<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                             ---------------------

                                   FORM 20-F
    [  ]      REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE
              SECURITIES EXCHANGE ACT OF 1934

                                       OR

    [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
             EXCHANGE ACT OF 1934

               FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

    [  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
              SECURITIES EXCHANGE ACT OF 1934

               FOR THE TRANSITION PERIOD FROM ________ TO ________
                             ---------------------

                         COMMISSION FILE NUMBER 1-14696
                             ---------------------
                        CHINA MOBILE (HONG KONG) LIMITED
             (Exact Name of Registrant as Specified in Its Charter)

                                      N/A
                (Translation of Registrant's Name into English)

                                HONG KONG, CHINA
                (Jurisdiction of Incorporation or Organization)
                             ---------------------
                             60TH FLOOR, THE CENTER
                            99 QUEEN'S ROAD CENTRAL
                                HONG KONG, CHINA

                    (Address of Principal Executive Offices)
                             ---------------------
     Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
              TITLE OF EACH CLASS                   NAME OF EACH EXCHANGE ON WHICH REGISTERED
              -------------------                   -----------------------------------------
<S>                                              <C>
Ordinary shares, par value HK$0.10 per share     New York Stock Exchange, Inc.*
</TABLE>

* Not for trading, but only in connection with the listing on the New York Stock
  Exchange, Inc. of American depositary shares representing the ordinary shares.

     Securities registered or to be registered pursuant to Section 12(g) of the
Act:

                                      NONE
                                (Title of Class)

     Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:

                                      NONE
                                (Title of Class)

     Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.

     As of December 31, 2000, 18,605,312,241 ordinary shares, par value HK$0.10
per share, were issued and outstanding.

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark which financial statement item the registrant has
elected to follow.  Item 17 [ ]  Item 18 [X]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                               TABLE OF CONTENTS

                        CHINA MOBILE (HONG KONG) LIMITED

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
  <S>       <C>                                                           <C>

  Forward-Looking Statements............................................    1

  Special Note on our Financial Information and Certain Statistics
    Presented in this Annual Report.....................................    2


                                     PART I

  Item 1.   Identity of Directors, Senior Management and Advisers.......    3

  Item 2.   Offer Statistics and Expected Timetable.....................    3

  Item 3.   Key Information.............................................    3

  Item 4.   Information on the Company..................................   11

  Item 5.   Operating and Financial Review and Prospects................   32

  Item 6.   Directors, Senior Management and Employees..................   45

  Item 7.   Major Shareholders and Related Party Transactions...........   49

  Item 8.   Financial Information.......................................   55

  Item 9.   The Offer and Listing.......................................   55

  Item 10.  Additional Information......................................   56

  Item 11.  Quantitative and Qualitative Disclosures about Market          65
            Risk........................................................

  Item 12.  Description of Securities Other than Equity Securities......   66


                                    PART II

  Item 13.  Defaults, Dividend Arrearages and Delinquencies.............   66

  Item 14.  Material Modifications to the Right of Security Holders and    66
            Use of Proceeds.............................................

  Item 15.  [Reserved]..................................................   67

  Item 16.  [Reserved]..................................................   67


                                    PART III

  Item 17.  Financial Statements........................................   67

  Item 18.  Financial Statements........................................   67

  Item 19.  Exhibits....................................................   67
</TABLE>

                                        i
<PAGE>   3

                           FORWARD-LOOKING STATEMENTS

     This annual report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are, by their nature, subject to significant risks and uncertainties,
and include, without limitation, statements relating to:

      --  our business strategy;

      --  network expansion plans and related capital expenditure plans;

      --  the planned development of new mobile technologies and other
          technologies and related applications;

      --  the expected impact of tariff changes on our results of operations;

      --  the expected impact of new services on our results of operations;

      --  future developments in the telecommunications industry in Mainland
          China, including the restructuring of the industry, changes in
          government policies; and

      --  other statements relating to our future business development and
          financial performance.

     The words "anticipate", "believe", "estimate", "expect", "intend" and
similar expressions, as they relate to us, are intended to identify certain of
such forward-looking statements. We do not intend to update these
forward-looking statements.

     These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. Actual results may
differ materially from information contained in the forward-looking statements
as a result of a number of factors, including, without limitation:

      --  any further restructuring of the telecommunications industry in
          Mainland China;

      --  any changes in the regulatory policies of the Ministry of Information
          Industry of China and other relevant government authorities, which
          could affect, among other things, the granting of any requisite
          government approvals, licences and permits, interconnection and
          transmission line arrangements, tariff policies, capital investment
          priorities, and spectrum allocation;

      --  the effects of competition on the demand for and price of our mobile
          communications services;

      --  any changes in mobile telephony and related technologies, which could
          affect the viability and competitiveness of our mobile communications
          networks; and

      --  changes in political, economic, legal and social conditions in
          Mainland China, including the Chinese government's specific policies
          with respect to new entrants in the telecommunications industry,
          foreign investment and the entry of foreign companies into China's
          telecommunications market, economic growth, inflation, foreign
          exchange, and the availability of credit.

     In addition, our future network expansion and other capital expenditure and
development plans are dependent on numerous factors, including, among others:

      --  our ability to obtain adequate financing on acceptable terms;

      --  the adequacy of currently available spectrum or the availability of
          additional spectrum;

      --  the availability of transmission lines and equipment, the availability
          of the requisite number of sites for locating network equipment on
          reasonable commercial terms;

      --  our ability to develop or obtain new technology and applications; and

      --  the availability of qualified management and technical personnel.

                                        1
<PAGE>   4

        SPECIAL NOTE ON OUR FINANCIAL INFORMATION AND CERTAIN STATISTICS
                        PRESENTED IN THIS ANNUAL REPORT

     As required under Hong Kong GAAP, we have adopted the acquisition method to
account for our acquisitions of various regional mobile communications
companies, as described in "Item 4. Information on the Company -- History and
Development of the Company." Accordingly, our consolidated financial statements
and, except as otherwise noted, all other Hong Kong GAAP financial information
presented in this annual report, include the results of these companies, only
from the respective dates of acquisition.

     For U.S. GAAP purposes, as a result of our being under common control with
each of these companies prior to the acquisitions, each of the acquisitions was
considered a "combination of entities under common control". Under U.S. GAAP,
combinations of entities under common control are accounted for under the "as if
pooling-of-interests" method, whereby assets and liabilities are accounted for
at historical cost and the financial statements of previously separate companies
for periods prior to the combination generally are restated on a combined basis.
See "Item 5. Operating and Financial Review and Prospects".

     The statistics set forth in this annual report relating to Mainland China
are taken or derived from various government publications that we have not
prepared or independently verified. These statistics may not be consistent with
other statistics compiled within or outside Mainland China.

                                        2
<PAGE>   5

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

     Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.

     Not applicable.

ITEM 3.  KEY INFORMATION.

SELECTED FINANCIAL DATA

     The following tables present selected historical financial data of our
company as of and for each of the years in the five-year period ended December
31, 2000. The selected historical income statement data for the years ended
December 31, 1998, 1999 and 2000 and the selected historical balance sheet data
as of December 31, 1999 and 2000 set forth below are derived from, and should be
read in conjunction with, and are qualified in their entirety by reference to,
our audited consolidated financial statements, including the related notes
included elsewhere in this annual report. The selected historical Hong Kong GAAP
income statement data for the years ended December 31, 1996 and 1997 and the
selected historical Hong Kong GAAP balance sheet data as of December 31, 1996,
1997 and 1998 are derived from audited financial statements that are not
included herein.

     Our consolidated financial statements are prepared and presented in
accordance with Hong Kong GAAP. As required under Hong Kong GAAP, we have
adopted the acquisition method to account for our acquisitions of the various
regional mobile communications companies, as described in "Item 4. Information
on the Company -- History and Development of the Company." Accordingly, our
consolidated financial statements and, except as otherwise noted, all other Hong
Kong GAAP financial information presented in this annual report, include the
results of these companies, only from the respective dates of acquisition. In
contrast, under U.S. GAAP, our acquisitions of these companies are each
considered a combination of entities under common control which would be
accounted for under the "as if pooling-of-interests" method, whereby assets and
liabilities are accounted for at historical cost and the accounts of previously
separate companies for periods prior to the combination generally are restated
on a combined basis. For a discussion of significant differences between Hong
Kong GAAP and U.S. GAAP as they relate to us, and the effects of such
differences on net profit for the years ended December 31, 1998, 1999 and 2000,
and shareholders' equity as of December 31, 1999 and 2000, see Note 29 to our
consolidated financial statements. In addition, our condensed consolidated
financial statements prepared and presented in accordance with U.S. GAAP for the
relevant periods have been included in Note 29 to the consolidated financial
statements.

<TABLE>
<CAPTION>
                                             AS OF OR FOR THE YEAR ENDED DECEMBER 31,
                            ---------------------------------------------------------------------------
                               1996         1997         1998         1999         2000         2000
                            ----------   ----------   ----------   ----------   ----------   ----------
                               RMB          RMB          RMB          RMB          RMB          US$
                             (IN MILLIONS, EXCEPT SHARE NUMBERS AND PER SHARE AND PER ADS INFORMATION)
<S>                         <C>          <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
HONG KONG GAAP
Operating revenue.........      10,367       15,488       26,345       38,623       64,984        7,850
Operating expenses........       5,405       10,074       18,410       24,983       38,158        4,610
Operating profit..........       4,962        5,414        7,935       13,640       26,826        3,240
Write-down and write-off
  of analog network
  equipment...............          --           --          282        8,242        1,525          184
Profit before tax and
  minority interests......       4,941        5,953        9,387        6,444       26,393        3,188
Income tax................         428          991        2,486        1,647        8,366        1,010
Net profit................       4,509        4,955        6,900        4,797       18,027        2,178
</TABLE>

                                        3
<PAGE>   6

<TABLE>
<CAPTION>
                                             AS OF OR FOR THE YEAR ENDED DECEMBER 31,
                            ---------------------------------------------------------------------------
                               1996         1997         1998         1999         2000         2000
                            ----------   ----------   ----------   ----------   ----------   ----------
                               RMB          RMB          RMB          RMB          RMB          US$
                             (IN MILLIONS, EXCEPT SHARE NUMBERS AND PER SHARE AND PER ADS INFORMATION)
<S>                         <C>          <C>          <C>          <C>          <C>          <C>
Basic and diluted net
  profit per
  share(1)(2).............        0.50         0.52         0.59         0.40         1.25         0.15
Basic and diluted net
  profit per ADS(1)(2)....        2.50         2.60         2.93         1.99         6.26         0.76
Shares utilized in basic
  calculation (in
  thousands)..............   9,010,000    9,534,365   11,780,788   12,069,108   14,394,313   14,394,313
Shares utilized in diluted
  calculation (in
  thousands)..............   9,010,000    9,534,365   11,782,521   12,072,383   14,409,503   14,409,503
U.S. GAAP(3)
Operating revenue.........      23,145       36,830       54,375       70,603       90,980       10,991
Operating expenses........      12,372       23,103       37,473       56,443       56,418        6,816
Operating profit..........      10,773       13,727       16,902       14,160       34,562        4,175
Profit before tax and
  minority interests......      10,908       14,222       18,496       14,610       35,378        4,274
Income tax................       1,148        1,797        3,912        3,617       11,097        1,340
Net profit................       9,756       12,418       14,583       10,993       24,280        2,933
Basic and diluted net
  profit per
  share(1)(2).............        0.69         0.85         0.87         0.65         1.37         0.17
Basic and diluted net
  profit per ADS(1)(2)....        3.47         4.26         4.33         3.24         6.87         0.83
Shares utilized in basic
  calculation (in
  thousands)..............  14,062,602   14,586,967   16,833,390   16,943,812   17,666,347   17,666,347
Shares utilized in diluted
  calculation (in
  thousands)..............  14,062,602   14,586,967   16,835,123   16,947,086   17,681,538   17,681,538
BALANCE SHEET DATA:
HONG KONG GAAP
Current assets
  Cash and cash
     equivalents..........       2,976       40,071       17,481       19,349       27,702        3,346
  Deposits with banks.....          --           --        1,311        8,227       12,204        1,474
  Accounts receivable.....       1,087        1,592        2,482        4,957        7,252          876
Fixed assets..............      11,536       18,634       33,986       42,699       87,465       10,566
Total assets..............      18,136       64,950       64,541       87,435      156,438       18,898
Total short-term
  debt(4).................       1,504        2,148        5,337        4,419       12,095        1,461
Total long-term debt(5)...       1,946        2,870          991        2,332       13,708        1,656
Fixed rate notes..........          --           --           --        4,952        4,953          598
Convertible notes.........          --           --           --           --        5,708          690
Total liabilities.........       5,657       10,386       18,699       30,343       72,661        8,778
Shareholders' equity......      12,471       54,550       45,827       57,092       83,760       10,118
U.S. GAAP(3)
Fixed assets..............      26,794       41,692       64,084       71,791       82,223        9,932
Total assets..............      41,637      102,103      111,588      134,603      156,538       18,910
Total long-term debt(5)...       3,752        5,750       10,382       13,332       13,708        1,656
Fixed rate notes..........          --           --           --        4,952        4,953          598
Convertible notes.........          --           --           --           --        5,708          690
Shareholders' equity......      29,815       81,798       70,127       77,073       79,660        9,623
OTHER FINANCIAL DATA:
HONG KONG GAAP
Capital expenditures(6)...       5,511        5,807       11,040       11,708       21,964        2,653
</TABLE>

                                        4
<PAGE>   7

<TABLE>
<CAPTION>
                                             AS OF OR FOR THE YEAR ENDED DECEMBER 31,
                            ---------------------------------------------------------------------------
                               1996         1997         1998         1999         2000         2000
                            ----------   ----------   ----------   ----------   ----------   ----------
                               RMB          RMB          RMB          RMB          RMB          US$
                             (IN MILLIONS, EXCEPT SHARE NUMBERS AND PER SHARE AND PER ADS INFORMATION)
<S>                         <C>          <C>          <C>          <C>          <C>          <C>
Net cash inflow from
  operating activities....       6,418        8,825       13,567       21,662       41,401        5,001
Net cash outflow from
  investing activities....      (5,264)      (5,327)     (36,357)     (36,117)     (92,880)     (11,220)
Net cash inflow from
  financing activities....         899       34,218          325       18,337       65,653        7,931
Adjusted cash flow(7).....       4,213        8,203       13,444       19,673       35,580        4,298
Adjusted EBITDA(8)........       6,436        8,180       12,869       21,603       37,500        4,530
Dividend Declared.........          --           --           --           --           --           --
U.S. GAAP(3)
Net cash flow from
  operating activities....      11,744       18,517       23,840       35,137       49,341        5,960
Dividend Declared.........          --           --           --           --           --           --
</TABLE>

---------------

(1) The basic and diluted net profit per share and per ADS amounts under Hong
    Kong GAAP for the years ended December 31, 1996 and 1997 have been computed
    by dividing net profit under Hong Kong GAAP by the weighted average number
    of shares and the weighted average number of ADSs, respectively, outstanding
    as if 9,010,000,000 ordinary shares and 1,802,000,000 ADSs (based on a ratio
    of five shares to one ADS), respectively, issued in the restructuring for
    our initial public offering were outstanding during these periods (in
    addition to shares actually issued, if any).

    The basic and diluted net profit per share and per ADS amounts under U.S.
    GAAP for the years ended December 31, 1996 and 1997 have been computed by
    dividing net profit under U.S. GAAP by the weighted average number of shares
    and the weighted average number of ADSs, respectively, outstanding as if (i)
    9,010,000,000 ordinary shares and 1,802,000,000 ADSs (based on a ratio of
    five shares to one ADS), respectively, issued in the restructuring for our
    initial public offering; (ii) 1,273,195,021 ordinary shares and 254,639,004
    ADSs, respectively, issued to China Mobile Hong Kong (BVI) Limited as part
    of the consideration in the acquisition of Fujian Mobile, Henan Mobile and
    Hainan Mobile and (iii) 3,779,407,375 ordinary shares and 755,881,475 ADSs,
    respectively, issued to China Mobile Hong Kong (BVI) Limited as part of the
    consideration in the acquisition of Beijing Mobile, Shanghai Mobile, Tianjin
    Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi Mobile
    were outstanding during these periods (in addition to shares actually issued
    during these years).

(2) The basic net profit per share and per ADS amounts under Hong Kong GAAP for
    the years ended December 31, 1998, 1999 and 2000, have been computed by
    dividing net profit by the weighted average number of shares and the
    weighted average number of ADSs, respectively, outstanding during 1998, 1999
    and 2000. The calculation of diluted net profit per share under Hong Kong
    GAAP for the years ended December 31, 1998, 1999 and 2000 have been compiled
    after adjusting for the effects of all dilutive potential ordinary shares,
    respectively.

    The basic net profit per share and per ADS amounts under U.S. GAAP for the
    years ended December 31, 1998, 1999 and 2000 have been computed by dividing
    net profit by the weighted average number of shares and the weighted average
    number of ADSs, respectively, as if 1,273,195,021 ordinary shares and
    254,639,004 ADSs issued to China Mobile Hong Kong (BVI) Limited as part of
    the consideration in the acquisition of Fujian Mobile, Henan Mobile and
    Hainan Mobile and 3,779,407,375 ordinary shares and 755,881,475 ADSs issued
    to China Mobile Hong Kong (BVI) Limited as part of the consideration in the
    acquisition of Beijing Mobile, Shanghai Mobile, Tianjin Mobile, Hebei
    Mobile, Liaoning Mobile, Shandong Mobile and Guangxi Mobile were outstanding
    during these periods (in addition to shares actually issued during these
    years). The calculation of diluted net profit per share under U.S. GAAP for
    the years ended December 31, 1998, 1999 and 2000 have been compiled after
    adjusting for the effects of all dilutive potential ordinary shares,
    respectively.

                                        5
<PAGE>   8

    All dilutive potential ordinary shares arise from the share options granted
    to the directors and employees under the share option scheme which, if
    converted to ordinary shares, would decrease profit attributable to
    shareholders per share.

(3) The amounts for the years ended December 31, 1996, 1997, 1998, 1999 and 2000
    are presented to reflect our acquisitions of the various regional mobile
    communications companies under the "as if pooling-of-interest" method, as
    well as the effects of other differences between Hong Kong GAAP and U.S.
    GAAP.

(4) Includes short-term bank and other loans, current portion of long-term bank
    and other loans and current portion of obligations under capital leases.

(5) Includes long-term bank and other loans and obligations under capital
    leases, net of current portion.

(6) Represents payments made for capital expenditures during the year.

(7) Represents net cash inflows from operating activities less net cash outflows
    (inflows) from returns on investments and servicing of finance and taxation.

(8) Adjusted EBITDA represents earnings before interest income, interest
    expense, income taxes, depreciation, amortization, non-operating income
    (expense) and write-down and write-off of fixed assets. While EBITDA is
    commonly used in the telecommunications industry to analyze companies on the
    basis of operating performance, leverage and liquidity, it is not presented
    as a measure of performance in accordance with generally accepted accounting
    principles and should not be considered as representing net cash flow from
    operating activities. The items of net profit excluded from EBITDA are
    significant components in understanding and assessing our financial
    performance, and our computation of EBITDA may not be comparable to other
    similarly titled measures of other companies. See "Item 5. Operating and
    Financial Review and Prospects" and the consolidated statements of our cash
    flows contained elsewhere in this annual report.

EXCHANGE RATE INFORMATION

     We publish our consolidated financial statements in Renminbi. Solely for
the convenience of the reader, this annual report contains translations of
certain Renminbi and Hong Kong dollar amounts into U.S. dollars and vice versa
at RMB 8.2781 = US$1.00 and HK$7.999 = US$1.00, the prevailing rates on December
31, 2000. These translations should not be construed as representations that the
Renminbi or Hong Kong dollar amounts could actually be converted into U.S.
dollars at such rates or at all.

     The noon buying rates in New York City for cable transfers as certified for
customs purposes by the Federal Reserve Bank of New York were US$1.00 = RMB
8.2770 and US$1.00 = HK$7.8000, respectively, on May 31, 2001. The following
table sets forth the high and low noon buying rates between Renminbi and U.S.
dollars and between Hong Kong dollars and U.S. dollars for each month during the
previous six months:

<TABLE>
<CAPTION>
                                       NOON BUYING RATE
----------------------------------------------------------------------------------------------
                             RMB PER US$1                                        HK$ PER US$1
                            --------------                                      --------------
                             HIGH    LOW                                         HIGH    LOW
                            ------  ------                                      ------  ------
<S>                         <C>     <C>             <C>                         <C>     <C>
December 2000.............  8.2781  8.2768          December 2000.............  7.8003  7.7963
January 2001..............  8.2786  8.2764          January 2001..............  7.8001  7.7993
February 2001.............  8.2783  8.2763          February 2001.............  7.8000  7.7990
March 2001................  8.2784  8.2768          March 2001................  7.8003  7.7994
April 2001................  8.2776  8.2767          April 2001................  7.8000  7.7983
May 2001..................  8.2785  8.2709          May 2001..................  7.8003  7.7991
</TABLE>

                                        6
<PAGE>   9

     The following table sets forth the average noon buying rates between
Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for
each of 1996, 1997, 1998, 1999 and 2000, calculated by averaging the noon buying
rates on the last day of each month during the relevant year.

<TABLE>
<CAPTION>
                                                               AVERAGE NOON BUYING RATE
                                                              ---------------------------
                                                              RMB PER US$1   HK$ PER US$1
                                                              ------------   ------------
<S>                                                           <C>            <C>
1996........................................................     8.3395         7.7341
1997........................................................     8.3193         7.7440
1998........................................................     8.2991         7.7465
1999........................................................     8.2785         7.7599
2000........................................................     8.2784         7.7936
</TABLE>

RISK FACTORS

 Extensive Government Regulation May Limit Our Flexibility to Respond to Market
 Conditions, Competition or Changes in our Cost Structure

     The Ministry of Information Industry of China regulates, among others, the
following areas of the telecommunications industry under the leadership of the
State Council of China:

      --  formulating and enforcing industry policy, standards and regulations;

      --  granting telecommunications licenses;

      --  formulating interconnection and settlement standards for
          implementation between telecommunications networks;

      --  together with other relevant regulatory authorities, formulating
          tariff and service charge standards for certain telecommunications
          services;

      --  supervising the operations of telecommunications service providers;

      --  promoting fair and orderly market competition among telecommunications
          service providers through policy guidance; and

      --  allocating and administering public communications resources, such as
          radio frequencies, number resources, domain names and addresses of
          communications networks.

     Other Chinese government authorities also take part in regulating tariff
policies and foreign investment in the telecommunications industry. The
regulatory framework within which we operate may limit our flexibility to
respond to market conditions, competition or changes in our cost structure. In
particular, future adverse changes in tariff policies and rates could
immediately decrease our revenues. We cannot predict when or if changes in
tariff policies or rates may occur, including, for example, the possible
implementation of a calling-party-pays tariff scheme.

     We operate our businesses with approvals granted by the State Council and
under licenses granted by the Ministry of Information Industry. If these
approvals or licenses are revoked or suspended, we will be adversely affected.

  We May Be Affected by Future Regulatory Changes

     To provide a uniform regulatory framework for the orderly development of
the telecommunications industry, the Chinese government is currently preparing a
draft telecommunications law. If and when the telecommunications law is adopted
by the National People's Congress, it is expected to become the fundamental
telecommunications statute and the legal basis for telecommunications
regulations in Mainland China. The State Council has recently promulgated a set
of new telecommunications regulations. These regulations are substantially
consistent with the existing rules and guidelines for the telecommunications
industry, and are primarily intended to streamline and clarify the existing
rules and guidelines. They apply in the interim period prior to the adoption of
the telecommunications law. Although we expect that the

                                        7
<PAGE>   10

telecommunications law will positively affect the overall development of the
telecommunications industry in Mainland China, we do not fully know what the
nature and scope of the telecommunications law will be. The telecommunications
law may contain provisions that could materially and adversely affect our
business, financial condition and results of operations.

  Competition from Other Mobile Communications Service Providers May Affect Our
  Subscriber Growth and Profitability by Causing the Rate of Our Subscriber
  Growth to Decline and Bringing about Decreases in Tariff Rates and Increases
  in Selling and Promotional Expenses

     China United Telecommunications Corporation operates (directly or through
its subsidiaries) in all of the provinces, municipalities and autonomous region
in which we operate. The Chinese government encourages orderly competition in
the telecommunications industry in China. Towards this end, it has extended
certain favorable regulatory policies to China United Telecommunications
Corporation in order to help it become a more viable competitor. In particular,
the Chinese government has permitted China United Telecommunications Corporation
to lower its mobile phone service tariffs by up to 10% below the government
guidance rates. We believe this policy has helped China United
Telecommunications Corporation capture a significant number of price-sensitive
and low-usage mobile phone subscribers. As a result, China United
Telecommunications Corporation's market share has increased over the past few
years. We could experience increased competition if the Chinese government takes
other actions in the future to further enhance China United Telecommunications
Corporation's competitive position.

     In addition to China United Telecommunications Corporation, the State
Council and the Ministry of Information Industry may approve additional mobile
communications service providers in the future that may compete with us. We may
also be subject to competition from providers of new telecommunications services
as a result of technological development and the convergence of various
telecommunications services.

     In 2000, China concluded bilateral negotiations of the major terms for its
entry into the World Trade Organization with a number of countries, including
the United States, and the European Union. As a result, we expect the Chinese
government to gradually reduce current restrictions on foreign ownership in the
telecommunications industry. This could lead to the eventual opening of the
Chinese telecommunications market to foreign investors and operators, and could
result in or accelerate the issuance of new mobile communications service
licenses.

     Increased competition from China United Telecommunications Corporation and
any introduction of new competitors through the issuance of additional mobile
communications service licenses could adversely affect our financial results by,
among other factors, causing the rate of our subscriber growth to decline and
bringing about decreases in tariff rates, and increases in selling and
promotional expenses. This could have a material adverse effect on our results
of operations.

 We Are Controlled by China Mobile Communications Corporation, Which May Not
 Always Act in Your Best Interest

     As of May 31, 2001 China Mobile Communications Corporation indirectly owned
an aggregate of approximately 75.6% of our shares. Accordingly, China Mobile
Communications Corporation is, and will be, able to:

      --  nominate our entire board of directors and, in turn, indirectly
          influence the selection of our senior management;

      --  determine the timing and amount of our dividend payments; and

      --  otherwise control or influence actions that require the approval of
          our shareholders.

     The interests of China Mobile Communications Corporation as our ultimate
controlling person could conflict with the interests of our minority
shareholders.

                                        8
<PAGE>   11

     In addition, China Mobile Communications Corporation also provides our
operating subsidiaries with services that are necessary for our business
activities, including:

      --  interconnection arrangements with its other subsidiaries' mobile
          communications networks and roaming arrangements;

      --  the coordination of the provision of inter-provincial transmission
          leased lines from China Telecommunications Corporation to us; and

      --  settlement and bill processing for domestic inter-provincial and
          international roaming services.

     The interests of China Mobile Communications Corporation as the provider of
these services to our operating subsidiaries may conflict with our interests.

  The Limited Spectrum Allocated to Us May Constrain Our Future Network Capacity
  Growth

     A mobile communications network's capacity is to a certain extent limited
by the amount of frequency spectrum available for it to use. Since the Ministry
of Information Industry allocates frequency spectrum to mobile communications
operators in Mainland China, the capacity of our mobile communications network
is limited by the amount of spectrum that the Ministry of Information Industry
allocates to us. The Ministry of Information Industry has allocated 24 MHz in
the 900 MHz frequency band and 10 MHz in the 1800 MHz frequency band to each of
our 13 regional operating subsidiaries. In preparation for the planned
termination of all existing analog services, we have obtained approval from the
Ministry of Information Industry and other relevant regulatory authorities to
substitute 5 MHz of analog frequency spectrum in the 900 MHz frequency band with
5 MHz of digital frequency spectrum in the 1800 MHz frequency band upon the
termination of our analog services.

     We believe that our current spectrum allocation is sufficient for
anticipated subscriber growth in the near term, but we may need additional
spectrum to accommodate future subscriber growth or to develop mobile
communications services using third generation wireless communications
technologies. However, the Ministry of Information Industry may determine not to
allocate additional spectrum to us as, or when, we request it. Our network
expansion plans may be affected if we are unable to obtain additional spectrum.
This could in turn constrain our future network capacity growth and materially
and adversely affect our business, financial condition and results of
operations.

  Changes to Our Interconnection and Leased Line Arrangements May Increase Our
  Operating Expenses and Adversely Affect Our Profitability

     Our mobile communications services depend, in large part, upon our
interconnection arrangements. Currently, interconnection is necessary in the
case of all local calls between our subscribers and subscribers of fixed line or
other mobile communications networks. Interconnection and leased line
arrangements are also necessary for domestic long distance calls and
international calls. We have entered into interconnection and transmission line
leasing agreements with the relevant fixed line operators and with China Mobile
Communications Corporation and its other subsidiaries.

     The terms of our interconnection arrangements and leased line arrangements
have a material effect on our operating revenue and expenses. A material
increase in the interconnection or leased line expenses we pay could have a
material adverse effect on our results of operations. In addition, we will be
materially and adversely affected if we cannot enter into future interconnection
and leased line agreements on commercially acceptable terms.

  We May Be Unable to Obtain Sufficient Financing to Fund Our Substantial
  Capital Requirements, Which Could Limit Our Growth Potential

     We estimate that we will require approximately RMB 134.9 billion (US$16.3
billion) for capital expenditures from 2001 through the end of 2003 for a range
of projects.

                                        9
<PAGE>   12

     We believe that cash from operations, together with any necessary
borrowings, will provide sufficient financial resources to meet our projected
capital and other expenditure requirements. If we have underestimated our
capital requirements or overestimated our future cash flows, additional
financing may be required. In addition, a significant feature of our business
strategy is to continue exploring opportunities for strategic investments in the
telecommunications industry in Mainland China, which may require additional
capital resources. The cost of implementing new technologies, upgrading our
networks or expanding capacity could also be significant. In particular, in
order for us to effectively respond to technological changes, including the
introduction of third-generation wireless communications technologies, we may be
required to make substantial capital expenditures in the near future.

     Financing may not be available to us on acceptable terms. In addition, our
future issuance of equity securities, if any, including securities convertible
or exchangeable into or that represent the right to receive equity securities,
to foreign investors will require approval from the China Securities Regulatory
Commission, the State Council, and other relevant government authorities. If
adequate capital is not available, our business prospects could be adversely
affected.

  Changes in Technology May Render Our Current Technologies Obsolete and Thus
  Affect Our Business and Market Position

     The telecommunications industry is subject to rapid and significant changes
in technology. Accordingly, although we strive to keep our technology up to
international standards, the mobile communications technologies that we
currently employ may become obsolete or subject to competition from new
technologies in the future, such as the third-generation wireless communications
technologies. In addition, the new technologies we implement, such as wireless
data applications, may not generate an acceptable rate of return.

  Failure to Capitalize on New Business Opportunities May Have an Adverse Effect
  on Our Growth Potential

     We intend to pursue a number of new growth opportunities in the broader
telecommunications industry, including wireless data. These opportunities
involve new services for which there are no proven markets in Mainland China. In
addition, the ability to deploy and deliver these services depends, in many
instances, on new and unproven technology. Our newly adopted wireless
communications technology may not perform as expected, we may not be able to
successfully develop or obtain new technology to effectively and economically
deliver these services or we may not be able to compete successfully in the
delivery of telecommunications services based on new technology.

