing or in conflict with,or using in violation of any applicable law or contractual or fiduciaryobligation binding upon any of the foregoing or any of its directors orexecutive officers or any of its employees or agents except for anyinfringement, conflict or violation which would not singly or in the aggregate,have a Material Adverse Effect; and

(iii)                            each of theCompany and its Principal Subsidiaries has not received any notice ofinfringement of, or conflict with, asserted rights of others with respect toits Intellectual Property except for any infringement or conflict which wouldnot singly or in the aggregate, have a Material Adverse Effect;

**2.1.16****                 Information:**allinformation supplied or disclosed including, without limitation, the answersand documents provided at due diligence meetings (and any new or additionalinformation serving to update or amend such information supplied or disclosedby the Company to SKT****orthe legal and other professional advisers to SKT) is, and all publiclyavailable information and records of the Company disclosed to the generalpublic pursuant to the Listing Rules was, when supplied or published, trueand accurate and not misleading in any material respect and all forecasts,opinions and estimates relating to the Company****and its Principal Subsidiaries so supplied ordisclosed have been made after due, careful and proper consideration, are basedon reasonable assumptions and represent reasonable and fair 

 

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expectations honestly held based on facts known to the Company and theCompany is not in possession of any material non-public information relating tothe Company or its business the release of which could materially affect thetrading price of the Shares and there is not in existence any material orinformation relating to the Company or its Principal Subsidiaries which will berequired to be disclosed by the Company under the Listing Rules;

**2.1.17****                 Consents**: allconsents, approvals, authorisations, orders, registrations or qualifications ofor with any governmental agency or body having jurisdiction over the Companyrequired to be obtained on the part of the Company for the execution anddelivery of this Agreement, the issue and delivery of the Bonds and theConversion Shares (except in relation to the listing of the Conversion Shareson the Stock Exchange which will be obtained on or prior to, and will remain infull force and effect on, the Closing Date) and the consummation of the othertransactions herein and therein contemplated have been obtained and are in fullforce and effect and are not subject to any conditions which are required to besatisfied prior to the date hereof and have not been satisfied;

**2.1.18****                 No conflict**:the execution and delivery by or on behalf of the Company of this Agreement,the issue and delivery of the Bonds, the consummation of the transactionsherein and therein contemplated and compliance with the terms hereof andthereof (i) do not conflict with or result in a breach of the memorandumand articles of association of the Company or any existing applicable law,rule, regulation, order or decree of any government, governmental body or courthaving jurisdiction over the Company or any of its Principal Subsidiaries; and (ii) donot conflict with or result in a breach of any of the terms or provisions of,or constitute a default under, any agreement or instrument to which the Companyis a party or by which any of its properties or assets are bound, whichconflict, breach or default could materially adversely affect the legality,validity or enforceability of this Agreement and the Bonds or could materiallyadversely affect the Company’s ability to perform its obligations hereunder andthereunder or is otherwise material in the context of the issue and offering ofthe Bonds;

**2.1.19      Litigation**: save as previously publiclydisclosed:

(i)                                     thereare no governmental or regulatory investigations nor any pending actions, suitsor proceedings against or affecting the Company or any of its PrincipalSubsidiaries or any of their respective directors, officers, employees orproperties which if determined adversely to the Company or any of its PrincipalSubsidiaries or any of their respective directors, officers or employers wouldindividually or in the aggregate have a Material Adverse Effect and so far asthe Company is aware, no such investigation, actions, suits or proceedings arethreatened or contemplated; and

(ii)                                  thereis no order, decree or judgment of any court or governmental agency orregulatory body outstanding or anticipated against the Company or any PrincipalSubsidiary which may have or has had a Material Adverse Effect;

**2.1.20****                 Events of Default**:no event has occurred or circumstance arisen which, had the Bonds already beenissued, might (whether or not with the giving of notice and/or the passage oftime and/or the fulfillment of any other requirement) constitute an event ofdefault under the Bonds;

**2.1.21****                 Absence ofCertain Changes**: since 31 March 2006 with respect to the Company,there has been no change which has a Material Adverse Effect. Neither the 

 

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Company nor any of its Principal Subsidiaries has taken any steps toseek protection pursuant to any bankruptcy law;

**2.1.22****                 No UndisclosedEvents, Liabilities, Developments or Circumstances**: no event, liability,development or circumstance has occurred or exists which would have a MaterialAdverse Effect; and

**2.1.23****                 EmployeeRelations**:  neither the Company norany of its Principal Subsidiaries is involved in any material union labourdispute.

**2.2          Representationsand Warranties of SKT**

As conditions of theagreement by the Company to issue the Bonds to SKT, SKT represents and warrantsand undertakes to the Company that:

**2.2.1**                        it has full power to enter intoand perform this Agreement and this Agreement will, when executed, constituteits valid and legally binding obligations enforceable in accordance with itsterms;

**2.2.2**                        all governmental, regulatoryand other approvals, authorisations and consents and licences required to beobtained by it in connection with the execution of this Agreement, theperformance of the obligations under this Agreement, the subscription of theBonds, the exercise of the Conversion Rights, and the transfer, delivery andholding of the Conversion Shares have been obtained by the Company except forany such approvals, authorisations, consents or licences which will prior tothe Closing Date be obtained and is, or will on the Closing Date be, in fullforce and effects;

**2.2.3**                        it understands and acknowledgesthat no action has been or will be taken in any jurisdiction that would permitan offer and/or sale to the public of the Bonds or the Conversion Shares, orpossession or distribution of any offering or publicity material relating tothe Bonds in any jurisdiction, except for offers and sales of the ConversionShares on or through the Stock Exchange at any time after such issue. It agreesthat it will not, directly or indirectly, offer, sell or deliver any Bonds orConversion Shares or distribute or publish any prospectus, form of application,offering circular, advertisement or other offering material in connectiontherewith in any country or jurisdiction except under circumstances that willresult in compliance with any applicable law and regulations; and

**2.2.4**                        it is not a U.S. Person (asdefined in Rule 902 of Regulation S under the United States Securities Actof 1933, as amended (the “**Securities Act**”))and is acquiring the Bonds in an offshore transaction in reliance on RegulationS under the Securities Act.

In this Agreement, “**business day**”means a day on which the Stock Exchange is open for trading in Hong Kong (whichends at 4.30pm (Hong Kong time)) and banks are generally open for business inSeoul.

**3              Covenants**

**3.1          Covenants of the Company**

The Company agrees withSKT that:

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**3.1.1****                        Warranties**:it shall notify SKT as soon as reasonably practicable and in any event withinfive business days of any event or development making untrue, or any materialchange affecting, any of its representations, warranties, undertakings,agreements or indemnities herein at any time, in respect of the Bonds, prior topayment being made on the Closing Date, and will take such steps as may bereasonably requested by SKT to remedy the same, provided that SKT shall onlyuse such information from the Company to the extent permissible under theListing Rules and the applicable laws and regulations;

**3.1.2****                        Directedselling efforts**: neither the Company, nor any of its affiliates, nor anyperson acting on its or their behalf has engaged or will engage in any directedselling efforts (as defined in Regulation S under the Securities Act) withrespect to the Bonds and none of such persons has taken, or will take, anyactions that would results in the sale of the Bonds to SKT under this Agreementrequiring registration under the Securities Act;

**3.1.3****                        Delivery**:it will make arrangements reasonably satisfactory to SKT to ensure thatcertificates for the Bonds are printed and delivered from time to time to or tothe order of SKT as provided in this Agreement and the Terms and Conditions ofthe Bonds;

**3.1.4        Listing**:

(a)                                     itwill use its best endeavours to obtain approval from the Stock Exchange of thelisting of the Conversion Shares upon issue; and

(b)                                    itwill use its best endeavours to maintain or procure the maintenance of listingof all the issued and outstanding Shares (including, when issued, theConversion Shares) on the Stock Exchange; and

**3.1.5****                     Confidentiality**:the Company shall keep confidential the terms of this Agreement and the Bondsand all discussions and negotiations relating thereto, and will not disclosethe same to any other person or entity without the prior written consent ofSKT, unless such disclosure is to its professional advisers, or such disclosureis required by law, regulations, rules, codes or court order or any relevantgovernment or regulatory authority or the Listing Rules or otherwise bythe Stock Exchange, the New York Stock Exchange, the Securities and ExchangeCommission of the United States, or other regulatory authorities.

**3.2          Covenant of SKT**

SKT agrees with the Company that SKT shall keep confidential the termsof this Agreement and the Bonds and all discussions and negotiations relatingthereto, and will not disclose the same to any other person or entity withoutthe prior written consent of the Company, unless such disclosure is to itsprofessional advisers, or such disclosure is required by law, regulations,rules, codes or court order or any relevant government or regulatory authorityor the Listing Rules or otherwise by the Stock Exchange, the New YorkStock Exchange, the Securities and Exchange Commission of the United States, orother regulatory authorities.

**3.3          Covenant relating to transfer**

The Company andSKT agree and covenant with each other that at any time after 5 July 2007,SKT may invite(an “**invitation**”)****the Company to offer to acquire some orall of the Bonds registered in SKT’sname.

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If within 10 daysof the invitation, either (i) the Company does not make an offer to SKT toacquire such Bonds or (ii) the highest offer price (the “**Company Offer Price**”) at which the Companyoffers to SKT to acquire such Bonds is not acceptable to SKT, SKT may thenfreely assign or transfer any of such Bonds to any third party (a “**third party purchaser**”) provided that anysuch assignment or transfer to a third party purchaser shall not be at a pricewhich is lower than or equal to the Company Offer Price.

If within 10 days of the invitation, the Company makes an offer to SKTto redeem such Bonds at an offer price which is acceptable to SKT, theacquisition of such Bonds by the Company shall be completed within 30 daysafter the date of acceptance by SKT of the offer.

**4              Expenses**

**4.1****                            Expenses**:Each of the Company and SKT shall bear its own costs and expenses in connectionwith negotiations, preparation, execution and carrying into effect of thisAgreement, the Bonds and all other documents relating hereto and thereto.

**4.2****                            Taxes**:SKT shall bear any documentary, stamp or similar transfer tax as well as anyother transfer expenses, on the initial subscription and the delivery of theBonds in accordance with the terms of this Agreement, or on the execution anddelivery of this Agreement, which is or may be required to be paid under thelaws of any jurisdiction.

**5              Closing**

**5.1**                            On or before 5p.m. (HongKong time) on the Closing Date, SKT shall pay or cause to be paid to theCompany the aggregate subscription funds in respect of the Bonds (being anamount of U.S.$1,000,000,000 in same day settlement funds for value on theClosing Date) to the Company’s U.S.$ bank account at China Construction BankCorporation Hong Kong Branch (account number 671-00762-2-302; for the account of: China Unicom Limited) or such other U.S.$ bank account asshall have been notified by the Company to SKT no later than three days priorto the Closing Date. Against payment of the aggregate subscription funds inrespect of the Bonds, the Company will procure entry in the Company’s registerof Bondholders of the name of SKT to be the holder of the Bonds and there shallbe delivered to or to the order of SKT (i) a certificate, duly executed,representing the aggregate principal amount of the Bonds and substantially inthe form set out in Schedule 1 with such changes as may be approved by SKT andthe Company in writing and (ii) a certified true copy by an authorisedsignatory of the Company of the Company’s register of Bondholders as at theClosing Date.

**6              ConditionsPrecedent**

**6.1**                            The obligation of SKT tosubscribe and pay for the Bonds is subject to satisfaction or waiver of thefollowing conditions precedent:

**6.1.1****                        Compliance**:up to and on the Closing Date (i) all the representations and warrantiesof the Company set forth herein shall be accurate and correct in all materialrespects at, and as if made on, the Closing Date (with reference to thecircumstances then subsisting); and (ii) the Company shall have performedall of its undertakings or obligations hereunder to be performed on or beforethe Closing Date;

**6.1.2****                        Certificate**:there shall have been delivered to SKT a certificate, dated as of the ClosingDate, of a duly authorised officer of the Company, to the effect of the mattersset out in paragraph 6.1.1 above;

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**6.1.3****                        Legalopinion:**on or prior to the Closing Date there shall be delivered to SKT ina form reasonably satisfactory to SKT an opinion, dated the Closing Date, ofFreshfields Bruckhaus Deringer, legal advisors to the Company as to Hong Konglaw, and

**6.1.4****                        ListingApproval:** on or prior to the Closing Date:

(i)                                     theCompany shall have obtained from the Stock Exchange listing approval inrelation to the Conversion Shares (as defined in the Conditions); and

(ii)                                  SKTshall have made a foreign exchange report to the Bank of Korea (having usedbest endeavours so to report).

Subject to paragraph 6.2, if any of the conditions set forth in thisparagraph 6.1 is not satisfied on or before the Closing Date, the partieshereto shall be released and discharged from their respective obligationshereunder (except for the respective obligations of the parties hereto pursuantto paragraph 7).

**6.2****                            Waiver**:SKT may at its discretion waive compliance with the whole or any part of thisparagraph 6.

**7              Indemnification**

**7.1****                            Indemnity**:Each of the Company and SKT (in such capacity, each an “**indemnifier**”) undertakes with the otherthat it shall hold the other and its directors, officers and employees (each an“**indemnified party**”) fully andeffectually indemnified from and against any and all losses, liabilities,costs, claims, charges, actions, proceedings, damages, expenses or demandswhich they (or any of them) may incur or which may be made against them (or anyof them) as a result of or arising out of, or in relation to, anymisrepresentation or alleged misrepresentation or any breach or alleged breachof any of the aforesaid representations, warranties or undertakings of or by itcontained in this Agreement. Such indemnity shall extend to include all chargesand expenses which any of the indemnified parties may pay or incur ininvestigating, disputing or defending any claim or action or other proceedingsin respect of which the relevant indemnifier is or may be liable to indemnifyunder this paragraph 7.1 and all charges and expenses that are the subject ofthis indemnity shall be reimbursed by the relevant indemnifier on demand fromthe relevant indemnified party.

**7.2****                            Conductof Defence**: If any action, proceeding, claim or demand shall be brought orasserted against an indemnified party or any of them in respect of which therelevant indemnifier is or may be liable to indemnify as herein provided, anysuch indemnified party shall promptly notify such indemnifier in writing, andshall employ such legal advisers as such indemnified party may select. Therelevant indemnifier shall not be liable in respect of any settlement of anysuch action effected without its consent, which consent shall not beunreasonably withheld or delayed.

**8              Termination**

**8.1****                            SKT’sability to terminate**: Notwithstanding anything herein contained, SKT may,by giving two business days’ notice in writing to the Company but upon priorconsultation with the Company, terminate this Agreement at any time before thetime on the Closing Date when payment would otherwise be due underparagraph 5 above, in any of the following circumstances:

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**8.1.1**                        if there is any material breachof, or any event rendering untrue or incorrect in any material respect, any ofthe warranties and representations contained in paragraph 2.1 or any materialfailure to perform any of the Company’s undertakings or agreements in thisAgreement; or

**8.1.2**                        if any of the conditionsprecedent specified in paragraph 6 has not been satisfied or waived by SKT; or

**8.1.3**        if:

(i)                                  anEvent of Default (as defined in Schedule 1), or an event that with the givingof notice or the passing of time would constitute an Event of Default, hasoccurred; or

(ii)                               thereshall have been a suspension of trading of the Shares by the Stock Exchange forfive consecutive business days occurring after the date hereof.

**8.2****                            Consequencesof termination**: Upon such notice being given, this Agreement shallterminate and be of no further effect and no party shall be under any liabilityto any other in respect of this Agreement, except that each of the Company andSKT shall remain liable for any antecedent breaches of the provisions hereofand the respective obligations of the parties in relation to paragraph 7 whichwould have continued had the arrangements for the purchase and sale of theBonds been completed, shall continue.

**9              Survivalof Representations and Obligations**

The respective indemnities, agreements,representations, warranties and other statements of each of the Company and SKTas set forth in this Agreement or made by or on behalf of it pursuant to thisAgreement shall remain in full force and effect, regardless of anyinvestigation (or any statement as to the results thereof) made by or on behalfof any indemnified party and shall survive delivery of and payment for theBonds so long as any Bond is outstanding.

**10           Notices**

Any notification given pursuant to this Agreementshall be given by letter (to be dispatched by express courier), facsimile ortelephone, in the case of notification to:

the Company to:

China UnicomLimited75th Floor, The Centre,99 Queen’s Road Central, Central, Hong Kong

Fax number:                         +852 2121 3232Telephone number:              +852 21213220Attention:                             KarryChu

with a copy to:

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Fax number:                         +852 2121 3241Telephone number:              +852 21213247Attention:                             JaniceHsu

SKT to:

11 Euljiro 2-gaJung-guSeoul 100-999, Korea

Fax number:                         +822 6100 7926Telephone number:              +82 2 61007200Attention:                             Chiefof Division                                             New/GlobalBusiness Strategy Division

with a copy to:

11 Euljiro 2-gaJung-guSeoul 100-999, Korea

Fax number:                         +822 6100 7966Telephone number:              +82 2 61003500Attention:                             GeneralCounsel                                              CorporateLegal Office

Any such communication shall take effect, in the caseof a letter sent by express courier, at the time of delivery and in the case offacsimile, at the time of despatch (provided that the sender retains amechanical or electronically generated confirmation of the successfultransmission of such facsimile), and in the case of telephone, when made.Telephone communications shall be confirmed by letter or facsimile as soon asreasonably practicable in any event within two business days thereafter.

**11           GoverningLaw and Submission to Jurisdiction**

**11.1****                     Governing Law**:This Agreement is governed by and construed in accordance with Hong Kong law.

**11.2****                     Submission toJurisdiction**: In relation to any legal action or proceedings arising out ofor in connection with this Agreement (“**Proceedings**”)the parties hereto irrevocably submit to the non-exclusive jurisdiction of theCourts of Hong Kong and waive any objection to Proceedings in such courtswhether on the grounds that the proceedings have been brought in aninconvenient forum or otherwise. This submission shall not affect the right ofany of the parties hereto to take Proceedings in any other court of competentjurisdiction nor shall the taking of Proceedings in any court of competentjurisdiction preclude it from taking Proceedings in any other court ofcompetent jurisdiction (whether concurrently or not).

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**12           Counterparts**

This Agreement may beexecuted in any number of counterparts, each of which shall be deemed anoriginal of which when taken together shall constitute one of the originaldocument.

**13           Assignment**

The benefit of this Agreement may not be assigned byany party hereto without the prior written consent of the other party hereto.

**14           EntireAgreement**

This Agreement and the Schedules hereto constitute theentire agreement between the parties hereto with respect to the subject matterof this Agreement and supersedes all and any previous agreements, arrangementsor understandings between the parties hereto. No variation of this Agreement shallbe effective unless made in writing and agreed by all of the parties hereto.

**15           Timeof the Essence**

Any time, date or period mentioned in this Agreementmay be extended by mutual agreement between the Company and SKT but as regardsany time, date or period originally fixed or any date or period so extended asaforesaid, time shall be of the essence.

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**Inwitness** whereof this Agreement has beenentered into the day and year first above written.

**CHINAUNICOM LIMITED**

By: /s/ ChangXiaobing

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**SKTELECOM CO., LTD.**

By: /s/ Shin Bae Kim

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**SCHEDULE 1FORM OF BOND CERTIFICATE**

| **Amount**         |   | **Certificate No.** |
|--------------------|--------|---------------------|
| ** **         |   | ** **          |
| U.S.$1,000,000,000 |   | 0001                |

** **

**CHINA UNICOM LIMITED**(a companyincorporated in Hong Kong with limited liability)

**U.S.$****1,000,000,000 Zero Coupon****Convertible Bonds due 2009**

**CHINAUNICOM LIMITED** (the “**Company**”) herebyCERTIFIES that **SK TELECOM CO., LTD.**is,at the date hereof, entered in the Company’s register of Bondholders as theholder of the Zero Coupon Convertible Bonds due 2009 (the “**Bonds**”) in the principal amount ofU.S.$1,000,000,000 (United States Dollar One Billion Only). For value received,the Company promises to pay the person who appears at the relevant time on theregister of Bondholders as holder of the Bonds in respect of which thisCertificate is issued such amount or amounts as shall become due in respect ofsuch Bonds in accordance with and otherwise to comply with the Terms andConditions of the Bonds attached thereto (the “**Conditions**”).

This Bonds in respect ofwhich this Certificate is issued are convertible into ordinary shares with apar value of HK$0.10 each of the Company in accordance with and subject to theConditions.

This Certificate isevidence of entitlement only. Title to the Bonds passes only on dueregistration in the register of Bondholders and only the duly registered holderis entitled to payments on the Bonds in respect of which this Certificate isissued.

The Bonds have not beenand will not be registered under the United States Securities Act of 1933, asamended, and the rules and regulations promulgated thereunder, as ineffect from time to time (the “**Securities Act**”),any state securities laws of the United States, or the securities law of anyother jurisdiction, and may not be offered, sold, pledged or otherwisetransferred in the absence of such registration except pursuant to an exemptionfrom, or in a transaction not subject to, the registration requirements of theSecurities Act and any state securities laws of the states of the United Statesand other jurisdictions and the respective rules and regulationsthereunder.

**Inwitness** whereof theCompany has caused this Certificate to be signed manually or by facsimile on its behalf by one of its authorised signatories.

**CHINAUNICOM LIMITED**

By:

Authorised Signatory:

Issued in Hong Kong asof [•] July 2006.

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**Form of Transfer**

FOR VALUE RECEIVED theundersigned hereby transfers to

....................................................................

....................................................................

(which [is/is not] anAffiliate (as such term is defined in the Conditions) of the transferor[*delete as applicable*])

(PLEASE PRINT ORTYPEWRITE NAME AND ADDRESS OF TRANSFEREE)

U.S.$[·] (United States Dollar[                          ])principal amount of the Bonds in respect of which this Certificate is issued,and all rights in respect thereof.

All payments in respectof the Bonds hereby transferred are to be made (unless otherwise instructed bythe transferee) to the following account:

Name of bank:

U.S.$ account number:

For the account of:

Dated:

Certifying Signature:

Name:

Notes:

(a)                                  Arepresentative of the holder of the Bonds should state the capacity in which hesigns, e.g. executor.

(b)                                 Thesignature of the persons effecting a transfer shall conform to any list of dulyauthorised specimen signatures supplied to the Company by the registered holderor be certified by a notary public or in such other manner as the Company mayrequire.

(c)           This form of transfer should be datedas of the date it is deposited with the Company.

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**Termsand Conditions of the Bonds**

*Thefollowing terms and conditions, subject to completion and amendment, will beattached to the Certificates representing the Bonds:*

The issue of the U.S.$1,000,000,000 aggregate principal amount of Zero Coupon Convertible Bonds due 2009 (the “**Bonds**”) by **CHINA UNICOM LIMITED** (the “**Company**”)was authorised by a resolution of the board of directors of the Company passedon 20 June 2006 and pursuant to a subscription agreement dated20 June 2006 (the “**SubscriptionAgreement**”) entered into between the Company and SK TELECOM CO.,LTD. (“**SKT**”). The Bonds are issuedby the Company on 5 July 2006. In these Conditions, expressions nototherwise defined herein shall have the meanings defined in the SubscriptionAgreement.

**1              Form,Denomination and Status**

The Bonds are issued in registered form, seriallynumbered, in the denomination of U.S.$1,000 each. A certificate (“**Certificate**”) will be issued by executionin manual or facsimile form by a duly authorised officer of the Company to eachBondholder in respect of its registered holding of any Bond. The Bondsconstitute direct, unconditional, unsubordinated and unsecured obligations ofthe Company, ranking *pari passu*andrateably without any preference among themselves, and, subject as mentionedabove and with the exception of obligations in respect of national and localtaxes and for certain other statutory exceptions, equally with all otherunsecured obligations (other than subordinated obligations, if any) of theCompany from time to time outstanding.

**2              NegativePledge**

So long as any of the Bonds remains outstanding (asdefined below), the Company will not, and will procure that its PrincipalSubsidiaries will not, create or have outstanding any mortgage, charge, pledgeor other security interest upon the whole or any part of its property orassets, present or future, in order to secure, for the benefit of holdersthereof, any existing or future bond issue (or to secure for the benefit ofholders thereof any guarantee or indemnity or other like obligation in respectthereof) without in any such case at the same time according to the Bonds,either the same security as is created or is outstanding in respect of suchbond issue (or such guarantee or indemnity or other like obligation in respectthereof) or such other security or guarantee as is not materially lessbeneficial to the Bondholders or as the Bondholders holding 75 per cent. of theoutstanding principal amount of Bonds shall approve.