  Actual or Perceived Health Risks Could Lead to Decreased Mobile Communications
  Usage and Difficulties in Increasing Network Coverage

     According to certain published reports, the electromagnetic signals from
mobile phone handsets and transmission masts, which serve as antennae for
transmitting radio signals, may pose health risks and interfere with the
operation of electronic equipment. Although the findings in such reports are
disputed, actual or perceived risks associated with the use of mobile
communications devices or transmission masts could have an impact on mobile
communications operators, including us. For example, we could encounter
difficulties in obtaining sites for additional base transceiver stations
required to expand our network coverage and experience reductions in our growth
rate, subscriber base or average usage per subscriber.

  Adverse Changes in the Economic Policies of the Chinese Government Could Have
  a Material Adverse Effect on the Overall Economic Growth of Mainland China,
  Which Could Reduce the Demand for Our Services and Adversely Affect Our
  Competitive Position

     Since the late 1970s, the Chinese government has been reforming the Chinese
economic system. These reforms have resulted in significant economic growth and
social progress. Although we believe that economic reform and macroeconomic
policies and measures adopted by the Chinese government will continue to have a
positive effect on the economic development in Mainland China and that we will
continue to benefit from such policies and measures, these policies and measures
may from time to time be modified or revised. Adverse

                                        10
<PAGE>   13

changes in economic and social conditions in Mainland China, in the policies of
the Chinese government or in the laws and regulations in Mainland China, if any,
could have a material adverse effect on the overall economic growth of Mainland
China and investment in the telecommunications industry in Mainland China. Such
developments could adversely affect our business, such as reducing the demand
for our services and adversely affecting our competitive position.

  We May Not Freely Convert Renminbi into Foreign Currency, Which Could Limit
  the Ability of Our Subsidiaries in Mainland China to Obtain Sufficient Foreign
  Exchange to Satisfy Their Foreign Exchange Requirements or Pay Dividends to Us

     Substantially all of our revenues and operating expenses are denominated in
Renminbi, while a portion of our capital expenditures and indebtedness are
denominated in U.S. dollars and other foreign currencies. The Renminbi is
currently freely convertible under the "current account", which includes
dividends, trade and service-related foreign exchange transactions, but not
under the "capital account", which includes foreign direct investment, unless
the prior approval of the State Administration for Foreign Exchange is obtained.

     Our operating subsidiaries are foreign investment enterprises. Currently,
they may purchase foreign exchange without the approval of the State
Administration for Foreign Exchange for settlement of "current account
transactions", including payment of dividends, by providing commercial documents
evidencing these transactions. They may also retain foreign exchange in their
current accounts (subject to a cap approved by the Statement Administration for
Foreign Exchange) to satisfy foreign exchange liabilities or to pay dividends.
However, the relevant Chinese government authorities may limit or eliminate our
ability to purchase and retain foreign currencies in the future. Also, our
subsidiaries incorporated in Mainland China may not be able to obtain sufficient
foreign exchange to satisfy their foreign exchange requirements or pay dividends
to us for our use in making any future dividend payments or to satisfy other
foreign exchange payment requirements. Foreign exchange transactions under the
capital account are still subject to limitations and require approvals from the
State Administration for Foreign Exchange. This could affect our subsidiaries'
ability to obtain foreign exchange through debt or equity financing, including
by means of loans or capital contributions from us.

  Fluctuations in Exchange Rates Could Adversely Affect Our Financial Results

     Substantially all of our operating revenue is denominated in Renminbi,
while a portion of our capital expenditures and some of our financing expenses
are denominated in U.S. dollars. Because we may not be able to hedge effectively
against Renminbi devaluations, future movements in the exchange rate of Renminbi
and other currencies could have an adverse effect on our financial condition and
results of operations.

  The Chinese Legal System Embodies Uncertainties Which Could Limit the Legal
  Protections Available to You

     The Chinese legal system is a civil law system based on written statutes.
Unlike common law systems, it is a system in which decided legal cases have
little precedential value. In 1979, the Chinese government began to promulgate a
comprehensive system of laws and regulations governing economic matters in
general. Legislation over the past 20 years has significantly enhanced the
protections afforded to various forms of foreign investment in Mainland China.
Our existing subsidiaries are "wholly foreign-owned enterprises" which are
enterprises incorporated in Mainland China and wholly-owned by Hong Kong, Macau,
Taiwan or foreign investors, and subject to the laws and regulations applicable
to foreign investment in Mainland China. However, some of these laws,
regulations and legal requirements are relatively recent, and their
interpretation and enforcement involve uncertainties, which could limit the
legal protections available to you.

ITEM 4.  INFORMATION ON THE COMPANY.

     We provide a full range of mobile communications services in 13 provinces,
municipalities and autonomous region in China, with a geographically contiguous
market covering all of the coastal region of Mainland China, the country's most
prosperous and economically developed region. Based on public available

                                        11
<PAGE>   14

information, we are the leading provider of mobile communications services in
each of these regions and the second largest provider of mobile communications
services in the world as measured by total number of subscribers as of December
31, 2000. Based on information compiled by the Ministry of Information Industry,
our subscribers represented approximately 77.5% of all mobile phone subscribers
in our service regions and approximately 52.9% of all mobile phone subscribers
in Mainland China as of that date. As of May 20, 2001, our total number of
subscribers was approximately 55.8 million.

HISTORY AND DEVELOPMENT OF THE COMPANY

     We were incorporated under the laws of Hong Kong on September 3, 1997 as a
limited liability company under the name "China Telecom (Hong Kong) Limited." We
changed our name to the current name, China Mobile (Hong Kong) Limited, on June
28, 2000, after obtaining approval by our shareholders.

     We completed our initial public offering in October 1997. Since then, our
ordinary shares have been listed on the Stock Exchange of Hong Kong, and our
American Depositary Shares, or ADSs, each representing the right to receive five
(or 20, prior to July 5, 2000) ordinary shares, have been listed on the New York
Stock Exchange. Our agent for service of process in the United States is CT
Corporation System, and their address is 111 Eighth Avenue, 13th Floor, New
York, NY 10011.

  Expansion of Business Coverage Through Acquisitions

     Our initial mobile communications operations included those in Guangdong
province conducted by Guangdong Mobile Communication Company Limited and in
Zhejiang province conducted by Zhejiang Mobile Communication Company Limited. As
part of the restructuring in preparing for our initial public offering, the
former Ministry of Posts and Telecommunications transferred to us a 100%
interest in Guangdong Mobile and a 99.63% interest in Zhejiang Mobile. Since
then, we have significantly expanded the geographical coverage of our operations
through a series of acquisitions from China Mobile Communications Corporation,
our indirect controlling shareholder, of its mobile communications operations
conducted by its regional subsidiaries:

      --  On June 4, 1998, we acquired the entire interest in Jiangsu Mobile
          Communication Company Limited for a cash consideration of HK$22.5
          billion (approximately US$2.9 billion).

      --  On November 12, 1999, we acquired the entire interest in each of
          Fujian Mobile Communication Company Limited, Henan Mobile
          Communication Company Limited and Hainan Mobile Communication Company
          Limited for a total purchase price of HK$49.7 billion (approximately
          US$6.4 billion), consisting of HK$19.0 billion (approximately US$2.5
          billion) in cash and the remaining HK$30.7 billion (approximately
          US$4.0 billion) in the form of 1,273,195,021 new shares. In addition,
          we acquired the remaining 0.37% interest in Zhejiang Mobile in June
          1999.

      --  On November 13, 2000, we acquired the entire interest in each of
          Beijing Mobile Communication Company Limited, Shanghai Mobile
          Communication Company Limited, Tianjin Mobile Communication Company
          Limited, Hebei Mobile Communication Company Limited, Liaoning Mobile
          Communication Company Limited, Shandong Mobile Communication Company
          Limited and Guangxi Mobile Communication Company Limited for a total
          purchase price of HK$256.0 billion (approximately US$32.8 billion),
          consisting of HK$74.6 billion (approximately US$9.6 billion) in cash
          and the remaining HK$181.4 billion (approximately US$23.3 billion) in
          the form of 3,779,407,375 new shares.

     These acquisitions have significantly enlarged our subscriber base,
expanded the geographical coverage of our business and enhanced the economy of
scale of our operations. See "Item 5. Operating Financial Review and Prospects"
for an analysis on the financial impact of these acquisitions. We are in the
process of further integrating these acquired operations with our existing
businesses and are realizing potential synergies from the integration.

                                        12
<PAGE>   15

  Industry Restructuring and Related Change in Our Shareholding Structure

     Prior to 1993, all public telecommunications networks and services in
Mainland China were controlled and operated by the former Ministry of Posts and
Telecommunications through the former Directorate General of Telecommunications,
provincial telecommunications administrations and their city and county level
bureaus.

     As part of the Chinese government's restructuring of the telecommunications
industry, the Ministry of Information Industry was formed in March 1998 to
assume, among others, the responsibilities of the former Ministry of Posts and
Telecommunications. One of the principal objectives of the restructuring was to
separate the government's regulatory function from its business management
functions in respect of state-owned enterprises. In the first half of 2000, the
Chinese government substantially completed the industry restructuring. As a
result, the Ministry of Information Industry ceased to have an indirect
controlling interest in us, and no longer exercises control over
telecommunications operations, but continues in its capacity as industry
regulator providing industry policy guidance as well as exercising regulatory
authority over all telecommunications service providers in Mainland China.

     Also as part of the restructuring, the telecommunications operations
previously controlled by the former Ministry of Posts and Telecommunications
have been separated along four business lines: fixed line communications, mobile
communications, paging and satellite communications. China Mobile Communications
Corporation was established in July 1999 as a state-owned company to hold and
operate the mobile communications business nationwide resulting from the
separation. As part of this separation, in July 1999 China Mobile Communications
Corporation obtained the approximately 57% holding of voting shares and economic
interest in China Mobile (Hong Kong) Group Limited, our indirect controlling
shareholder, previously held by Telpo Communications (Group) Limited, an entity
100% controlled by the former Ministry of Posts and Telecommunications. In
addition, in May 2000, the remaining 43% interest in China Mobile (Hong Kong)
Group Limited previously held by the Directorate General of Telecommunications
was transferred to China Mobile Communications Corporation. As a result, China
Mobile Communications Corporation has become the owner of all voting shares and
economic interest in China Mobile (Hong Kong) Group Limited and thus all of the
Chinese government's interest in us. As of May 31, 2001, China Mobile
Communications Corporation indirectly owned approximately 75.6% of all our
outstanding shares, including shares represented by ADSs. The following chart
shows our current shareholding structure and principal subsidiaries as of May
31, 2001:

Current shareholding chart, showing:

- China Mobile Communications Corporation owns 100% of the issued share capital
  of China Mobile (Hong Kong) Group Limited, which owns 100% of the issued share
  capital of China Mobile Hong Kong (BVI) Limited, which owns 75.6% of the
  issued share capital of China Mobile (Hong Kong) Limited.

- China Mobile (Hong Kong) Limited is 75.6% owned by China Mobile Hong Kong
  (BVI) Limited and 24.4% owned by public shareholders.

- China Mobile (Hong Kong) Limited owns (a) 100% of the issued share capital of
  China Mobile (Shenzhen) Limited; (b) 100% of the issued capital in 13 regional
  mobile communications companies(1); and (c) 78.6% of the issue capital in
  Aspire Holdings Limited(2).

                                        13
<PAGE>   16

---------------

(1) Intermediate holding companies, each incorporated in the British Virgin
    Islands, are omitted in the chart.

(2) Shows our ownership of ordinary shares of Aspire Holdings Limited,
    representing our percentage of voting rights and ordinary share interest in
    Aspire Holdings Limited.

     In addition to its shareholding interest in us, China Mobile Communications
Corporation operates the leading mobile communications businesses in Mainland
China outside our 13 service regions.

GENERAL INFORMATION

     Our principal executive offices are located at 60th Floor, The Center, 99
Queen's Road Central, Hong Kong, China; telephone: 852-3121-8888. We also
maintain a regional headquarters in each of the 13 regions in China where we
operate. Our web site address is www.chinamobilehk.com. The information on our
web site is not part of this annual report.

BUSINESS OVERVIEW

     We offer mobile communications services principally using Global System for
Mobile Communications, or GSM, which is a pan-European mobile telephone system
based on digital transmission and mobile communications network architecture
with roaming capabilities. Our GSM networks reach all cities and counties and
most major roads and highways in our service regions.

  Our Strategy

     We believe that the telecommunications market in Mainland China will
continue to expand rapidly. Our business strategy has the following key
elements:

      --  continue to actively grow our core mobile communications services by:

      - maintaining focus on developing a high-quality subscriber base;

      - broadening our subscriber base and increasing market penetration;

      - focusing on integrating our businesses and realizing synergies to
        improve efficiency; and

      - nurturing our human capital;

      --  pursue strategic expansion in the broader telecommunications market in
          Mainland China and capturing new revenue streams; and

      --  continue to explore acquisition and other expansion opportunities.

     In particular, we have formulated a business strategy to achieve internal
growth by:

      --  enhancing our network quality and functional capabilities;

      --  developing customized value added service packages and expanding our
          distribution channels;

      --  developing brand awareness and promoting customer loyalty;

      --  controlling operating costs and improving operating efficiency; and

      --  introducing advanced real time billing systems and measures to ensure
          timely collection of receivables.

     Because the telecommunications industry in Mainland China is subject to a
high degree of government regulation, our ability to make strategic investments
in the telecommunications industry in Mainland China will be subject to relevant
government approvals.

  Subscribers and Usage

     Our subscriber base has grown substantially from 6.5 million at the end of
1998 to 45.1 million at the end of 2000. As of December 31, 2000, we had a
market share of approximately 77.5% in our 13 service regions.

                                        14
<PAGE>   17

Our acquisition of a total of 11 regional mobile communications companies
between June 1998 and November 2000 has substantially expanded our subscriber
base. In particular, the seven mobile communications companies we acquired in
November 2000 accounted for 18.0 million, or 39.9%, of all our subscribers as of
December 31, 2000. As of May 20, 2001, the total number of our subscribers was
approximately 55.8 million. In addition, our subscriber growth has been
attributable to a number of other factors, including:

      --  significant economic growth in our markets;

      --  our network expansion and development;

      --  our increased marketing and sales efforts and improved distribution
          channels;

      --  decreased cost of initiating services due to a decline in handset
          prices as well as connection fees and other tariffs for our services;
          and

      --  our new service initiatives and enhanced roaming capabilities and
          value added services.

     The following table sets forth selected historical information about our
subscriber base and subscriber usage for the periods indicated.

<TABLE>
<CAPTION>
                                                               AS OF OR FOR THE YEAR ENDED
                                                                      DECEMBER 31,
                                                              -----------------------------
                                                               1998       1999       2000
                                                              -------   --------   --------
<S>                                                           <C>       <C>        <C>
Subscribers (in thousands)
  contract subscribers......................................   6,531     15,621     32,409
  prepaid subscribers.......................................      --         --     12,725
          Total.............................................   6,531     15,621     45,134
Average Churn Rate (%)(1)...................................     4.7        5.9        5.4
Minutes of Usage (in billions)(2)
  contract subscribers......................................    58.5       89.4      118.2
  prepaid subscribers.......................................      --         --        6.9
          Total.............................................    58.5       89.4      125.1
Average Minutes of Usage Per Subscriber Per Month(3)
  contract subscribers......................................     393        366        326
  prepaid subscribers.......................................      --         --        125
          Overall average...................................     393        366        299
Average Revenue Per Subscriber Per Month (RMB)(4)
  contract subscribers......................................     366        299        241
  prepaid subscribers.......................................      --         --         87
          Overall average...................................     366        299        221
</TABLE>

---------------

(1) Measures the rate of subscriber disconnections from mobile telephone
    service, determined by dividing (A) the sum of voluntary and involuntary
    deactivations (excluding deactivations due to subscribers switching among
    our different services) during the relevant year by (B) the average number
    of subscribers during the year, calculated as the average of the numbers of
    subscribers (a) at the beginning and the end of the year (in the case of
    1998) or (b) at the beginning of the year and the end of each month in the
    year (in the case of 1999 and 2000). On this basis, our calculated churn
    rate will be affected by the number of voluntary and involuntary
    deactivations and the significant growth in our subscriber base.

    The average churn rate for each of the full years of 1998, 1999 and 2000 is
    calculated based on information pertaining to the relevant regional mobile
    communications companies we acquired prior to and after the respective
    acquisitions and is presented for ease of comparison.

(2) The total minutes of usage for each of the full years of 1998, 1999 and 2000
    is calculated based on information pertaining to the relevant regional
    mobile communications companies we acquired prior to and after the
    respective acquisitions and is presented for ease of comparison.

                                        15
<PAGE>   18

(3) Calculated by (A) dividing the total minutes of usage during the relevant
    year by the average number of subscribers during the year (calculated as the
    average of the numbers of subscribers (a) at the beginning and the end of
    the year (in the case of 1998) or (b) at the beginning of the year and the
    end of each month in the year (in the case of 1999 and 2000)) and (B)
    dividing the result by 12. The average minutes of usage per subscriber per
    month for each of the full years of 1998, 1999 and 2000 is calculated based
    on information pertaining to the relevant regional mobile communications
    companies we acquired prior to and after the respective acquisitions and is
    presented for ease of comparison.

(4) Calculated by (A) dividing the operating revenue during the relevant year by
    the average number of subscribers during the year (calculated as the average
    of the numbers of subscribers (a) at the beginning and the end of the year
    (in the case of 1998) or (b) at the beginning of the year and the end of
    each month in the year (in the case of 1999 and 2000)) and (B) dividing the
    result by 12.

     The size and composition of our subscriber base and subscribers' usage
patterns have changed over the last few years. As tariffs and the price of
handsets have decreased and mobile communications technology has improved over
time, mobile communications services have become increasingly popular with the
broader middle income market for both business and social uses. In general, the
highest usage subscribers with the greatest communications needs have tended to
be the early subscribers of mobile services. As penetration increases, newer
subscribers on average incur lower monthly usage, and are generally more
price-sensitive. Accordingly, as is typical in many countries with developing
mobile communications markets, the average usage and revenue per subscriber have
declined over the last few years as our mobile phone penetration has increased.
At the same time, connection fees for mobile communications services in Mainland
China have declined significantly, which has reduced the cost for non-users to
become mobile phone subscribers and for existing mobile phone users to switch
between mobile communications networks. This, together with increased
competition, has contributed to the higher churn rates in 1999 and 2000,
compared to 1998. However, total minutes of usage of our subscribers continued
to grow significantly in 1998, 1999 and 2000.

  Prepaid Services

     Beginning in the second half of 1999, we introduced prepaid services. Our
prepaid subscribers can make and receive local and domestic and international
long distance calls, and most of those subscribers also enjoy nationwide
domestic roaming services. Unlike our contract subscribers, subscribers to our
prepaid services are not charged for connection fees upon initiation of services
or fixed monthly fees, and incur only base usage charges and applicable roaming
charges on a per minute basis for both incoming and outgoing calls, plus
applicable long distance tariffs. For non-local residents, our prepaid services
allow for easier subscription as compared to traditional contract services.

     Each prepaid subscriber identity module card, or SIM card, has a value of
RMB 50, RMB 100, RMB 300 or RMB 500 with a valid term of 90 days, 180 days, 360
days or 360 days, respectively. Each SIM card contains the personal
identification number of the subscriber as well as basic subscriber data and
network information. When a call is made or received by a prepaid subscriber,
our system automatically deducts usage fees from the value stored in the card.
Prepaid subscribers can add value to their SIM cards by purchasing value-adding
cards in the rest of Mainland China when they are outside of the service region
of their home network (where such subscriber initially purchased the prepaid SIM
card). Under our arrangement with China Mobile Communications Corporation, as
amended on May 11, 2001 with retroactive effect from April 21, 2001, the network
operator in the location that issues the value-adding card remits 95% of the
face value of the value-adding card to the subscriber's home network operator
and keeps the remainder as a handling charge. Prior to the amendment, the
remittance amount to the home network operator was 85% of the face value of the
value-adding card.

     We believe our prepaid services complement our traditional contract
services, and are an important means of expanding our subscriber base. We
believe that continued economic growth, the benefits of mobility, and current
low mobile phone penetration rates in Mainland China compared to demographically
and culturally similar markets are among the fundamental factors that will
further drive mobile phone subscriber growth towards eventual mass
popularization. We believe prepaid services represent an effective tool for

                                        16
<PAGE>   19

capturing additional subscribers and driving penetration in developing markets,
such as Mainland China, while keeping credit quality in check. Prepaid services
also help introduce the enhanced benefit of mobility to non-mobile users. In
general, prepaid users typically have lower average minutes of usage per
subscriber per month than contract users. With accumulated and satisfactory
usage experience, there is significant long term potential for these subscribers
to substantially increase usage and become regular, higher quality users of our
mobile communications services and other new services we may offer.

     Our prepaid services experienced rapid and significant growth in 2000. As
of December 31, 2000, we had an aggregate of approximately 12.7 million
subscribers for our prepaid service, including 4.0 million served by the seven
regional mobile communications companies we acquired in November 2000. Our
prepaid subscribers represented 28.2% of our total subscriber base as of that
date.

  Tariffs

     The tariffs payable by our subscribers include primarily usage charges,
connection fees, monthly fees and monthly service fees for value added services.
Our contract subscribers pay a connection fee for service activation and a fixed
monthly fee. Usage charges for both our contract and prepaid subscribers include
base usage charges for both incoming and outgoing calls plus, where applicable,
an additional component reflecting domestic and international long distance
tariffs. When using roaming services, subscribers incur a roaming charge instead
of the base usage fee, plus applicable domestic and international long distance
charges. Subscribers also pay fees for selection of specific telephone numbers.

     In 1998, we adopted flexible long distance tariff plans distinguishing
between day and night and began offering tailored service plans based upon
customer requirements as well as the functions and features of our network
resources.

     Our tariffs are subject to regulation by various government authorities,
including the Ministry of Information Industry, the State Development and
Planning Commission and the relevant price regulatory authorities in our service
regions. For connection fees, the Ministry of Information Industry sets a
guidance price range in consultation with the State Development and Planning
Commission for all mobile communications operators in Mainland China. The actual
price range in each service region is proposed by a network operator in that
service region and must be approved by the relevant price regulatory authorities
in that service region. In general, base usage charges, monthly fees, domestic
roaming charges and applicable long distance tariffs (other than tariffs for
Internet Protocol phone calls) are also determined by the Ministry of
Information Industry in consultation with the State Development and Planning
Commission.

     Connection fees in all our service regions have been substantially reduced
in the past three years following the reductions in the guidance prices for
connection fees over that period. In 1999, with the relevant government
approval, we also reduced monthly fee rates in Guangdong and Zhejiang. We
anticipate that connection fees will be further reduced or eliminated in the
next few years, which we believe may help to further expand our subscriber base
and increase total subscriber usage of our mobile communications services,
thereby contributing to our revenue growth in the long term. Connection fees
have become an increasingly less important source of our revenue. We expect that
its importance will continue to decline.

     Tariff Adjustments.  As part of the efforts to further rationalize the
tariff structure of telecommunications services, the Chinese government
announced a wide range of tariff adjustments, which took effect at various dates
in the first half of 2001. The tariff adjustments that affect our mobile
communications services include the shortening of a billing unit from one minute
to six seconds for long distance call rates (other than rates for Internet
Protocol phone calls), the general reduction in domestic and international long
distance call rates, the elimination of various surcharges and a general
reduction in leased line tariffs. In particular, domestic long distance call
rates have been adjusted from the range of RMB 0.50 to RMB 1.00 per minute to
the uniform rate of RMB 0.07 per six-second billing unit. We expect that,
although the adjustments in long distance call rates and the elimination of
surcharges may reduce our revenue in the short term, they are likely to
stimulate increased subscriber usage and contribute to our overall revenue
growth in the long run. In addition, we will be able to achieve savings in
leased line expenses as a result of the reduction in leased line tariffs.
                                        17
<PAGE>   20

     Introduction of Packaged Service Plans.  In order to meet the specific
mobile communications needs of different subscriber segments and to enable more
efficient use of network resources during both peak and off-peak hours,
beginning in March 2001 we have launched packaged mobile service plans tailored
towards different subscriber usage levels. To date, we have adopted six service
plans, as summarized in the following table, which have been approved by the
relevant regulatory authorities in Mainland China:

<TABLE>
<CAPTION>
                                                  OFF-PEAK HOUR
                                 PEAK HOUR          TARIFFS ON
                                TARIFFS ON           AIR TIME
               FREE BASIC     AIR TIME BEYOND         BEYOND
MONTHLY FEES    AIR TIME     THE FREE AIR TIME   THE FREE AIRTIME
------------   -----------   -----------------   ----------------
   (RMB)       (MINUTE)(1)    (RMB/MINUTE)(2)    (RMB/MINUTE)(2)
<S>            <C>           <C>                 <C>

   98              170             0.60                0.30

  168              330             0.50                0.25

  268              600             0.45                0.22

  388             1000             0.40                0.20

  568             1700             0.35                0.18

  788             2588             0.30                0.15
</TABLE>

---------------

(1) The free basic airtime included in the monthly fees does not cover
    inter-provincial and international roaming usage.

(2) Peak hours represent the period between 7 am and 11 pm daily, while off-peak
    hours represent the period between 11 pm to 7 am daily.

     We have been selectively implementing the appropriate packaged service
plans in our service regions based on local market conditions. We believe that
such tariff plans create a more flexible tariff structure for our subscribers
and can promote greater usage by subscribers. In addition, by offering
significantly lower off-peak rates than peak rates, the service plans encourage
subscribers to make more calls during off-peak hours rather than during peak
hours, which will result in more efficient use of our network resources.

  Interconnection

     Interconnection refers to various arrangements that permit the connection
of our networks to other networks such as the fixed line telephone network.

     Interconnection with China Telecommunications Corporation (for Local and
Long Distance Calls). Our networks interconnect with China Telecommunications
Corporation's public fixed line network, allowing our subscribers to communicate
with fixed line subscribers and to make and receive local, domestic and
international long distance calls. A majority of calls on our networks involve
interconnection with China Telecommunications Corporation's fixed line network.
Each of our operating subsidiaries has an interconnection agreement with the
relevant subsidiary of China Telecommunications Corporation that operates the
fixed line network in its service region. The economic terms of these agreements
are standardized from province to province.

     Calls between our subscribers and China United Telecommunications
Corporation's subscribers interconnect mainly through China Telecommunications
Corporation's fixed line network, and the operator of the calling party settles
directly with China Telecommunications Corporation. Beginning March 21, 2001, we
pay China Telecommunications Corporation RMB 0.03 per minute of the base usage
charge for such local calls when our subscriber is the calling party. Prior to
March 21, 2001, the settlement rate we paid China Telecommunications Corporation
was RMB 0.05 per minute. No settlement is required between the operator of the
receiving party and China Telecommunications Corporation.

     Interconnection with China Mobile Communications Corporation (for Long
Distance Calls and Roaming Calls).  We also have an inter-provincial
interconnection and roaming agreement with China Mobile Communications
Corporation, under which the other subsidiaries of China Mobile Communications
Corporation and we provide to each other domestic inter-provincial network
interconnection services and domestic and international roaming services.

                                        18
<PAGE>   21

     Interconnection Revenue Sharing and Settlement.  Where calls involve
interconnection with China Telecommunications Corporation's fixed line network
or China Mobile Communications Corporation's network, our interconnection
arrangement with China Telecommunications Corporation or China Mobile
Communications Corporation provides for the sharing and settlement of revenues
from the base usage charge and, if applicable, roaming charges and domestic and
international long distance charges.

     A number of the settlement rates have been adjusted effective March 21,
2001. The following table summarizes the terms of our interconnection
arrangement with China Telecommunications Corporation and its subsidiaries for
non-roaming local calls, including the rates after the adjustment and, in
parenthesis, the rates prior to the adjustment.

                       REVENUE SHARING AND SETTLEMENT OF
                 BASE USAGE CHARGES FOR NON-ROAMING LOCAL CALLS

<TABLE>
<CAPTION>
ORIGINATING SUBSCRIBER   TERMINATING SUBSCRIBER       SETTLEMENT ARRANGEMENTS
----------------------   ----------------------       -----------------------
<S>                     <C>                       <C>
Our subscriber          China Telecommunications  We pay RMB 0.06 (previously
                        Corporation's fixed line  RMB 0.05) per minute to China
                        subscriber                Telecommunications Corporation
China                   Our subscriber            No revenue sharing or settlement
  Telecommunications..
  Corporation's fixed
    line
  subscriber
</TABLE>

     Where applicable, we collect domestic long distance charges in addition to
the base usage charges. The following table summarizes the terms of our
interconnection arrangement with each of China Telecommunications Corporation
and China Mobile Communications Corporation for domestic long distance calls.

        REVENUE SHARING AND SETTLEMENT OF DOMESTIC LONG DISTANCE CHARGES

<TABLE>
<CAPTION>
  ORIGINATING SUBSCRIBER         TERMINATING SUBSCRIBER           SETTLEMENT ARRANGEMENTS
  ----------------------         ----------------------           -----------------------
<S>                          <C>                              <C>
Our subscriber               China                            If the call is routed through
                               Telecommunications               China Telecommunications
                                 corporation's fixed line       Corporation's transmission
                                 subscriber                     lines, we keep RMB 0.06
                                                                (previously RMB 0.14) per
                                                                minute of the domestic long
                                                                distance calling charges(1)
                                                                and pay the remaining portion
                                                                to China Telecommunications
                                                                Corporation
                                                                If the call is routed through
                                                                our IP network, we pay China
                                                                Telecommunications
                                                                Corporation RMB 0.06
                                                                (previously RMB 0.05) per
                                                                minute and keep the remaining
                                                                portion
China                        Our subscriber or China Mobile   If the call is routed through
  Telecommunications           Communications Corporation's     our transmission lines, China
  Corporation's fixed line     subscriber                       Telecommunications
  subscriber in our service                                     Corporation keeps RMB 0.06
  regions                                                       (previously RMB 0.14) per
                                                                minute of the domestic long
                                                                distance charges(1) and pays
                                                                the remaining portion to us
</TABLE>

                                        19
<PAGE>   22

<TABLE>
<CAPTION>
  ORIGINATING SUBSCRIBER         TERMINATING SUBSCRIBER           SETTLEMENT ARRANGEMENTS
  ----------------------         ----------------------           -----------------------
<S>                          <C>                              <C>
Our subscriber               China Mobile                     We collect the domestic long
                               Communications                   distance charge of RMB 0.07
                               Corporation's subscriber         per six seconds (previously
                                                                RMB 0.60-1.00 per minute),
                                                                and there is no revenue
                                                                sharing or settlement(2)
China Mobile                 Our subscriber                   China Mobile Communications
  Communications                                                Corporation collects the
  Corporation's subscriber                                      domestic long distance charge
                                                                of RMB 0.07 per six seconds
                                                                (previously RMB 0.60-1.00 per
                                                                minute), and there is no
                                                                revenue sharing or
                                                                settlement(2)
</TABLE>

---------------

(1) The adjusted rates are billed at six-second units.

(2) Except for roaming calls. See table under "-- Roaming" for revenue sharing
    and settlement for roaming calls.

     Where applicable, we collect international long distance charges in
addition to base usage charges. The following table summarizes the terms of our
interconnection arrangement with China Telecommunications Corporation for
international long distance calls, including the rates after the adjustment and,
in parenthesis, the rates before the adjustments.

     REVENUE SHARING AND SETTLEMENT OF INTERNATIONAL LONG DISTANCE CHARGES

<TABLE>
<CAPTION>
TYPE OF CALL                    SETTLEMENT ARRANGEMENTS
------------                    -----------------------
<S>                             <C>
Outgoing calls from our         We keep RMB 0.54 (previously RMB 0.20) per minute(1) (if the
  subscriber                      call is routed through our domestic long distance
                                  transmission lines) or RMB 0.06 (previously RMB 0.20) per
                                  minute(1) (if the call is not routed through our domestic
                                  long distance transmission lines) of the international
                                  long distance charge and pay the remaining portion to
                                  China Telecommunications Corporation
Incoming calls to our           We receive from international telecommunications operator of
  subscriber                      the calling party RMB 0.54 (previously RMB 0.63) per
                                  minute (if the call is routed through our domestic long
                                  distance transmission lines) or RMB 0.06 (previously RMB
                                  0.07) per minute of the calling charge (if the call is not
                                  routed through our domestic long distance transmission
                                  lines)
</TABLE>

---------------

(1) The adjusted rates are billed at six-second units.