As used in this Condition 2, “**bond issue**” means any issue of bonds,debentures, notes or other similar securities of the Company or any otherperson. The indebtedness constituted by loan agreements from lenders notinvolving the issue of securities shall not be treated as within the definitionof “**bond issue**”.

For the purpose of these Conditions, in relation tothe Bonds, “**outstanding**” Bondsrefers to all the Bonds issued other than:

(a)                                thosewhich have been redeemed or in respect of which Conversion Rights (as definedin Condition 6(a)(i)) have been exercised and which have been cancelled inaccordance with these Conditions;

(b)                               thosein respect of which the date for redemption in accordance with these Conditionshas occurred and the redemption moneys have been duly paid to the relevantBondholders or on their behalf;

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(c)                                thosemutilated or defaced Bonds which have been surrendered in exchange forreplacement Bonds pursuant to Condition 13; or

(d)                             (forthe purpose only of determining how many Bonds are outstanding and withoutprejudice to their status for any other purpose) those Bonds alleged to havebeen lost, stolen or destroyed and in respect of which replacement Bonds havebeen issued pursuant to Condition 13.

In theseConditions:

(a)                                     any reference to a “**subsidiary**”or “**Subsidiary**” of the Company isto a company the financial statements of which are or should be, in accordancewith applicable law, the Hong Kong Financial Reporting Standards and theHong Kong Accounting Standards, consolidatedwith those of the Company; and

(b)                                    any reference to “**Principal Subsidiary**” means any Subsidiaryof the Company:

(i)                                     whosegross revenues or (in the case of a Subsidiary which itself has subsidiaries)consolidated gross revenues, as shown by its latest audited income statementare at least ten per cent. of the consolidated gross revenues as shown by thelatest published audited consolidated income statement of the Company and itsSubsidiaries; or

(ii)                                  whosegross assets or (in the case of a Subsidiary which itself has subsidiaries) grossconsolidated assets, as shown by its latest audited balance sheet are at leastten per cent. of the amount of the consolidated gross assets of the Company andits Subsidiaries as shown by the latest published audited consolidated balancesheet of the Company and its Subsidiaries as being represented by theinvestment of the Company in each Subsidiary whose accounts are notconsolidated with the consolidated audited accounts of the Company and afteradjustment for minority interest,

provided that, in relationto paragraphs (i) and (ii) above:

(aa)                            in thecase of a corporation or other business entity becoming a Subsidiary after theend of the financial period to which the latest consolidated audited accountsof the Company relate, the reference to the then latest consolidated auditedaccounts of the Company for the purposes of the calculation above shall, untilconsolidated audited accounts of the Company for the financial period in whichthe relevant corporation or other business entity becomes a Subsidiary arepublished, be deemed to be a reference to the then latest consolidated auditedaccounts of the Company adjusted to consolidate the latest audited accounts(consolidated in the case of a Subsidiary which itself has Subsidiaries) ofsuch Subsidiary in such accounts;

(bb)                          if atany relevant time in relation to the Company or any Subsidiary which itself hasSubsidiaries no consolidated accounts are prepared and audited, total assets ofthe Company and/or any such Subsidiary shall be determined on the basis of proforma consolidated accounts prepared for this purpose by the Company;

(cc)                            if atany relevant time in relation to any Subsidiary, no accounts are audited, itstotal assets (consolidated, if appropriate) shall be determined on the basis

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of pro forma accounts(consolidated, if appropriate) of the relevant Subsidiary prepared for thispurpose by the Company; and

(dd)                          ifthe accounts of any Subsidiary (not being a Subsidiary referred to in proviso(aa) above) are not consolidated with those of the Company, then thedetermination of whether or not such subsidiary is a Principal Subsidiary shallbe based on a pro forma consolidation of its accounts (consolidated, ifappropriate) with the consolidated accounts (determined on the basis of theforegoing) of the Company; or

(iii)                               to which is transferredthe whole or substantially the whole of the assets of a Subsidiary whichimmediately prior to such transfer was a Principal Subsidiary, provided thatthe Principal Subsidiary which so transfers shall forthwith upon such transfercease to be a Principal Subsidiary and the Subsidiary to which the assets areso transferred shall cease to be a Principal Subsidiary at the date on whichthe first published audited accounts (consolidated, if appropriate), of the Companyprepared as of a date later than such transfer are issued but so that suchtransferor Subsidiary or such transferee Subsidiary may be a PrincipalSubsidiary of the Company on or at any time after the date on which suchaudited financial statements have been published by virtue of the provisions ofsub-paragraph (i) or (ii) above or before, on or at any time aftersuch date by virtue of the provisions of this sub-paragraph (iii).

**3              Title;Transfer of Bonds; Issue of Certificates**

(a)                     Title andTransfers

Title to the Bondspasses only by transfer and registration in the Company’s register ofBondholders (the “**Register**”). Theholder of any Bond will (except as otherwise required by law) be treated as itsabsolute owner for all purposes (whether or not it is overdue and regardless ofany notice of ownership, trust or any interest in it or any writing on, or thetheft or loss of, the Certificate issued in respect of it) and no person willbe liable for so treating the holder. In these Conditions, “**Bondholder**” and (in relation to a Bond) “**holder**” means the person in whose name aBond is registered on the Register.

A Bond may,subject to Conditions 3(d) and (e) below, be transferred bydepositing the Certificate issued in respect of that Bond, with the form oftransfer on the back duly completed and signed, at the principal place ofbusiness (or other office notified to Bondholders in accordance with Condition13) of the Company which shall be in Hong Kong (the “**Designated Office**”).

Upon receipt bythe Company of the Certificate issued in respect of a Bond with the form oftransfer on the back duly completed and signed, the Company shall forthwithmake a notation on the Register to the effect that the Bond is registered inthe name of the transferee specified in such form of transfer.

The Company shallat all times maintain the Register and make it available for inspection by theBondholders upon reasonable notice and upon payment of a reasonable fee. EachBondholder shall be entitled to be issued with one Certificate only in respectof its entire holding of Bonds.

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(b)                    *Delivery of new certificates*

Each newCertificate to be issued upon a transfer of Bonds will (following execution inmanual or facsimile form by a duly authorised officer of the Company), withinthree business days of receipt by the Company of the duly completed form oftransfer, be made available for collection at the Designated Office or (at theelection of the Bondholders) sent at the expense of the Company bycourier (if the address of the transferee is in Hong Kong) or by express mail(if the transferee’s address is outside Hong Kong) at the risk of the holderentitled to the Bonds to the address specified in the form of transfer.

For the purposesof these Conditions (unless otherwise defined), “**business day**”shall mean a day (which ends at 4:30 pm (Hong Kong time)) on which the StockExchange is open for trading in Hong Kong.

Where only part ofa principal amount of the Bonds (being that of one or more Bonds) in respect ofwhich a Certificate is issued is to be transferred or converted, a newCertificate in respect of the Bonds not so transferred or converted will,within five business days of delivery of the original Certificate to theCompany, be made available for collection at the Designated Office or at theelection of the Bondholder, be sent at the expense of the Company by courier(if the address of the transferee is in Hong Kong) or by express mail (if thetransferee’s address is outside Hong Kong) at the risk of the holder entitledto the Bonds to the address specified in the form of transfer or ConversionNotice, as the case may be.

(c)                     *Formalities free of charge*

Registration of atransfer of Bonds will be effected without charge by or on behalf of theCompany, but upon payment (or the giving of such indemnity as the Company mayreasonably require) in respect of any tax or other governmental charges whichmay be imposed on the Company in relation to such transfer.

(d)                    *Closed periods*

No Bondholder mayrequire the transfer of a Bond to be registered (i) during the period offifteen (15) business days ending on the due date for any payment of principalon the Bonds, or (ii) after the Certificate in respect of such Bond hasbeen deposited for conversion pursuant to Condition 6.

(e)*                     Restrictionagainst transfer*

Prior to 5 July 2007,a Bondholder may not assign or transfer any of the Bonds registered in its nameto any third party other than an Affiliate (provided that such persons may onlyremain the holders of the Bond, for so long as they remain to be an Affiliate).

At any time after5 July 2007 oron the occurrence of a Relevant Event (as defined in Condition 9 below),a Bondholder may freely assign or transfer any of the Bonds registered in itsname to any third party (a “**prospectivepurchaser**”) provided that no assignment or transfer may be made to aperson who is (i) a fixed line ormobile telecommunications operator in the People’s Republic of China (a “**competitoroperator**”) or (ii) an Affiliate of a competitor operator.

For the purpose ofthis Condition 3:

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an “**Affiliate**” with respect to any person, means any persondirectly or indirectly through one or more intermediaries, Controlling,Controlled by or is under common Control with that person; and

“**Control, Controlled or Controlling**” withrespect to any person means having the ability to direct the management andaffairs of such person, whether through the ownership of voting securities orby contract, and such ability shall be deemed to exist when any person holds amajority of the outstanding voting securities, or the economic rights andbenefits of such person.

**4              ZeroCoupon**

The Bonds do not bear interest.

**5              Payments**

(a)                     Payments inrespect of principal (which term shall include any premium that is also payableas relevant) will be made to the registered Bondholder by a U.S. Dollar chequedrawn on, or by transfer to a U.S. Dollar account maintained by the payee with,a bank in New York City (details of which shall have been notified to theCompany by the Bondholders at least three business days prior to the date ofpayment), subject in all cases to any fiscal or other laws and regulationsapplicable thereto, but without prejudice to the provisions ofCondition 10. Cheques will be mailed to the address of the Bondholderappearing on the Register at the risk of the Bondholder. The Certificates shallbe surrendered to the Company within 30 days of the payment of the principal atmaturity.

(b)                    Where paymentis to be made by transfer to a U.S. Dollar account, payment instructions (forvalue the due date or, if that is not a bank business day (as defined below),for value the first following day which is a bank business day) will beinitiated and, where payment is to be made by cheque, the cheque will be mailedon the bank business day preceding the due date for payment.

(c)                     If the duedate for payment of any amount of principal in respect of any Bond is not abank business day, then the holder thereof shall not be entitled to payment ofthe amount due until the next following bank business day and no furtherinterest or other payment will be made as a consequence of the due date notbeing a bank business day. In these Conditions, “**bank business day**” means any day on which banks are open forbusiness in New York City and Hong Kong.

**6              Conversion**

(a)                      (i)                Theright of a Bondholder to convert any Bond hereunder is hereinafter called the “**Conversion Right**”. Subject to and uponcompliance with the provisions of these Conditions, any Bond may be convertedinto duly authorised, validly issued, fully-paid and unencumbered Shares, atthe option of the holder thereof, at any time from and including the firstanniversary after the Closing Date (the “**ConversionCommencement Date**”) up to the close of business in Hong Kong on theday falling seven days prior to the Maturity Date (as defined in Condition 9below) (such period, the “**Conversion Period**”),provided that Bondholders may only exercise the Conversion Rights on eachoccasion that they wish to exercise the Conversion Right, with respect to anaggregate principal amount of Bonds being U.S.$50,000,000 and an integralmultiple of U.S.$1,000 thereafter 

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(if applicable),provided further that this restriction does not apply to any conversion by aBondholder of the entire amount of its holding of Bonds.

The number of Shares to be issued on conversion of aBond shall be determined by multiplying the principal amount of a Bond by theexchange rate of U.S.$1.00 to HK$7.7648 (being the rate for the purchase ofHong Kong dollars with U.S. dollars reported by Reuters on page ”**HKDFIX**” at 11:15 am (Hong Kong time) on theday immediately preceding the date hereof) and divided by the applicableConversion Price, determined as hereinafter provided, in effect on theConversion Date (as hereinafter defined).

(ii)                                  Fractionsof a Share will not be issued on conversion and no adjustment or cash paymentwill be made in respect thereof.