  Roaming

     We provide roaming services to our subscribers, which allow them to make
and receive telephone calls while they are physically outside of their
registered service area and are in other parts of our service regions or in the
coverage areas of other mobile phone networks with which we have roaming
arrangements.

     Under our domestic roaming arrangement with China Mobile Communications
Corporation, our subscribers can make and receive calls while they are located
in the coverage areas of China Mobile Communications Corporation in the rest of
Mainland China outside our service regions. Conversely, we offer roaming
services to China Mobile Communications Corporation's subscribers while they are
in our service regions. In addition, we offer roaming capabilities in 69
countries and regions around the world under our roaming arrangements with
relevant local operators.
                                        20
<PAGE>   23

     A mobile phone subscriber using roaming services is charged at our
per-minute roaming charge (instead of the base usage charge) for both incoming
and outgoing calls, plus applicable long distance charges. The following table
sets forth our revenue sharing and settlement arrangement with China Mobile
Communications Corporation for base roaming charges. We currently do not have a
roaming arrangement with China United Telecommunications Corporation.

           REVENUE SHARING AND SETTLEMENT OF THE BASE ROAMING CHARGES

<TABLE>
<CAPTION>
TYPE OF ROAMING                 SETTLEMENT ARRANGEMENTS
---------------                 -----------------------
<S>                             <C>
Our subscriber roaming into     We pay China Mobile Communications Corporation 80% of the
  the mobile network of China   base roaming charge payable by our subscribers
  Mobile Communications
  Corporation
Subscriber of China Mobile      China Mobile Communications Corporation pays us 80% of the
  Communications Corporation    base roaming charge charged to its subscribers
  roaming into our network
</TABLE>

     Revenue Sharing and Settlement of Long Distance Charge When Roaming.  In
addition to the base roaming charge, long distance charges may be assessed when
a subscriber is roaming. Where a mobile phone subscriber makes a call while
roaming, the home network operator collects all long distance charges incurred
and pays all such charges to the operator of the visited network. The visited
network operator then settles those long distance charges, if settlement
applies, in accordance with the long distance revenue sharing and settlement
arrangements described above. Where a mobile phone subscriber receives a call
while roaming, the home network operator receives and keeps all long distance
charges incurred by that subscriber.

  Value Added Services and New Services

     In addition to basic mobile communications services, we offer a number of
value added services. Recently, we have also begun offering certain new
services, such as wireless data and Internet Protocol telephony, that capitalize
on new technology-enabled opportunities.

     Voice Functions.  We offer a variety of basic value added services with
voice functions, including call forwarding, call waiting, conference calling,
call limitation, voice mail and "Chinese Secretary", a live answering service.

     Wireless Data and Mobile Internet Services.  We believe that wireless data
will be one of the fastest growing segments of the telecommunications market in
Mainland China over the next several years. We intend to further expand the
range of our value added services, with particular emphasis in wireless data
applications, which we believe can be achieved with modest initial expenditures.

     In 1999, we began using our short message service platform to develop new
value added services in selected cities in our service areas, including stock
price quotations, sports news, weather forecasts and on-line payment. We will
continue to utilize our GSM network to provide data services based on the
current short message service platform where consumer demands can be more
economically served by short message service. These data services include, for
example, the transmission of short messages to facsimile and e-mail addresses.

     In 2000, we began to develop a unified mobile information service platform,
which is intended to serve as the common platform for all our mobile Internet
services, including mobile data roaming and mobile Internet services. Designed
to be an open platform, it is expected to serve as a uniform data interface for
third-party service providers. In addition, the platform is designed to be
separable from the underlying mobile communications network, and this
segregation is expected to help to ensure that all mobile services developed
based on the platform can be easily migrated to the upgraded network if and when
the underlying network is upgraded to a next generation mobile network.

                                        21
<PAGE>   24

     In the last quarter of 2000, we introduced our mobile Internet portal
"Monternet" based on the mobile information service platform, making us the
first mobile service provider in Mainland China to combine an Internet portal
with mobile telecommunications services. As of December 31, 2000, approximately
102 service providers had joined the Monternet network to provide mobile
Internet content and services through our mobile communications channels and
mobile information service platform. We believe that Monternet will help
facilitate the development of our mobile data business.

     In 2000, we started the construction of an Internet Protocol backbone
network, known as CMNet, in our 13 service regions. We have launched our
Internet Protocol long distance call services over CMNet. See "--Internet
Protocol Telephony" below. We expect that CMNet will also serve as an important
means of transmission for our wireless data and mobile Internet services.

     We have been closely following the development of General Packet-Switched
Radio Service technology, or GPRS, and have conducted advanced GPRS trials. This
technology will enable operators to provide end-to-end packet-switched data
transmission on the existing GSM network, which improves wireless network
utilization and enhances the wireless access rate for a variety of data
applications, including WAP. WAP refers to Wireless Application Protocol, which
is a software protocol stack that defines a standardized means of transmitting
Internet-based content and data to mobile handsets and other wireless handheld
devices. We have also completed tests running WAP applications over a GPRS
platform. In August 2000, we installed and conducted a stand alone test of our
first full GPRS network for offering WAP services.

     Internet Protocol Telephony.  In May 2000, we began providing Internet
Protocol telephony service, known as VoIP service, which allows users to make
domestic and international long distance calls at significantly lower cost
compared to calls routed through conventional circuit switched networks. Our
VoIP service now covers all of our 13 service regions. Our current
interconnection and settlement arrangements with China Telecommunications
Corporation with respect to VoIP calls allow us to save on interconnection
costs, especially with respect to calls routed through our CMNet, compared to
long distance calls routed through conventional circuit switched networks. We
intend to build customer awareness of the benefits of our VoIP service through
marketing and promotional efforts.

     "172" ISP Services. In 2000, we launched "172" ISP services, which enable
users to access the Internet through both mobile handsets or fixed line
telephones by dialing a prefix. Our "172" ISP services are still at an early
stage and the scope of these services is, therefore, currently limited. We
intend to provide integrated voice, data and video access to both mobile phone
and non-mobile phone users through such services in the near future.

     We intend to continue focusing on the application of GPRS and third
generation mobile communications technologies in order to launch new wireless
multimedia services. Third generation refers to the third generation digital
wireless telecommunications technologies, including those that support packet
data switching, wireless broadband, multi-media and global roaming.

  Research and Development

     Our research and development efforts focus on:

      --  developing advanced data application solutions suitable for the
          particulars of the consumer markets in Mainland China; and

      --  monitoring technological trends that may have an impact on the
          development of our current business and the implementation of our
          wireless data strategy.

     In light of the increasingly competitive and rapidly evolving
telecommunications market in Mainland China, we expect to continue to devote
resources to the research and development of new products, services and
technology applications.

     To focus our mobile data activities and consolidate related research and
development efforts, we formed Aspire Holdings Limited as a majority-owned
subsidiary based in Shenzhen, China, in June 2000. The principal business
focuses of Aspire include systems integration, product development, and
technical support
                                        22
<PAGE>   25

for mobile data systems and related applications in Mainland China. It also
operates our mobile research and development center in Shenzhen, China.

     In January 2001, Aspire formed a business alliance with Hewlett-Packard
Company to develop wireless data and Internet and related applications. Under
the alliance, Hewlett-Packard will assist with the design, implementation and
support of Aspire's services in China, and will be the preferred provider of
hardware and related services to Aspire if these products and services are of at
least the same quality and pricing terms as other competing products and
services. Conversely, Hewlett-Packard will treat Aspire as its preferred
customer, which will entitle Aspire to the best customer price and financing
options available for Hewlett-Packard's products and services under
Hewlett-Packard's preferred partner programs prevailing in Mainland China. As
part of the business alliance, Hanover Asia-Pacific Investments Limited, an
indirectly wholly-owned subsidiary of Hewlett-Packard, has agreed to make an
equity investment of up to 7% in Aspire.

     Also in January 2001, Aspire entered into a master agreement with each of
us and China Mobile Communications Corporation for the development of our mobile
information service center platform and that of China Mobile Communications
Corporation. Under each of the master agreements, Aspire will provide system and
gateway integration services, hardware, software and system development,
technical support and major overhaul services of data centers to us and to China
Mobile Communications Corporation.

     Aspire is an important part of our overall strategy to capture the fast
growing wireless data sector in Mainland China. In addition, we expect that
Aspire's business will broaden our revenue sources into various wireless
services and help us to further grow our subscriber base.

  Customer Service, Billing and Credit Control

     We provide a full range of services that emphasize customer care from the
point of sale onward. At the point of sale, after all application procedures
have been completed, we are generally able to activate new subscriber
connections within a few hours for our GSM services. Our after-sales customer
support services include a general customer service hotline for all our 13
service regions. In addition to an interactive voice response system, as of May
20, 2001 there were 2,339 operator seats providing subscribers with billing and
service information, receiving customer reports of network problems and
responding to other customer inquires and requests.

     We consider high usage corporate and individual subscribers to be valuable
assets. In this regard, each of our 13 operating subsidiaries has established
service centers to serve major accounts, and has established service guidelines
and databases for these customers. Designated account managers have also been
appointed to coordinate all issues relating to sales and services for these
major accounts.

     We do not require contract subscribers to post any deposit before the
initiation of local service, although subscribers may choose to establish direct
debits from their bank accounts. Our prepaid subscribers may also choose to
authorize the automatic adding of value to their stored value cards through
direct debit arrangements. Despite the lack of widely available credit
information services in Mainland China, we have implemented certain subscriber
registration procedures, such as identity checks and background checks for
corporate customers, to enhance credit control.

     Generally, we have the same settlement policy for all our subscribers which
requires them to settle their individual accounts on a monthly basis.
Subscribers may make payment either through direct debit accounts established at
certain branches of banks and certain post offices, or by paying in person at
numerous retail outlets and authorized dealers in various cities and counties.
Detailed statements are made available upon the subscriber's request.

     We impose a late payment fee on each subscriber whose account is not paid
by the monthly due date. Our current policy is to deactivate the subscriber's
services (i.e., an involuntary deactivation) if the subscriber's account remains
overdue after one month. Subscribers whose services have been involuntarily
deactivated must pay all overdue amounts, including applicable late payment
fees, to reactivate services.

                                        23
<PAGE>   26

     We make provision for doubtful accounts based on our assessment of the
recoverability of accounts receivable on maturity. In particular, we make full
provision for accounts receivable older than three months. The total amount of
the provision for doubtful accounts for each of 1998, 1999 and 2000 was RMB 558
million, RMB 771 million and RMB 1,346 million, respectively, or 2.1%, 2.0% and
2.1% of total operating revenue, respectively.

  Information Systems

     Our information technology infrastructure consists primarily of three
computerized information systems: the business operations support system, the
management information system and our internal business communications network.
Our business operations support system provides day-to-day operational support
to our various business units, including customer care, billing and collection,
and sales and marketing. Our management information system collects and
processes information and data, including operational and financial data, so
that management and marketing personnel can monitor subscriber satisfaction,
analyze trends in calling patterns, target network expansion and develop
appropriate marketing strategies. Our internal business communications network
allows internal communications through our Intranet, video conference system and
communications platform system. During 1999 and 2000, we upgraded our
information systems, allowing us to enhance operations management, implement
credit controls and monitor mobile usage in real time. Our information systems
operated through each critical date relating to the year 2000 issue without
difficulty or interruption.

  Service Distribution and Marketing

     Since early 1997, we have significantly expanded our marketing and
distribution efforts to attract an increasingly diverse base of new subscribers.
We have focused on expanding our distribution channels while emphasizing our
brand name and network and service quality and superiority.

     Distribution Channels.  We market our services through an extensive network
of authorized dealers (including retail outlets of the fixed line operators and
post offices) and through our own retail outlets. As of December 31, 2000, we
had 25,001 authorized third-party dealers and owned and operated 1,389 retail
outlets.

     The authorized dealers market and sell our services at prices determined by
us in accordance with the applicable price schedules in the relevant provinces.
In connection with these sales, the dealers pay to us all related connection
fees and other miscellaneous fees payable upon initial connection. In addition
to marketing our services, some of our authorized dealers also perform various
services for us, such as payment collection and the provision of billing
information and other customer services.

     In our retail outlets, customers can subscribe for our network services. In
addition, most of these outlets also offer customers after-sales support
services, including the repair of handsets and collection of payment.

     We are seeking to develop other distribution channels, including on-line
sales and customer service facilities over the Internet, in order to further
strengthen our marketing efforts.

  Brand Name

     As the first and the leading mobile telephone services provider in our
markets, we believe we are well positioned to develop our brand name. We market
our services under the "CHINA MOBILE" brand name, which is a registered
trademark in Mainland China owned by China Mobile Communications Corporation and
the marketing name used by it throughout Mainland China. As a result of
promotional and marketing initiatives by us and China Mobile Communications
Corporation's other operating subsidiaries, the mark has attained wide
recognition and is closely identified with us by consumers. In addition, China
Mobile Communications Corporation has filed applications in Hong Kong to
register the "CHINA MOBILE" name and logo as trademark for certain goods and
services.

     In October 1999, we entered into a non-exclusive licensing agreement with
China Mobile Communications Corporation for the use of the "CHINA MOBILE" name
and logo by us and our operating subsidiaries. Under this agreement, no license
fee is payable by us for the first three years from the effective date of the
                                        24
<PAGE>   27

trademark registration in China and any fees payable after that will be no less
favorable than fees paid by other affiliates of China Mobile Communications
Corporation.

  Mobile Communications Networks

     We offer mobile communications services principally using the GSM
technology. Each of our GSM networks consists of:

      --  cell sites, which are physical locations equipped with a base
          transceiver station containing transmitters, receivers and other
          equipment that communicate through radio channels (which are
          communication paths for transmitting voice or non-voice signals) with
          mobile telephone handsets within the range of a cell (which is the
          coverage area of the whole or part of base station);

      --  base stations or base transceiver stations, which are transmitters and
          receivers that serve as a bridge between all mobile users in a cell
          and connect mobile calls to the mobile switching center;

      --  base station controllers, which connect to, and monitor and control,
          the base transceiver station within each cell, performing the
          functions of message exchange and frequency administration;

      --  mobile switching centers, which are central switching points to which
          each call is connected, and which control the base station controllers
          and the routing of calls; and

      --  transmission lines, which link the mobile switching centers, base
          station controllers, base transceiver stations and other
          telecommunications networks.

     The following table sets forth certain selected information regarding our
GSM networks as of December 31, 1998, 1999 and 2000:

<TABLE>
<CAPTION>
                                                              1998     1999     2000
                                                              -----   ------   ------
<S>                                                           <C>     <C>      <C>
Subscribers (in thousands)..................................  4,761   14,023   43,185
Voice channels (in thousands)...............................    369      727    1,860
Mobile switching centers....................................    126      212      470
Base station controllers....................................    338      576    1,162
Base transceiver stations...................................  7,010   13,532   31,593
</TABLE>

     GSM Network Capacity Expansion Plans.  As of May 20, 2001, 98.6% of our
subscribers were users of our digital GSM services. We intend to continue our
network expansion and improvement with an emphasis on increasing the coverage
and capacity and improving the operating efficiency of our GSM networks. We
intend to achieve capacity expansion by adding cell sites in areas already
within our network coverage and by expanding and improving coverage, including
along railways and highways and indoors. Our network expansion plans depend to a
large extent upon the availability of sufficient spectrum. In addition, in order
to improve the quality of our mobile communications networks in certain major
urban centers, we introduced GSM-compatible 1800 MHz Digital Cellular System to
add capacity and seek to achieve seamless coverage in these areas.

     Migration from Analog to Digital Network.  Recent advances in GSM
technologies have substantially increased network capacity and service quality.
The economic life cycle of our current analog network equipment is also much
more limited than that of our digital networks. Accordingly, to make more
efficient use of our spectrum resources and accelerate the enhancement of our
network, we plan to terminate all our analog services by the end of 2001 and
migrate our existing analog subscribers to our GSM services. We seek to
encourage and facilitate the migration of our analog subscribers to our GSM
networks by, for example, providing free airtime and highlighting in our
marketing activities the attractiveness of value added services that are not
available to analog subscribers. The migration is part of our overall network
development plan. As of May 20, 2001, we had approximately 0.8 million analog
subscribers, representing approximately 1.4% of our total subscriber base as of
that date.

     Spectrum.  A mobile communications network's capacity is to a certain
extent limited by the amount of frequency spectrum available for it to use. The
Ministry of Information Industry has allocated 24 MHz in the

                                        25
<PAGE>   28

900 MHz frequency band to us to operate our mobile communications networks. In
addition, we also have the right to use 10 MHz of spectrum in the 1800 MHz
frequency band in each of the provinces in which we operate. We have used this
spectrum to introduce Digital Cellular System 1800 systems to expand the
capacity of our GSM networks in our service regions by adding cell sites in
certain areas with a high density of mobile phone subscribers. In preparation
for the planned termination of all existing analog services, we have obtained
the approval from the Ministry of Information Industry and other relevant
regulatory authorities to substitute 5 MHz analog frequency Spectrum in the 900
MHz frequency band with a 5 MHz frequency band in the 1800 MHz frequency band
upon the termination of our analog services.

     Transmission Infrastructure.  The physical infrastructure linking our base
transceiver stations, base station controllers and mobile switching centers and
interconnecting our networks to the fixed line network consists of transmissions
lines, which provide the backbone infrastructure by which mobile call traffic is
carried.

          Intra-Provincial Transmission Lines.  We currently lease
     intra-provincial and local transmission lines from China Telecommunications
     Corporation's subsidiaries that operate the fixed line networks in our 13
     service regions and pay to them fees based on tariff schedules stipulated
     by the relevant regulatory authorities after adjusting for the discounts
     that we have negotiated.

          We have also built our own infrastructure in certain areas where the
     fixed line network operators do not currently have any transmission lines
     in place or where the leasing of existing lines is not economical. As part
     of our network operation strategy, we intend to build our own transmission
     lines where economically advantageous, such as where call traffic is high.
     In areas where the leasing of transmission lines makes more economic sense,
     we intend to continue to leverage our group buying capacity to negotiate
     preferential leasing rates.

          Inter-Provincial Transmission Lines.  We entered into a new
     inter-provincial leased line arrangement with China Mobile Communications
     Corporation in May 2000, with retroactive effect from April 1, 1999 for
     Fujian Mobile, Henan Mobile and Hainan Mobile and from October 1, 1999 for
     Guangdong Mobile, Zhejiang Mobile and Jiangsu Mobile, and applicable to the
     seven regional mobile communications companies we acquired in November 2000
     following the acquisition. The leased inter-provincial transmission lines
     link our mobile switching centers with each other and with China Mobile
     Communications Corporation's other mobile switching centers.

          Prior to these arrangements, we leased intra-provincial transmission
     lines to link our network to the fixed line network, but did not lease any
     inter-provincial transmission lines. Instead, we paid China Mobile
     Communications Corporation an inter-provincial interconnection fee. The
     leasing charge payable by us is determined based on the standard leasing
     fee stipulated by the relevant regulatory authorities after adjusting for
     the discounts that we have negotiated, and the mobile communications
     network operators at both ends of the transmission lines will share the
     leasing fees equally.

     Network Operations and Maintenance.  We believe that we have considerable
network operation and maintenance experience and technical expertise. Day-to-day
traffic management, troubleshooting and system maintenance are conducted by our
experienced team of engineers and technicians, and technical staff are available
for emergency repair work 24 hours a day. In addition, we employ specialist
teams for central maintenance of the networks. We continue to seek to attract
and retain qualified technical staff. Currently, most technical difficulties
relating to the networks are resolved by our staff, although our equipment
suppliers also provide back-up maintenance and technical support.

     Base Station Sites.  In urban areas, our base transceiver station sites are
located mostly on existing structures, typically at the top of tall buildings.
In rural areas, masts are often constructed for locating base transceiver
stations. Typically, base station sites are of limited size, as base transceiver
station equipment does not generally require significant space. Generally,
depending on the length of time required for negotiation with respect to use of
the land or buildings, construction of a base transceiver station takes
approximately one to three months in an urban area and approximately three to
six months in a rural area. We anticipate that we will need a significant number
of new sites in connection with the expansion of our mobile communications

                                        26
<PAGE>   29

networks. There can be no assurance that we will be able to obtain the requisite
number of sites on reasonable commercial terms.

     Equipment Suppliers.  We select our principal suppliers from among leading
international and domestic manufacturers of mobile communications equipment and
in accordance with technical standards set by the Ministry of Information
Industry. Our GSM networks use equipment primarily supplied by Ericsson, Nokia,
Motorola, Alcatel and Huawei Technologies. Our largest supplier accounted for
approximately 27% of our network equipment purchases in 2000, and the top five
suppliers accounted for an aggregate of 58% of our network equipment purchases
in 2000.

  Strategic Alliance with Vodafone

     On October 4, 2000, we entered into a non-binding memorandum of
understanding with Vodafone Group Plc., which sets forth the principal terms of
alliance and cooperation between the two parties. In connection with the
alliance, Vodafone purchased US$2.5 billion of our ordinary shares as part of
our share offering in November 2000, representing approximately 2% of our issued
and outstanding share capital following the offering.

     On February 27, 2001, we entered into a binding strategic alliance
agreement with Vodafone. The agreement has formalized a number of cooperation
arrangements set forth in the memorandum of understanding, including:

      --  the exchange and sharing of corporate management, technical and
          operational expertise and resources;

      --  joint research and development;

      --  the introduction of global products and services for the mobile
          community; and

      --  the development and implementation of standards and protocols relevant
          to mobile communications.

     Under the agreement, we have agreed to make Vodafone our preferred partner
in the above mentioned areas, and Vodafone has agreed to make us its sole
strategic partner in China for all areas of potential cooperation within the
scope of the strategic alliance. The parties have also agreed to explore
opportunities for joint ventures and other equity-based strategic alliances, and
to cooperate in pursuing international investment opportunities outside of China
and in regional and global alliances. As part of the alliance, Mr. Chris Gent,
Chief Executive of Vodafone, joined our board of directors as an independent
non-executive director in February 2001. See "Item 6. Directors, Senior
Management and Employees."

     We believe that the strategic alliance with Vodafone will enhance our
strengths in the telecommunications market in Mainland China and will better
position us to pursue further expansion opportunities globally.

  Competition

     China United Telecommunications Corporation operates, directly or through
its subsidiaries, in all of the provinces, municipalities and autonomous regions
in which we operate. The Chinese government encourages orderly and fair
competition in the telecommunications industry in Mainland China. Towards this
end, it has extended certain favorable regulatory policies to China United
Telecommunications Corporation in order to help it become a more viable
competitor to us and China Mobile Communications Corporation. In particular, the
Chinese government has permitted China United Telecommunications Corporation to
lower its mobile service tariffs by up to 10% below the governmental guidance
rates. We believe this policy has helped China United Telecommunications
Corporation capture a significant number of price-sensitive and low-usage mobile
phone subscribers. Based on publicly available information in respect of China
United Telecommunications Corporation's listed subsidiary, as of December 31,
2000, China United Telecommunications Corporation's listed subsidiary had an
estimated market share of approximately 22.7% of mobile phone subscribers in its
service areas, as compared to approximately 7.1% and 14.2% as of December 31,
1998 and 1999, respectively.

                                        27
<PAGE>   30

     We compete on the basis of our network coverage and quality, the pricing of
our services, the range of services we offer and our service quality. We believe
that we have significant competitive advantages due to:

      --  our superior mobile communications networks;

      --  our widely-recognized brand name and logo that are closely identified
          with us by consumers;

      --  our broad distribution networks and our focus on customer services

      --  our extensive range of value added services;

      --  our experienced management team and high quality employees; and

      --  our financial resources.

     We believe these advantages have contributed to our superior subscriber
quality compared to that of our competitor, as measured by average usage levels,
average revenues per subscriber and doubtful accounts levels.

     In addition to China United Telecommunications Corporation, the State
Council and the Ministry of Information Industry may approve additional mobile
service providers in the future that may compete with us. We may also be subject
to competition from providers of new telecommunications services based on new or
existing technologies. Nonetheless, given the relatively low mobile phone
penetration rates in our markets and in Mainland China in general, we believe
there is substantial growth potential for our mobile communications business. We
believe that the restructuring of the telecommunications industry in Mainland
China has created a fair, orderly, transparent and healthy telecommunications
market.

     We also face indirect competition from providers of other wireless
communications services, such as paging and city-wide mobile telephone services
based on Personal Access System technology operated by China Telecommunications
Corporation and its subsidiaries, which offer substantially lower prices for
their services. However, we do not believe that they are significant
competitors, as they provide a much more limited range of services compared to
our mobile communications services.

     In addition, China United Telecommunications Corporation has conducted
trial operations in several cities in Mainland China using 800 MHz Code Division
Multiple Access technology. Code Division Multiple Access technology is a
continuous digital transmission technology that accommodates higher throughput
by using various coding sequences to mix and separate voice and data signals for
wireless communication. The State Council has granted China United
Telecommunications Corporation its approval to utilize this technology for
commercial mobile communications operations. We believe that the current second
generation of this technology would have limited commercial value to our
business due to the rapid development of wireless communications technology. We
also believe that the current second generation of this technology will not
significantly change the relative competitive strengths of existing
telecommunications operators. In addition, we believe that our GSM networks
provide, and as may be further expanded and upgraded under our network
development plan will provide, sufficient capacity and coverage to support our
existing and planned services. As a result, we have decided not to pursue the
development of the current second generation Code Division Multiple Access
technology.

     China recently concluded bilateral negotiations of the major terms for its
entry into the World Trade Organization with a number of countries, including
the United States, and the European Union. As a result, we expect the Chinese
government to gradually relax current restrictions on foreign ownership in the
telecommunications industry. This could lead to the further opening of the
Chinese telecommunications market to foreign investors and operators, and could
result in or accelerate the issue of new telecommunications service licenses.

  Regulation

     The mobile communications industry in Mainland China is subject to a high
degree of regulation by the Chinese government. Regulations issued or
implemented by the State Council, the Ministry of Information Industry and other
relevant government authorities including the Ministry of Foreign Trade and
Economic
                                        28
<PAGE>   31

Cooperation and the State Development Planning Commission encompass all key
aspects of mobile communications network operations, including entry into the
telecommunications industry, scope of permissible business, interconnection and
transmission line arrangements, technology and equipment standards, tariff
standards, capital investment priorities, foreign investment policies and
spectrum and number resources allocation.

     The Ministry of Information Industry, under the leadership of the State
Council, is responsible for, among other things:

      --  formulating and enforcing industry policy, standards and regulations;

      --  granting telecommunications licenses;

      --  formulating interconnection and settlement standards for
          implementation between telecommunications networks;

      --  together with other relevant regulatory authorities, formulating
          tariff and service charge standards for telecommunications services;

      --  supervising the operations of telecommunications service providers;

      --  promoting fair and orderly market competition among operators; and

      --  allocating and administering public communications resources, such as
          radio frequencies, number resources, domain names and addresses of
          communications networks.

     In order to provide a uniform regulatory framework to encourage the orderly
development of the telecommunications industry, the Chinese government is
currently preparing a draft telecommunications laws. We expect that, if and when
the telecommunications law is adopted by the National People's Congress, it will
become the basic telecommunications statute and the legal source of
telecommunications regulations in Mainland China. In addition, the State Council
promulgated a set of new telecommunications regulations on September 25, 2000.
These regulations are substantially consistent with the existing rules and
guidelines for the telecommunications industry, and are primarily intended to
streamline and clarify the existing rules and guidelines. They apply in the
interim period prior to the adoption of the telecommunications law. Although we
expect that the telecommunications law would have a positive effect on the
overall development of the telecommunications industry in Mainland China, we do
not fully know what the nature and scope of the telecommunications law will be.

     Entry into the Industry.  The new telecommunications regulations adopt the
existing regulatory distinction between basic and value added telecommunications
services and provide a classification of those services. Operators of mobile
communications networks, providers of other basic telecommunications services
such as local and long distance fixed line telephone services, and value added
service providers whose telecommunications services cover two or more provinces,
municipalities or autonomous regions in China must apply for specific permits
from the Ministry of Information Industry in order to provide such services.
Granting of permits for providing basic telecommunications services will be
through a tendering process. Currently, in addition to us and other entities
controlled by China Mobile Communications Corporation which operate in Mainland
China outside of our markets, China United Telecommunications Corporation is
also authorized to provide mobile services in all provinces, municipalities and
autonomous regions in China.

     Current regulations in Mainland China prohibit foreign-invested enterprises
and foreign entities (including individuals) from owning, operating or
participating in the operation of telecommunications services in Mainland China
without approval by the State Council. We were authorized by the State Council
to effect our initial public offering in 1997 and our subsequent acquisitions
and the related financing. China reached an agreement with the United States in
November 1999 and an agreement with the European Union in May 2000 relating to
China's entry into the World Trade Organization. As a result, we expect that the
Chinese government will gradually reduce the current restrictions on foreign
ownership in the telecommunications industry.

                                        29
<PAGE>   32

     Spectrum Usage.  In coordination with the relevant provincial authorities,
the Ministry of Information Industry regulates the allocation of radio
frequency. The frequency assigned to an entity is not allowed to be leased or,
without approval of the Ministry of Information Industry, transferred by the
entity to any other third party. In accordance with a joint circular from the
State Development Planning Commission and the Ministry of Finance, China Mobile
Communications Corporation determines the amount of fees to be paid to the
Ministry of Information Industry for spectrum usage by each mobile
communications network operator under its control based on the bandwidth of the
frequency used and the number of base transceiver stations within the operator's
network, subject to the limitation that the total annual payment by all such
operators in Mainland China shall equal RMB 1.0 million per MHz of frequency
allocated by the Ministry of Information Industry.

     Number Resources.  The Ministry of Information Industry is responsible for
the administration of the number resources within Mainland China, including the
mobile communications network number and subscriber numbers. The use of number
resources by any telecommunications operator is subject to the approval by the
Ministry of Information Industry. In April 2000, the Ministry of Information
Industry implemented new provisional measures on administration of
telecommunications network number resources. In accordance with these new
measures, the telecommunications network number resources are owned by the
state, and the user of number resources is required to pay a usage fee to the
state. However, the standard for the usage fee is yet to be stipulated. It is
also not clear when the standard of the usage fee will be stipulated and when we
will be required to pay such fee. The new measures also provide for procedures
for application for the use, upgrade and adjustment of number resources by
telecommunications operators.

     Tariff Setting.  The levels and categories of our current tariffs are
subject to regulation by various government authorities, including the Ministry
of Information Industry, the State Development Planning Commission and, at the
local level, the relevant provincial price regulatory authorities. Under the new
telecommunications regulations, telecommunications tariffs are categorized into
market based tariffs, government guidance tariffs and government fixed tariffs.
Currently, connection fee is based on a guidance tariff range set by the
Ministry of Information Industry in consultation with the State Development
Planning Commission, with the actual tariff determined by the relevant
provincial price regulatory authorities. In general, base usage charges, monthly
fees, domestic roaming usage charges and tariffs for all domestic long distance
calls (other than Internet Protocol phone calls) and international calls are
fixed jointly by the Ministry of Information Industry and the State Development
Planning Commission. International roaming charges are set in accordance with
agreements between China Mobile Communications Corporation and the relevant
foreign mobile operators. Under the new telecommunications regulations, tariffs
for those telecommunications businesses that are considered fully competitive
may be set by the service providers as market based tariffs.