(iii)                               Theprice at which each Share shall be issued upon conversion (the “**Conversion****Price**”) shall initially be HK$8.63 (the “**Fixed ConversionPrice**”), subject to adjustment in the manner provided in Condition6(c), PROVIDED THAT the Conversion Price shall not under any circumstances beless than the par value of the Shares on the Conversion Date (currently atHK$0.10) unless permitted by law and in compliance with the Rules Governingthe Listing of Securities on The Stock Exchange of Hong Kong Limited (the “**Listing Rules**”).

If the number ofShares to be delivered to a converting Bondholder in respect of one or moreBonds being converted is not equal to a board lot of such Shares on the StockExchange, the Company shall deliver such number of Shares as is equal to aboard lot or an integral multiple thereof and pay the Current Market Price (asdefined in Condition 6(d)) of the balance of the Shares as defined inCondition 6(b) that would otherwise have been delivered.

(b)                    As used inthis Condition 6, the expression “**Shares**”means (i) shares of the class of share capital of the Company which isdesignated as ordinary shares of HK$0.10 each in the capital of the Company,together with shares of any class or classes resulting from any Stock Split,consolidation or re-classification thereof, which have no preference in respectof dividends or of amounts payable in the event of any voluntary or involuntaryliquidation, dissolution or winding-up of the Company, and (ii) fully-paidand unencumbered shares of any other class or classes of the share capital ofthe Company which have no preference in respect of dividends or of amountspayable in the event of any voluntary or involuntary liquidation, dissolutionor winding-up of the Company and which have the same nominal value as theShares; and the expression “**Stock Split**”means any kind of stock split in relation to the Shares, including a bonusshare distribution, a stock dividend or a sub-division of Shares.

(i)                                     Toexercise the Conversion Right attached to any Bond, the holder thereof shall,on a business day, send by facsimile to the Designated Office at the holder’sown expense a completed notice of conversion in the short form as set out inSchedule 2 (Part C) to the Subscription Agreement (the “**short form Conversion Notice**”), and thendeliver or mail to the Designated Office an original completed and signedConversion Notice in duplicate in the long form as set out in Schedule 2 (Part B)to the Subscription Agreement (the “**long formConversion Notice**”) together with the relevant Certificates by 4:30pm on the business day

 

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following theConversion Date (as defined below). The Company shall acknowledge receipt ofthe short form Conversion Notice by facsimile to the sender of the short formConversion Notice by 4:30 pm (Hong Kong time) on the business day following theConversion Date. Failure of the Company to deliver such an acknowledgementshall not affect the validity of the short form Conversion Notice provided thatthe relevant Bondholder shall retain a mechanical or electronically generatedconfirmation of the successful transmission of such fax.

As conditionsprecedent to conversion the Bondholder must pay to the Company (or makearrangements satisfactory to the Company for the payment of) all stamp, issue,registration or other similar taxes and duties (if any) arising on conversionin Hong Kong or payable in any jurisdiction consequent upon the issue of Sharesor delivery of the certificate(s) therefor to a place outside Hong Kong orto the order of a person other than the converting Bondholder. Except asaforesaid, the Company will pay the expenses arising on the issue of Shares onconversion of the Bonds.

Unless otherwiseagreed between the Company and the relevant Bondholder which exercises theright of conversion attaching to the Bonds, all Shares issued upon the exerciseof the Conversion Rights (the “**ConversionShares**”) will be allotted on the Hong Kong branch register ofmembers of the Company.

The date on whichthe faxed short form Conversion Notice is received by the Company (as evidencedby the transmission report of the Bondholder’s facsimile machine) (or the nextbusiness day if the short form Conversion Notice is received by the Companyafter 4:30 pm Hong Kong time) is herein referred to as the****“**ConversionDate**” applicable to such Bond. The date on which any Certificate andthe original, signed long form Conversion Notice is received by the Company, oron which all conditions precedent to the conversion thereof are fulfilled,whichever shall be later, is herein referred to as the “**Delivery Date**” applicable to such Bond. TheCompany shall deliver an allotment advice and (if applicable) instructions toissue shares certificate(s) in respect of the Conversion Shares to itsshare registrar and transfer agent in Hong Kong by 4:30 pm (Hong Kong time) onthe second business day immediately after the Delivery Date. A short formConversion Notice or long form Conversion Notice once deposited shall not bewithdrawn without the consent in writing of the Company.

(ii)                                  TheCompany shall, as soon as practicable, and in any event within ten businessdays after the relevant Delivery Date, deliver or cause to be delivered to theorder of the person named for that purpose in the relevant Conversion Notice acertificate or certificates for the relevant Shares registered in the name ofthe Bondholder (or as designated by the Bondholder in the relevant ConversionNotice) or Central Clearing and Settlement System account credit instructions,together with any such other securities, property or cash required to bedelivered on conversion and such assignments and other documents (if any) asmay be required by law to effect the transfer thereof.

If the ConversionDate in relation to any Bond shall be on or after the record date for anyissue, distribution, grant, offer or other event as gives rise to theadjustment of the Fixed Conversion Price pursuant to Condition 6(c), but beforethe relevant adjustment becomes effective under the relevant Condition, uponthe relevant adjustment becoming effective the Company shall procure the issueto the converting Bondholder (or in accordance with the instructions containedin the Conversion Notice (subject to applicable exchange control or other lawsor other regulations)), such additional number of Shares as, together with theShares issued or to be issued on conversion of the relevant Bond, is equal tothe number 

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of Shares whichwould have been required to be issued on conversion of such Bond if therelevant adjustment to the Fixed Conversion Price had been made and becomeeffective on or immediately after the relevant record date.

The person orpersons designated in the Conversion Notice will become the holder of record ofthe number of Shares issuable upon conversion with effect from the date he isor they are registered as such in the Company’s register of members (the “**Registration Date**”). The Shares issued uponconversion of the Bonds will be fully paid and will in all respects rank paripassu with the Shares in issue on the relevant Registration Date. Save as setout in these Conditions, a holder of Shares issued on conversion of Bonds shallnot be entitled to any rights the record date for which precedes the relevantRegistration Date.

If the record datefor the payment of any dividend or other distribution in respect of the Sharesis on or after the Conversion Date in respect of any Bond, but before theRegistration Date (disregarding any retroactive adjustment of the ConversionPrice referred to in this sub-paragraph (ii) prior to the time suchretroactive adjustment shall have become effective), the Company will pay tothe converting Bondholder or his designee an amount (the “**Equivalent Amount**”) in US dollars equal tothe Fair Market Value (as defined below) (converted into US dollars at the ratefor the purchase of Hong Kong dollars with US dollars reported by Reuters on page ”**HKDFIX**”) of any such dividend or other distribution to whichhe would have been entitled had he on that record date been such a shareholderof record and will make the payment at the same time as it makes payment of thedividend or other distribution, or as soon as practicable thereafter, but, inany event, not later than seven days thereafter. The Equivalent Amount shall bepaid by means of a US dollar cheque drawn on a bank in New York City and sentto the address specified in the relevant Conversion Notice.

(c)                     The FixedConversion Price will be subject to adjustment in the following events as setout in this Condition 6(c):

(i)*                                     Consolidation,Subdivision or Reclassification:* If and whenever there shall be analteration to the nominal value of the Shares as a result of consolidation,subdivision or reclassification, the Fixed Conversion Price shall be adjustedby multiplying the Fixed Conversion Price in force immediately before suchalteration by the following fraction:

|        | A |        |
|--------|---|--------|
|   | B |   |

 

Where:

A                                      isthe nominal amount of one Share immediately after such alteration; and

B                                        isthe nominal amount of one Share immediately before such alteration.

Such adjustment shall become effective on the date thealteration takes effect.

(ii)                                  *Capitalisation of Profits or Reserves*:

(aa)                            If and whenever the Company shall issue anyShares credited as fully paid to the holders of Shares (“**Shareholders**”) by way of capitalisation ofprofits or reserves (including any share premium 

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                                                account)including, Shares paid up out of distributable profits or reserves and/or sharepremium account issued (except any Scrip Dividend) and which would not haveconstituted a Distribution, the Fixed Conversion Price shall be adjusted bymultiplying the Fixed Conversion Price in force immediately before such issueby the following fraction:

|        | A |        |
|--------|---|--------|
|   | B |   |

 

Where:

A              is the aggregatenominal amount of the issued Shares immediately before such issue; and

B                is the aggregatenominal amount of the issued Shares immediately after such issue.

(bb)          In the case of an issue of Shares by wayof a Scrip Dividend where the Current Market Price of such Shares exceeds 105per cent. of the amount of the Relevant Cash Dividend or the relevant partthereof and which would not have constituted a Distribution, the FixedConversion Price shall be adjusted by multiplying the Fixed Conversion Price inforce immediately before the issue of such Shares by the following fraction:

|        | A + B |        |
|--------|-------|--------|
|   | A + C |   |

 

Where:

A              is the aggregatenominal amount of the issued Shares immediately before such issue;

B                is the aggregatenominal amount of Shares issued by way of such Scrip Dividend multiplied by afraction of which (i) the numerator is the amount of the whole, or therelevant part, of the Relevant Cash Dividend and (ii) the denominator isthe Current Market Price of the Shares issued by way of Scrip Dividend inrespect of each existing Share in lieu of the whole, or the relevant part, ofthe Relevant Cash Dividend; and

C                is the aggregatenominal amount of Shares issued by way of such Scrip Dividend;

orby making such other adjustment as an Independent Investment Bank shall certifyto the Bondholders is fair and reasonable.

Suchadjustment shall become effective on the date of issue of such Shares or if arecord date is fixed therefor, immediately after such record date.

(iii)              *Distributions:*

(aa)            Subject to Condition 6(c)(iii)(bb), ifand whenever the Company shall pay or make any Distribution to the Shareholders(except to the extent that the Fixed Conversion Price falls to be adjustedunder Condition 6(c)(ii) above), the Fixed Conversion Price shall beadjusted by multiplying the Fixed Conversion Price in force immediately beforesuch Distribution by the following fraction:

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|        | A – B |        |
|--------|------------|--------|
|   | A          |   |

 

Where:

A              is the CurrentMarket Price of one Share on the last Trading Day preceding the date on whichthe Distribution is publicly announced; and

B                is the Fair MarketValue on the date of such announcement of the portion of the Distributionattributable to one Share.

Suchadjustment shall become effective on the date that such Distribution isactually made or, if later, the first date upon which the Fair Market Value ofthe Distribution is capable of being determined as provided in theseConditions.

(bb)          If and whenever the Company shall pay ormake any Distribution in cash only to the Shareholders, the Fixed ConversionPrice shall be adjusted by multiplying the Fixed Conversion Price in forceimmediately before such Distribution by the following fraction:

|        | A – B |        |
|--------|------------|--------|
|   | A          |   |

 

Where:

A              is the CurrentMarket Price of one Share on the record date for the determination ofShareholders entitled to receive such Distribution in cash; and

B                is the amount ofcash so distributed attributable to one Share.

Suchadjustment shall become effective on the record date for the determination ofShareholders entitled to receive such Distribution in cash.

(iv)                              *Rights Issues of Shares or Options over Shares:*Ifand whenever the Company shall issue Shares to all or substantially all Shareholdersas a class by way of rights, or issue or grant to all or substantially allShareholders as a class by way of rights, of options, warrants or other rightsto subscribe for or purchase or otherwise acquire any Shares, in each case atless than 95 per cent. of the Current Market Price per Share on the lastTrading Day preceding the date of the announcement of the terms of the issue orgrant, the Fixed Conversion Price shall be adjusted by multiplying the FixedConversion Price in force immediately before such issue or grant by thefollowing fraction:

|        | A + B |        |
|--------|-------|--------|
|   | A + C |   |

* *

Where:

A              is the number ofShares in issue immediately before such announcement;

B                is the number ofShares which the aggregate amount (if any) payable for the Shares issued by wayof rights or for the options or warrants or other rights issued by way ofrights and for the total number of Shares 

26

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comprised therein would subscribe for or purchase orotherwise acquire at such Current Market Price per Share; and

C                isthe aggregate number of Shares issued or, as the case may be, comprised in theissue or grant.

Suchadjustment shall become effective on the first date on which the Shares aretraded ex-rights, ex-options, ex-warrants (as the case may be) on the relevantStock Exchange.

(v)                                 *Rights Issues of Other Securities:*If andwhenever the Company shall issue any securities (other than Shares or options,warrants or other rights to subscribe for or purchase Shares) to all orsubstantially all Shareholders as a class by way of rights or grant to all orsubstantially all Shareholders as a class by way of rights, of options,warrants or other rights to subscribe for or purchase any securities (otherthan Shares or options, warrants or other rights to subscribe or purchaseShares), the Fixed Conversion Price shall be adjusted by multiplying the FixedConversion Price in force immediately before such issue or grant by thefollowing fraction:

|        | A – B |        |
|--------|------------|--------|
|   | A          |   |

 

Where:

A              is the CurrentMarket Price of one Share on the last Trading Day preceding the date on whichsuch issue or grant is publicly announced; and

B                is the Fair MarketValue on the date of such announcement of the portion of the rightsattributable to one Share.

Suchadjustment shall become effective on the first date on which the Shares aretraded ex-rights, ex-options or ex-warrants (as the case may be) on therelevant Stock Exchange.

(vi)                              *Issues at less than Current Market Price:*If and whenever the Company shall issue (otherwise than as mentioned inCondition 6(c)(iv) above) any Shares (other than Shares issued on theexercise of Conversion Rights or on the exercise of any other rights ofconversion into, or exchange or subscription for, Shares) or the issue or grant(otherwise than as mentioned in Condition 6(c)(iv) above) of options,warrants or other rights to subscribe or purchase Shares in each case at aprice per Share which is less than 95 per cent. of the Current Market Price onthe last Trading Day preceding the date of announcement of the terms of suchissue or grant, the Fixed Conversion Price shall be adjusted by multiplying theFixed Conversion Price in force immediately before such issue by the followingfraction:

|        | A + B |        |
|--------|-------|--------|
|   | C     |   |

 

Where:

A              is the number ofShares in issue immediately before the issue of such additional Shares or thegrant of such options, warrants or other rights to subscribe for or purchaseany Shares;

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B                is the number ofShares which the aggregate consideration receivable for the issue of suchadditional Shares would purchase at such Current Market Price per Share; and

C                is the number ofShares in issue immediately after the issue of such additional Shares.

Referencesto additional Shares in the above formula shall, in the case of an issue by theCompany of options, warrants or other rights to subscribe or purchase Shares,mean such Shares to be issued, or otherwise made available, assuming that suchoptions, warrants or other rights are exercised in full at the initial exerciseprice (if applicable) on the date of issue or grant of such options, warrantsor other rights.

Suchadjustment shall become effective on the date of issue of such additionalShares or, as the case may be, the issue of such options, warrants or otherrights.

(vii)                           *Other Issues at less than Current Market Price:*Save in the case of an issue of securities arising from a conversion orexchange of other securities in accordance with the terms applicable to suchsecurities themselves falling within this Condition 6(c)(vii), if and wheneverthe Company or any of its Subsidiaries (otherwise than as mentioned inConditions 6(c)(iv), 6(c)(v) or 6(c)(vi)), or (at the direction or requestof or pursuant to any arrangements with the Company or any of its Subsidiaries)any other company, person or entity shall issue any securities (other than theBonds) which by their terms of issue carry rights of conversion into, orexchange or subscription for, Shares to be issued by the Company on conversion,exchange or subscription at a consideration per Share which is less than 95 percent. of the Current Market Price on the last Trading Day preceding the date ofannouncement of the terms of issue of such securities, the Fixed ConversionPrice shall be adjusted by multiplying the Fixed Conversion Price in forceimmediately before such issue by the following fraction:

|        | A + B |        |
|--------|-------|--------|
|   | A + C |   |

 

Where:

A              is the number ofShares in issue immediately before such issue;

B                is the number ofShares which the aggregate consideration (if any) receivable by the Company forthe Shares to be issued, or otherwise made available, on conversion or exchangeor on exercise of the right of subscription attached to such securities wouldpurchase at such Current Market Price per Share; and

C                is the maximumnumber of Shares to be issued on conversion or exchange of such securities oron the exercise of such rights of subscription attached thereto at the initialconversion, exchange or subscription price or rate.

Such adjustment shall become effective on the date ofissue of such securities

(viii)*                        Modificationof Rights of Conversion etc.:* If and whenever there shall be anymodification of the rights of conversion, exchange or subscription attaching toany such securities as are mentioned in Condition 6(c)(vii) (other than inaccordance with the terms of such securities) so that the consideration per 

 

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*                                               *Share(for the number of Shares available on conversion, exchange or subscriptionfollowing the modification) is less than 95 per cent. of the Current MarketPrice on the last Trading Day preceding the date of announcement of theproposals for such modification, the Fixed Conversion Price shall be adjustedby multiplying the Fixed Conversion Price in force immediately before suchmodification by the following fraction:

|        | A + B |        |
|--------|-------|--------|
|   | A + C |   |

 

Where:

A              is the number ofShares in issue immediately before such modification;

B                is the number ofShares which the aggregate consideration (if any) receivable by the Company forthe Shares to be issued, or otherwise made available, on conversion or exchangeor on exercise of the right of subscription attached to the securities, in eachcase so modified, would purchase at such Current Market Price per Share or, iflower, the existing conversion, exchange or subscription price of suchsecurities; and

C                is the maximumnumber of Shares to be issued, or otherwise made available, on conversion orexchange of such securities or on the exercise of such rights of subscriptionattached thereto at the modified conversion, exchange or subscription price orrate but giving credit in such manner as an Independent Investment Bank,consider appropriate (if at all) for any previous adjustment under thisCondition 6(c)(viii) or Condition 6(c)(vii).

Suchadjustment shall become effective on the date of modification of the rights ofconversion, exchange or subscription attaching to such securities.

(ix)*                                OtherOffers to Shareholders:* If and whenever the Company or any of itsSubsidiaries or (at the direction or request of or pursuant to any arrangementswith the Company or any of its Subsidiaries) any other company, person orentity issues, sells or distributes any securities in connection with whichoffer the Shareholders generally are entitled to participate in arrangements wherebysuch securities may be acquired by them (except where the Fixed ConversionPrice falls to be adjusted under Condition 6(c)(iv), Condition 6(c)(v),Condition 6(c)(vi) or Condition 6(c)(vii)), the Fixed Conversion Priceshall be adjusted by multiplying the Fixed Conversion Price in forceimmediately before such issue by the following fraction:

|        | A – B |        |
|--------|------------|--------|
|   | A          |   |

 

Where:

A              isthe Current Market Price of one Share on the last Trading Day preceding thedate on which such issue is publicly announced; and

B                isthe Fair Market Value on the date of such announcement of the portion of therights attributable to one Share.

Suchadjustment shall become effective on the date of issue of the securities.

(x)                                   *Other Events:* If the Company or anyBondholder determines that an adjustment should be made to the Fixed ConversionPrice as a result of one or more events or circumstances not referred to inthis Condition 6, the

29

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*                                               *Companyshall, at its own expense, consult an Independent Investment Bank (acting asexpert), to determine as soon as practicable what adjustment (if any) to theFixed Conversion Price is fair and reasonable to take account thereof, if theadjustment would result in a reduction in the Fixed Conversion Price, and thedate on which such adjustment should take effect and upon such determination bythe Independent Investment Bank such adjustment (if any) shall be made andshall take effect in accordance with such determination, provided that wherethe circumstances giving rise to any adjustment pursuant to this Condition 6have already resulted or will result in an adjustment to the Fixed ConversionPrice or where the circumstances giving rise to any adjustment arise by virtueof circumstances which have already given rise or will give rise to anadjustment to the Fixed Conversion Price, such modification (if any) shall bemade to the operation of the provisions of this Condition 6 as may be advisedby the Independent Investment Bank to be in their opinion appropriate to givethe intended result.

(xi)*                                Calculationof Consideration Receivable:* For the purpose of any calculation of theconsideration receivable pursuant to Conditions 6(c)(vi), 6(c)(vii) and6(c)(viii):

(aa)*                           **Issue of Shares for Cash*: theaggregate consideration receivable for Shares issued for cash shall be theamount of such cash provided that in no case shall any deduction be made forany commission or any expenses paid or incurred by the Company for anyunderwriting of the issue or otherwise in connection therewith;

(bb)                          *Issue of Shares on Conversion or Exercise of Securities*: (1) theaggregate consideration receivable for the Shares to be issued on theconversion or exchange of any securities shall be deemed to be the considerationreceived or receivable by the Company for any such securities and (2) theaggregate consideration receivable for the Shares to be issued on the exerciseof rights of subscription attached to any securities shall be deemed to be thatpart (which may be the whole) of the consideration received or receivable bythe Company for such securities which is attributed by the Company to suchrights of subscription or, if no part of such consideration is so attributed,the Fair Market Value of such rights of subscription as at the date of theannouncement of the terms of issue of such securities as determined in goodfaith by an Independent Investment Bank, plus in the case of each of (1) and(2) above, the additional minimum consideration (if any) to be received bythe Company on the conversion or exchange of such securities, or on theexercise of such rights of subscription (the consideration in all such cases tobe determined subject to the proviso in Condition 6(c)(xi)(aa)) and (3) theconsideration per Share receivable by the Company on the conversion or exchangeof, or on the exercise of such rights of subscription attached to, suchsecurities shall be the aggregate consideration referred to in (1) or (2) above(as the case may be) converted into Hong Kong dollars if such consideration isexpressed in a currency other than Hong Kong dollars at such rate of exchangeas may be determined in good faith by an Independent Investment Bank to be thespot rate ruling at the close of business on the date of announcement of theterms of issue of such securities, divided by the number of Shares to be issuedon such

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conversionor exchange or exercise at the initial conversion, exchange or subscriptionprice or rate.

(xii)*                             Morethan One Event in Quick Succession*: Where more than one event which givesor may give rise to an adjustment to the Fixed Conversion Price occurs withinsuch a short period of time that in the opinion of an Independent InvestmentBank, the foregoing provisions would need to be operated subject to some modificationin order to give the intended result, such modification shall be made to theoperation of the foregoing provisions as may be advised by such IndependentInvestment Bank to be in its opinion appropriate for that purpose to give suchintended result.

(xiii)*                          EmployeeShare Schemes*: No adjustment will be made to the Fixed Conversion Pricewhen Shares or other securities (including rights or options) are issued,offered or granted to employees (including directors) of the Company or any ofits Subsidiaries pursuant to any employee share scheme (and which employeeshare scheme is in compliance with the Listing Rules).

(xiv)                         *Investment Banks’ Certificate Conclusive*:If any doubt shall arise as to the appropriate adjustment to the FixedConversion Price a certificate or report of an Independent Investment Bankshall be conclusive and binding on all concerned save in the case of manifesterror.

(xv)                            *Rounding and Minor Adjustments*: On anyadjustment, the resultant Fixed Conversion Price, if not an integral multipleof one Hong Kong cent, shall be rounded down to the nearest Hong Kong cent. Noadjustment shall be made to the Fixed Conversion Price if such adjustment(rounded down if applicable) would be less than one per cent. of the FixedConversion Price then in effect. Any adjustment not required to be made, andany amount by which the Fixed Conversion Price has not been rounded down, shallbe carried forward and taken into account in any subsequent adjustment. Noticeof any adjustments shall be given to Bondholders in accordance with Condition13 as soon as practicable after their determination.

(xvi)                         *No Discount to Par Value*: The FixedConversion Price may not be reduced so that, on conversion of the Bonds, Shareswould fall to be issued at a discount to their nominal value or would requireShares to be issued in any other circumstances not permitted by applicable law.

(xvii)                      *Selection of Investment Bank*: If theCompany fails to select an Independent Investment Bank when required for thepurposes of this Condition 6, the Bondholders may by a bondholders’ resolutionselect such bank (as the case may require) at the expense of the Company.

(xviii)*                   Post-RecordDate Adjustments*: If the Conversion Date in relation to any Bond shall beafter the record date for any such issue, distribution or grant as is mentionedin Conditions 6(c)(ii) to 6(c)(v) and 6(c)(ix), or any such issue asis mentioned in Conditions 6(c)(vi) and 6(c)(vii) which is made tothe Shareholders or any of them, but before the relevant adjustment becomeseffective under Condition 6(c), the Company shall (conditional on suchadjustment becoming effective) procure that there be issued to the convertingBondholder or in accordance with the instructions contained in the ConversionNotice (subject to applicable exchange control or other laws or otherregulations) such additional number of Shares as, together with the Sharesissued or to be issued on conversion of the relevant Bond, is equal to thenumber of Shares which would have been required to be issued on

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                                                conversionof such Bond if the relevant adjustment (more particularly referred to in thesaid Conditions above) to the Fixed Conversion Price had in fact been made andbecome effective immediately after the relevant record date. Such additionalShares will be allotted as at, and within one month after, the relevantConversion Date or, if the adjustment results from the issue of Shares, thedate of issue of Shares. Certificates for such Shares will be despatched withinsuch period of one month.