     Interconnection Arrangements and Lease Line Arrangements.  Under the new
telecommunications regulations, parties seeking interconnection must enter into
an interconnection agreement and file such interconnection agreement with the
Ministry of Information Industry. Major telecommunications service providers
that have control over essential telecommunications infrastructure and possess
significant market share must allow interconnection to their networks by other
operators. They must establish interconnection rules and procedures based on the
principles of non-discrimination and transparency and submit such rules and
procedures to the Ministry of Information Industry for approval. Such rules and
procedures will be binding upon those major telecommunications service
providers. The termination of any interconnection arrangements will require
prior approval by the Ministry of Information Industry.

     The applicable regulations provide that interconnection related equipment
must conform with the technical standards approved by the Ministry of
Information Industry. See "-- Technical Standards" below. The Ministry of
Information Industry also determines the standard lease tariffs to be paid by
telecommunications operators with respect to the leasing of transmission lines
that facilitate interconnection between telecommunications networks. The
relevant provincial operating subsidiaries of China Telecommunications
Corporation and those of China Mobile Communications Corporation are responsible
for the maintenance of the transmission lines and related equipment in their
respective localities.

                                        30
<PAGE>   33

     Technical Standards.  The Ministry of Information Industry sets technical
standards and controls the type and quality of mobile communications equipment
used in public networks by requiring prior certification by the Ministry of
Information Industry, together with other relevant regulatory authorities, for
all telecommunications terminal equipment that are connected to the public
networks, all radio communications equipment and all interconnection related
equipment. In addition, the Provisions on the Management of Import of Radio
Transmission Equipment, jointly issued by the former State Radio Regulatory
Commission, the State Economic and Trade Commission, Ministry of Foreign Trade
and Economic Cooperation and the General Administration of Customs, effective
January 1, 1996, provide that before radio transmission equipment (including
mobile communications equipment) may be imported into Mainland China, an
importer must obtain the necessary certification from the Ministry of
Information Industry and the State Mechanical and Electrical Products Import and
Export Office.

     The establishment of base transceiver stations requires the approval of the
relevant provincial regulatory authorities. A number of these approvals with
respect to the base stations of our operating subsidiaries are currently
pending. We have not experienced and do not expect to experience material
difficulty in obtaining permission to establish additional sites.

     Capital Investment.  The State Development Planning Commission and the
State Economic and Trade Commission are empowered by the State Council to
exercise responsibility over the approval of all major investment projects,
including mobile communications network development projects, involving total
capital investment between RMB 50 million and RMB 200 million. Any investment
projects with total capital investment in excess of RMB 200 million must obtain
approval from the State Council. Accordingly, project proposals and feasibility
study reports for these projects, following review and approval by China Mobile
Communications Corporation and the Ministry of Information Industry, are
required to be submitted for approval to the State Development Planning
Commission and the State Economic and Trade Commission or to the State Council.

  Employees

     The total number of our employees increased from 12,530 as of December 31,
1998 to 20,243 as of December 31, 1999 and 38,343 as of December 31, 2000,
mainly as a result of our acquisitions of various regional mobile communications
companies in China during 1998, 1999 and 2000. As of December 31, 2000, we had
31 employees in Shenzhen, China, 38 employees in Hong Kong and 38,274 employees
in the rest of Mainland China as classified in the following table.
Approximately 20% of our permanent employees have college or graduate degrees.

<TABLE>
<S>                                                           <C>
Management..................................................   7,806
Technical and engineering...................................  12,695
Sales and marketing.........................................  15,908
Financial and accounting....................................   1,865
                                                              ------
          Total.............................................  38,274
                                                              ======
</TABLE>

     We provide benefits to certain employees, including housing, retirement
benefits and hospital, maternity, disability and dependent medical care
benefits. Most of our employees are members of a labor association. We have not
experienced any strikes, slowdowns or labor disputes that have interfered with
our operations to date, and we believe that our relations with our employees are
good.

ORGANIZATIONAL STRUCTURE

     See Section entitled "-- History and Development of the Company -- Industry
Restructuring and Related Charges in Our Shareholding Structure."

                                        31
<PAGE>   34

PROPERTY, PLANTS AND EQUIPMENTS

     We own, lease or have usage rights in various properties which consist of
land and buildings for offices, administrative centers, staff quarters, retail
outlets and technical facilities. We have obtained land use right certificates
and property title certificates for most of these properties and are in the
process of obtaining certificates for the remaining nine properties, all of
which are located in Guangdong Province. We believe that our use of these
properties are not affected by the fact that we have not yet obtained the
relevant land use right certificates and property title certificates. China
Mobile (Hong Kong) Group Limited, our indirect controlling shareholder, has
agreed to indemnify us against any loss or damage caused by or arising from any
challenge of, or interference with, our right to use any of the properties we
had or used in our business as of May 31, 1997, the date of asset revaluation in
preparation for our initial public offering. We believe that all of our owned
and leased properties are well maintained and are suitable and adequate for
their present use.

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

     You should read the following discussion and analysis in conjunction with
our consolidated financial statements, together with the related notes, included
elsewhere in this annual report. The consolidated financial statements have been
prepared in accordance with Hong Kong GAAP, which differ in certain significant
respects from U.S. GAAP. Note 29 to the consolidated financial statements
summarizes the significant differences between Hong Kong GAAP and U.S. GAAP as
they relate to us and provides a reconciliation to U.S. GAAP of net profit and
shareholders' equity. In addition, Note 29 to the consolidated financial
statements includes our condensed consolidated financial statements prepared and
presented in accordance with U.S. GAAP for the relevant periods. The
consolidated financial statements present, and the discussion and analysis in
this section pertain to, our consolidated financial position and results of
operations as of and for the years ended December 31, 1998, 1999 and 2000, and
reflect the results of Jiangsu Mobile from June 4, 1998, the results of Fujian
Mobile, Henan Mobile and Hainan Mobile from November 12, 1999, and the results
of Beijing Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile, Liaoning
Mobile, Shandong Mobile and Guangxi Mobile from November 13, 2000, the
respective dates we acquired them.

OVERVIEW OF OUR OPERATIONS

     During 1998, 1999 and 2000, our network capacity, subscriber base and usage
and operations experienced significant growth. We believe that with the
market-oriented restructuring of the telecommunications industry, as well as the
development of the economy and increase in per capita income in Mainland China,
the telecommunications industry will continue to grow rapidly. Given the
relatively low penetration rates in our markets, we believe that there is
potential for significant future subscriber growth.

     Our results of operations, like those of other mobile communications
network operators, are substantially dependent on a number of factors,
including:

      --  the number and quality of subscribers;

      --  the level of subscriber usage;

      --  the level and structure of tariffs; and

      --  interconnection, roaming and transmission line arrangements with other
          telecommunications operators.

     We operate in an extensively regulated environment and our operations and
financial performance are significantly affected by the Chinese government's
regulation of the telecommunications industry. These regulations and policies
may affect, among other things, our interconnection and transmission line
leasing arrangements, technology and equipment standards and capital investment,
as described in more detail under "Item 3. Key Information -- Risk
Factors -- Adverse Changes in Economic Policies of the Chinese Government Could
Have a Material Adverse Effect on the Overall Economic Growth of Mainland China,
Which Could Reduce the Demand for Our Services and Adversely Affect Our
Competitive Position" and "Item 4. Information on the Company -- Regulation".
Our financial performance is also subject to the economic and social conditions
in Mainland China and foreign currency exchange fluctuations.

                                        32
<PAGE>   35

 Our Acquisitions of 11 Regional Mobile Communications Companies in the Past
 Three Years Have Materially Impacted Our Financial Results

     We acquired Jiangsu Mobile on June 4, 1998, Fujian Mobile, Henan Mobile and
Hainan Mobile on November 12, 1999 and Beijing Mobile, Shanghai Mobile, Tianjin
Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi Mobile on
November 13, 2000. We have adopted the acquisition method to account for these
acquisitions under Hong Kong GAAP. Accordingly, the consolidated financial
statements include the results of these companies from the respective dates of
the acquisitions. Under U.S. GAAP, our acquisitions of these companies are
considered a combination of entities under common control which would be
accounted for under the "as if pooling-of-interests" method, whereby assets and
liabilities are accounted for at historical cost and the accounts of previously
separate companies for periods prior to the combination generally are restated
on a combined basis.

     These acquisitions have had a material impact on our overall results of
operations. Among others, they have significantly expanded the size of the
mobile communications markets we serve and increased the number of our
subscribers and usage of our services. As a result, our operating revenue and
operating expenses increased significantly in 1998, 1999 and 2000.

  Analog-to-Digital Migration

     Due to the rapid development of mobile telecommunications technologies and
the potentially limited economic life cycle of our analog network equipment, we
decided to accelerate the enhancement of our technology and to assist the
migration of our analog subscribers to our GSM network. See "Item 4. Information
on the Company -- Business Overview -- Analog to Digital Migration." As a result
of this decision, we wrote-down RMB 282 million of analog network equipment in
1998, and we wrote down RMB 6,720 million of analog network equipment and wrote
off an additional RMB 1,522 million of analog network equipment in 1999. In
2000, as part of our plan to terminate some network functions by June 2001 and
discontinue all analog services by the end of 2001, we wrote down and wrote off
the entire RMB 1,525 million in remaining net book value of our analog network
equipment.

     To encourage the migration of our analog subscribers to our GSM services,
we have been offering free air time for GSM services to these subscribers. We
believe that the analog-to-digital migration will increase our network
utilization rate, improve our operational efficiency and allow us to provide
better services to customers. As of May 20, 2001, we had approximately 0.8
million subscribers to our analog services, representing approximately 1.4% of
our total subscriber base as of that date.

 Operating Arrangements We Entered Into in 1998, 1999 and 2000 Have Materially
 Impacted Our Financial Results

     Our current organizational structure was established pursuant to the
restructuring completed in September 1997 in preparation for our initial public
offering and our acquisitions of the 11 regional mobile communications companies
in Mainland China in 1998, 1999 and 2000. In connection with these transactions,
we entered into various operating arrangements to facilitate the transfer of the
operations to us, to integrate these operations within our operating structure
and to improve our overall operational efficiency. These arrangements included:

      --  interconnection revenue sharing and settlement arrangements with China
          Telecommunications Corporation and its subsidiaries and with China
          Mobile Communications Corporation;

      --  intra-provincial transmission line leasing agreements with China
          Telecommunications Corporation and its subsidiaries;

      --  service agreements with China Mobile Communications Corporation and
          China Telecommunications Corporation and their respective subsidiaries
          with respect to various telecommunications services and support;

      --  a change in the tax treatment of connection fees and certain surcharge
          revenue for our services;

                                        33
<PAGE>   36

      --  the revaluation of fixed assets of the companies we acquired as of the
          respective dates set forth in the financial statements included in
          this annual report; and

      --  an agreement with China Mobile Communications Corporation for
          inter-provincial interconnection and domestic and international
          roaming.

     The original terms of our agreements relating to interconnection, leased
lines and roaming have been revised as a result of tariff adjustments by the
government and/or commercial negotiation with the relevant parties. See "Item
4. Information on the Company -- Business Overview -- Interconnection
Arrangements" and "-- Roaming Arrangements" as well as the notes to our
consolidated financial statements for a description of these arrangements as
amended to date.

     Our financial results reflect the impact of the above arrangements as of
the dates they became effective. These arrangements and changes have had a
material impact on our overall results of operations. In particular, the
implementation of the interconnection agreements led to significant increases in
both operating revenue and operating expenses. In addition, other operating
expenses including selling, general and administrative expenses increased in
1998, 1999 and 2000 as a result of the implementation of agreements relating to
billing and collection services and distribution and sales. In each of 1998,
1999 and 2000, depreciation expense increased as a result of the revaluation of
fixed assets, while our effective income tax rates increased as a result of
connection fees and certain surcharges becoming fully taxable after the acquired
companies had registered as wholly foreign owned enterprises following the
acquisitions.

 Our New Operating Arrangements with China Mobile Communications Corporation
 Have Affected and May Continue to Affect Our Financial Results

     In May 2000, we entered into two agreements with China Mobile
Communications Corporation for:

      --  inter-provincial interconnection and domestic and international
          roaming services; and

      --  sharing of inter-provincial leased line fees.

     The agreements, as supplemented in November 2000, apply to the seven
regional mobile communications companies we acquired in November 2000, effective
upon the acquisition and to our other six operating subsidiaries with
retroactive effect from April 1, 1999, except that with regard to Guangdong
Mobile, Zhejiang Mobile and Jiangsu Mobile, the leased line fee sharing
arrangement has retroactive effect from October 1, 1999.

     Prior to these arrangements, we leased intra-provincial transmission lines
from China Telecommunications Corporation to link our network to the fixed line
network, but did not lease any inter-provincial transmission lines. Instead, we
paid China Mobile Communications Corporation an inter-provincial interconnection
fee. Under the new inter-provincial transmission line leasing agreement with
China Mobile Communications Corporation, the leasing fee payable by us is
determined based on the standard leasing fee stipulated by the relevant
regulatory authorities after adjusting for the volume discount that we have
negotiated, and on the basis that the mobile network operators at both ends of
the transmission lines will share the leasing fees equally. As a result, the new
arrangements led to an increase in our transmission line leasing expenses, but a
reduction in our inter-provincial interconnection and roaming settlement
expenses, resulting in net savings in our operating expenses in 2000. We have
reflected the financial impact of these arrangements in 1999 as a one-time gain
in our accounts for 2000. We expect that, in 2001, the reduction in
interconnection and roaming costs as a result of these new arrangements will
continue to exceed the increase in inter-provincial transmission line leasing
fees as a result of these new arrangements.

  Launch of Packaged Service Plans

     In order to meet the specific mobile communications needs of different
subscriber segments and to enable more efficient use of network resources during
both peak and off-peak hours, beginning in March 2001, we have launched packaged
mobile service plans tailored toward different usage level. See "Item 4.
Business Overview -- Tariffs -- Tariff Adjustments." We have begun to implement
the appropriate service plans in

                                        34
<PAGE>   37

selected service regions based on local market condition. We believe that such
service plans create a more flexible tariff structure for our subscribers and
can promote greater usage by subscribers and is beneficial to increasing overall
subscriber usage.

  Tariff Adjustments

     As part of the efforts to further rationalize the tariff structure of
telecommunications services, the government introduced a wide range of tariff
adjustments effective beginning from January 2001. The tariff adjustments that
affect our mobile communications services include the shortening of the billing
unit for long distance charges (other than for Internet Protocol phone calls),
from one minute to six seconds, the general reduction in domestic and
international long distance call rates, the elimination of various surcharges
and a general reduction in leased line tariffs. In particular, effective from
February 21, 2001, domestic long distance call rates have been adjusted from the
range of RMB 0.50 to RMB 1.00 per minute to the uniform rate of RMB 0.07 per six
seconds. We expect that, although the adjustments in long distance call rates
and the elimination of surcharges may reduce our revenue in the short term, we
expect that they will stimulate increased subscriber usage and contribute to our
overall revenue growth in the long run. In addition, we will be able to achieve
savings in leased line expenses as a result of the reduction in leased line
tariffs.

  Amendment to Revenue Sharing Arrangement for Prepaid Services

     We offer prepaid services in each of our 13 service regions. Some of our
prepaid services allow subscribers to add value to their SIM cards in any of our
service regions or in the service regions of other subsidiaries of China Mobile
Communications Corporation. In May 2001, we entered into an agreement with China
Mobile Communications Corporation to amend the then-existing revenue sharing
arrangements with respect to prepaid services, with retroactive effect from
April 21, 2001. The new agreement amended the prior arrangement by allowing the
network operator in the location that sells the value-adding prepaid card to
charge 5% of the face value of the card as a handling charge, and remit the
other 95% (as compared to 85% prior to the amendment) to the subscriber's home
network operator. We do not expect the new agreement to have any material impact
on our results of operations or financial results.

  Renminbi Bond Offering

     Following the approval by the relevant Chinese regulatory authorities, on
June 18, 2001 our wholly-owned subsidiary, Guangdong Mobile, issued RMB5 billion
of guaranteed bonds due in 2011. The bonds bear interest, payable annually, at a
floating rate calculated as the sum of

      --  a base rate, being the one-year fixed time deposit rate published by
          the People's Bank of China on (A) the date of the issuance of the
          bonds, which is 2.25% per annum, with respect to the 12-month period
          following such date of issuance, and (B) such rate as is fixed on each
          subsequent anniversary date of the issuance, to apply with respect to
          the 12-month period following such anniversary date; and

      --  a base rate differential (i.e., interest spread) of 1.75% per annum,
          which has been agreed between Guangdong Mobile and the lead
          underwriter and approved by the relevant Chinese regulatory
          authorities, and which will remain fixed throughout the term of the
          bonds.

     We have issued an irrevocable guarantee for the performance of the bonds,
and China Mobile Communications Corporation has issued a further guarantee in
relation to the performance by us of our guarantee. The bonds are rated "AAA" by
China Chengxin International Credit Rating Company Limited, an affiliate of
Fitch International Limited.

     The bonds are being sold to the public in Mainland China. We currently
expect that the offering of the bonds will be completed in July 2001. We plan to
file an application to list the bonds on the Shanghai Stock Exchange upon
completion of the offering. The proceeds from the offering will be applied
solely to repay part of the RMB 12.5 billion syndicated loans we raised through
our wholly-owned subsidiary, China Mobile (Shenzhen) Limited, in 2000 for our
acquisition of the seven mobile communications companies in China in November
2000. The syndicated loans had a weighted average interest rate of approximately
5.2% per annum

                                        35
<PAGE>   38

in 2000, which is higher than the 4% per annum interest rate for the bonds with
respect to the 12-month period following the original issuance.

RESULTS OF OPERATIONS

     As a result of our acquisitions and the material changes made to our
operating arrangements, our results of operations are not directly comparable
with those in prior years.

     The following table sets forth selected income statement data, expressed as
percentages of operating revenue, for the periods indicated:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1998     1999     2000
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Operating revenue:..........................................  100.0%   100.0%   100.0%
  Usage fees................................................   62.0     66.8     71.2
  Monthly fees..............................................   16.5     12.9     14.8
  Connection fees...........................................   12.6     11.2      3.4
  Others....................................................    8.9      9.1     10.6
Operating expenses:
  Leased lines..............................................   14.9      9.6      8.5
  Interconnection...........................................   18.0     16.7     12.8
  Depreciation..............................................   17.5     19.2     15.0
  Personnel.................................................    6.1      5.8      6.1
  Other operating expenses..................................   13.4     13.4     16.3
                                                              -----    -----    -----
          Total operating expenses..........................   69.9     64.7     58.7
Operating profit............................................   30.1     35.3     41.3
  Write-down and write-off of analog network equipment......   (1.1)   (21.3)    (2.3)
  Other net income..........................................    1.3      1.4      1.4
  Finance costs.............................................   (0.6)    (0.9)    (1.3)
  Interest income...........................................    6.1      2.0      1.5
  Non-operating net (expenses)/income.......................   (0.2)     0.2      0.0
                                                              -----    -----    -----
  Profit before tax and minority interests..................   35.6     16.7     40.6
  Income Tax................................................   (9.4)    (4.3)   (12.9)
                                                              -----    -----    -----
          Net Profit........................................   26.2%    12.4%    27.7%
                                                              =====    =====    =====
</TABLE>

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     Operating Revenue.  We derive operating revenue principally from usage fees
as well as monthly fees and one-time connection fees charged to new contract
subscribers. Usage fees include standard local usage fees for airtime and
applicable domestic and international long distance charges receivable from
subscribers for the use of our mobile communications networks and facilities,
and fees in respect of roaming out calls made by our subscribers outside their
registered service areas. Other operating revenue includes interconnection
revenue, fees from certain value added services, telephone number selection fees
and roaming-in settlement fees.

     Operating revenue increased 68.3% from RMB 38,623 million in 1999 to RMB
64,984 million in 2000. This increase was due primarily to the increase in usage
fees as a result of subscriber growth in Guangdong, Zhejiang and Jiangsu, the
full year impact of the inclusion of usage fees from subscribers of Fujian
Mobile, Henan Mobile and Hainan Mobile following their acquisition by us in
November 1999, and the inclusion of usage fees from subscribers of the seven
companies we acquired in November 2000 following the acquisition. Our total
number of subscribers was approximately 45.1 million at December 31, 2000,
compared to approximately 15.6 million at December 31, 1999. Excluding
connection fees, operating revenue increased from RMB 34,304 million in 1999 to
RMB 62,771 million in 2000.

                                        36
<PAGE>   39

     Revenue from usage fees increased 79.3% from RMB 25,812 million in 1999 to
RMB 46,287 million in 2000. This increase was primarily a result of the increase
in total subscriber numbers, the expanded communications opportunities for
subscribers as a result of the expansion and improvement of fixed line and
mobile communications networks throughout Mainland China and the expansion of
the scope and variety of our services. As a percentage of operating revenue,
usage fees increased from 66.8% in 1999 to 71.2% in 2000.

     Revenue from monthly fees increased 93.2% from RMB 4,981 million in 1999 to
RMB 9,623 million in 2000 due to the increase in total contract subscriber
numbers. As a percentage of operating revenue, monthly fees increased from 12.9%
in 1999 to 14.8% in 2000.

     Revenue from connection fees decreased 48.8% from RMB 4,319 million in 1999
to RMB 2,213 million in 2000 primarily due to reduction in average connection
fees charged to new contract subscribers. We believe that the reduction and
possible eventual elimination of connection fees for new subscribers will help
to expand our subscriber base and result in increased total subscriber usage of
our mobile communications services. As a percentage of operating revenue,
connection fees decreased from 11.2% in 1999 to 3.4% in 2000. We do not expect
that any further reduction in connection fee tariffs will have a material impact
on our operating revenue.

     Other operating revenue increased 95.4% from RMB 3,511 million in 1999 to
RMB 6,861 million in 2000. This increase resulted principally from increased
revenue from value added services, incoming roaming revenue and interconnection
revenue.

     Operating Expenses.  Operating expenses include principally leased line
expenses, interconnection expenses, depreciation expense relating to our mobile
communications network and other fixed assets, personnel expenses and other
operating expenses. Other operating expenses primarily consist of selling and
promotion expenses, network maintenance costs, provision for doubtful accounts
and operating lease charges.

     Operating expenses increased 52.7% from RMB 24,983 million in 1999 to RMB
38,158 million in 2000. This increase primarily reflected the full year impact
of inclusion of operation expenses of Fujian Mobile, Henan Mobile and Hainan
Mobile in 2000, as compared to less than two months in 1999, the inclusion of
operation expenses of the seven additional mobile communications companies we
acquired in November 2000 following the acquisition, our overall expanded
network coverage and service scope and our larger subscriber base.

     Total leased line payments increased 47.8% from RMB 3,723 million in 1999
to RMB 5,501 million in 2000, due to the inclusion of leased line payments for
intra-provincial transmission lines by Fujian Mobile, Henan Mobile and Hainan
Mobile for the full year of 2000, the inclusion of leased line payments for
inter-provincial transmission lines pursuant to our agreement with China Mobile
Communications Corporation by six of our operating subsidiaries in 2000 and by
the other seven regional mobile communications companies we acquired in November
2000 following the acquisition, and our network expansion into new coverage
areas, partially offset by reduction of leased line tariffs in 2000. However, as
a percentage of operating expenses, total leased line payments decreased from
14.9% in 1999 to 14.4% in 2000, reflecting our increased efficiency in network
management and transmission lines utilization.

     Interconnection expenses increased 29.1% from RMB 6,453 million in 1999 to
RMB 8,329 million in 2000, due primarily to increased traffic volume transmitted
through our mobile networks, reflecting the inclusion of the interconnection
expenses of Fujian Mobile, Henan Mobile and Hainan Mobile for the full year of
2000 as compared to less than two months in 1999, and increased inter-network
traffic, especially the increased volume of roaming-out calls by our
subscribers. This increase was partially offset by the reduction in
interconnection expenses as a result of our new inter-provincial leased line
arrangement and inter-provincial interconnection arrangement with China Mobile
Communications Corporation entered into in May 2000. As a result,
interconnection expenses as a percentage of operating expenses decreased from
25.8% in 1999 to 21.8% in 2000.

     Depreciation expense increased 31.7% from RMB 7,411 million in 1999 to RMB
9,759 million in 2000, due to the increase in fixed assets following our
acquisition of the three regional mobile communications companies in November
1999 and an additional seven regional mobile communications companies in
                                        37
<PAGE>   40

November 2000 following the acquisition, and increased capital expenditures that
we made to improve and expand our networks, partially offset by the reduction in
the carrying costs of our fixed assets due to the write-downs and write-offs of
our analog network equipment in 1999. As a percentage of operating expenses,
depreciation expense decreased from 29.7% in 1999 to 25.6% in 2000.

     Personnel expenses increased 76.9% from RMB 2,256 million in 1999 to RMB
3,991 million in 2000, due primarily to the inclusion of the personnel expenses
of Fujian Mobile, Henan Mobile and Hainan Mobile for the full year of 2000 as
compared to less than two months in 1999, personnel expenses of the seven
regional mobile communications companies we acquired in November 2000 as well as
an increase in performance-based incentive compensation as a result of our
further improved operating results. We believe that the implementation of this
compensation system has helped us to retain and attract talented staff and
enhance employee productivity. As a percentage of operating expenses, personnel
expenses increased from 9.0% in 1999 to 10.5% in 2000.

     Other operating expenses increased 105.8% from RMB 5,140 million in 1999 to
RMB 10,578 million in 2000. This increase was due mainly to a 149.1% increase in
selling and promotion expenses from RMB 1,582 million in 1999 to RMB 3,940
million in 2000. This increase reflects primarily the increased sales commission
paid to third party agents for developing new subscribers, and the increased
advertising and marketing activities to promote our existing services as well as
new services such as VoIP and prepaid card services. As a percentage of
operating expenses, other operating expenses increased from 20.6% in 1999 to
27.7% in 2000.

     Operating Profit.  Operating profit increased 96.7% from RMB 13,640 million
in 1999 to RMB 26,826 million in 2000 and operating margin (operating profit as
a percentage of operating revenue) increased from 35.3% to 41.3% during the same
periods.

     Write-down and Write-off of Analog Network Equipment.  The total amount of
write-down and write-off of our analog network equipment was RMB 8,242 million
in 1999 and RMB 1,525 million in 2000, representing the entire net book value of
our analog network equipment as of December 31, 2000. The write-downs and
write-offs reflect our decision to terminate our analog services by the end of
2001 and migrate our analog subscribers to our GSM services. See "--
Analog-to-Digital Migration" and "Item 4. Information on the Company -- Business
Overview -- Migration from Analog to Digital Network."

     Adjusted EBITDA.  Adjusted EBITDA represents earnings before interest
income, interest expense, income taxes, depreciation and amortization,
non-operating net (expenses)/income, and write-down and write-off of fixed
assets. Adjusted EBITDA increased 73.6% from RMB 21,603 million in 1999 to RMB
37,500 million in 2000. This increase was primarily due to the inclusion of the
results of Fujian Mobile, Henan Mobile and Hainan Mobile for the full year of
2000 as compared to less than two months in 1999 and those of the seven regions
mobile communications companies we acquired in November 2000 following the
acquisition, the increase in operating revenue due to subscriber growth and
service expansion, and our various cost control efforts. Adjusted EBITDA margin
(adjusted EBITDA as a percentage of operating revenue) increased from 55.9% to
57.7%, reflecting further improvements in our operating efficiency. While EBITDA
is commonly used in the telecommunications industry worldwide as an indicator of
operating performance, leverage and liquidity, it is not presented as a measure
of performance in accordance with generally accepted accounting principles and
should not be considered as representing net cash flows from operating
activities.

     Other Net Income.  Other net income, which includes primarily gross profit
from sales of SIM cards, handsets and accessories, increased 65.8% from RMB 552
million in 1999 to RMB 915 million in 2000. This increase reflected the
inclusion of additional SIM card sale profit of Fujian Mobile, Henan Mobile and
Hainan Mobile for the full year of 2000 as well as the increased sales of SIM
cards due to our subscriber growth.

     Finance Costs.  Finance costs increased 140.2% from RMB 343 million in 1999
to RMB 824 million in 2000. The increase was primarily due to interest on the
US$600 million fixed rate notes issued in 1999.

     Interest Income.  Interest income increased 31.2% from RMB 767 million in
1999 to RMB 1,006 million in 2000. The increase was due primarily to increased
cash on hand from our expanded operations.

                                        38
<PAGE>   41

     Non-operating Net (Expenses)/Income.  Non-operating expenses totaled RMB 5
million in 2000, as compared to a non-operating income of RMB 70 million in
1999, due to loss on disposal of certain fixed assets in 2000.

     Profit before Tax and Minority Interests.  Profit before tax and minority
interests increased 309.6% from RMB 6,444 million in 1999 to RMB 26,393 million
in 2000.

     Taxation.  Our income tax expense increased 408.0% from RMB 1,647 million
in 1999 to RMB 8,366 million in 2000, primarily due to increase in our profit.
Our effective tax rate increased from 25.6% in 1999 to 31.7% in 2000, which was
due primarily to the fact that connection fee revenue and certain surcharge
revenues in Fujian Mobile, Henan Mobile and Hainan Mobile were subject to
taxation for the full year in 2000. The connection fee revenue and certain
surcharge revenues in the seven regions' mobile communications companies we
acquired in 2000 were not subject to taxation prior to their completion of the
registration as wholly foreign-owned enterprise. However, the continuous
decrease in connection fee revenue reduced the impact on the effective tax rate.

     Net profit.  Net profit increased 275.8% from RMB 4,797 million in 1999 to
RMB 18,027 million in 2000. Net profit margin (net profit as a percentage of
operating revenue) increased from 12.4% to 27.7%.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Operating Revenue.  Operating revenue increased 46.6% from RMB 26,345
million in 1998 to RMB 38,623 million in 1999. This increase was due primarily
to the increase in usage fees as a result of subscriber growth in Guangdong and
Zhejiang, the full year impact of the addition of subscribers of Jiangsu Mobile
as a result of its acquisition by us and subscriber growth of Jiangsu Mobile in
1999, as well as the addition of subscribers of Fujian Mobile, Henan Mobile and
Hainan Mobile following their acquisitions by us. Our total number of
subscribers was 15.6 million at December 31, 1999, compared to 6.5 million at
December 31, 1998. Excluding connection fees, operating revenue increased from
RMB 23,022 million to RMB 34,304 million.

     Revenue from usage fees increased 57.9% from RMB 16,346 million in 1998 to
RMB 25,812 million in 1999. This increase was primarily a result of the increase
in total subscriber numbers and the expanded communications opportunities for
subscribers as a result of the expansion and improvement of fixed line and
mobile communications networks throughout Mainland China and the expansion of
the scope and variety of our services. We believe that the introduction of
prepaid calling cards will generate additional usage fees which will increase
the contribution of usage fees to operating revenue. As a percentage of
operating revenue, usage fees increased from 62.0% in 1998 to 66.8% in 1999.

     Revenue from monthly fees increased 14.6% from RMB 4,347 million in 1998 to
RMB 4,981 million in 1999 due to the increase in total subscriber numbers. The
increase, however, was less than the increase in number of subscribers in 1999,
primarily due to the downward adjustment in monthly fee rates charged by
Guangdong Mobile, from RMB 100 in 1998 to RMB 50 in 1999 and Zhejiang Mobile,
from RMB 62.5 to RMB 50 beginning April 1999. We believe that maintaining
monthly fees at their current levels will help retain existing subscribers and
attract new subscribers, thereby ensuring a steady contribution to operating
revenue. As a percentage of operating revenue, monthly fees decreased from 16.5%
in 1998 to 12.9% in 1999.