(xix)                           *No Upward Adjustments*: No adjustmentinvolving an increase in the Fixed Conversion Price will be made, except in thecase of a consolidation of the Shares as referred to in Condition 6(c)(i) above.

(d)            For the purposes of these Conditions:

“**Closing Price**” for the Shares for anyTrading Day shall be the price published in the Daily Quotation Sheet publishedby the Stock Exchange for such day;

“**Current Market Price**” means, in respect ofa Share at a particular date, the average of the Closing Prices for one Share(being a Share carrying full entitlement to dividend) for the five consecutiveTrading Days ending on the Trading Day immediately preceding such date,provided that if at any time during the said five Trading Day period the Sharesshall have been quoted ex-dividend and during some other part of that periodthe Shares shall have been quoted cum-dividend then:

(i)            if the Shares to be issued in suchcircumstances do not rank for the dividend in question, the quotations on thedates on which the Shares shall have been quoted cum-dividend shall for thepurpose of this definition be deemed to be the amount thereof reduced by anamount equal to the amount of that dividend per Share; or

(ii)           if the Shares to be issued in suchcircumstances rank for the dividend in question, the quotations on the dates onwhich the Shares shall have been quoted ex-dividend shall for the purpose ofthis definition be deemed to be the amount thereof increased by such similaramount;

andprovided further that if the Shares on each of the said five Trading Days havebeen quoted cum-dividend in respect of a dividend which has been declared orannounced but the Shares to be issued do not rank for that dividend, thequotations on each of such dates shall for the purpose of this definition bedeemed to be the amount thereof reduced by an amount equal to the amount ofthat dividend per Share;

“**Distribution**” means: any distribution ofassets (whether in cash or in specie) by the Company for any financial period(whenever paid or made and however described) (and for these purposes adistribution of assets in specie includes without limitation an issue of Sharesor other securities credited as fully or partly paid (other than Sharescredited as fully paid to the extent an adjustment to the Fixed ConversionPrice is made in respect thereof under Condition 6(c)(ii)(aa)) by way ofcapitalisation of reserves and including any Scrip Dividend to the extent ofthe Relevant Cash Dividend) unless

(aa)                            (and to the extent that)  it doesnot, when taken together with the aggregated of the Fair Market Value of anyother distribution or dividend previously made or paid in respect of the samecurrent or previously financial period, exceed five per cent. of the ClosingPrice on the date of announcement of the dividend or distribution; or

(bb)                          it comprises a purchase or redemption of Shares by or on behalf of theCompany (or a purchase of Shares by or on behalf of a Subsidiary of the

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                                                Company), where the weighted average price (before expenses) on any oneday in respect of such purchases does not exceed the Current Market Price ofthe Shares as published in the Daily Quotation Sheet of the Stock Exchange bymore than five per cent. either (1) on that date, or (2) where anannouncement has been made of the intention to purchase Shares at some futuredate at a specified price, on the Trading Day immediately preceding the date ofsuch announcement and, if in the case of either (1) or (2), the relevantday is not a Trading Day, the immediately preceding Trading Day.

Inmaking any such calculation, such adjustments (if any) shall be made as theCompany may consider appropriate to reflect:

(i)                                     any consolidation or subdivision of the Shares,

(ii)                                  issues of Shares by way of capitalisation of profits or reserves, or anylike or similar event; or

(iii)                               the modification of any rights to dividends of Shares;

“**Fair Market Value**” means, with respect toany assets, security, option, warrants or other right on any date, the fairmarket value of that asset, security, option, warrant or other right asdetermined by an Independent Investment Bank, provided that:

(i)                                     the fair market value of a cash dividend paid or to be paid per Shareshall be the amount of such cash dividend per Share determined as at the dateof announcement of such dividend;

(ii)                                  where options, warrants or other rights are publicly traded in a marketof adequate liquidity (as determined by such investment banks) the fair marketvalue of such options, warrants or other rights shall equal the arithmetic meanof the daily closing prices of such options, warrants or other rights duringthe period of five trading days on the relevant market commencing on the firstsuch trading day such options, warrants or other rights are publicly traded;

“**Independent Investment Bank**” means anindependent investment bank of international repute (acting as expert) selectedby the Company;

“**Relevant Cash Dividend**” means any cashdividend specifically declared by the Company;

“**Scrip Dividend**” means any Shares issued inlieu of the whole or any part of any Relevant Cash Dividend being a dividendwhich the Shareholders concerned would or could otherwise have received andwhich would not have constituted a Distribution (and for the avoidance of doubtto the extent that no adjustment is to be made under Condition 6(c)(iii) inrespect of the amount by which the Current Market Price of the Shares exceedsthe Relevant Cash Dividend or part thereof); and

“**Trading Day**” means a day when the StockExchange is open for dealing business, provided that if no Closing Price isreported for one or more consecutive dealing days such day or days will bedisregarded in any relevant calculation and shall be deemed not have existedwhen ascertaining any period of dealing days.

**7              Covenantsin Relation to the Conversion Right**

(a)                     The Companyhereby covenants with and undertakes to the Bondholders that, so long as any ofthe Bonds are outstanding, it will:

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(i)**                                            ***Availability of Shares*: keep available,free from pre-emptive or other rights, out of its authorised but unissuedShares such number of Shares as would be required to be issued on conversion ofall the Bonds from time to time remaining outstanding and to satisfy in fullall other rights of conversion into or exchange or subscription for Shares andshall ensure that all Shares delivered on conversion of Bonds will be duly andvalidly issued as fully-paid and non-assessable;

(ii)**                                         ***Limited Issues of Shares*: not issue or payup any securities, by way of capitalisation of profits or reserves unless, inany such case, it gives rise (or would, if the adjustment would be one percent. or more of the Fixed Conversion Price then in effect, otherwise giverise) to an adjustment of the Fixed Conversion Price, provided that the Companymay issue or pay up any security by way of capitalisation of profits orreserves (a) by the issue of fully paid Shares to the Shareholders andother persons entitled to them, (b) by the issue of Shares paid up in fullout of profits or reserves in accordance with applicable law and issued in lieuof a cash dividend or (c) by the issue of fully paid equity share capital(other than Shares) to the holders of equity share capital of the same classand other persons entitled thereto, subject in each case to the provisions ofCondition 6(c). For the avoidance of doubt, nothing in this Condition 7(a)(ii) shallprevent the issue of any equity share capital by the Company pursuant to anemployee share scheme;

(iii)**                                      ***Limited Modification of Rights*: not modifythe rights attaching to the Shares with respect to voting, dividends orliquidation nor issue any other class of ordinary share capital carrying anyrights which are more favourable than the rights attaching to Shares but sothat nothing in this Condition 7(a)(iii) shall prevent (a) the issueof equity share capital to employees (including directors) of the Company orany of its Subsidiaries or associated companies by virtue of their office oremployment pursuant to an employee share scheme, (b) a consolidation orsubdivision of the Shares or the conversion of any Shares into stock or viceversa, (c) a modification to the rights attaching to the Shares which isnot, in the opinion of an Independent Investment Bank, materially prejudicialto the interests of the Bondholders, (d) the conversion of Shares into, orthe issue of any Shares in, uncertificated form (or the conversion of Shares inuncertificated form to certificated form) or the amendment of the Articles ofAssociation of the Company to enable title to securities of the Company(including Shares) to be evidenced and transferred without a written instrumentor any other alteration to the Memorandum and Articles of Association of theCompany made in connection with the matters described in this Condition 7(a)(iii) orwhich are supplemental or incidental to any of the foregoing (includingamendments made to enable or facilitate procedures relating to such matters andamendments dealing with the rights and obligations of holders of securities(including Shares) dealt with under such procedures) or (e) any issue ofequity share capital which results (or would, if the adjustment would be oneper cent. or more of the Fixed Conversion Price then in effect, otherwiseresult) in an adjustment of the Fixed Conversion Price;

(iv)**                                     ***Limited Grant of Rights*: procure that nosecurities (whether issued by the Company or any of its Subsidiaries) issuedwithout rights to convert into or exchange or subscribe for Shares shallsubsequently be granted such rights at a consideration per Share which is lessthan the Current Market Price per Share at close of business on the Trading Daylast preceding the date of the 

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**                                                       **announcementof the proposed inclusion of such rights unless the same gives rise (or would,if the adjustment would be one per cent. or more of the Fixed Conversion Pricethen in effect, give rise) to an adjustment of the Fixed Conversion Price andthat at no time shall there be in issue Shares of differing par values;

(v)**                                        ***Restricted Action*: not make any issue,grant or distribution or take any other action the effect of which would be toreduce the Fixed Conversion Price below the par value of the Shares;

(vi)                                      *Directors’ Certificate*: if an eventhappens as a result of which the Fixed Conversion Price may be adjustedpursuant to these Conditions, subject to Condition 6(c)(xii), as soon aspracticable send the Bondholders a certificate signed by a director or authorised officer of theCompany on behalf of the Company setting out particulars of the event, whetheran adjustment to the Fixed Conversion Price falls to be made and, if so, theadjusted Fixed Conversion Price and the date on which such adjustment takeseffect, whether an amount falls to be carried forward pursuant to Condition6(c)(xv) and if so the amount to be carried forward and in any case setting outsuch other information as the Bondholders may reasonably require;

(vii)**                                  ***Extend Offer*: if an offer is made to all(or as nearly as may be practicable all) Shareholders, or all (or as nearly asmay be practicable all) such Shareholders other than the offeror and/or anyassociate or associates of the offeror to acquire all or a majority of theissued equity share capital of the Company, or if any person proposes a schemewith regard to such acquisition, give notice of such offer or scheme to theBondholders at the same time as any notice thereof is sent to its Shareholders(or as soon as practicable thereafter) stating that details concerning suchoffer or scheme and, where such an offer or scheme has been recommended by theBoard of Directors of the Company or where such an offer has become or beendeclared unconditional in all respects, use its reasonable endeavours toprocure that a like offer or scheme is extended to the Bondholders and theholders of any Shares issued during the period of the offer or scheme arisingout of Conversion Rights;

(viii)**                               ***No Reduction of Issued Share Capital*: notmake any reduction of its ordinary share capital or any uncalled liability inrespect thereof or of any share premium account or capital redemption reservefund (except, in each case, as permitted by law or by means of a purchase orreduction of the share capital of the Company permitted by Condition 6(c) orwhere the reduction has resulted in an adjustment to the Fixed Conversion Priceunder Condition 6(c));

(ix)                                        *Closing of Register*: unless so required byapplicable law or regulation or in order to establish a dividend or otherrights attaching to the Shares or entitlements of the Shareholders, not closeits register of Shareholders or take any other action which prevents thetransfer of its Shares generally and ensure that the Bonds may be convertedlegally and the Shares issued on conversion may (subject to any limitationimposed by law) be transferred (as between transferor and transferee althoughnot as against the Company) at all times while the register is closed or suchother action is effective, nor take any action which prevents the conversion ofthe Bonds or the issue of Shares in respect of them;

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(x)**                                          ***Listing of Shares*: use its best efforts to(a) maintain a listing for all the issued Shares on the Stock Exchange, (b) obtainand maintain a listing for all the Shares issued on exercise of the ConversionRights attached to the Bonds on the Stock Exchange;

(xi)**                                       ***Expenses*: pay the expenses of the issueof, and all expenses of obtaining and maintaining a listing for, Shares arisingon conversion of the Bonds.

For the above purposes, “**equity sharecapital**” means the share capital of a company excluding any part ofthat capital which, neither as respects dividends nor as respects capital,carries any right to participate beyond a specified amount in a distribution.

(b)                              Theforms of the Conversion Notice shall be submitted to, and be issued in a formset out in Schedule 2, Parts B and C of the Subscription Agreement. The Companyshall from time to time make available sufficient numbers of such notices tothe Bondholders.