     Revenue from connection fees increased 30.0% from RMB 3,323 million in 1998
to RMB 4,319 million in 1999 due to the increase in total subscribers, partially
offset by decreases in average connection fees charged to new subscribers. We
believe that the reduction and possible eventual elimination of connection fees
for new subscribers may help to expand our subscriber base and result in
increased total subscriber usage of our mobile communications services, and may
reduce our reliance on connection fees to drive revenue growth. As a percentage
of operating revenue, connection fees decreased from 12.6% in 1998 to 11.2% in
1999.

     Other operating revenue increased 50.8% from RMB 2,329 million in 1998 to
RMB 3,511 million in 1999. This increase resulted principally from an increase
in interconnection services furnished to other telecommunication operators.
Other operating revenue includes revenue from value added services which,

                                        39
<PAGE>   42

although currently insignificant, we believe will increase and will become a
significant source of revenue in the future.

     Operating Expenses.  Operating expenses include principally leased line
expenses, interconnection expenses, depreciation expense relating to our mobile
communications network and other fixed assets, personnel expenses and other
operating expenses, which primarily consist of selling and promotion expenses,
network maintenance costs, provision for doubtful accounts and operating lease
charges.

     Operating expenses increased 35.7% from RMB 18,410 million in 1998 to RMB
24,983 million in 1999, due primarily to increases in interconnection expenses,
depreciation expense, personnel expenses and other operating expenses. Of the
total increase in operating expenses, 25.9%, 42.8%, 10.1% and 24.2% was
accounted for by increases in interconnection expenses, depreciation expense,
personnel expenses and other operating expenses, respectively.

     Total leased line payments decreased 5.0% from RMB 3,917 million in 1998 to
RMB 3,723 million in 1999, due to decreases in leased line tariffs. As a
percentage of operating expenses, total leased line payments decreased from
21.3% in 1998 to 14.9% in 1999, reflecting decreases in leased line tariffs as
well as greater efficiency in our utilization of leased lines.

     Interconnection expenses increased 35.8% from RMB 4,752 million in 1998 to
RMB 6,453 million in 1999, due primarily to the increase of interconnection
traffic and the inclusion of interconnection charges incurred by Fujian Mobile,
Henan Mobile and Hainan Mobile which were not required to be settled in full
when incurred in prior years. As a percentage of operating expenses,
interconnection expenses remained flat at 25.8% in 1999.

     Depreciation expense increased 61.2% from RMB 4,598 million in 1998 to RMB
7,411 million in 1999, due to the increase in fixed assets following our
acquisition of Fujian Mobile, Henan Mobile and Hainan Mobile as well as
increased capital expenditures that we made to improve and expand our networks.
As a percentage of operating expenses, depreciation expense increased from 25.0%
in 1998 to 29.7% in 1999.

     Personnel expenses increased 41.4% from RMB 1,595 million in 1998 to RMB
2,256 million in 1999, due primarily to the implementation of a
performance-based compensation program to attract and retain talented employees.
As a percentage of operating expenses, personnel expenses increased slightly
from 8.7% in 1998 to 9.0% in 1999.

     Other operating expenses increased 44.9% from RMB 3,548 million in 1998 to
RMB 5,140 million in 1999. This increase was due mainly to the introduction of
additional promotional activities to attract new subscribers. Since 1998, we
have implemented a number of measures in Guangdong, Zhejiang and Jiangsu
provinces to control bad debt risks and fraud, such as enhanced subscriber
registration procedures, the imposition of credit limits for high usage
subscribers and tightened controls to improve timely payment by subscribers. As
a result, provisions for doubtful accounts for Guangdong Mobile, Zhejiang Mobile
and Jiangsu Mobile as a percentage of operating revenue decreased from 2.12% in
1998 to 1.92% in 1999. In addition, as a percentage of recurring revenue (i.e.,
total operating revenue less connection fees), provisions for doubtful accounts
decreased from 2.42% to 2.17%. We have applied these credit control measures in
Fujian, Henan and Hainan as well, and are currently making improvements to their
recovery systems and hardware used to implement such controls. As a percentage
of operating expenses, other operating expenses increased from 19.3% in 1998 to
20.6% in 1999.

     Operating Profit.  Operating profit increased 71.9% from RMB 7,935 million
in 1998 to RMB 13,640 million in 1999 and operating margin (operating profit as
a percentage of operating revenue) increased from 30.1% to 35.3%. The increase
in operating margin reflects fast subscriber growth and total usage increase as
well as a more efficient network and cost structure.

     Write-down and Write-off of Analog Network Equipment.  The write-down and
write-off of our analog network equipment was RMB 282 million in 1998 and RMB
8,242 million in 1999, due to the acceleration of the development of our
technology. See "-- Analog-to-Digital Migration" and "Item 4. Information on the
Company -- Business Overview -- Migration from Analog to Digital Network."

                                        40
<PAGE>   43

     Adjusted EBITDA.  Adjusted EBITDA represents earnings before interest
income, interest expense, non-operating income (expenses), income taxes,
depreciation and amortization, and write-down and write-off of fixed assets.
Adjusted EBITDA increased 67.9% from RMB 12,869 million in 1998 to RMB 21,603
million in 1999. This increase was primarily due to the decline in leased line
expenses as well as the success of our other cost control efforts. Adjusted
EBITDA margin (adjusted EBITDA as a percentage of operating revenue) increased
from 48.9% to 55.9%. While EBITDA is commonly used in the telecommunications
industry worldwide as an indicator of operating performance, leverage and
liquidity, it is not presented as a measure of performance in accordance with
generally accepted accounting principles and should not be considered as
representing net cash flows from operating activities.

     Other Net Income.  Other net income, which includes primarily gross profit
from sales of SIM cards, handsets and accessories, increased 64.3% from RMB 336
million in 1998 to RMB 552 million in 1999. This increase reflected primarily
increased sales of SIM cards and handsets resulting from the increase in
subscribers to our GSM networks and a decrease in SIM card costs.

     Finance Costs.  Finance costs increased 114.4% from RMB 160 million in 1998
to RMB 343 million in 1999. The increase was primarily due to the increased
borrowings by Zhejiang Mobile and Jiangsu Mobile and interest on the US$600
million five-year fixed rate notes issued in 1999.

     Interest Income.  Interest income decreased 52.3% from RMB 1,609 million in
1998 to RMB 767 million in 1999. The decrease was due primarily to a reduction
in funds from our 1997 initial public offering earning interest because such
funds have been utilized for our acquisition of Jiangsu Mobile in 1998 and our
network construction.

     Non-operating Net (Expenses)/Income.  Non-operating net expenses totaled
RMB 70 million in 1999, as compared to an expense of RMB 51 million in 1998. The
increase was mainly due to a reduction in losses from the sale of fixed assets
in 1999 as compared to 1998.

     Profit before Tax and Minority Interests.  Profit before tax and minority
interests decreased 31.4% from RMB 9,387 million in 1998 to RMB 6,444 million in
1999.

     Taxation.  Our income tax expense decreased 33.7% from RMB 2,486 million in
1998 to RMB 1,647 million in 1999, primarily due to the decline in profits
following the write-down and write-off of our analog network equipment. In
addition, Hainan Mobile is accorded privileged tax treatment and its income is
assessed at a 15% preferential tax rate, instead of the 33% statutory rate,
because it is situated in the Hainan Special Economic Administrative Zone.

     Net profit.  Net profit decreased 30.5% from RMB 6,900 million in 1998 to
RMB 4,797 million in 1999, primarily as a result of the write-down and write-off
of the analog network equipment. Net profit margin (net profit as a percentage
of operating revenue) decreased from 26.2% to 12.4%. Net profit before the
write-down and write-off of the analog network equipment was RMB 10,320 million,
representing an increase of 49.6% from 1998.

LIQUIDITY AND CAPITAL RESOURCES

  Working Capital, Cash Flows and Financing

     As of December 31, 2000, we had a working capital surplus (current assets
minus current liabilities) of RMB 7,491 million compared to RMB 14,031 million
as of December 31, 1999. As of December 31, 1999 and December 31, 2000, accounts
receivable totaled RMB 4,957 million and RMB 7,252 million, respectively,
primarily reflecting increased sales of our services and the acquisition of the
seven regional mobile communications companies in November 2000. Short-term bank
and other loans and current portion of obligation under capital leases totaled
RMB 4,419 million and RMB 12,095 million as at December 31, 1999 and December
31, 2000, respectively.

                                        41
<PAGE>   44

     The following table summarizes certain cash flow information for the
periods indicated.

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1998       1999       2000
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Net cash inflows from operating activities..................   13,567     21,662     41,401
Net cash outflow from returns on investments and servicing
  of finance and taxation...................................     (123)    (1,989)    (5,821)
Net cash outflow from investing activities..................  (36,357)   (36,117)   (92,880)
                                                              -------    -------    -------
Net cash outflow before financing activities................  (22,913)   (16,444)   (57,300)
Net cash inflow from financing activities...................      325     18,337     65,653
                                                              -------    -------    -------
(Decrease)/increase in cash and cash equivalents............  (22,588)     1,893      8,353
                                                              -------    -------    -------
</TABLE>

     Net cash inflows from operating activities increased from 1998 to 2000,
generally reflecting the growth in operating revenue due to the increase in our
subscriber base through internal growth and acquisitions.

     Net cash outflow from returns on investments and servicing of finance and
taxation increased from 1998 to 1999 primarily due to a significant increase in
Chinese income tax paid and a substantial decrease in interest received as a
result of the application of the proceeds from our initial public offering
towards the acquisitions in 1998 and 1999 and construction of network. Net cash
outflow from returns on investments and servicing of finance and taxation
increased from 1999 to 2000, primarily due to a significant increase in Chinese
income tax paid and a substantial increase in interest paid on the US$600
million fixed rate notes issued in November 1999.

     Net cash outflow from investing activities remained at a high level for
1999, primarily due to the payment of the consideration for our acquisition of
Fujian Mobile, Henan Mobile and Hainan Mobile. Net cash outflow from investing
activities increased significantly from 1999 to 2000, primarily due to the
payment of the consideration for our acquisition of seven additional regional
mobile communications companies in 2000.

     Net cash inflow from financing activities reflects net borrowings or
repayments of debt, but excludes credit extended to us by equipment suppliers
for additions to construction in progress. Net cash inflow from financing
activities increased significantly from 1998 to 2000, primarily due to the net
proceeds received from the US$600 million fixed rate note offering and the
concurrent US$2.0 billion share offering in November 1999, the US$690 million
convertible note offering and the concurrent US$6.9 billion share offering in
November 2000, and the RMB 12.5 billion syndicated bank loans we entered into in
October 2000. See "-- Indebtedness" below for more information regarding the
offerings and the syndicated bank loans. These net proceeds were primarily used
to finance our acquisitions of a total of ten regional mobile communications
companies in Mainland China in 1999 and 2000.

  Indebtedness

     As of December 31, 1999 and 2000, our aggregate long-term bank and other
loans and obligation under capital leases (excluding current portions) totaled
RMB 2,332 million and RMB 13,708 million, respectively, and our short-term bank
and other loans (including the short-term portion of long-term loans) and
current portion of obligation under capital leases totaled RMB 4,419 million and
RMB 12,095 million, respectively. Our short-term loans and long-term loans
increased in 2000 due to the inclusion of the long- term loans of the seven
regional mobile communications companies upon their acquisition by us. Capital
lease obligations totaled RMB 2,859 million at December 31, 2000. Total
scheduled long-term loans and obligations under capital lease payable in 2001,
2002 and 2003 will be approximately RMB 5,542 million, RMB 6,359 million and RMB
5,871 million, respectively. We currently plan to repay loan amounts due using
cash in hand and cash from our operating activities.

     On November 2, 1999, we issued unsecured fixed rate notes with a principal
amount of US$600,000,000 due on November 2, 2004. The notes bear interest at the
rate of 7.875% per annum and such interest is payable semi-annually on May 2 and
November 2 of each year, commencing May 2, 2000.

                                        42
<PAGE>   45

     On November 3, 2000, we issued unsecured convertible notes with a principal
amount of US$690,000,000 due on November 3, 2005. The notes bear interest at the
rate of 2.25% per annum and such interest is payable semi-annually on May 3 and
November 3 of each year, commencing May 3, 2001.

     Pursuant to agreements entered into on October 7, 2000 between our
wholly-owned subsidiary, China Mobile (Shenzhen) Limited, and a syndicate of
international and domestic Chinese banks, we borrowed an aggregate of RMB 12.5
billion in bank loans, including (A) an RMB 5.0 billion loan for a six-month
term with a fixed interest rate of 5.022% per annum and (B) an RMB 7.5 billion
loan for a three-year term with an interest rate of 5.346% per annum for the
first year, to be adjusted annually on each anniversary of the first drawdown
date of the loan to equal the rate that is 10% below the three-year base lending
rate for financial institutions prevailing on such anniversary date as announced
by the People's Bank of China. The loans are guaranteed jointly and severally by
six of our operating subsidiaries. As of December 31, 2000, RMB 9.0 billion of
the loans had been drawn down and remained outstanding. We intend to repay part
of the loans with proceeds from the Renminbi bond offerings described above
under "-- Renminbi Bond Offering".

     For an analysis of interest rate risk, please see "Item 11. Quantitative
and Qualitative Disclosures about Market Risk."

  Capital Expenditures

     Capital expenditures during 1998, 1999 and 2000 were RMB 15,030 million,
RMB 12,226 million and RMB 20,729 million, respectively. Capital expenditures we
made were principally for the development, optimization and expansion of our GSM
networks and for the development and trial of new technology based services.

     We estimate that we will expend approximately RMB 45,241 million in 2001,
RMB 44,703 million in 2002 and RMB 44,910 million in 2003 mainly to:

      --  further expand our network capacity and coverage to improve the
          quality of our services;

      --  further optimize the structure, and enhance the management, of our
          networks;

      --  increase our efforts in improving our business operation support
          system and network support system;

      --  build our own transmission line where economically advantageous; and

      --  develop and provide wireless data services and other new services
          using existing and new technologies.

     Following our initial public offering, we have funded our capital
requirements primarily with cash generated from operations, the proceeds from
that offering and, to the extent necessary, short-term and long-term borrowings.
We believe that cash in hand and cash generated from future operations will be
sufficient to fund most of the capital expenditures and working capital
necessary for the planned network expansion and continued growth of our mobile
communications operations through the end of 2003. If necessary, we may seek to
obtain additional sources of financing to fund our network expansion and
possible future acquisitions.

  Foreign Exchange

     We maintain our accounts in Renminbi and substantially all of our revenue
and expenses are denominated in Renminbi. Our capital expenditures, a
substantial portion of which were denominated in U.S. dollars and incurred in
connection with our purchase of imported equipment, totaled the equivalent of
RMB 15,030 million, RMB 12,226 million and RMB 20,729 million for 1998, 1999 and
2000, respectively. In addition, we also incur interest expense on foreign
currency (mainly U.S. dollar) denominated borrowings. U.S. dollar-denominated
debt totaled the equivalent of RMB 6,119 million and RMB 13,254 million at
December 31, 1999 and 2000, respectively, constituting 45.4% and 35.4% of our
total debt as of those dates, respectively.

     All of our current operating subsidiaries are incorporated in Mainland
China. Under the current foreign exchange system in Mainland China, our
subsidiaries may not be able to hedge effectively against currency risk,
including any possible future Renminbi devaluation.
                                        43
<PAGE>   46

     Each of our operating subsidiaries is able to purchase foreign exchange for
settlement of current account transactions, as defined in applicable
regulations, in order to satisfy its foreign exchange requirements.

U.S. GAAP RECONCILIATION

     Our consolidated financial statements are prepared in accordance with Hong
Kong GAAP, which differ in certain significant respects from U.S. GAAP. Under
Hong Kong GAAP, we adopted the acquisition method to account for our
acquisitions of the eleven mobile communications companies in 1998, 1999 and
2000. Under the acquisition method, the acquired results of these companies were
included in the results of operations from the respective dates of acquisition.
Goodwill arising on the acquisition date, being the excess of the cost over the
fair value of our share of the separable net assets acquired, was eliminated
against reserves immediately on acquisition.

     For U.S. GAAP, because we and these companies are deemed as being under
common control prior to the acquisitions, the acquisitions were considered a
"combination of entities under common control." Under U.S. GAAP, combinations of
entities under common control are accounted for under the "as if pooling-of-
interests" method, whereby assets and liabilities are accounted for at
historical cost and the financial statements of previously separate companies
for periods prior to the combination generally are restated on a combined basis.
The cash consideration we paid has been treated as an equity transaction in the
respective years of acquisition for U.S. GAAP purposes.

     In addition, there are other differences between Hong Kong GAAP and U.S.
GAAP for the periods presented, which relate primarily to:

      --  the computation of capitalized interest;

      --  the revaluation of fixed assets of the acquired companies under Hong
          Kong GAAP;

      --  the recognition of deferred income taxes;

      --  the non-recognition under Hong Kong GAAP of certain employee housing
          scheme costs that we bore;

      --  the treatment of share options we grant to directors and employees;

      --  the recognition as revenue of connection fees and telephone number
          selection fees; and

      --  the net savings arising from interconnection, roaming and leased line
          agreements.

     Historically, connection fee revenue was recognized as received for both
Hong Kong GAAP and U.S. GAAP for all periods presented to June 30, 1999.
Beginning July 1, 1999, we adopted a new accounting policy under U.S. GAAP to
defer connection fees received in excess of direct costs and recognize such
deferred amount over the estimated customer usage period for the related
service. Effective January 1, 2000, under U.S. GAAP, we have adopted the
provisions of Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements". Under this Staff Accounting Bulletin, connection fees and
telephone number selection fees received and incremental direct costs up to but
not exceeding such fees are deferred and amortized over the estimated customer
usage period for the related service. These changes in accounting policy for
U.S. GAAP have significantly impacted the timing of connection fee revenue
recognized.

     Disclosure relating to these differences can be found in Note 29 of the
consolidated financial statements. In addition, the condensed consolidated
balance sheets as of December 31, 1999 and 2000 and the condensed consolidated
statements of income, total shareholders' equity and cash flows for the years
ended December 31, 1998, 1999 and 2000 prepared and presented under U.S. GAAP
have been included in Notes 29 and 30 of the consolidated financial statements
to reflect the impact of the significant differences between Hong Kong GAAP and
U.S. GAAP.

                                        44
<PAGE>   47

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

DIRECTORS AND SENIOR MANAGEMENT

     The following table sets forth certain information concerning our directors
and senior management as of May 31, 2001.

<TABLE>
<CAPTION>
NAME                                         AGE   POSITION
----                                         ---   --------
<S>                                          <C>   <C>
Wang Xiaochu...............................  43    Chairman; Chief Executive Officer
Li Zhenqun.................................  55    Vice Chairman; Chief Operating Officer
Ding Donghua...............................  64    Director; Chief Financial Officer
Li Gang....................................  44    Director
Xu Long....................................  44    Director
He Ning....................................  39    Director
Liu Ping...................................  55    Director
Yuan Jianguo...............................  50    Director
Wei Yiping.................................  49    Director
Arthur Li Kwok Cheung......................  55    Independent Non-Executive Director
Chris Gent.................................  52    Independent Non-Executive Director
Lo Ka Shui.................................  54    Independent Non-Executive Director
</TABLE>

     Mr. Wang Xiaochu, our Chairman and Chief Executive Officer since 1999. Mr.
Wang is in charge of our overall management. He is also Vice President of China
Mobile Communications Corporation and the Chairman of China Mobile (Hong Kong)
Group Limited and China Mobile Hong Kong (BVI) Limited. Prior to joining us, Mr.
Wang served as the Director General of the Tianjin Posts and Telecommunications
Administration. He also served as Director and Deputy Director of the Hangzhou
Telecommunications Bureau in Zhejiang province. He was responsible for the
development of China Telecom system's telephone network management systems and
various other information technology projects. Mr. Wang graduated from the
Beijing University of Posts and Telecommunications in 1980 and has over 20 years
of management experience in the telecommunications industry.

     Mr. Li Zhenqun, our Vice Chairman and Chief Operating Officer since 2000.
Mr. Li is in charge of our business operations and investor relations. He is
also the Vice Chairman of China Mobile (Hong Kong) Group Limited and China
Mobile Hong Kong (BVI) Limited. He joined us on 11 August, 2000. Since 1998 and
prior to joining us, Mr. Li was the Director of the Xiamen Telecommunications
Bureau in Fujian province. He also served as the Director of the Xiamen Posts
and Telecommunications Bureau in Fujian Province from 1984 to 1998. He graduated
from Peking University in 1970. Mr. Li has 29 years of management experience in
the telecommunications industry.

     Mr. Ding Donghua, our Director and Chief Financial Officer since 1997. Mr.
Ding is in charge of our financial management. Mr. Ding is also a director of
China Mobile Hong Kong (BVI) Limited. Prior to joining us, Mr. Ding was
previously the Chief Economist, Chief Accountant, Deputy Chief Economist and
Department Director of the Guangdong Posts and Telecommunications
Administration. He graduated from the Beijing University of Posts and
Telecommunications in 1961 and has 39 years of management experience in the
telecommunications industry, as well as in economics and finance.

     Mr. Li Gang, our Director since 1999. Mr. Li is responsible for the mobile
telecommunications operations in Guangdong Province. He is also the Chairman and
President of Guangdong Mobile. He was formerly the Vice Chairman and President
of Guangdong Mobile. He previously served as Director of the Network Maintenance
Division and a Deputy Director of the Telecommunications Division of the
Guangdong Posts and Telecommunications Administration. He graduated from the
Beijing University of Posts and Telecommunications in 1985, and has 27 years of
experience in the telecommunications industry.

     Mr. Xu Long, our Director since 1999. Mr. Xu is responsible for the mobile
telecommunications operations in Zhejiang Province. He is also the Chairman and
President of Zhejiang Mobile. He previously served as the Deputy Director
General and the Director of the General Office of Zhejiang Posts and
Telecommunications Administration, the President of Zhejiang Nantian Posts and
Telecommunications

                                        45
<PAGE>   48

Group Company and Deputy Director of Shaoxing Posts and Telecommunications
Bureau in Zhejiang Province. He graduated from the Zhejiang Radio and Television
University in 1985, and has 23 years of experience in the telecommunications
industry.

     Mr. He Ning, our Director since 1998. Mr. He is responsible for the mobile
telecommunications operations in Jiangsu Province. He is also the Chairman and
President of Jiangsu Mobile. Mr. He previously served as the Deputy Director
General of the Jiangsu Posts and Telecommunications Administration, the Director
and Deputy Director of the Jiangsu Mobile Communications Bureau, and Deputy
Director of the Zhenjiang Posts and Telecommunications Bureau in Jiangsu
Province. He graduated from the Nanjing Institute of Posts and
Telecommunications in 1983, and has 17 years of experience in the
telecommunications industry.

     Mr. Liu Ping, our Director since 1999. Mr. Liu is responsible for the
mobile telecommunications operations in Fujian Province. He is also the Chairman
and President of Fujian Mobile. Mr. Liu previously served as the Deputy Director
General of the Fujian Posts and Telecommunications Administration and Director
of the Fuzhou Posts and Telecommunications Bureau. He graduated from the Nanjing
Institute of Posts and Telecommunications in 1985, and has 23 years of
experience in the telecommunications industry.

     Mr. Yuan Jianguo, our Director since 1999. Mr. Yuan is responsible for the
mobile telecommunications operations in Henan Province. He is also the Chairman
and President of Henan Mobile. Mr. Yuan previously served as the Deputy Director
General of the Henan Posts and Telecommunications Administration, and as
Director and Deputy Director of the Henan Mobile Communications Bureau. He holds
a Masters Degree in Economics Law from the Chinese Academy of Social Sciences,
and has 30 years of experience in the telecommunications industry.

     Mr. Wei Yiping, our Director since 1999. Mr. Wei is responsible for the
mobile telecommunications operations in Hainan Province. He is also the Chairman
and President of Hainan Mobile. Mr. Wei previously served as the Deputy Director
General of the Hainan Posts and Telecommunications Administration, and as
Director of the Sanya Posts and Telecommunications Bureau. He graduated from
Xi'an Foreign Languages Institute and received a Masters Degree in Political
Economics from the Beijing Normal University, and has 30 years of experience in
the telecommunications industry.

     Professor Arthur Li Kwok Cheung, our Director since 1997. Professor Li is
the Vice Chancellor of the Chinese University of Hong Kong, a Director of the
Bank of East Asia Limited, a Non-Executive Director and Chairman of the Board of
Regal Hotel Group Plc. and a Non-Executive Director of Henderson Cyber Limited.
He holds a doctorate degree in medicine from Cambridge University and an
honorary doctorate degree in science. He previously served as Board Member of
the Hong Kong Hospital Authority and President of the College of Surgeons of
Hong Kong. Professor Li was an Advisor on Hong Kong Affairs to the People's
Republic of China, a Member of the Basic Law Consultative Committee, a Member of
the Preparatory Committee of the Hong Kong Special Administrative Region of the
National People's Congress, a Member of the Selection Committee of the First
Government of the Hong Kong Special Administrative Region. Professor Li is a
Committee Member of the Ninth Annual Chinese People's Political Consultative
Conference.

     Mr. Chris Gent, our Director since February 2001. Mr. Gent is the Chief
Executive of Vodafone Group Plc., the world's largest mobile telecommunications
company in terms of subscriber number as of December 31, 2000. Mr. Gent joined
the Vodafone Group as Managing Director of Vodafone Limited in 1985 when
Vodafone launched its first mobile phone service in the UK, and held the
position until December 1996, when he became Group Chief Executive. He is also
the Chairman of the supervisory board of Mannesmann AG. Mr. Gent has many years
of management experience in the telecommunications industry worldwide.

     Dr. Lo Ka Shui, our Director since April 2001. Dr. Lo is the Deputy
Chairman and Managing Director of Great Eagle Holdings Limited, as well as an
independent non-executive director of The Hongkong and Shanghai Banking
Corporation Limited and Shanghai Industrial Holdings Limited. Dr. Lo is also a
director of Hong Kong Exchanges and Clearing Limited, the chairman of the
Listing Committee of the Growth Enterprise Market, a Vice President of the Real
Estate Developers Association of Hong Kong, a member of

                                        46
<PAGE>   49

the Council of Advisors on Innovation and Technology and the chairman of the
Hospital Authority. Dr. Lo has many years of commercial management experience.

COMPENSATION

     The aggregate amount of compensation that we paid to our directors and
executive officers during 2000 for services performed as directors, officers or
employees was approximately RMB 12 million (US$1,449,608).

     We have adopted a share option scheme pursuant to which our directors may,
at their discretion, invite our employees, including executive directors, or
employees of our subsidiaries, to take up options to subscribe for ordinary
shares up to a maximum aggregate number of ordinary shares equal to 10% of our
total issued share capital. The consideration payable by a participant for the
grant of an option under the share option scheme will be HK$1.00. The price for
a share payable by a participant upon the exercise of an option will be
determined by our directors in their discretion, except that such price may not
be set below a minimum price which is the higher of (i) the nominal value of a
share and (ii) 80% of the average of the closing prices of ordinary shares on
the Hong Kong Stock Exchange on the five trading days immediately preceding the
date of grant of the option. The period during which an option may be exercised
will be determined by the directors in their discretion, except that no option
may be exercised later than 10 years after the adoption date of the scheme.
During 2000, options for a total of 31,590,000 ordinary shares were granted
under the share option scheme to certain of our directors and employees. See
"-- Share Ownership" below for details on options granted to our directors.

BOARD PRACTICES

     There are three principal committees of the Board: an audit committee, a
remuneration committee and a nomination committee.

  Audit Committee

     The members of our audit committee are Professor Arthur Li Kwok Cheung, as
chairman of the committee, and Dr. Lo Ka Shui. The audit committee's major
responsibilities include:

      --  to consider the appointment of external auditor and matters related to
          the appointment or dismissal;

      --  to determine the scope of work and terms of engagement of external
          auditors;

      --  to review semi-annual and annual financial statements before
          presenting them to the board;

      --  to discuss issues raised by our auditor in relation to semi-annual and
          annual financials;

      --  to review management letters issued by auditors as well as our
          response to them;

      --  to review our policy on internal controls prior to presenting them to
          the board for signatures; and

      --  to undertake such other matters as may be determined by the board.

  Remuneration Committee

     The members of our remuneration committee are Professor Arthur Li Kwok
Cheung, as chairman of the committee, and Dr. Lo Ka Shui. The remuneration
committee's major responsibilities include:

      --  to provide recommendation to the board in relation to our compensation
          system and cost;

      --  to determine the compensation for executive directors on behalf of our
          board;

      --  to determine the terms of termination with respect to the termination
          of the terms of appointment of any executive director;

      --  to make recommendation to the board regarding statements on director
          compensation, if any, in our annual reports; and
                                        47
<PAGE>   50

      --  to make recommendations to the board on whether to invite shareholders
          in our annual meeting to examine and approve our report on director
          compensation, if any.

  Nomination Committee

     The members of our Nomination Committee are Mr. Wang Xiaochu, as chairman
of the committee, Professor Arthur Li Kwok Cheung, and Dr. Lo Ka Shui. The
nomination committee is responsible, upon requests of the board or the chairman,
for considering the appointment and re-appointment of our directors and for
providing to the board and the chairman its advice and suggestions.

EMPLOYEES

     See "Item 4. Information on the Company -- Business Overview -- Employees."

SHARE OWNERSHIP

     As of May 31, 2001, the following directors and those members of our senior
management named in the section entitled "Directors and Senior Management" had
interests in our share capital:

<TABLE>
<CAPTION>
                                                        NUMBER OF   PERCENTAGE
                       DIRECTOR                           ADSS       OF CLASS
                       --------                         ---------   ----------
<S>                                                     <C>         <C>
Wang Xiaochu..........................................     500            *
Li Zhenqun............................................     100            *
Ding Donghua..........................................     500            *
</TABLE>

---------------

* Less than 1%.

     Under our Memorandum and Articles of Association, our directors and senior
management do not have different voting rights when compared to other holders of
shares in the same class.

     As of May 31, 2001, options exercisable for an aggregate of 14,494,000
shares had been granted to the following directors and those members of our
senior management named in the section "Directors and Senior Management" under
our share option scheme and were outstanding:

     The following options are exercisable at a price of HK$11.10 per share
through March 8, 2006.

<TABLE>
<CAPTION>
DIRECTOR                                      NUMBER OF SHARES COVERED BY OPTIONS
--------                                      -----------------------------------
<S>                                           <C>
Ding Donghua................................               2,100,000
</TABLE>

     The following options are exercisable at a price of HK$33.91 per share
through October 7, 2007.

<TABLE>
<CAPTION>
DIRECTOR                                      NUMBER OF SHARES COVERED BY OPTIONS
--------                                      -----------------------------------
<S>                                           <C>
Wang Xiaochu................................               3,900,000
Ding Donghua................................               1,100,000
Li Gang.....................................               1,000,000
He Ning.....................................               1,000,000
</TABLE>

                                        48
<PAGE>   51

     The following options are exercisable at a price of HK$45.04 per share
through October 7, 2007.