**8**                             Representations and Warranties ofthe Bondholders in Relation to the Conversion Shares

The Bondholders hereby agree and acknowledge with, and represent and warrantto, the Company that:

(a)                            theConversion Shares will not be registered under the Securities Act and may notbe offered, sold, pledged or otherwise pledged within the United States or toany United States person except pursuant to an effective registration statementunder the Securities Act or pursuant to an exemption from, or in a transactionnot subject to,  registrationrequirements of the Securities Act;

(b)                           none ofthe Bondholders is a U.S. Person (as defined in Rule 902 of Regulation Sunder the Securities Act) and is acquiring the Conversion Shares in an offshoretransaction in reliance on Regulation S under the Securities Act;

(c)                            theBondholders will not, at any time during the period of 40 days after the dateof issuance of the Conversion Shares, offer or sell any of the ConversionShares to or for the benefit or account of a U.S. person (as defined in Rule 902of Regulation S under the Securities Act);

(d)                             noaction has been or shall be taken in any jurisdiction by any of the Bondholdersthat would permit a public offering of the Bonds or Conversion Shares in anycountry or jurisdiction where action for that purpose is required;

(e)                              eachof the Bondholders will comply with all applicable laws and regulations in eachjurisdiction in which it, directly or indirectly, subscribes, offers, sells ordelivers the Bonds and the Conversion Shares; and

(f)                                theBondholders will not, at any time after the date of issuance of the ConversionShares, sell or otherwise transfer or dispose of any Conversion Shares asrepresents more than 2 per cent. of the share capital of the Company inany calendar quarter, except for any placing of Shares which is reported as across trade to the Stock Exchange.

**9          Redemption and Purchase**

(a)                               *Maturity*

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Unless previouslyredeemed, converted or purchased and cancelled as herein provided, the Companywill redeem all the outstanding Bonds at 104.26% of their principal amount on 5 July 2009 (the “**Maturity Date**”).

(b)**                             ***Redemption for Delisting, Changeof Control, etc*

Followingthe occurrence of a Relevant Event (as defined below), the holder of each Bondwill have the right at such holder’s option, to require the Company to redeemall or some only of that holder’s Bonds on the Relevant Event Redemption Date(as defined below) at their Early Redemption Amount. To exercise such right,the holder of the relevant Bond must complete, sign and deposit at theDesignated Office a duly completed and signed notice of redemption (the “**Relevant Event Redemption Notice**”) togetherwith the Certificate evidencing the Bonds to be redeemed by not later than 60days following a Relevant Event, or, if later, 60 days following the date uponwhich notice thereof is given to Bondholders by the Company in accordance withCondition 13. The “**Relevant Event RedemptionDate**” shall be the 14th day after the expiry of such periodof 60 days as referred to above.

ARelevant Event Redemption Notice, once delivered, shall be irrevocable and theCompany shall redeem the Bonds the subject of Relevant Event Redemption Noticesdelivered as aforesaid on the Relevant Event Redemption Date.

TheCompany shall give notice to Bondholders in accordance with Condition 13 by notlater than 14 days following the first day on which it becomes aware of theoccurrence of a Relevant Event, which notice shall specify the procedure forexercise by holders of their rights to require redemption of the Bonds pursuantto this Condition and shall give brief details of the Relevant Event.

For the purposes of these Conditions:

a “**Ceasing of Business**” occurs when theCompany or its Principal Subsidiaries ceases or threatens to cease to carry onall or part of its business or operations (except in the case of PrincipalSubsidiaries, whereby the undertaking and assets of such Principal Subsidiariesare transferred to or otherwise vested in the Company or another of itssubsidiaries) which could have a Material Effect;

a “**Change of Control**” occurs when China UnitedTelecommunications Corporation ceases to Control the Company;

“**Control**” means the right to appoint and/orremove all or the majority of the members of the Company’s board of directors,whether obtained directly or indirectly, and whether obtained by ownership ofshare capital, the possession of voting rights, contract or otherwise;

“**Early Redemption Amount**” of a Bond, foreach U.S.$1,000 principal amount of the Bonds, is determined so that itrepresents for the Bondholder a gross yield of 1.4per cent. perannum, calculated on an annual basis.

The applicableEarly Redemption Amount for each U.S.$1,000 principal amount of Bonds iscalculated in accordance with the following formula, rounded (if necessary) totwo decimal places with 0.005 being rounded upwards (provided that if the datefixed for redemption is the Annual Date (as set out below), such EarlyRedemption Amount shall be as set out in the table below in respect of suchAnnual Date):

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Early Redemption Amount = Previous Redemption Amount x(1 + r) d/p

PreviousRedemption Amount = the Early Redemption Amount for each US$1,000 principal amountof the Bonds on the Annual Date immediately preceding the date fixed forredemption as set out below (or if the Bonds are to be redeemed prior to5 July 2007, US$1,000):

| Annual Date | ** ** | **Previous Redemption   Amount (U.S.$)** | ** ** |
|------------------|------------|---------------------------------------------------------|------------|
| 2007             |       | 1,014.00                                                |       |
| 2008             |       | 1,028.20                                                |       |

 

r =               1.4  per cent.expressed as a fraction.

d =              number of days from and includingthe immediately preceding Annual Date (or if the Bonds are to be redeemed on orbefore 5 July 2007, from and including the Closing Date) to, butexcluding, the date fixed for redemption, calculated on the basis of a 360-dayyear consisting of 12 months of 30 days each and, in the case of an incompletemonth, the number of days elapsed.

p =             360;

“**Material Asset Transfer**” occurs when theCompany or any of its Principal Subsidiaries (whether by a single transactionor a number of related or unrelated transactions and whether at one time orover a period of time) sells, transfers, leases out, lends or otherwisedisposes of (whether outright, by a sale-and-purchase or sale-and-leasebackarrangement, or otherwise, but excluding a transaction in the ordinary courseof trading) (each a “**Transfer**”)any part of its assets to any other person (including (in the case of theCompany) to any of its subsidiaries, but excluding (in the case of asubsidiary) to the Company or another subsidiary) which, either alone or whenaggregated with all other Transfers required to be taken into account underthis Condition, could have a Material Effect;

“**Material Effect**”means:

(i)                                              (in the caseof the Company and its Principal Subsidiaries) any asset, business orundertaking (a) the value ofwhich (aggregated if required) amounts to 15 per cent. or more of theconsolidated gross assets of the Company and its subsidiaries as shown by thelatest published audited consolidated balance sheet of the Company or (b) which(aggregated if required) contributes to 15 per cent. or more of theconsolidated revenue of the Company and its subsidiaries as shown by the latestpublished audited consolidated income statement of the Company; or

(ii)                                           a materialadverse effect on or material adverse change in:

(a)                                  the abilityof the Company to perform and comply with its obligations under the Bonds; or

(b)                                 thevalidity, legality or enforceability of, or the rights or remedies of theCompany under, the Bonds.

a “**Relevant Event**” occurs when:

(i)                                     the Shares cease to be listed or admitted to tradingon the Stock Exchange; or

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(ii)                                there is a Change of Control; or

(iii)                             there is a Material Asset Transfer; or

(iv)                           there is a Ceasing of Business; or

(v)                              it is orwill become unlawful for the Company to perform or comply with anyone or more of its obligations under any of the Bonds; or

(vi)                           theobligations of the Company under the Bonds are or become unenforceable.

(c)                               *Put Option*

On5 July 2008 (the “**Put Option Date**”),each Bondholder will have the right at such holder’s option, to require theCompany to redeem all or some only of the Bonds of such holder on the PutOption Date at 102.82 per cent. of their principal amount. To exercisesuch right, the holder of the relevant Bond must deliver its notice ofredemption (“Put Exercise Notice”) together with the Certificate evidencing theBonds to be redeemed not later than 40 days prior to the Put Option Date.

A Put ExerciseNotice, once delivered, shall be irrevocable (and may not be withdrawn unlessthe Company consents to such withdrawal) and the Company shall redeem the Bondsthe subject of Put Exercise Notices delivered as aforesaid on the Put OptionDate.

(d)                              *Cancellation*

All Bonds whichare redeemed or converted will forthwith be cancelled by the Company and maynot be reissued or resold.

**10       Prescription**

Claims in respect of principal will become void unlessmade within the period of 10 years from the due date for the payment thereof.

**11       Events of Default**

If any of the followingevents (each, an “**Event of Default**”)occurs:

(a)                               thereis default by the Company in the payment of the principal in respect of theBonds or any of them when and as the same ought to be paid and such default isnot remedied by the Company within five business days; or

(b)                              thereis default by the Company in (i) its obligation to deliver Shares as andwhen the Shares are required to be delivered following conversion of the Bonds,or (ii) the performance or observance of any covenant, condition,provision or obligation contained in the Bonds and on its part to be performedor observed (other than the covenant to pay the principal in respect of any ofthe Bonds) and such default continues for the period of, in the case of (i) fivebusiness days and in the case of (ii) 30 days next following the serviceby any Bondholder on the Company of notice requiring the same to be remedied;or

(c)                               anyother bonds, debentures, notes or other instruments of indebtedness or anyother loan indebtedness having an aggregate outstanding amount of at leastU.S.$15,000,000

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                                             orthe equivalent in any other currency or currencies (hereinafter collectivelycalled “**Indebtedness**”) of theCompany or any Principal Subsidiaries is declared or capable of being declaredto be prematurely repayable following a default in respect of the terms thereofwhich shall not have been remedied, or steps are taken to enforce any securitytherefor, or the Company or any Principal Subsidiaries defaults in therepayment of any such Indebtedness at the maturity thereof or at the expirationof any applicable grace period therefor or any guarantee of or indemnity inrespect of any Indebtedness of others having an aggregate outstanding amount ofat least U.S.$15,000,000 givenby the Company or any Principal Subsidiaries shall not be honoured when due andcalled upon; or

(d)                              aresolution is passed or an order of a court of competent jurisdiction is madethat the Company or any Principal Subsidiaries be wound up or dissolvedotherwise than for the purposes of or pursuant to a consolidation,amalgamation, merger, reconstruction or reorganisation the terms of which havepreviously been approved in writing by Bondholders holding 51 per cent. of the outstandingprincipal amount of Bonds or which is approved by the shareholders of theCompany or any Principal Subsidiaries, as the case may be, and upon which thecontinuing corporation effectively assumes the entire obligations of theCompany or any Principal Subsidiaries, as the case may be, under the Bonds; or

(e)                               anencumbrancer takes possession or a receiver is appointed of the whole or amaterial part of the assets or undertaking of the Company or any PrincipalSubsidiaries; or

(f)                                 (i) theCompany or any Principal Subsidiaries without any lawful cause stops payment(within the meaning of any applicable bankruptcy law) or is unable to pay itsdebts as and when they fall due or (ii) the Company or any PrincipalSubsidiaries (otherwise than for the purposes of such a consolidation,amalgamation, merger, reconstruction or reorganisation as is referred to inparagraph (d) or (e) above) ceases or through an official action ofthe Board of Directors of the Company or any Principal Subsidiaries threatensto cease to carry on business; or

(g)                              proceedingsshall have been initiated against the Company or any Principal Subsidiariesunder any applicable bankruptcy, reorganisation or insolvency law and suchproceedings have not been discharged or stayed within a period of 30 days; or

(h)                              theCompany or any Principal Subsidiaries shall initiate or consent to proceedingsseeking with respect to itself adjudication of bankruptcy or a decree ofcommencement of composition or reorganisation or other similar procedures orthe appointment of an administrator or other similar official under anyapplicable bankruptcy, reorganisation or insolvency law or make a generalassignment for the benefit of, or enter into any composition with, itscreditors; or

(i)                                  adistress, execution or seizure before judgment is levied or enforced upon orsued out against a part of the property of the Company or any PrincipalSubsidiaries, which is material in its effect upon the operations of either theCompany or any Principal Subsidiaries and is not discharged within 30 daysthereof; or

(j)                                  anyevent occurs which under the law of any relevant jurisdiction has ananalogous effect to any of the events, referred to in any of the foregoingparagraphs.

then any Bondholder may,by notice in writing given to the Company at the Designated Office by theholder, declare the relevant Bond immediately due and payable, whereupon suchBond

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shall become immediatelydue and payable without further formality at the Early Redemption Amount.