<TABLE>
<CAPTION>
                  DIRECTOR                    NUMBER OF SHARES COVERED BY OPTIONS
                  --------                    -----------------------------------
<S>                                           <C>
Wang Xiaochu................................                 200,000
Ding Donghua................................                 200,000
Li Gang.....................................                 180,000
Xu Long.....................................               1,170,000
He Ning.....................................                 166,000
Liu Ping....................................               1,162,000
Yuan Jianguo................................               1,160,000
Wei Yiping..................................               1,156,000
</TABLE>

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

MAJOR SHAREHOLDERS

     As of May 31, 2001, approximately 75.6% of our outstanding shares were held
by China Mobile Hong Kong (BVI) Limited, a wholly-owned subsidiary of China
Mobile (Hong Kong) Group Limited. China Mobile Communications Corporation, a
state-owned company, holds all of the voting shares and economic interest in
China Mobile (Hong Kong) Group Limited. No other persons own five percent (5%)
or more of our ordinary shares. Between our initial public offering and May 31,
2001, our majority shareholders held, directly or indirectly, between
approximately 75% and 76.5% of equity interest in us, except for brief periods
following our equity offerings in 1999 and 2000 but before the issuance of
consideration shares to our direct shareholder, China Mobile Hong Kong (BVI)
Limited, for the related acquisitions, during which periods the shareholding was
temporarily lower. See "Item 4. Information on the Company -- Industry
Restructuring and Related Change in Our Shareholding Structure" for changes
during the past three years with respect to our majority shareholders. Under our
Memorandum and Articles of Association, our major shareholders do not have
different voting rights when compared to other holders of shares in the same
class.

     We are not aware of any arrangement which may at a subsequent date result
in a change of control over us.

RELATED PARTY TRANSACTIONS

     As of May 31, 2001, China Mobile Communications Corporation indirectly owns
an aggregate of approximately 75.6% of our issued and outstanding share capital.

     We and each of our subsidiaries have entered into various agreements with
China Mobile Communications Corporation and other entities under the control of
China Mobile Communications Corporation. The principal terms of the agreements
are described below.

     Certain charges for the services under these agreements are based on
tariffs set by the Chinese regulatory authorities. Those transactions where the
charges are not set by Chinese regulatory authorities are based on commercial
negotiation between the parties, in each case on an arm's length basis. In this
regard, we have the benefit of the undertaking from China Mobile Communications
Corporation that to the extent within its control, we will be treated equally
with any other mobile communications entities in respect of all approvals,
transactions and arrangements between us on the one hand and China Mobile
Communications Corporation and other mobile communications operators controlled
by China Mobile Communications Corporation on the other hand, as described below
under "Undertaking from China Mobile Communications Corporation."

  Roaming Arrangements

     We offer domestic and international roaming services to our subscribers. In
September 1997, in connection with our initial public offering, we entered into
domestic roaming arrangements with the mobile communications networks previously
controlled by the former Ministry of Posts and Telecommunications.

                                        49
<PAGE>   52

Those arrangements were replaced by our interconnection and roaming agreement
with China Mobile Communications Corporation entered in May 2000, which sets
forth the current terms of our domestic roaming arrangements. Under this
agreement, with regard to inter-provincial roaming, 80% of the base roaming
calling charges payable by a roaming subscriber is credited to the visited
network and the remaining 20% is retained by the roaming subscriber's home
network. This agreement is valid for two years from April 1, 1999, and will be
automatically renewed on an annual basis unless either party notifies the other
of its intention to terminate at least three months prior to the expiration of
the term.

     With regard to international roaming, roaming calling charges incurred by
an international mobile phone subscriber making or receiving a call while
roaming in our service regions in Mainland China are collected for us and
credited to us by China Mobile Communications Corporation, and we will make the
necessary settlement with the relevant telecommunications operators in Mainland
China. China Mobile Communications Corporation also collects a 15% handling
charge on the roaming calling charges from the international mobile
communications operators and shares such handling charge equally with us with
respect to roaming in calls to our service regions. When our subscribers roam
internationally, we will collect the roaming calling charges together with a 15%
handling charge from our subscribers and will pay the roaming calling charges
together with half of the handling charge collected to China Mobile
Communications Corporation, which will make the necessary settlement with the
international mobile communications operators concerned.

     In addition, China Mobile Communications Corporation provides
inter-provincial and international roaming clearing and settlement services. We
pay to China Mobile Communications Corporation a roaming call record processing
fee of RMB 0.02 for each inter-provincial roaming call record processed and RMB
0.30 for each international roaming call record processed.

  Licensing of Trademark

     China Mobile Communications Corporation is the owner of the "CHINA MOBILE"
name and logo, a registered trademark in Mainland China. In addition, it has
filed applications in Hong Kong to register the "CHINA MOBILE" name and logo as
a trademark for certain goods and services. In October 1999, we entered into a
licensing agreement with China Mobile Communications Corporation for the use of
the "CHINA MOBILE" name and logo by us and our operating subsidiaries. Under
this agreement, no license fee is payable by us for the first three years from
the effective date of the trademark registration in China and any fees payable
after that will be no less favorable than fees paid by other affiliates of China
Mobile Communications Corporation. China Mobile Communications Corporation may
terminate the license agreement if it no longer has any interests in us.

  Spectrum Fees

     The Ministry of Information Industry and the Ministry of Finance jointly
determine the standardized spectrum fees payable to the Ministry of Information
Industry by all mobile communications operators in Mainland China, including us.
Based on this standardized fee scale, China Mobile Communications Corporation
determines the allocation of spectrum usage fees to be paid by each mobile
communications operator under its control and the aggregate sum payable to the
Ministry of Information Industry. In October 1999, we entered into an agreement
with China Mobile Communications Corporation, under which we have been granted
the exclusive right to use the frequency spectrum and telephone numbers
allocated to us in our service regions. For the usage of the 800/900 MHz and the
1800 MHz frequency bands, the charges will be shared between our operating
subsidiaries and China Mobile Communications Corporation's operating
subsidiaries. 60% of the charges will be shared on the basis of the number of
base stations at the end of the previous year and 40% of such charges will be
shared on the basis of the bandwidth of the spectrum used. The agreement is
valid for one year and will be automatically renewed on an annual basis unless
either party notifies the other of its intention to terminate at least three
months prior to the expiration of the term.

                                        50
<PAGE>   53

  Sharing of Inter-Provincial Transmission Line Leasing Fees

     In May 2000, we entered into an agreement with China Mobile Communications
Corporation in relation to the leasing of inter-provincial transmission lines.
This agreement is valid for two years from April 1, 1999 and will be
automatically renewed on an annual basis unless either party notifies the other
of its intention to terminate at least three months prior to the expiration of
its term. More details about the arrangements are described under "Item 5.
Operating and Financial Review and Prospects -- Overview of Our Operations --
Our New Operating Arrangements with China Mobile Communications Corporation Have
Affected and May Continue to Affect Our Financial Results".

  Interconnection Arrangements

     Our networks interconnect with the mobile communications networks of China
Mobile Communications Corporation in other regions. In May 2000, we entered into
an interconnection and roaming agreement with China Mobile Communications
Corporation. Under this agreement, with regard to inter-provincial roaming, when
the roaming subscriber places a call from a roaming location, the operator of
the visited network receives all long distance calling charges, if any, and when
the roaming subscriber receives a call at a roaming location, the network
operator with whom the subscriber is registered retains all long distance
calling charges, if any.

     International long distance calling charges incurred by an international
mobile phone subscriber making an international long distance call while roaming
in the areas in Mainland China where we operate are collected by China Mobile
Communications Corporation and are credited to us. We will make the necessary
settlement with the relevant telecommunications operators in Mainland China.
China Mobile Communications Corporation also collects a 15% handling charge on
such international long distance calling charges from the international mobile
communications operators and shares such handling charges equally with us. When
our subscribers roam internationally, we will collect the international long
distance calling charges, if any, together with a 15% handling charge from our
subscribers and will pay the international long distance calling charges
together with half of the handling charges to China Mobile Communications
Corporation, which will make the necessary settlement with the international
mobile communications operators concerned. Where long distance charges cannot be
distinguished from base roaming charges, such long distance charges are grouped
under roaming charges.

  Prepaid Services

     Prepaid services allow subscribers to add value to their SIM cards by
purchasing value-adding cards from any of our network operators or China Mobile
Communications Corporation's other network operators. We have entered into an
agreement with China Mobile Communications Corporation regarding the sharing and
settlement of revenue when prepaid subscribers purchase value-adding cards from
network operators other than their home network operators. This agreement is for
a term of one year from July 1, 2000 (the sharing of revenue from prepaid
subscribers purchasing value-adding cards from network operators other than
their home network operators commenced from February 1, 2000) and will be
automatically renewed on an annual basis unless either party notifies the other
of its intention to terminate at least three months prior to the expiration of
the term. The agreement was amended on May 11, 2001 with retroactive effect from
April 21, 2001. Under the amended agreement, the mobile network operator in the
location that issues the value-adding card remits 95% of the face value of the
value-adding card to the subscriber's home network operator, and keeps the
remainder as a handling charge. Prior to the amendment, the remittance amount to
home network operator was 85% of the face value of the value-adding card.

  Platform Development

     Aspire Holdings Limited, our 78.6% owned joint venture with Hewlett-Packard
Company, entered into a platform development master agreement with each of us
and China Mobile Communications Corporation on January 10, 2001. Under the two
platform development master agreements, Aspire (or its subsidiaries) will
provide the same scope of technology platform development and maintenance
services to us and our subsidiaries and to China Mobile Communications
Corporation and their respective mobile telecommunica-

                                        51
<PAGE>   54

tions subsidiaries in various regions in Mainland China. These services include
system and gateway integration services, hardware, software and system
development (including development of applications), technical support and major
overhaul services for a standardized, nation-wide platform for wireless data.

     Under the platform development master agreements, we and China Mobile
Communications Corporation will each pay Aspire equipment charges, systems
integration fees, software licensing fees, technical support fees and/or major
overhaul charges, which will be determined according to standards laid down by
the relevant governmental departments and/or by reference to market rates.

  Property Leasing and Management Services

     We lease from other subsidiaries of China Mobile Communications Corporation
various properties that are used as office space and for locating our cell sites
and switching equipment. In relation to leased properties, the rental payments
are determined with reference to market rates. In relation to properties
sub-leased by such subsidiaries to the companies that we acquired in November
2000 (which were in turn leased to such subsidiaries by third parties), the
rental is equal to the rental payable to such third parties and such
subsidiaries do not make any gains as the intermediate lessors. Some of such
subsidiaries of China Mobile Communications Corporation also provide property
management services in relation to the properties leased or subleased (other
than for Tianjin Mobile and Guangxi Mobile). Property management fees are
determined with reference to market rates.

     The initial terms of such leases and sub-leases range from six months to
ten years. The initial terms of such leases and sub-leases to Guangxi Mobile are
renewable on an annual basis if Guangxi Mobile gives six months' notice of its
intention to renew. Guangxi Mobile is entitled to terminate such leases and
sub-leases by giving three months' notice at any time. The initial terms of such
leases and sub-leases to Tianjin Mobile are automatically renewable on an annual
basis unless terminated by Tianjin Mobile by three months' notice given at any
time or by the relevant lessor by giving notice of its intention to terminate
three months prior to expiration of the relevant term. The initial terms of such
leases and sub-leases to Shanghai Mobile are automatically renewed on an annual
basis unless terminated by Shanghai Mobile by three months' notice given at any
time or in relation to sub-leases terminated by the relevant lessor by giving
three months' notice prior to the expiration of the relevant term. In relation
to the our other subsidiaries, the relevant lease terms and (subject to the
relevant head lease being valid or renewable for the extended term) sub-lease
terms will be automatically renewed on an annual basis unless terminated by the
relevant companies with three months' notice given at any time and, in relation
to sub-leased properties, the relevant lessor may also terminate by giving three
months' notice prior to the expiration of the relevant term. Beijing Mobile also
leases certain properties and provides property management services to a
subsidiary of China Mobile Communications Corporation for an initial term of one
year and on terms substantially similar to those set out above in this
paragraph.

  Construction and Related Services

     Beijing Mobile, Shanghai Mobile, Liaoning Mobile and Shandong Mobile
entered into agreements with certain subsidiaries of China Mobile Communications
Corporation under which such subsidiaries provide services such as construction,
design, equipment installation, testing and/or maintenance services and or act
as general contractors in relation to construction and other projects of our
subsidiaries. Such agreements are for terms of between six months and 16 months,
which will be automatically renewed on an annual basis unless either party (in
the case of Shandong Mobile, Shanghai Mobile and Beijing Mobile) or Liaoning
Mobile (in the case of Liaoning Mobile) notifies the other in writing at least
three months prior to the expiration of the term of its intention to terminate
the arrangement. Beijing Mobile had also previously entered into other
agreements for the provision of certain construction and related services which
will continue to be performed according to their terms after Beijing Mobile was
acquired by us in November 2000. The charges payable for services rendered under
such agreements are determined according to standards laid down by relevant
governmental departments and/or by reference to market rates.

                                        52
<PAGE>   55

  Equipment Maintenance and Related Services

     Beijing Mobile, Shanghai Mobile and Liaoning Mobile entered into agreements
with certain subsidiaries of China Mobile Communications Corporation under which
such subsidiaries provide equipment maintenance and related services to such
companies. Such agreements are for terms of between six months and 15 months,
which will be automatically renewed on an annual basis unless either party (in
case of Beijing Mobile) or Shanghai Mobile or Liaoning Mobile (in the case of
Shanghai Mobile and Liaoning Mobile, respectively) notifies the other of its
intention to terminate in writing at least three months prior to the expiration
of the term. Beijing Mobile had also previously entered into another agreement
for the provision of certain equipment maintenance services which will continue
to be performed according to its terms after the acquisition. The charges
payable for services rendered under such agreements are determined according to
standards laid down by relevant governmental departments and/or by reference to
market rates.

  Transmission Tower Production, Sales and Other Services and Antenna
Maintenance Services

     Hebei Mobile entered into an agreement with a subsidiary of China Mobile
Communications Corporation under which such subsidiary provides transmission
tower design, production, installation and maintenance services and antenna
maintenance services to Hebei Mobile, and sells transmission towers and spare
parts to Hebei Mobile. The initial term of this agreement is for one year from
August 1, 2000 to July 30, 2001. This agreement will be automatically renewed on
an annual basis unless either party notifies the other of its intention to
terminate in writing at least three months prior to the expiration of the term.
The price of such transmission towers and spare parts and the charges payable
for services rendered under this agreement are determined according to standards
laid down by relevant governmental departments and/or by reference to market
rates.

  Collection Services and Sales Arrangements

     Henan Mobile entered into an agreement with a subsidiary of China Mobile
Communications Corporation in August 1999 in respect of the provision by the
China Mobile Communications Corporation subsidiary of certain payment collection
services to Henan Mobile. The collection service charges payable by Henan Mobile
amount to 1% of collections.

     In addition, Henan Mobile also entered into a sales service agreement with
a subsidiary of China Mobile Communications Corporation in August 1999 pursuant
to which the China Mobile Communications Corporation subsidiary has agreed to
market through its outlets Henan Mobile's mobile phone services. The maximum
sales service charges of RMB 250 per subscriber are based on commercial
negotiation on an arm's-length basis by reference to the prevailing market
rates.

  Miscellaneous

     The transactions entered into by us (including our subsidiaries) have been
entered into in the ordinary course of business and on normal commercial terms.
Under the Listing Rules of the Hong Kong Stock Exchange, these transactions are
considered to be "connected transactions" and would normally require full
disclosure and prior independent shareholders' approval on each occasion they
arise. As the transactions are expected to be continued in the normal course of
business, our directors consider that such disclosure and approval would be
impractical. Accordingly, our directors have requested the Hong Kong Stock
Exchange to grant, and the Hong Kong Stock Exchange has granted, a waiver from
compliance with the normal approval and disclosure requirements related to
connected transactions under the Listing Rules, which will be effective until
December 31, 2004, except that the waivers for transactions relating to prepaid
services and platform development will expire on December 31, 2003, upon the
following conditions as applicable:

(a)  the transactions as well as the respective agreements governing such
     transactions will be (A) entered into in the ordinary and usual course of
     business on terms that are fair and reasonable so far as our independent
     shareholders are concerned, and (B) on normal commercial terms and in
     accordance with the terms of the agreements governing such transactions;

                                        53
<PAGE>   56

(b)  details of the transactions, as required by rule 14.25(1)(A) to (D) of the
     Listing Rules, shall be disclosed in our annual report;

(c)  our independent non-executive directors shall review annually the
     transactions and confirm in our annual report and accounts for the relevant
     year that the transactions have been conducted in the manner stated in
     paragraph (a) above and within the upper limits stated below;

(d)  our auditors shall review annually the transactions and provide our
     directors with a letter, details of which will be set out in our annual
     accounts, stating that the transactions:

      --  received the approval of our board of directors;

      --  are in accordance with the pricing policies as stated in our annual
          report;

      --  have been conducted in the manner as stated in (a)(B) above; and

      --  the upper limits as set forth in paragraph (g) below have not been
          exceeded.

(e)  details of the transactions are disclosed to our independent shareholders
     who shall have voted in favor of an ordinary resolution to approve the
     connected transactions and the upper limits set out below at our
     extraordinary general meeting; and

(f)  China Mobile Communications Corporation has undertaken to us that our
     auditors will be granted access to such of its and its associates'
     accounting records for the purposes of reviewing the transactions mentioned
     above.

(g)  with respect to the following types of transactions entered into and to be
     entered into by us, the waiver was applied for and granted under the
     additional condition that they shall not exceed the relevant upper limits
     set out below in each of our fiscal years:

      --  payments by us to subsidiaries of China Mobile Communications
          Corporation for collection service charges in any fiscal year shall
          not exceed 0.1% of our consolidated operating revenue in such year,
          and payment by us to subsidiaries of China Mobile Communications
          Corporation for sales service charges in any fiscal year shall not
          exceed 0.3% of our consolidated operating revenue in such year;

      --  payments by us to subsidiaries of China Mobile Communications
          Corporation for rental and property management fees in any fiscal year
          shall not exceed 0.56% of our consolidated turnover of such fiscal
          year;

      --  payments by us to subsidiaries of China Mobile Communications
          Corporation for construction and related services in any fiscal year
          shall not exceed 0.25% of our consolidated total operating revenue in
          such year;

      --  payments by us to subsidiaries of China Mobile Communications
          Corporation for equipment maintenance and related services in any
          fiscal year shall not exceed 0.05% of our consolidated total operating
          revenue in such year;

      --  payments by Hebei Mobile to the relevant subsidiary of China Mobile
          Communications Corporation for purchase of transmission towers and
          transmission tower-related services and antenna maintenance services
          in any fiscal year shall not exceed 0.06% of our consolidated total
          operating revenue in such year;

      --  handling charges received by us from subsidiaries of China Mobile
          Communications Corporation in respect of prepaid services in any
          fiscal year shall not exceed 2% of our consolidated total operating
          revenue in such year, and handling charges paid by us to subsidiaries
          of China Mobile Communications Corporation in respect of prepaid
          services in any fiscal year shall not exceed 2% of our total operating
          revenue in such year; and

      --  payments by each of us and China Mobile Communications corporation to
          Aspire in respect of equipment charges, system integration fees,
          software licensing fees, technical support fees and/or

                                        54
<PAGE>   57

       major overhaul charges for mobile Internet service platform in any fiscal
       year shall not exceed 3% of our consolidated net tangible assets as of
       the end of such year.

     Our independent shareholders approved the connected transactions and the
related upper limits at our extraordinary general meeting held on June 12, 2001.

  Undertaking from China Mobile Communications Corporation

     China Mobile Communications Corporation has undertaken that:

      --  it will extend its full support to our present operations and future
          development;

      --  we will be the only mobile communications services company operating
          in Mainland China under China Mobile Communications Corporation's
          control that will be listed on any securities exchange in Hong Kong or
          outside China;

      --  to the extent within China Mobile Communications Corporation's
          control, we will be treated equally with any other mobile
          communications operators in respect of all approvals, transactions and
          arrangements between us and China Mobile Communications Corporation
          and other mobile communications entities controlled by China Mobile
          Communications Corporation;

      --  China Mobile Communications Corporation and the provincial entities
          under its control will not, directly or indirectly, participate in the
          operation of any mobile communications services in any province in
          which we currently operate or may operate in the future; and

      --  in the provinces in which we operate, we will have the option to
          operate additional communications services that fall within China
          Mobile Communications Corporation's scope of business (including the
          testing and commercial operation of services using new technologies
          such as third generation mobile communications technologies), and we
          will have the right to acquire China Mobile Communications
          Corporation's interest in such services.

ITEM 8.  FINANCIAL INFORMATION.

CONSOLIDATED FINANCIAL STATEMENTS

     Our audited consolidated financial statements are set forth beginning on
Page F-1.

LEGAL PROCEEDING

     We are not involved in any material litigation, arbitration or
administrative proceedings, and, so far as we are aware, no such litigation,
arbitration or administrative proceedings are pending or threatened.

POLICY ON DIVIDEND DISTRIBUTIONS

     Our board of directors did not recommend the payment of a dividend for the
year ended December 31, 2000. As we are experiencing a period of rapid growth,
the board deems it desirable that capital be retained for additional investment,
network expansion and optimization, as well as potential acquisition of quality
assets. We have not declared or paid any dividends since our incorporation in
September 1997.

ITEM 9.  THE OFFER AND LISTING.

     In connection with our initial public offering, our American depositary
shares, or ADSs, each representing twenty ordinary shares, were listed and
commenced trading on the New York Stock Exchange on October 22, 1997 under the
symbol "CHL". Effective from July 5, 2000, our ADS-to-share ratio has been
changed to one-to-five. Our shares were listed and commenced trading on the Hong
Kong Stock Exchange on October 23, 1997. Prior to these listings, there was no
public market for our equity securities. The New York Stock Exchange and the
Hong Kong Stock Exchange are the principal trading markets for our ADSs and
ordinary shares, which are not listed on any other exchanges in or outside the
United States.

                                        55
<PAGE>   58

     As of December 31, 2000 and May 31, 2001, there were, respectively,
18,605,312,241 and 18,605,348,241 ordinary shares issued and outstanding. As of
December 31, 2000 and May 31, 2001, there were, respectively, 103 and 100
registered holders of American depositary receipts evidencing 121,711,883 and
103,801,911 ADSs. Since certain of the ADSs are held by nominees, the above
number may not be representative of the actual number of U.S. beneficial holders
of ADSs or the number of ADSs beneficially held by U.S. persons. The depositary
of the ADSs is The Bank of New York.

     The high and low closing sale prices of the shares on the Hong Kong Stock
Exchange and of the ADSs on the NYSE for the periods indicated are as follows.
The information for periods prior to July 2000 have been restated to reflect the
change in our ADS-to-share ratio from one-to-twenty to one-to-five, which became
effective on July 5, 2000:

<TABLE>
<CAPTION>
                                                      PRICE PER SHARE     PRICE PER ADS
                                                           (HK$)              (US$)
                                                      ----------------    --------------
                                                       HIGH      LOW      HIGH      LOW
                                                      ------    ------    -----    -----
<S>                                                   <C>       <C>       <C>      <C>
1997
Fourth Quarter......................................  14.40     10.55      9.50     6.91
1998
First Quarter.......................................  16.25     10.30     10.66     6.91
Second Quarter......................................  16.15     11.40     10.42     7.53
Third Quarter.......................................  13.70      8.90      9.00     5.73
Fourth Quarter......................................  15.90     11.65     10.23     7.19
1999
First Quarter.......................................  15.50     12.60     10.00     8.09
Second Quarter......................................  22.45     13.05     14.39     8.55
Third Quarter.......................................  26.70     21.00     17.16    13.56
Fourth Quarter......................................  48.60     24.00     32.16    15.38
2000
First Quarter.......................................  79.00     41.70     50.73    27.41
Second Quarter......................................  72.25     47.90     46.91    30.80
Third Quarter.......................................  75.75     47.20     48.94    31.63
Fourth Quarter......................................  59.00     40.30     37.38    25.94
2001
First Quarter.......................................  50.50     33.30     33.00    21.45
Second Quarter (through May 31).....................  41.80     29.70     26.51    19.50
December 2000.......................................  48.20     41.40     31.25    26.25
January 2001........................................  49.90     40.70     33.00    26.25
February 2001.......................................  50.50     42.20     32.60    26.58
March 2001..........................................  40.10     33.30     24.68    21.45
April 2001..........................................  38.90     29.70     25.35    19.50
May 2001 (through May 31)...........................  41.80     37.20     26.51    23.50
</TABLE>

ITEM 10.  ADDITIONAL INFORMATION.

MEMORANDUM AND ARTICLES OF ASSOCIATION

     Under Section 3 of our Memorandum of Association, we have the capacity and
the rights, powers and privileges of a natural person and, in addition and
without limit, we may do anything which it is permitted or required to do by any
enactment or rule of law.

  Directors

     Material Interests.  A director who is in any way directly or indirectly
interested in a contract or proposed contract with us shall declare the nature
of his interest in accordance with the provisions of the Companies Ordinance
(Chapter 32) of Hong Kong. A director shall not vote, or be counted in the
quorum, on
                                        56
<PAGE>   59

any resolution of the board in respect of any contract or arrangement or
proposal in which he is, to his knowledge, materially interested, and if he
shall do so his vote shall not be counted or counted in the quorum for that
resolution. The above prohibition shall not apply to any contract, arrangement
or proposal:

      --  for the giving by us of any security or indemnity to the director in
          respect of money lent or obligations incurred or undertaken by him at
          the request of, or for, our or any of our subsidiaries' benefit;

      --  for the giving by us of any security to a third party in respect of
          our or any of our subsidiaries' debt or obligation for which the
          director has himself assumed responsibility or guaranteed or secured
          in whole or in part whether alone or jointly;

      --  concerning an offer of the shares or debentures or other securities of
          or by us or any other company which we may promote or be interested in
          for subscription or purchase where the director is, or is to be,
          interested as a participant in the underwriting or sub-underwriting of
          the offer;

      --  in which the director is interested in the same manner as other
          holders of our shares or debentures or other securities by virtue only
          of his interest in our shares or debentures or other securities;

      --  concerning any other company in which the director is interested,
          directly or indirectly, as an officer or a shareholder or in which the
          director is beneficially interested in shares of that company other
          than a company in which the director, together with any of his
          associates, is beneficially interested in five percent or more of the
          issued share of any class of the equity share capital of such company
          (or of any third company through which his interest is derived) or of
          the voting rights;

      --  for the benefit of our or any of our subsidiaries' employees,
          including the adoption, modification or operation of a pension fund or
          retirement, death or disability benefit scheme which relates to both
          our, or any of our subsidiaries', directors and employees and does not
          give the director any privilege not generally accorded to the class of
          persons to whom such scheme or fund relates; and

      --  concerning the adoption, modification or operation of any employees'
          share scheme involving the issue or grant of options over shares or
          other securities by us to, or for the benefit of, our or any of our
          subsidiaries' employees under which the director may benefit.

     Compensation and Pension.  The directors are entitled to receive by way of
remuneration for their services such sum as we may determine from time to time
in general meeting. The directors are also entitled to be repaid their
reasonable traveling, hotel and other expenses incurred by them in or about the
performance of their duties as directors. The directors may award special
remuneration out of our funds, by way of salary, commission or otherwise as the
directors may determine, to any director who performs services which, in the
opinion of the directors, are outside the scope of the ordinary duties of a
director.

     The board may establish and maintain any contributory or non-contributory
pension or superannuation funds for the benefit of, or give donations,
gratuities, pensions, allowances or emoluments to any persons (A) who are or
were at any time in employment or service of our company (or any of our
subsidiaries) or is allied or associated with us or any of our subsidiaries, or
(B) who are or were at any time our (or any of our subsidiaries') directors or
officers, and holding or who have held any salaried employment or office in our
company or any of our subsidiaries, and the wives, widows, families and
dependants of any of these persons. Any director holding any such employment or
office is entitled to participate in, and retain for his own benefit, any such
donation, gratuity, pension, allowance or emolument.

     Borrowing Powers.  The directors may exercise all the powers of our company
to borrow money and to mortgage or charge all or any part of our undertaking,
property and assets (present and future) and uncalled capital and to issue
debentures, debenture stocks, bonds and other securities, whether outright or as
collateral security for the debt, liability or obligation of our company or any
third party.

     Qualification; Retirement.  A director need not hold any of our shares to
qualify as a director. There is no age limit requirement for a director's
retirement or non-retirement.

     At each annual general meeting, one-third of the directors for the time
being, or, if their number is not three or a multiple of three, then the number
nearest one-third, shall retire from office by rotation except for
                                        57
<PAGE>   60

any director holding office as chairman or chief executive officer. The
directors to retire in every year shall be those who have been longest in office
since their last election, but as between persons who became directors on the
same day shall be determined by lot unless they otherwise agree between
themselves. The retiring directors shall be eligible for re-election.

  Rights Attaching to Ordinary Shares

     The section entitled "Description of Share Capital" in our Registration
Statement on Form F-3 (File No. 333-47256), filed with the Securities and
Exchange Commission on October 30, 2000, is incorporated in this annual report
by reference.

     Pursuant to ordinary resolutions passed at our extraordinary general
meeting held on November 10, 2000, our authorized share capital was increased,
by the creation of an additional 14,000,000,000 ordinary shares of HK$0.10 each,
which rank pari passu with the existing ordinary shares, to a total of
HK$3,000,000,000 divided into 30,000,000,000 ordinary shares.

  Annual General Meetings and Extraordinary General Meetings

     We must hold, in each year, a general meeting as our annual general meeting
in addition to any other meetings in that year. The annual general meeting must
be held at such time (which shall be within a period of not more than fifteen
months, or such longer period as the Registrar of Companies may authorize in
writing, after the holding of the last preceding annual general meeting) and
place as may be determined by the directors. All other general meetings are
extraordinary meetings. The directors may proceed to convene an extraordinary
general meeting whenever they think fit, in accordance with the Companies
Ordinance.

     In general, an annual general meeting and a meeting called for the passing
of a special resolution shall be called by not less than 21 days' notice in
writing, and any other general meeting shall be called by not less than 14 days'
notice in writing. The notice must specify the place, date and time of the
meeting and, in the case of special business, the general nature of that
business.

  Miscellaneous

     We keep our share register with our share registrar, which is Hong Kong
Registrars Limited, 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong
Kong, China. In addition, we also file certain documents with the Registrar of
Companies, Hong Kong, China, in accordance with the requirements of the
Companies Ordinance (Chapter 32) of Hong Kong, and our company number is 622909.

MATERIAL CONTRACTS

     See "Item 7. Major Shareholders and Related Party Transactions -- Related
Party Transactions" for certain arrangements we have entered into with China
Mobile Communications Corporation.

     In addition, in the ordinary course of our business, we have entered into
the following agreements with China Telecommunications Corporation or its
subsidiaries.

  Interconnection Arrangements

     Each of our operating subsidiaries has entered into an interconnection
agreement with the subsidiary of China Telecommunications Corporation that
operates the fixed line network in its network area. A majority of calls on our
networks involve interconnection with China Telecommunications Corporation's
fixed line network. The economic terms of the interconnection arrangements are
described under "Item 4. Information on the Company -- Interconnection." Each of
these agreements is valid for one year from various dates between October 1,
1999 and August 10, 2000, and will be renewed automatically on an annual basis
(in the case of Jiangsu Mobile, to be renewed automatically for another year)
unless either party notifies the other of its intention to terminate at least
three months prior to the expiration of the term.

                                        58
<PAGE>   61

  Leasing of Intra-Provincial or Local Transmission Lines

     Each of our operating subsidiaries leases certain transmission lines from
the relevant subsidiary of China Telecommunications Corporation in its network
area in order to link our base transceiver stations, base station controllers
and mobile switching centers and to interconnect our network to the fixed line
networks of China Telecommunications Corporation and the mobile communications
networks of other operators. The agreement is valid for ten years and two months
from October 20, 1997 in the case of Guangdong Mobile, three years from January
1, 2000 in the case of Zhejiang Mobile and eight years from July 1, 1999 in the
case of Jiangsu Mobile. Each of the remaining agreements is valid for one year
from various dates between January 1 and August 10, 2000. On the expiration of
the initial term, the agreement in respect of Guangdong Mobile will be renewed
automatically for another ten years (unless either party notifies the other of
its intention to terminate at least six months prior to the expiration of the
term), the agreement in respect of Zhejiang Mobile will be renewable subject to
agreement by the parties and the agreement in respect of Jiangsu Mobile will be
renewed automatically for another year (unless either party notifies the other
of its intention to terminate at least three months prior to the expiration of
the term), and each of the other agreements will be renewed automatically on an
annual basis (unless either party notified the other of its intention to
terminate at least three months prior to the expiration of the term).