**12       Replacement of Certificates**

Should any Certificate be lost, stolen, destroyed,mutilated or defaced, it may be replaced by the Company, upon payment by theclaimant of the expenses incurred in connection therewith and on such terms asto evidence and indemnity (which shall require, *inter alia*, that, if the allegedly lost, stolen or destroyedCertificate is subsequently deposited for conversion into Shares, or if suchCertificate is subsequently surrendered for redemption or is subsequentlyrepurchased by the Company, there shall be paid to the Company on demand theprincipal amount of such Bonds represented by such Certificate) as the Companymay reasonably require. Mutilated or defaced Certificates must be surrenderedbefore replacements will be issued.

**13       Notices**

(a)                                     Allnotices to the Bondholders will be valid if sent to them by express courier orby facsimile at their respective addresses or facsimile numbers (asappropriate) in the Company’s Register. Such notices shall be deemed to havebeen given to Bondholders in the case of express courier, at the time ofdelivery, and in the case of facsimile, at the time of despatch (provided thatthe Company retains a mechanical or electronically generated confirmation ofthe successful transmission of such facsimile). The Company shall give noticeto Bondholders in accordance with this Condition 13 of any change in theDesignated Office.

(b)                                    EveryBondholder shall register with the Company an address in Hong Kong andfacsimile number to which notices can be sent and if any Bondholder shall failto do so, notice may be given to such Bondholder by sending the same in any ofthe manners hereinbefore mentioned to its last known place of business orfacsimile number or, if there be none, by posting up the same for three days atthe Designated Office for the time being of the Company.

**14       Modification and Waiver**

Anymodification by the Company of the Bonds (including these Conditions) or anywaiver or authorisation of any breach or proposed breach by the Company of theBonds requires the written approval of holders of 51 per cent. of the aggregateprincipal amount of Bonds then outstanding.

**15    Currency Indemnity**

(a)**                       ***Currency of Account and Payment*: USdollars (the “**Contractual Currency**”)is the sole currency of account and payment for all sums payable by the Companyunder or in connection with the Bonds, including damages.

(b)**                      ***Extent of discharge*: An amount received orrecovered in a currency other than the Contractual Currency (whether as aresult of, or of the enforcement of, a judgment or order of a court of anyjurisdiction, in the winding-up or dissolution of the Company or otherwise), byany Bondholder in respect of any sum expressed to be due to it from the Companywill only discharge the Company to the extent of the Contractual Currency amountwhich the recipient is able to purchase with the amount so received orrecovered in that other currency on the date of that receipt or recovery (or,if it is not

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**                                     **practicableto make that purchase on that date, on the first date on which it is practicableto do so).

(c)                        *Indemnity*: If that Contractual Currencyamount is less than the Contractual Currency amount expressed to be due to therecipient under the Bonds, the Company will indemnify it against any losssustained by it as a result. In any event, the Company will indemnify therecipient against the cost of making any such purchase.

(d)**                      ***Indemnity separate*: The indemnities inthis Condition 15 constitute separate and independent obligations from theother obligations under the Bonds, will give rise to a separate and independentcause of action, will apply irrespective of any indulgence granted by anyBondholder and will continue in full force and effect despite any judgment,order, claim or proof for a liquidated amount in respect of any sum due the Bondsor any other judgment or order.

**16       Governing Law**

The Bonds are governed by, and shall be construed inaccordance with Hong Kong law.

**17       Submission to Jurisdiction**

In relation to any legal action or proceedings arisingout of or in connection with the Bonds (“**Proceedings**”),the Company irrevocably submits to the non-exclusive jurisdiction of the courtsof Hong Kong and waives any objection to Proceedings in such courts whether onthe grounds that the Proceedings have been brought in an inconvenient forum orotherwise. This submission is made for the benefit of the Bondholders and shallnot affect the right of any of them to take Proceedings in any other court ofcompetent jurisdiction nor shall the taking of Proceedings in any court ofcompetent jurisdiction preclude any of them from taking Proceedings in anyother court of competent jurisdiction (whether concurrently or not). Nothing inthese presents shall affect the right to serve process in any other mannerpermitted by law.

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**SCHEDULE 2PART A**CONVERSION MECHANICS

Terms used herein are asdefined in the terms and conditions of the Bonds (the “**Conditions**”). This schedule is subject tothe more detailed provisions of the Conditions.
| Action | ** ** | **Timing(1)**                                                                                                                                    | ** ** | **Responsibility**                                                      |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|
| 1.     |       | Bondholder exercises Conversion Right by sending a  facsimile to the Designated Office in Hong Kong of a completed short form  Conversion Notice |       | Conversion Date(2)                                                      |   | Bondholder |
|   |       |                                                                                                                                             |       |                                                                    |   |   |
| 2.     |       | Company to acknowledge receipt of short form  Conversion Notice by sending a facsimile to sender of short form Conversion  Notice                |       | By 4:30 p.m. on the business day following the  Conversion Date    |   | Company |
|   |       |                                                                                                                                             |       |                                                                    |   |   |
| 3.     |       | Long form Conversion Notice and relevant Bond  Certificates delivered to Designated Office                                                       |       | By 4:30 p.m. on the business day following the  Conversion Date    |   | Bondholder |
|   |       |                                                                                                                                             |       |                                                                    |   |   |
| 4.     |       | Company to deliver the allotment advice or  instructions to issue the Conversion Shares to its share registrars and  transfer agent in Hong Kong |       | By 4:30 p.m. on the business day following the  Delivery Date      |   | Company |
|   |       |                                                                                                                                             |       |                                                                    |   |   |
| 5.     |       | Company to deliver or cause to be delivered  certificate for Shares or Central Clearing of Settlement System Account  Credit instructions        |       | By 4:30 p.m. within ten business days following  the Delivery Date |   | Company/  Share Transfer  Agent |

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(1)                                  Alltimes stated are Hong Kong time.

(2)                                  Ifthe Conversion Notice is received after 4:30 p.m. the Conversion Notice isdeemed to be received on the next succeeding Business Day.

 

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**PART BFORM OF LONG FORM CONVERSION NOTICE**

**CHINA UNICOM LIMITED**

**U.S.$1,000,000,000****Zero Coupon****Convertible Bonds due 2009**

**CONVERSION NOTICE**

(To be completed in duplicate)

(Please read the notesoverleaf before completing this Notice.)

Name:..................................................................

Date:...................................................................

Address:...............................................................

Signature:.............................................................

To: China Unicom Limited(the “**Company**”)

I/We, by or on behalf ofthe holder or beneficial owner of the Bonds (the “**Bonds**”) specified below, hereby elect to convert such Bondsinto ordinary shares of the Company (the “**Shares**”)in accordance with Condition 6 of the terms and conditions of the Bonds.

1.         Total principal amount and certificatenumbers of Bonds to be converted:

Total principalamount(3):................................................................................................

Total number ofBonds:............................................................................................

Certificatenumbers ofBonds:....................................................................................

N.B.                   If necessary, the certificate numbers of Bondsattached need not be in consecutive serial number.

2.         Total number of Shares to be exchanged:

Principal ofBonds delivered x Exchange Rate ÷ Fixed Conversion Price =

 

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(3)                                  Thismust be, in respect of each exercise, an U.S.$50,000,000 and an integralmultiple of U.S.1,000 thereafter (if applicable) unless it is an exercise by a Bondholder in respect of its entireholding.

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3.                               Name(s), address(es) and signature(s) of person(s) inwhose name(s) the Shares required to be delivered on conversion are to beregistered:-

Name:..............................................................................

Address:..........................................................................

.........................................................................................

.........................................................................................

Signature:.........................................................................

4.                               (A)     therelevant number of Shares be issued in the name(s) of the person(s) whosename(s) stand(s) on the Register as the Bondholder(s) representedby this Certificate and the certificate for such Shares be delivered to theaddress of the following participant of the Central Clearing and SettlementSystem (“**CCASS**”) operated by theHong Kong Securities Clearing Company Limited:

                                                   ParticipationI.D. of the designated CCASS participant;

                                                   CCASSparticipant’s contact person;

                                                   CCASSparticipant’s contact telephone number and fax number;

                                                   CCASSparticipant’s address for delivery of share certificates

                                        OR

                                        (B)      I/Wehereby request that the certificates for the Shares (or other securities)required to be delivered upon conversion be despatched (at my/our risk andexpense) to the person whose name and address is given below and in the mannerspecified below:

Name:..............................................................................

Address:..........................................................................

.........................................................................................

.........................................................................................

Manner of despatch (ifother than by ordinary mail):....................................................

5.                               I/We hereby request that any cash amount (or property)required to be delivered upon conversion be despatched (at my/our risk andexpense) to the person whose name and address is given below and in the mannerspecified below:

Name:.............................................................................

Address:.........................................................................

.......................................................................................

.......................................................................................

U.S. Dollar bank account details:..........................

..................................................................

..................................................................

6.                               The Certificates representing the Bonds convertedhereby accompany this Conversion Notice.

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7.                               I/We hereby declare that all approvals, consents andauthorisations (if any) required by the laws of to which I am / we are subjectand to be obtained by me/us prior to the said conversion have been obtained andare in full force and effect and that any applicable condition thereto has beencomplied with by me/us.

8.                               The Company has notified the Bondholders that the Company’sregister of shareholders will be closed on the following dates:

.......................................................................................

.......................................................................................

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Notes:

(i)                             This Conversion Notice will be void unless theintroductory details, Sections 1, 2, 3 and (if applicable) 4 are completed.

(ii)                          Your attention is drawn to Condition 6(b)(i) ofthe Bonds with respect to the conditions precedent which must be fulfilled beforethe Bonds specified above will be treated as effectively eligible forconversion.

(iii)                       Despatch of share certificates or other securities orproperty will be made at the risk and expense of the converting Bondholder andthe converting Bondholder will be required to prepay the expenses of, andsubmit any necessary documents required in order to effect, despatch in themanner specified.

(iv)                      If an adjustment contemplated by the terms andconditions of the Bonds is required in respect of a conversion of Bonds whereadditional Shares are to be issued, certificates for the additional Sharesdeliverable pursuant to such adjustment (together with any other securities,property or cash) will be delivered or despatched in the same manner as theShares, other securities, property and cash previously issued pursuant to therelevant Conversion Notice.

.............................

For Company’s use only:-

1                                          (A) Bonds conversion identificationreference:.............................

(B) ConversionDate:...........................................................................

(C) DeliveryDate: ...........................................................................

2                                          (A) Aggregate principal amount of Bonds inrespect of which Certificates have been deposited forconversion:........................................................................

(B) ConversionPrice on Conversion Date:..........................................

(C) Number ofShares issuable:...........................................................(disregard fractions)

3                                          (If applicable) amount of cash payment due toconverting Bondholder underCondition 6(b)(ii):.....................................................................................

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Note: The Company mustcomplete items 1, 2 and (if applicable) 3.

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**PART CFORM OF SHORT FORM CONVERSION NOTICE**

**CHINA UNICOM LIMITED**

**U.S.$****1,000,000,000********Zero Coupon****Convertible Bonds due 2009**

**CONVERSION NOTICE**(To be sent byfacsimile only)

Name:...................................................................

Date:..................................................................

Address:..............................................................

To: China Unicom Limited(the “**Company**”)

I/We, by or on behalf ofthe holder or beneficial owner of the Bonds (the “**Bonds**”) specified below, hereby elect to convert such Bondsinto ordinary shares of the Company (the “**Shares**”)in accordance with Condition 6 of the terms and conditions of the Bonds.
| Total principal amount:                                                                                                                       |   | (A)    |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                                                                          |   |   |   |
| Total number of Bonds:                                                                                                                        |   | (B)    |   |
|                                                                                                                                          |   |   |   |
| Certificate numbers of Bonds:                                                                                                                 |   | (C)    |   |
|                                                                                                                                          |   |   |   |
| Total number of Shares to be issued:                                                                                                          |   | (D)    |   |
|                                                                                                                                          |   |   |   |
| Name of the person in whose name the Shares required  to be  delivered on conversion are to be registered:                                    |   | (E)    |   |
|                                                                                                                                          |   |   |   |
| CCASS Settlement or Name and address of the  custodian in  Hong Kong to whom certificates for Shares and any cash  amount shall be delivered: |   | (F)    |   |

 

Regards,

________________________________________________

Signatures

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