  Leasing of Synchronized Clock Ports

     Each of Zhejiang Mobile, Fujian Mobile, Henan Mobile, Hainan Mobile,
Beijing Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile, Liaoning Mobile,
Shandong Mobile and Guangxi Mobile leases synchronized clock ports from the
relevant subsidiary of China Telecommunications Corporation that operates the
fixed line network in its network area. The synchronized clocks ensure both the
mobile and the fixed line networks run simultaneously. Each of these agreements,
with the exception of Zhejiang Mobile, provides for an annual lease payment of
RMB 25,000 per clock port and is valid for one year from various dates between
January 1 and August 10, 2000, and will be renewed automatically on an annual
basis unless either party notified the other of its intention to terminate at
least three months prior to the expiration of the term. The Zhejiang Mobile
agreement provides for an annual lease payment of RMB 24,000 per clock port and
is valid from October 1, 1999 to December 31, 2002 and will be renewed
automatically on an annual basis unless either party notifies the other of its
intention to terminate at least three months prior to the expiration of the
term.

  Account Processing Services

     Shanghai Mobile has entered into an account processing service agreement
with the subsidiary of China Telecommunications Corporation in Shanghai, under
which the China Telecommunications Corporation subsidiary in Shanghai provides
bill processing and mailing services to Shanghai Mobile. The agreement is valid
for one year from August 10, 2000 and will be renewed automatically on an annual
basis unless either party notifies the other of its intention to terminate at
least three months prior to the expiration of the term. The monthly service fee
payable by Shanghai Mobile is RMB 0.86 per mobile phone number.

  Collection Services

     Zhejiang Mobile, Jiangsu Mobile, Henan Mobile, Beijing Mobile, Shanghai
Mobile, Hebei Mobile, Liaoning Mobile and Shandong Mobile handle their own
payment collection. Each of Guangdong Mobile, Fujian Mobile, Hainan Mobile,
Tianjin Mobile and Guangxi Mobile has entered into a service agreement with the
relevant subsidiary of China Telecommunications Corporation that operates the
fixed line network in its network area, under which the fixed line operator
provides certain payment collection services to the mobile communications
operator. In the case of Guangdong Mobile, it is required to pay market price
for the service, and the term of the agreement is three years from October 20,
1997. In the case of Fujian Mobile and Hainan Mobile, the service fee payable is
RMB 0.01 for each RMB 1.00 collected, and the term of the agreement is one year
from January 1, 2000 and April 2, 2000, respectively. In the case of Tianjin
Mobile and Guangxi Mobile, the service fee payable is RMB 0.0075 and RMB 0.01,
respectively, for each RMB 1.00 collected, and the term of the agreement is one
year from August 10, 2000. Each of the agreements will be renewed
                                        59
<PAGE>   62

automatically on an annual basis unless either party notifies the other of its
intention to terminate at least three months prior to the expiration of the
term, except in the case of Guangdong Mobile, the lease is terminable at any
time by Guangdong Mobile upon six months' prior notice.

  Distribution and Marketing Arrangements

     Each of our operating subsidiaries (except Guangdong Mobile) markets and
sells its mobile communications services in part through authorized dealers
under the control of the relevant subsidiary of China Telecommunications
Corporation in its network area. In the case of Zhejiang Mobile and Jiangsu
Mobile, the commission payable is RMB 300 per new contract subscriber acquired.
In the case of Fujian Mobile, the commission payable is an amount not lower than
the commission paid to authorized dealers not affiliated with China
Telecommunications Corporation. In the case of Henan Mobile, the commission
payable is RMB 250 per new contract subscriber acquired; and an agency fee equal
to 5% of the total sales value of all prepaid card sales. In the case of Hainan
Mobile, the commission payable is RMB 250 (for bulk sales) or RMB 150 (for
retail sales) per new contract subscriber acquired, and an agency fee equal to
5% (for bulk sales) or 4% (for retail sales) of the total sales values of all
prepaid card sales. The agreement for Zhejiang Mobile has a term of one year and
three months from October 1, 1999, the agreement for Jiangsu Mobile has a term
of five years from January 1, 1998, and each of the other agreements have a term
of one year from January 1, 2000 (for Fujian Mobile and Henan Mobile) or April
2, 2000 (for Hainan Mobile). The agreements with Zhejiang Mobile, Fujian Mobile,
Henan Mobile and Hainan Mobile are renewable upon mutual agreement. The
agreement with Jiangsu Mobile is to be renewed automatically for an additional
year unless either party notifies the other of its intention to terminate at
least three months prior to the expiration of the term.

     Guangxi Mobile markets its mobile communications services in part through
authorized dealers under the control of China Telecommunications Corporation
under an agency agreement with the fixed line operator in Guangxi. The
commission payable is RMB 200 (for bulk sales) or RMB 100 (for retail sales) per
new contract subscriber acquired, RMB 40 (for bulk sales) or RMB 20 (for retail
sales) per prepaid card subscriber acquired, plus a service fee equal to 12%
(for bulk sales) or 10% (for retail sales) of the total sales values of all
prepaid card sales. The initial term of the agreement is from August 8, 2000 to
December 31, 2000, to be renewed automatically for an additional year unless
either party notifies the other of its intention to terminate at least three
months prior to the expiration of the term.

  Equipment Maintenance Services

     Each of Fujian Mobile, Beijing Mobile, Tianjin Mobile and Guangxi Mobile
has entered into an equipment maintenance service agreement with the relevant
subsidiary of China Telecommunications Corporation that operates the fixed line
network in its network area, under which the fixed line operator provides
maintenance services for the operating equipment of the mobile communications
operator. In the case of Fujian Mobile, the annual service fee is 1% of the
total book value of equipment maintained, and the term of the agreement is one
year from January 1, 2000, and will be renewed automatically on an annual basis
unless either party notifies the other of its intention to terminate at least
three months prior to the expiration of the term. In the case of Beijing Mobile,
the annual service fee is 0.3% of the total book value of equipment maintained,
and the initial term of the agreement is one year from August 8, 2000, and will
be renewed automatically on an annual basis unless either party notifies the
other of its intention to terminate at least three months prior to the
expiration of the term. In the case of Tianjin Mobile and Guangxi Mobile, the
annual service fee is the rate set by the Chinese government, or if there is no
such rate, the rate agreed by the parties, and the term of the agreement is one
year from August 10, 2000, and will be renewed automatically on an annual basis
unless either party notifies the other of its intention to terminate at least
three months prior to the expiration of the term.

  Leasing of Offices and Sites for Network Equipment

     Each of our operating subsidiaries has leased certain premises from the
relevant subsidiary of China Telecommunications Corporation that operates the
fixed line network in its network area for use as offices, retail outlets,
warehouses and sites for locating equipment. Each of Fujian Mobile, Beijing
Mobile, Shanghai
                                        60
<PAGE>   63

Mobile and Tianjin Mobile also leases to the fixed line operator in Fujian,
Beijing, Shanghai and Tianjin, respectively, certain properties under similar
terms.

EXCHANGE CONTROLS

     The Renminbi currently is not a freely convertible currency. The State
Administration of Foreign Exchange, under the authority of the People's Bank of
China, controls the conversion of Renminbi into foreign currency. Prior to
January 1, 1994, Renminbi could be converted to foreign currency through the
Bank of China or other authorized institutions at official rates fixed daily by
the State Administration of Foreign Exchange. Renminbi could also be converted
at swap centers open to Chinese enterprises and foreign invested enterprises,
subject to State Administration of Foreign Exchange approval of each foreign
currency trade, at exchange rates negotiated by the parties for each
transaction. In the year ended December 31, 1993, as much as 80% by value of all
foreign exchange transactions in China took place through the swap centers. The
exchange rate quoted by the Bank of China differed substantially from that
available in the swap centers. Effective January 1, 1994, a unitary exchange
rate system was introduced in China, replacing the dual-rate system previously
in effect. In connection with the creation of a unitary exchange system, the
China Foreign Exchange Trading System inter-bank foreign exchange market was
established. Under the unitary foreign exchange system, People's Bank of China
sets daily exchange rates for conversion of Renminbi into U.S. dollars and other
currencies based on the China Foreign Exchange Trading System interbank market
rates, and the Bank of China and other authorized banks may engage in foreign
exchange transactions at rates that vary within a prescribed range above or
below rates set by the People's Bank of China.

     In the event of shortages of foreign currencies, China Mobile may be unable
to convert sufficient Renminbi into foreign currency to meet its foreign
currency obligations or to pay dividends in foreign currency.

     The value of the Renminbi is subject to changes in Chinese government
policies and to international economic and political developments. During the
few years prior to 1994, the Renminbi experienced a devaluation against most
major currencies, and a devaluation of approximately 50% of the Renminbi against
the U.S. dollar occurred on January 3, 1994 in connection with the adoption of
the new unitary exchange rate system. Since 1994, the official exchange rate for
the conversion of Renminbi to U.S. dollars has been stable, and the Renminbi has
appreciated slightly against the U.S. dollars. Any future devaluation of the
Renminbi would increase our effective cost of foreign manufactured equipment or
components, and of satisfying any other foreign currency denominated
liabilities. In addition, any such devaluation would reduce the U.S. dollar
value of any dividends declared in Renminbi. During 1999 and 2000, the Renminbi
has remained stable against the U.S. dollar. The Chinese government has
indicated on several occasions that it would not allow the Renminbi to devalue
in 2001.

     There are no limitations on the right of non-resident or foreign owners to
remit dividends or to hold or vote the ordinary shares or the ADSs imposed by
Hong Kong law or by our memorandum and articles of association or other
constituent documents.

TAXATION -- HONG KONG

     The taxation of income and capital gains of holders of ordinary shares or
ADSs is subject to the laws and practices of Hong Kong and of jurisdictions in
which holders of ordinary shares or ADSs are resident or otherwise subject to
tax. The following summary of certain relevant taxation provisions under Hong
Kong law is based on current law and practice, is subject to changes therein and
does not constitute legal or tax advice. The discussion does not deal with all
possible tax consequences relating to an investment in the ordinary shares or
ADSs. Accordingly, each prospective investor (particularly those subject to
special tax rules, such as banks, dealers, insurance companies, tax-exempt
entities and holders of 10% or more of our voting capital stock) should consult
its own tax adviser regarding the tax consequences of an investment in the
ordinary shares and ADSs. The discussion is based upon laws and relevant
interpretations thereof in effect as of the date of this annual report, all of
which are subject to change. There is no reciprocal tax treaty in effect between
Hong Kong and the United States.

                                        61
<PAGE>   64

  Tax on Dividends

     Under the current practices of the Hong Kong Inland Revenue Department, no
tax is payable in Hong Kong in respect of dividends paid by us unless such
dividends are attributable to a trade, profession or business carried on in Hong
Kong.

  Profits Tax

     No tax is imposed in Hong Kong in respect of capital gains from the sale of
property (such as the ordinary shares and ADSs). Trading gains from the sale of
property by persons carrying on a trade, profession or business in Hong Kong
where such gains are derived from or arise in Hong Kong from such trade,
profession or business will be chargeable to Hong Kong profits tax which is
currently imposed at the rate of 16% on corporations and at a maximum rate of
15% on individuals. Gains from sales of the ordinary shares effected on the Hong
Kong Stock Exchange may be considered to be derived from or arise in Hong Kong.
Liability for Hong Kong profits tax may thus arise in respect of trading gains
from sales of ordinary shares or ADSs realized by persons carrying on a business
or trading or dealing in securities in Hong Kong.

  Stamp Duty

     Hong Kong stamp duty, currently charged at the rate of HK$1.125 per
HK$1,000 or part thereof on the higher of the consideration for or the value of
the ordinary shares, will be payable by the purchaser on every purchase and by
the seller on every sale of ordinary shares (i.e., a total of HK$2.25 per
HK$1,000 or part thereof is currently payable on a typical sale and purchase
transaction involving ordinary shares). In addition, a fixed duty of HK$5 is
currently payable on any instrument of transfer of ordinary shares. The
withdrawal of ordinary shares upon the surrender of ADSs, and the issuance of
ADSs upon the deposit of ordinary shares, will also attract stamp duty at the
rate described above for sale and purchase transactions unless the withdrawal or
deposit does not result in a change in the beneficial ownership of the ordinary
shares under Hong Kong law, in which case only a fixed duty of HK$5 is payable
on the transfer. The issuance of the ADSs upon the deposit of ordinary shares
issued directly to the depositary or for the account of the depositary does not
attract stamp duty. No Hong Kong stamp duty is payable upon the transfer of ADSs
outside Hong Kong.

  Estate Duty

     The ordinary shares are Hong Kong property under Hong Kong law, and
accordingly such ordinary shares may be subject to estate duty on the death of
the beneficial owner of the ordinary shares (regardless of the place of the
owner's residence, citizenship or domicile). Hong Kong estate duty is imposed on
a progressive scale from 5% to 15%. The rate of and the threshold for estate
duty has, in the past, been adjusted on a fairly regular basis. No estate duty
is payable when the aggregate value of the dutiable estate does not exceed
HK$7.5 million, and the maximum rate of duty of 15% applies when the aggregate
value of the dutiable estate exceeds HK$10.5 million.

TAXATION -- U.S.

  United States Federal Income Taxation

     This section describes the material United States federal income tax
consequences of the purchase, ownership and disposition of our shares. This
section applies to you only if you hold your shares as capital assets for United
States federal income tax purposes. This section does not discuss special rules
that may apply to you if you are a member of a special class of holders subject
to special rules, including:

      --  a dealer in securities

      --  a trader in securities that elects to use a mark-to-market method of
          accounting for your securities holdings;

      --  a tax-exempt organization;

      --  a life insurance company;

                                        62
<PAGE>   65

      --  a person liable for alternative minimum tax;

      --  a person that actually or constructively owns 10% or more of our
          voting stock;

      --  a person that holds shares as part of a straddle or a hedging or
          conversion transaction; or

      --  a person whose functional currency is not the U.S. dollar.

     This section is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations, published rulings and
court decisions, all as currently in effect. These laws are subject to change,
possibly on a retroactive basis. In addition, this section is based in part upon
the representations of the Depositary and the assumption that each obligation in
the Deposit Agreement and any related agreement will be performed in accordance
with its terms.

     You are a U.S. holder if you are a beneficial owner of shares and you are:

      --  a citizen or resident of the United States;

      --  a corporation, partnership or other entity organized under the laws of
          the United States or any state thereof;

      --  an estate whose income is subject to United States federal income tax
          regardless of its source; or

      --  a trust if a United States court can exercise primary supervision over
          the trust's administration and one or more United States persons are
          authorized to control all substantial decisions of the trust.

     A "non-U.S. holder" is a beneficial owner of shares that is not a U.S.
holder.

     You should consult your own tax advisor regarding the United States
federal, state and local and other tax consequences of owning and disposing of
shares and in your particular circumstances.

     This discussion addresses only United States federal income taxation.

       Taxation of Dividends

     Subject to the passive foreign investment company rules discussed below, if
you are a U.S. holder, you must include in your gross income the gross amount of
any dividend paid by us out of our current or accumulated earnings and profits
(as determined for United States federal income tax purposes). The dividend is
ordinary income that you must include in income when you receive the dividend,
actually or constructively. The dividend will not be eligible for the
dividends-received deduction generally allowed to United States corporations in
respect of dividends received from other United States corporations. The amount
of the dividend distribution that you must include in your income will be the
U.S. dollar value of the Hong Kong dollar payments made, determined at the "spot
rate" on the date the dividend distribution is includible in your income,
regardless of whether the payment is in fact converted into U.S. dollars.
Generally, any gain or loss resulting from currency exchange fluctuations during
the period from the date you include the dividend payment in income to the date
you convert the payment into U.S. dollars will be treated as ordinary income or
loss. This gain or loss generally will be from sources within the United States
for foreign tax credit limitation purposes. Distributions in excess of current
and accumulated earnings and profits (as determined for United States federal
income tax purposes) will be treated as a non-taxable return of capital to the
extent of your basis in the shares and thereafter as capital gain.

     Subject to certain limitations, the Hong Kong tax withheld and paid over to
Hong Kong will be creditable against your United States federal income tax
liability. Dividends will be income from sources outside the United States, but
generally will be "passive income" or "financial services income" which is
treated separately from other types of income for purposes of computing the
foreign tax credit allowable to you.

  Taxation of Capital Gains

     Subject to the passive foreign investment company rules discussed below, if
you are a U.S. holder and you sell or otherwise dispose of your shares, you will
recognize capital gain or loss for United States federal income tax purposes
equal to the difference between the U.S. dollar value of the amount that you
realize and your tax
                                        63
<PAGE>   66

basis, determined in U.S. dollars, in your shares. Capital gain of a
noncorporate U.S. holder is generally taxed at a maximum rate of 20% where the
property is held more than one year, and 18% where the property is held for more
than five years. The deductibility of capital losses is subject to limitations.
The gain or loss will generally be from sources within the United States for
foreign tax credit limitation purposes.

  PFIC Rules

     We believe that shares should not be treated as stock of a PFIC for United
States federal income tax purposes, but this conclusion is a factual
determination that is made annually and thus may be subject to change. In
general, if you are a U.S. holder, we will be a PFIC with respect to you if for
any taxable year in which you held our shares:

      --  at least 75% of our gross income for the taxable year is passive
          income or

      --  at least 50% of the value, determined on the basis of a quarterly
          average, of our assets is attributable to assets that produce or are
          held for the production of passive income.

     Passive income generally includes dividends, interest, royalties, rents
(other than certain rents and royalties derived in the active conduct of a trade
or business), annuities and gains from assets that produce passive income. If a
foreign corporation owns at least 25% by value of the stock of another
corporation, the foreign corporation is treated for purposes of the PFIC tests
as owning its proportionate share of the assets of the other corporation, and as
receiving directly its proportionate share of the other corporation's income.

     If we are treated as a PFIC, and you are a U.S. holder that did not make a
mark-to-market election, as described below, you will be subject to special
rules with respect to:

      --  any gain you realize on the sale or other disposition of your shares
          or ADSs and

      --  any excess distribution that we make to you (generally, any
          distributions to you during a single taxable year that are greater
          than 125% of the average annual distributions received by you in
          respect of the shares during the three preceding taxable years or, if
          shorter, your holding period for the shares).

     Under these rules:

      --  the gain or excess distribution will be allocated ratably over your
          holding period for the shares,

      --  the amount allocated to the taxable year in which you realized the
          gain or excess distribution will be taxed as ordinary income,

      --  the amount allocated to each prior year, with certain exceptions, will
          be taxed at the highest tax rate in effect for that year, and

      --  the interest charge generally applicable to underpayments of tax will
          be imposed in respect of the tax attributable to each such year.

     If you own shares in a PFIC that are treated as marketable stock, you may
also make a mark-to-market election. If you make this election, you will not be
subject to the PFIC rules described above. Instead, in general, you will include
as ordinary income each year the excess, if any, of the fair market value of
your shares at the end of the taxable year over your adjusted basis in your
shares. You will also be allowed to take an ordinary loss in respect of the
excess, if any, of the adjusted basis of your shares over their fair market
value at the end of the taxable year (but only to the extent of the net amount
of previously included income as a result of the mark-to-market election). Your
basis in the shares will be adjusted to reflect any such income or loss amounts.

     If you own shares during any year that we are a PFIC, you must file
Internal Revenue Service Form 8621.

                                        64
<PAGE>   67

DOCUMENTS ON DISPLAY

     You may read and copy documents referred to in this annual report on Form
20-F that have been filed with the U.S. Securities and Exchange Commission at
the SEC's public reference room located at 450 Fifth Street, NW, Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms and their copy charges.

     The SEC allows us to "incorporate by reference" the information we file
with the SEC. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this annual report on Form
20-F.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We are subject to market rate risks due to fluctuations in interest rates.
The majority of our debt is in the form of long-term, fixed- and variable-rate
bank and other loans with original maturities ranging from one to five years.
Accordingly, fluctuations in interest rates can lead to significant fluctuations
in the fair value of these debt instruments. From time to time, we may enter
into interest rate swap agreements designed to mitigate our exposure to interest
rate risks, although we did not consider it necessary to do so in 2000.

     We are also exposed to foreign currency risk as a result of our
telecommunications equipment being sourced substantially from overseas
suppliers. Specifically, our foreign currency exposure relates primarily to our
foreign currency-denominated short- and long-term debt, our firm purchase
commitments and, to a limited extent, cash and cash equivalents denominated in
foreign currencies. We may, from time to time, enter into currency swap
agreements and foreign exchange forward contracts designed to mitigate our
exposure to foreign currency risks, although we did not consider this to be
necessary in 2000. Our foreign currency hedging activity generally is expected
to be limited to hedging of specific future commitments and long-term debt
denominated in foreign currencies.

     The following table provides information regarding our interest
rate-sensitive financial instruments, which consist of fixed and variable rate
short-term and long-term debt obligations, as of December 31, 2000 and 1999.

<TABLE>
<CAPTION>
                                                                                                AS OF              AS OF
                                                                                            DECEMBER 31,        DECEMBER 31,
                                                                                                2000                1999
                                                                                          -----------------   ----------------
                                                 EXPECTED MATURITY DATE                    TOTAL               TOTAL
                                          ------------------------------------   THERE-   RECORDED    FAIR    RECORDED   FAIR
                                          2001    2002    2003    2004    2005   AFTER     AMOUNT    VALUE     AMOUNT    VALUE
                                          -----   -----   -----   -----   ----   ------   --------   ------   --------   -----
                                                          (RMB EQUIVALENT IN MILLIONS, EXCEPT INTEREST RATES)
<S>                                       <C>     <C>     <C>     <C>     <C>    <C>      <C>        <C>      <C>        <C>
Debt:
  Fixed rate bank and other loans.......  8,321   3,646   1,127   1,364   102       70     14,630    14,700    5,351     5,386
  Average interest rate.................   5.34%   5.84%   6.11%   6.04%  5.33%   5.18%      5.59%       --     6.42%       --
  Variable rate bank and other loans....  2,150   1,637   4,527      --    --       --      8,314     8,314    1,225     1,225
  Average interest rate.................   6.33%   6.05%   5.43%     --    --       --       5.79%       --     6.04%       --
</TABLE>

---------------

* The interest rates for variable rate bank and other loans are calculated based
  on the year-end indices.

                                        65
<PAGE>   68

     The following table provides information regarding our foreign
currency-sensitive financial instruments and transactions, which consist of cash
and cash equivalents, short- and long-term debt obligations and capital
commitments as of December 31, 2000 and 1999.

<TABLE>
<CAPTION>
                                                                                              AS OF              AS OF
                                                                                           DECEMBER 31,       DECEMBER 31,
                                                                                               2000               1999
                                                                                         ----------------   ----------------
                                                                                          TOTAL              TOTAL
                                                                                THERE-   RECORDED   FAIR    RECORDED   FAIR
                                            2001    2002   2003   2004   2005   AFTER     AMOUNT    VALUE    AMOUNT    VALUE
                                            -----   ----   ----   ----   ----   ------   --------   -----   --------   -----
                                                          (RMB EQUIVALENT IN MILLIONS, EXCEPT INTEREST RATES)
<S>                                         <C>     <C>    <C>    <C>    <C>    <C>      <C>        <C>     <C>        <C>
ON-BALANCE SHEET FINANCIAL INSTRUMENTS:
Cash and cash equivalents:
  in U.S. dollars.........................  3,788    --     --     --     --       --     3,788     3,788    5,071     5,071
  in Hong Kong dollars....................  1,288    --     --     --     --       --     1,288     1,288    2,083     2,083
Debt:
  Fixed rate bank and other loans (U.S.
    dollar)...............................    113   165    166     82     --       --       526      536       744       751
  Average interest rate...................   7.50%  7.50%  7.50%  7.50%   --       --      7.50%      --      7.50%       --
  Variable rate bank and other loans (U.S.
    dollar)...............................    195    79     --     --     --       --       274      274       246       246
  Average interest rate...................   7.65%  7.75%   --     --     --       --      7.68%      --      6.77%       --
Off-balance sheet commitments
  Capital commitments authorized and
    contracted for in U.S. dollars........  3,526    --     --     --     --       --     3,526     3,526    4,932     4,932
</TABLE>

---------------

* The interest rates for variable rate bank and other loans are calculated based
  on the year-end indices.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

     Not Applicable.

                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

     Not applicable.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF
PROCEEDS.

     The following use of proceeds information relates to our registration
statement on Form F-1 (File No. 333-7634), filed by us in connection with our
initial public offering. The registration statement became effective on October
15, 1997.

     As of December 31, 1999, the balance of net proceeds from the above
referenced offering was RMB 3,953 million (approximately US$477 million). In
2000, approximately RMB 2,365 million (approximately US$285 million) of this
amount was paid to China Mobile Hong Kong (BVI) Limited, our direct parent
company, as part of the purchase price for our acquisition of seven regional
mobile communications companies in Mainland China in November 2000. The rest of
the amount was applied to fund the development and expansion of our mobile
communications networks in our service regions in Mainland China. None of the
network related payments were direct or indirect payments to our directors,
officers and general partners or their associates, persons owning 10% or more of
our ordinary shares, or our affiliates. As of December 31, 2000, all of the net
proceeds had been applied.

                                        66
<PAGE>   69

ITEM 15.  [RESERVED].

ITEM 16.  [RESERVED].

                                    PART III

ITEM 17.  FINANCIAL STATEMENTS.

     The Company has elected to provide the financial statements and related
information specified in Item 18 in lieu of Item 17.

ITEM 18.  FINANCIAL STATEMENTS.

     The following financial statements are filed as part of this annual report.

<TABLE>
<S>                                                           <C>
CHINA MOBILE (HONG KONG) LIMITED:
Index to consolidated financial statements..................   F-1
Independent auditors' report................................   F-2
Consolidated statements of income for each of the three
  years ended December 31, 1998, 1999 and 2000..............   F-3
Consolidated statements of recognized gains and losses for
  each of the three years ended December 31, 1998, 1999 and
  2000......................................................   F-4
Consolidated balance sheets as of December 31, 1999 and
  2000......................................................   F-5
Consolidated statements of cash flows for each of the three
  years ended December 31, 1998, 1999 and 2000..............   F-6
Consolidated statements of shareholders' equity for each of
  the three years ended December 31, 1998, 1999 and 2000....  F-11
Notes to consolidated financial statements..................  F-12
</TABLE>

ITEM 19.  EXHIBITS.

(a) See Item 18 for a list of the financial statements filed as part of this
    annual report.

(b) Exhibits to this annual report:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<C>       <C>  <S>

 1.1       --  Memorandum and Articles of Association (as amended).

 2.1       --  Agreement concerning the provision of the documents relating
               to Renminbi denominated bonds issued by Guangdong Mobile.

 2.2       --  Guarantee from China Mobile Communications Corporation for
               the RMB 5 billion guaranteed bonds due in 2011 issued by
               Guangdong Mobile.

 4.1       --  Agreement Regarding Provincial Network Interconnection,
               Roaming and Settlement of Account, dated October 8, 1999,
               between China Telecom (Hong Kong) Limited and China Mobile
               (Hong Kong) Limited.(2)

 4.2       --  Agreement Regarding the Use of Frequency/Number Resources,
               dated October 8, 1999, between China Telecom (Hong Kong)
               Limited and China Mobile (Hong Kong) Limited.(2)

 4.3       --  Agreement on Trademark Use, dated October 8, 1999, between
               China Telecom (Hong Kong) Limited and China Mobile (Hong
               Kong) Limited.(2)

 4.4       --  Supplemental Agreement to Trademark Licensing Agreement,
               dated September 15, 1999, between China Telecom (Hong Kong)
               Limited and Directorate General Telecommunications.(2)
</TABLE>

                                        67
<PAGE>   70

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<C>       <C>  <S>

 4.5       --  Agreement Regarding Network Interconnection and Settlement
               of Account, dated October 8, 1999, between Guangdong Mobile
               and Guangdong Posts and Telecommunications Administration
               ("PTA").(2)

 4.6       --  Agreement Regarding Network Interconnection and Settlement
               of Account, dated October 5, 1999, between Zhejiang Mobile
               and Zhejiang PTA.(2)

 4.7       --  Agreement Regarding Network Interconnection and Settlement
               of Account, dated October 8, 1999, between Jiangsu Mobile
               and Jiangsu PTA.(2)

 4.8       --  Agreement Regarding Network Interconnection and Settlement
               of Account, dated August 30, 1999, between Fujian Mobile
               Communication Bureau and Fujian PTA.(2)

 4.9       --  Synchronous Clock Port Leasing Agreement, dated August 30,
               1999, between Fujian Mobile Communication Bureau and Fujian
               PTA.(2)

 4.10      --  Local Transmission Line Leasing Agreement, dated August 30,
               1999, between Fujian Mobile Communication Bureau and Fujian
               PTA.(2)

 4.11      --  Long Distance Line Leasing Agreement, dated August 30, 1999,
               between Fujian Mobile Communication Bureau and Fujian
               PTA.(2)

 4.12      --  Business Agency Agreement, dated August 30, 1999, between
               Fujian Mobile Communication Bureau and Fujian PTA.(2)

 4.13      --  Account Processing Agreement, dated August 30, 1999, between
               Fujian Mobile Communication Bureau and Fujian PTA.(2)

 4.14      --  Collection Agreement, dated August 30, 1999, between Fujian
               Mobile Communication Bureau and Fujian PTA.(2)

 4.15      --  Building and Facilities Leasing Agreement, dated August 30,
               1999, between Fujian Mobile and Fujian PTA.(2)

 4.16      --  Building and Facilities Leasing Agreement (leasing to PTA),
               dated August 30, 1999, between Fujian Mobile Communication
               Bureau and Fujian PTA.(2)

 4.17      --  Agreement on Equipment Maintenance, dated August 30, 1999,
               between Fujian Mobile Communication Bureau and Fujian
               PTA.(2)

 4.18      --  Building and Facility Leasing Agreement, dated September 25,
               1999, between Fujian Mobile and Fujian Xunjie Communications
               Technical Services Company ("Xunjie").(2)

 4.19      --  Agreement Regarding Network Interconnection and Settlement
               of Account, dated August 20, 1999, between Henan Mobile and
               Henan PTA.(2)

 4.20      --  Synchronous Clock Port Leasing Agreement, dated August 19,
               1999, between Henan Mobile and Henan PTA.(2)

 4.21      --  Local Transmission Line Leasing Agreement, dated August 19,
               1999, between Henan Mobile and Henan PTA.(2)

 4.22      --  Long Distance Line Leasing Agreement, dated August 19, 1999,
               between Henan Mobile and Henan PTA.(2)

 4.23      --  Business Agency Agreement, dated August 19, 1999, between
               Henan Mobile and Henan PTA.(2)

 4.24      --  Business Agency Agreement, dated August 19, 1999, between
               Henan Mobile and Henan Feida Communication Development
               Company Limited ("Feida").(2)

 4.25      --  Account Processing Agreement, dated August 19, 1999, between
               Henan Mobile and Henan PTA.(2)

 4.26      --  Collection Agreement, dated August 19, 1999, between Henan
               Mobile and Henan PTA.(2)

 4.27      --  Collection Agreement, dated August 19, 1999, between Henan
               Mobile and Feida.(2)
</TABLE>

                                        68
<PAGE>   71

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<C>       <C>  <S>

 4.28      --  Building and Facilities Leasing Agreement, dated August 19,
               1999, between Henan Mobile and Henan PTA.(2)

 4.29      --  Real Estates Leasing Agreement, dated September 23, 1999,
               between Henan Mobile and Feida.(2)

 4.30      --  Agreement Regarding Network Interconnection and Settlement
               of Account, dated August 20, 1999, between Hainan Mobile and
               Hainan PTA.(2)

 4.31      --  Synchronous Clock Port Leasing Agreement, dated August 20,
               1999, between Hainan Mobile and Hainan PTA.(2)

 4.32      --  Local Transmission Line Leasing Agreement, dated August 20,
               1999, between Hainan Mobile and Hainan PTA.(2)

 4.33      --  Long Distance Line Leasing Agreement, dated August 20, 1999,
               between Hainan Mobile and Hainan PTA.(2)

 4.34      --  Business Agency Agreement, dated August 20, 1999, between
               Hainan Mobile and Hainan PTA.(2)

 4.35      --  Account Processing Agreement, dated August 20, 1999, between
               Hainan Mobile and Hainan PTA.(2)

 4.36      --  Collection Agreement, dated August 20, 1999, between Hainan
               Mobile and Hainan PTA.(2)

 4.37      --  Building and Facilities Leasing Agreement, dated August 20,
               1999, between Hainan Mobile and Hainan PTA.(2)

 4.38      --  Real Estates Leasing Agreement dated September 24, 1999,
               between Hainan Mobile and Hainan Communication Service
               Company ("Hainan Service").(2)

 4.39      --  Inter-Provincial Long-Distance Transmission Leased Line Fee
               Sharing Agreement, dated May 5, 2000, between China Mobile
               Communications Corporation and China Telecom (Hong Kong)
               Limited.(4)

 4.40      --  Inter-Provincial Network Interconnection, Domestic and
               International Roaming and Settlement Agreement, dated May 5,
               2000, between China Mobile Communications Corporation and
               China Telecom (Hong Kong) Limited.(4)

 4.41      --  Tenancy Agreement, dated June 7, 2000, between Fu Hao
               Properties Limited and China Telecom (Hong Kong) Limited.(4)

 4.42      --  Supplemental Agreement to Spectrum/Number Resources Use
               Agreement, Trademark License Contract, Inter-provincial Long
               Distance Transmission Lines Fee Sharing Agreement and Inter-
               provincial Interconnection and Domestic and International
               Roaming Settlement Agreement, dated September 19, 2000,
               among China Mobile Communications Corporation, China Mobile
               (Hong Kong) Limited, Beijing Mobile, Tianjin Mobile,
               Shanghai Mobile, Hebei Mobile, Liaoning Mobile, Shandong
               Mobile and Guangxi Mobile.(1)

 4.43      --  Agreement Regarding the Roaming Settlement of "Shenzhouxing"
               Prepaid Services "Shenzhouxing" and Revenues Sharing for
               Sales of Stored Value for Stored Value Cards, dated October
               4, 2000, between China Mobile Communications Corporation and
               China Mobile (Hong Kong) Limited.(1)

 4.44      --  Contract on Termination of the Trademark Licensing, dated
               September 15, 2000, between China Telecommunications
               Corporation and China Mobile (Hong Kong) Limited.(1)

 4.45      --  Building Leasing and Property Management Agreement, dated
               September 18, 2000, between Beijing Mobile and Beijing
               Communications Service Company ("Beijing Service").(1)

 4.46      --  Building Leasing and Property Management Agreement, dated
               September 18, 2000, between Beijing Mobile and Beijing
               Service.(1)
</TABLE>

                                        69
<PAGE>   72

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<C>       <C>  <S>

 4.47      --  Agreement on Mobile Communications Equipment Maintenance and
               Modulation, dated September 18, 2000, between Beijing Mobile
               and Beijing Huarui Wireless Communications Equipment
               Installation Company ("Beijing Huarui").(1)

 4.48      --  Agreement on Communications Projects Design and
               Construction, dated September 18, 2000, between Beijing
               Mobile and Beijing Huarui.(1)

 4.49      --  Capital Contribution Agreement, dated August 30, 2000, among
               China Mobile Communications Corporation, Beijing Mobile and
               Beijing Service.(1)

 4.50      --  Agreement Regarding the Transfer of Personnel, Finances and
               Assets Not Directly Related to Mobile Communication
               Services, dated August 30, 2000, among China Mobile
               Communications Corporation, Beijing Mobile and Beijing
               Service.(1)

 4.51      --  Agreement on the Confirmation of the Transfer of Personnel,
               Finances and Assets and the Related Rights and Obligations,
               dated August 30, 2000, between Beijing Mobile and Beijing
               Service.(1)

 4.52      --  Agreement on Mobile Communications Equipment Maintenance,
               dated September 20, 2000, between Shanghai Mobile and
               Shanghai Long-distance Telecommunications Engineering
               Company ("Shanghai Engineering").(1)

 4.53      --  Agreement on Contracting Mobile Communications Projects,
               dated September 20, 2000, between Shanghai Mobile and
               Shanghai Engineering.(1)

 4.54      --  Building Leasing and Property Management Agreement, dated
               September 20, 2000, between Shanghai Mobile and Shanghai
               Communications Service Company ("Shanghai Service").(1)

 4.55      --  Capital Contribution Agreement, dated August 30, 2000, among
               China Mobile Communications Corporation, Shanghai Mobile and
               Shanghai Service.(1)

 4.56      --  Agreement Regarding the Transfer of Personnel, Finances and
               Assets Not Directly Related to Mobile Communication
               Services, dated August 30, 2000, among China Mobile
               Communications Corporation, Shanghai Mobile and Shanghai
               Service.(1)

 4.57      --  Agreement on the Confirmation of the Transfer of Personnel,
               Finances and Assets and the Related Rights and Obligations,
               dated August 30, 2000, between Shanghai Mobile and Shanghai
               Service.(1)

 4.58      --  Building Leasing Agreement, dated August 1, 2000, between
               Tianjin Mobile and Tianjin Communications Service Company
               ("Tianjin Service").(1)

 4.59      --  Capital Contribution Agreement, dated August 30, 2000, among
               China Mobile Communications Corporation, Tianjin Mobile and
               Tianjin Service.(1)

 4.60      --  Agreement Regarding the Transfer of Personnel, Finances and
               Assets Not Directly Related to Mobile Communication
               Services, dated August 30, 2000, among China Mobile
               Communications Corporation, Tianjin Mobile and Tianjin
               Service.)(1)

 4.61      --  Agreement on the Confirmation of the Transfer of Personnel,
               Finances and Assets and the Related Rights and Obligations,
               dated August 30, 2000, between Tianjin Mobile and Tianjin
               Service.(1)

 4.62      --  Building Leasing and Property Management Agreement, dated
               August 1, 2000, between Hebei Mobile and Hebei
               Communications Service Company ("Hebei Service").(1)

 4.63      --  Agreement on the Sales and Maintenance of Masts and
               Maintenance of Antennas and Feeder Lines, dated August 1,
               2000, between Hebei Mobile and Hebei Provincial Posts and
               Telecommunications Equipment and Machinery Plant.(1)

 4.64      --  Capital Contribution Agreement, dated August 30, 2000, among
               China Mobile Communications Corporation, Hebei Mobile and
               Hebei Service.(1)
</TABLE>

                                        70
<PAGE>   73

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<C>       <C>  <S>

 4.65      --  Agreement Regarding the Transfer of Personnel, Finances and
               Assets Not Directly Related to Mobile Communication
               Services, dated August 30, 2000, among China Mobile
               Communications Corporation, Hebei Mobile and Hebei
               Service.(1)

 4.66      --  Agreement on the Confirmation of the Transfer of Personnel,
               Finances and Assets and the Related Rights and Obligations,
               dated August 30, 2000, between Hebei Mobile and Hebei
               Service.(1)

 4.67      --  Building Leasing and Property Management Agreement, dated
               August 10, 2000, between Liaoning Mobile and Liaoning
               Communications Service Company ("Liaoning Service").(1)

 4.68      --  Agreement on Communications Equipment Maintenance, dated
               September 8, 2000, between Liaoning Mobile and Liaoning
               Provincial Posts and Telecommunications Engineering Bureau
               ("Liaoning Engineering").(1)

 4.69      --  Agreement on Mobile Communications Projects Construction,
               dated September 8, 2000, between Liaoning Mobile and
               Liaoning Engineering.(1)

 4.70      --  Capital Contribution Agreement, dated August 30, 2000, among
               China Mobile Communications Corporation, Liaoning Mobile and
               Liaoning Service.(1)

 4.71      --  Agreement Regarding the Transfer of Personnel, Finances and
               Assets Not Directly Related to Mobile Communication
               Services, dated August 30, 2000, among China Mobile
               Communications Corporation, Liaoning Mobile and Liaoning
               Service.(1)

 4.72      --  Agreement on the Confirmation of the Transfer of Personnel,
               Finances and Assets and the Related Rights and Obligations,
               dated August 30, 2000, between Liaoning Mobile and Liaoning
               Service.(1)

 4.73      --  Building Leasing and Property Management Agreement, dated
               September 1, 2000, between Shandong Mobile and Shandong
               Communications Service Company ("Shandong Service").(1)

 4.74      --  Agreement on Contracting Mobile Communications Projects,
               dated September 1, 2000, between Shandong Mobile and
               Shandong Mobile Communications Engineering Bureau.(1)

 4.75      --  Capital Contribution Agreement, dated August 30, 2000, among
               China Mobile Communications Corporation, Shandong Mobile and
               Shandong Service.(1)

 4.76      --  Agreement Regarding the Transfer of Personnel, Finances and
               Assets Not Directly Related to Mobile Communication
               Services, dated August 30, 2000, among China Mobile
               Communications Corporation, Shandong Mobile and Shandong
               Service.(1)

 4.77      --  Agreement on the Confirmation of the Transfer of Personnel,
               Finances and Assets and the Related Rights and Obligations,
               dated August 30, 2000, between Shandong Mobile and Shandong
               Service.(1)

 4.78      --  Building Lease Agreement, dated August 26, 2000, between
               Guangxi Mobile and Guangxi Communications Service Company
               ("Guangxi Service").(1)

 4.79      --  Capital Contribution Agreement, dated August 30, 2000, among
               China Mobile Communications Corporation, Guangxi Mobile and
               Guangxi Service.(1)

 4.80      --  Agreement Regarding the Transfer of Personnel, Finances and
               Assets Not Directly Related to Mobile Communication
               Services, dated August 30, 2000, among China Mobile
               Communications Corporation, Guangxi Mobile and Guangxi
               Service.(1)

 4.81      --  Agreement on the Confirmation of the Transfer of Personnel,
               Finances and Assets and the Related Rights and Obligations,
               dated August 30, 2000, between Guangxi Mobile and Guangxi
               Service.(1)

 4.82      --  Strategic Investor Placing Agreement among China Mobile
               (Hong Kong) Limited, Vodafone Group Plc, China International
               Capital Corporation, Goldman Sachs (Asia) L.L.C. and Merrill
               Lynch Far East Limited.(1)
</TABLE>

                                        71
<PAGE>   74

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBIT
-------                           ----------------------
<C>       <C>  <S>

 4.83      --  Syndicated loan agreement for RMB 7,500,000,000 among China
               Mobile (Shenzhen) Limited, Construction Bank of China, Bank
               of China, State Development Bank, Agriculture Bank of China,
               Industrial and Commercial Bank of China, Bank of
               Communications, Hong Kong and Shanghai Banking Corporation
               Ltd., China Merchants Bank & Construction Bank of China,
               Shenzhen Branch, dated October 7, 2000.(1)

 4.84      --  Syndicated loan agreement for RMB 5,000,000,000 among China
               Mobile (Shenzhen) Limited, Construction Bank of China, Bank
               of China, State Development Bank, Agriculture Bank of China,
               Industrial and Commercial Bank of China, Bank of
               Communications, Hong Kong & Shanghai Banking Corporation
               Ltd., China Merchants Bank and Construction Bank of China,
               Shenzhen Branch, dated October 7, 2000.(1)

 4.85      --  Prepaid services agreement dated May 11, 2001, between China
               Mobile (Hong Kong) Limited and China Mobile Communications
               Corporation.

 4.86      --  Conditional Acquisition Agreement, dated April 28, 1998,
               between China Telecom (Hong Kong) Limited and China Telecom
               Hong Kong (BVI) Limited.(5)

 4.87      --  Conditional Sale and Purchase Agreement, dated October 4,
               1999, among China Telecom Hong Kong (BVI) Limited, China
               Telecom (Hong Kong) Group Limited and China Telecom (Hong
               Kong) Limited.(2)

 4.88      --  Conditional Sale and Purchase Agreement, dated October 4,
               2000, among China Mobile Communications Corporation, China
               Mobile Hong Kong (BVI) Limited and China Mobile (Hong Kong)
               Limited.(1)

 4.89      --  Deed of Indemnity, dated October 8, 1997, among China
               Telecom (Hong Kong) Group Limited, China Telecom (Hong Kong)
               Limited, Guangdong Mobile and Zhejiang Mobile.(3)

 4.90      --  Investment Agreement, dated September 27, 1997, between
               Zhejiang PTA and Zhejiang Mobile.(3)

 4.91      --  Joint Venture Agreement, dated July 27, 1997, among China
               Mobile (Hong Kong) Limited, Zhejiang Financial Development
               Company, Zhejiang Jianda Industrial Development Company,
               Zhejiang Wireless Electric Communications Technology Company
               and MPT Hangzhou Communications Equipment Factory.(3)

 4.92      --  Transmission Line Leasing Agreement, dated April 27, 1998,
               between Jiangsu Mobile and Jiangsu PTA.(5)

 4.93      --  Collection Agreement, dated April 27, 1998, between Jiangsu
               Mobile and Jiangsu PTA.(5)

 4.94      --  Distribution and Marketing Agreement, dated April 27, 1998,
               between Jiangsu Mobile and Jiangsu PTA.(5)

 4.95      --  Master Building Contract, dated May 30, 1997, between
               Guangdong Mobile and Guangdong PTA.(3)

 4.96      --  Master Building Contract, dated April 27, 1998, between
               Jiangsu Mobile and Jiangsu PTA.(5)

 4.97      --  Marketing Agreement, dated October 15, 1998, between
               Guangdong Mobile and Guangdong PTA.(5)

 8.1       --  List of major subsidiaries.
</TABLE>

---------------

(1) Incorporated by reference to our Registration Statement on Form F-3 (File
    No. 333-47256), filed with the Securities and Exchange Commission on October
    30, 2000.

(2) Incorporated by reference to our Registration Statement on Form F-3 (File
    No. 333-10956), filed with the Securities and Exchange Commission on October
    30, 1999.

(3) Incorporated by reference to our Registration Statement on Form F-1 (File
    No. 333-7634), filed with the Securities and Exchange Commission on
    September 29, 1997.

                                        72
<PAGE>   75

(4) Incorporated by reference to our Annual Report on Form 20-F for the fiscal
    year ended December 31, 1999 (File No. 1-14696), filed with the Securities
    and Exchange Commission on June 20, 2000.

(5) Incorporated by reference to our Annual Report on Form 20-F for the fiscal
    year ended December 31, 1998 (File No. 1-14696), filed with the U.S.
    Securities and Exchange Commission on June 25, 1999.

                                        73
<PAGE>   76

                                   SIGNATURES

     The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

                                          CHINA MOBILE (HONG KONG) LIMITED

                                          By:       /s/ WANG XIAOCHU
                                            ------------------------------------
                                            Name: Wang Xiaochu
                                            Title: Chairman and Chief Executive
                                                   Officer

Date: June 26, 2001

                                        74
<PAGE>   77

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                          DESCRIPTION OF EXHIBIT
-------                         ----------------------
<C>     <C>  <S>

  1.1    --  Memorandum and Articles of Association (as amended).

  2.1    --  Agreement concerning the provision of the documents relating
             to Renminbi denominated bonds issued by Guangdong Mobile.

  2.2    --  Guarantee from China Mobile Communications Corporation for
             the RMB5 billion guaranteed bonds due in 2011 issued by
             Guangdong Mobile.

  4.1    --  Agreement Regarding Provincial Network Interconnection,
             Roaming and Settlement of Account, dated October 8, 1999,
             between China Telecom (Hong Kong) Limited and China Mobile
             (Hong Kong) Limited.(2)

  4.2    --  Agreement Regarding the Use of Frequency/Number Resources,
             dated October 8, 1999, between China Telecom (Hong Kong)
             Limited and China Mobile (Hong Kong) Limited.(2)

  4.3    --  Agreement on Trademark Use, dated October 8, 1999, between
             China Telecom (Hong Kong) Limited and China Mobile (Hong
             Kong) Limited.(2)

  4.4    --  Supplemental Agreement to Trademark Licensing Agreement,
             dated September 15, 1999, between China Telecom (Hong Kong)
             Limited and Directorate General Telecommunications.(2)

  4.5    --  Agreement Regarding Network Interconnection and Settlement
             of Account, dated October 8, 1999, between Guangdong Mobile
             and Guangdong Posts and Telecommunications Administration
             ("PTA").(2)

  4.6    --  Agreement Regarding Network Interconnection and Settlement
             of Account, dated October 5, 1999, between Zhejiang Mobile
             and Zhejiang PTA.(2)

  4.7    --  Agreement Regarding Network Interconnection and Settlement
             of Account, dated October 8, 1999, between Jiangsu Mobile
             and Jiangsu PTA.(2)

  4.8    --  Agreement Regarding Network Interconnection and Settlement
             of Account, dated August 30, 1999, between Fujian Mobile
             Communication Bureau and Fujian PTA.(2)

  4.9    --  Synchronous Clock Port Leasing Agreement, dated August 30,
             1999, between Fujian Mobile Communication Bureau and Fujian
             PTA.(2)

  4.10   --  Local Transmission Line Leasing Agreement, dated August 30,
             1999, between Fujian Mobile Communication Bureau and Fujian
             PTA.(2)

  4.11   --  Long Distance Line Leasing Agreement, dated August 30, 1999,
             between Fujian Mobile Communication Bureau and Fujian
             PTA.(2)

  4.12   --  Business Agency Agreement, dated August 30, 1999, between
             Fujian Mobile Communication Bureau and Fujian PTA.(2)

  4.13   --  Account Processing Agreement, dated August 30, 1999, between
             Fujian Mobile Communication Bureau and Fujian PTA.(2)

  4.14   --  Collection Agreement, dated August 30, 1999, between Fujian
             Mobile Communication Bureau and Fujian PTA.(2)

  4.15   --  Building and Facilities Leasing Agreement, dated August 30,
             1999, between Fujian Mobile and Fujian PTA.(2)

  4.16   --  Building and Facilities Leasing Agreement (leasing to PTA),
             dated August 30, 1999, between Fujian Mobile Communication
             Bureau and Fujian PTA.(2)

  4.17   --  Agreement on Equipment Maintenance, dated August 30, 1999,
             between Fujian Mobile Communication Bureau and Fujian
             PTA.(2)

  4.18   --  Building and Facility Leasing Agreement, dated September 25,
             1999, between Fujian Mobile and Fujian Xunjie Communications
             Technical Services Company ("Xunjie").(2)
</TABLE>

                                        75
<PAGE>   78

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                          DESCRIPTION OF EXHIBIT
-------                         ----------------------
<C>     <C>  <S>

  4.19   --  Agreement Regarding Network Interconnection and Settlement
             of Account, dated August 20, 1999, between Henan Mobile and
             Henan PTA.(2)

  4.20   --  Synchronous Clock Port Leasing Agreement, dated August 19,
             1999, between Henan Mobile and Henan PTA.(2)

  4.21   --  Local Transmission Line Leasing Agreement, dated August 19,
             1999, between Henan Mobile and Henan PTA.(2)

  4.22   --  Long Distance Line Leasing Agreement, dated August 19, 1999,
             between Henan Mobile and Henan PTA.(2)

  4.23   --  Business Agency Agreement, dated August 19, 1999, between
             Henan Mobile and Henan PTA.(2)

  4.24   --  Business Agency Agreement, dated August 19, 1999, between
             Henan Mobile and Henan Feida Communication Development
             Company Limited ("Feida").(2)

  4.25   --  Account Processing Agreement, dated August 19, 1999, between
             Henan Mobile and Henan PTA.(2)

  4.26   --  Collection Agreement, dated August 19, 1999, between Henan
             Mobile and Henan PTA.(2)

  4.27   --  Collection Agreement, dated August 19, 1999, between Henan
             Mobile and Feida.(2)

  4.28   --  Building and Facilities Leasing Agreement, dated August 19,
             1999, between Henan Mobile and Henan PTA.(2)

  4.29   --  Real Estates Leasing Agreement, dated September 23, 1999,
             between Henan Mobile and Feida.(2)

  4.30   --  Agreement Regarding Network Interconnection and Settlement
             of Account, dated August 20, 1999, between Hainan Mobile and
             Hainan PTA.(2)

  4.31   --  Synchronous Clock Port Leasing Agreement, dated August 20,
             1999, between Hainan Mobile and Hainan PTA.(2)

  4.32   --  Local Transmission Line Leasing Agreement, dated August 20,
             1999, between Hainan Mobile and Hainan PTA.(2)

  4.33   --  Long Distance Line Leasing Agreement, dated August 20, 1999,
             between Hainan Mobile and Hainan PTA.(2)

  4.34   --  Business Agency Agreement, dated August 20, 1999, between
             Hainan Mobile and Hainan PTA.(2)

  4.35   --  Account Processing Agreement, dated August 20, 1999, between
             Hainan Mobile and Hainan PTA.(2)

  4.36   --  Collection Agreement, dated August 20, 1999, between Hainan
             Mobile and Hainan PTA.(2)

  4.37   --  Building and Facilities Leasing Agreement, dated August 20,
             1999, between Hainan Mobile and Hainan PTA.(2)

  4.38   --  Real Estates Leasing Agreement dated September 24, 1999,
             between Hainan Mobile and Hainan Communication Service
             Company ("Hainan Service").(2)

  4.39   --  Inter-Provincial Long-Distance Transmission Leased Line Fee
             Sharing Agreement, dated May 5, 2000, between China Mobile
             Communications Corporation and China Telecom (Hong Kong)
             Limited.(4)

  4.40   --  Inter-Provincial Network Interconnection, Domestic and
             International Roaming and Settlement Agreement, dated May 5,
             2000, between China Mobile Communications Corporation and
             China Telecom (Hong Kong) Limited.(4)

  4.41   --  Tenancy Agreement, dated June 7, 2000, between Fu Hao
             Properties Limited and China Telecom (Hong Kong) Limited.(4)
</TABLE>

                                        76
<PAGE>   79

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                          DESCRIPTION OF EXHIBIT
-------                         ----------------------
<C>     <C>  <S>

  4.42   --  Supplemental Agreement to Spectrum/Number Resources Use
             Agreement, Trademark License Contract, Inter-provincial Long
             Distance Transmission Lines Fee Sharing Agreement and Inter-
             provincial Interconnection and Domestic and International
             Roaming Settlement Agreement, dated September 19, 2000,
             among China Mobile Communications Corporation, China Mobile
             (Hong Kong) Limited, Beijing Mobile, Tianjin Mobile,
             Shanghai Mobile, Hebei Mobile, Liaoning Mobile, Shandong
             Mobile and Guangxi Mobile.(1)

  4.43   --  Agreement Regarding the Roaming Settlement of "Shenzhouxing'
             Prepaid Services "Shenzhouxing" and Revenues Sharing for
             Sales of Stored Value for Stored Value Cards, dated October
             4, 2000, between China Mobile Communications Corporation and
             China Mobile (Hong Kong) Limited.(1)

  4.44   --  Contract on Termination of the Trademark Licensing, dated
             September 15, 2000, between China Telecommunications
             Corporation and China Mobile (Hong Kong) Limited.(1)

  4.45   --  Building Leasing and Property Management Agreement, dated
             September 18, 2000, between Beijing Mobile and Beijing
             Communications Service Company ("Beijing Service").(1)

  4.46   --  Building Leasing and Property Management Agreement, dated
             September 18, 2000, between Beijing Mobile and Beijing
             Service.(1)

  4.47   --  Agreement on Mobile Communications Equipment Maintenance and
             Modulation, dated September 18, 2000, between Beijing Mobile
             and Beijing Huarui Wireless Communications Equipment
             Installation Company ("Beijing Huarui").(1)

  4.48   --  Agreement on Communications Projects Design and
             Construction, dated September 18, 2000, between Beijing
             Mobile and Beijing Huarui.(1)

  4.49   --  Capital Contribution Agreement, dated August 30, 2000, among
             China Mobile Communications Corporation, Beijing Mobile and
             Beijing Service.(1)

  4.50   --  Agreement Regarding the Transfer of Personnel, Finances and
             Assets Not Directly Related to Mobile Communication
             Services, dated August 30, 2000, among China Mobile
             Communications Corporation, Beijing Mobile and Beijing
             Service.(1)

  4.51   --  Agreement on the Confirmation of the Transfer of Personnel,
             Finances and Assets and the Related Rights and Obligations,
             dated August 30, 2000, between Beijing Mobile and Beijing
             Service.(1)

  4.52   --  Agreement on Mobile Communications Equipment Maintenance,
             dated September 20, 2000, between Shanghai Mobile and
             Shanghai Long-distance Telecommunications Engineering
             Company ("Shanghai Engineering").(1)

  4.53   --  Agreement on Contracting Mobile Communications Projects,
             dated September 20, 2000, between Shanghai Mobile and
             Shanghai Engineering.(1)

  4.54   --  Building Leasing and Property Management Agreement, dated
             September 20, 2000, between Shanghai Mobile and Shanghai
             Communications Service Company ("Shanghai Service").(1)

  4.55   --  Capital Contribution Agreement, dated August 30, 2000, among
             China Mobile Communications Corporation, Shanghai Mobile and
             Shanghai Service.(1)

  4.56   --  Agreement Regarding the Transfer of Personnel, Finances and
             Assets Not Directly Related to Mobile Communication
             Services, dated August 30, 2000, among China Mobile
             Communications Corporation, Shanghai Mobile and Shanghai
             Service.(1)

  4.57   --  Agreement on the Confirmation of the Transfer of Personnel,
             Finances and Assets and the Related Rights and Obligations,
             dated August 30, 2000, between Shanghai Mobile and Shanghai
             Service.(1)

  4.58   --  Building Leasing Agreement, dated August 1, 2000, between
             Tianjin Mobile and Tianjin Communications Service Company
             ("Tianjin Service").(1)
</TABLE>

                                        77
<PAGE>   80

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                          DESCRIPTION OF EXHIBIT
-------                         ----------------------
<C>     <C>  <S>

  4.59   --  Capital Contribution Agreement, dated August 30, 2000, among
             China Mobile Communications Corporation, Tianjin Mobile and
             Tianjin Service.(1)

  4.60   --  Agreement Regarding the Transfer of Personnel, Finances and
             Assets Not Directly Related to Mobile Communication
             Services, dated August 30, 2000, among China Mobile
             Communications Corporation, Tianjin Mobile and Tianjin
             Service.(1)

  4.61   --  Agreement on the Confirmation of the Transfer of Personnel,
             Finances and Assets and the Related Rights and Obligations,
             dated August 30, 2000, between Tianjin Mobile and Tianjin
             Service.(1)

  4.62   --  Building Leasing and Property Management Agreement, dated
             August 1, 2000, between Hebei Mobile and Hebei
             Communications Service Company ("Hebei Service").(1)

  4.63   --  Agreement on the Sales and Maintenance of Masts and
             Maintenance of Antennas and Feeder Lines, dated August 1,
             2000, between Hebei Mobile and Hebei Provincial Posts and
             Telecommunications Equipment and Machinery Plant.(1)

  4.64   --  Capital Contribution Agreement, dated August 30, 2000, among
             China Mobile Communications Corporation, Hebei Mobile and
             Hebei Service.(1)

  4.65   --  Agreement Regarding the Transfer of Personnel, Finances and
             Assets Not Directly Related to Mobile Communication
             Services, dated August 30, 2000, among China Mobile
             Communications Corporation, Hebei Mobile and Hebei
             Service.(1)

  4.66   --  Agreement on the Confirmation of the Transfer of Personnel,
             Finances and Assets and the Related Rights and Obligations,
             dated August 30, 2000, between Hebei Mobile and Hebei
             Service.(1)

  4.67   --  Building Leasing and Property Management Agreement, dated
             August 10, 2000, between Liaoning Mobile and Liaoning
             Communications Service Company ("Liaoning Service").(1)

  4.68   --  Agreement on Communications Equipment Maintenance, dated
             September 8, 2000, between Liaoning Mobile and Liaoning
             Provincial Posts and Telecommunications Engineering Bureau
             ("Liaoning Engineering").(1)

  4.69   --  Agreement on Mobile Communications Projects Construction,
             dated September 8, 2000, between Liaoning Mobile and
             Liaoning Engineering.(1)

  4.70   --  Capital Contribution Agreement, dated August 30, 2000, among
             China Mobile Communications Corporation, Liaoning Mobile and
             Liaoning Service.(1)

  4.71   --  Agreement Regarding the Transfer of Personnel, Finances and
             Assets Not Directly Related to Mobile Communication
             Services, dated August 30, 2000, among China Mobile
             Communications Corporation, Liaoning Mobile and Liaoning
             Service.(1)

  4.72   --  Agreement on the Confirmation of the Transfer of Personnel,
             Finances and Assets and the Related Rights and Obligations,
             dated August 30, 2000, between Liaoning Mobile and Liaoning
             Service.(1)

  4.73   --  Building Leasing and Property Management Agreement, dated
             September 1, 2000, between Shandong Mobile and Shandong
             Communications Service Company ("Shandong Service").(1)

  4.74   --  Agreement on Contracting Mobile Communications Projects,
             dated September 1, 2000, between Shandong Mobile and
             Shandong Mobile Communications Engineering Bureau.(1)

  4.75   --  Capital Contribution Agreement, dated August 30, 2000, among
             China Mobile Communications Corporation, Shandong Mobile and
             Shandong Service.(1)

  4.76   --  Agreement Regarding the Transfer of Personnel, Finances and
             Assets Not Directly Related to Mobile Communication
             Services, dated August 30, 2000, among China Mobile
             Communications Corporation, Shandong Mobile and Shandong
             Service.(1)
</TABLE>

                                        78
<PAGE>   81

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                          DESCRIPTION OF EXHIBIT
-------                         ----------------------
<C>     <C>  <S>

  4.77   --  Agreement on the Confirmation of the Transfer of Personnel,
             Finances and Assets and the Related Rights and Obligations,
             dated August 30, 2000, between Shandong Mobile and Shandong
             Service.(1)

  4.78   --  Building Lease Agreement, dated August 26, 2000, between
             Guangxi Mobile and Guangxi Communications Service Company
             ("Guangxi Service").(1)

  4.79   --  Capital Contribution Agreement, dated August 30, 2000, among
             China Mobile Communications Corporation, Guangxi Mobile and
             Guangxi Service.(1)

  4.80   --  Agreement Regarding the Transfer of Personnel, Finances and
             Assets Not Directly Related to Mobile Communication
             Services, dated August 30, 2000, among China Mobile
             Communications Corporation, Guangxi Mobile and Guangxi
             Service.(1)

  4.81   --  Agreement on the Confirmation of the Transfer of Personnel,
             Finances and Assets and the Related Rights and Obligations,
             dated August 30, 2000, between Guangxi Mobile and Guangxi
             Service.(1)

  4.82   --  Strategic Investor Placing Agreement among China Mobile
             (Hong Kong) Limited, Vodafone Group Plc, China International
             Capital Corporation, Goldman Sachs (Asia) L.L.C. and Merrill
             Lynch Far East Limited.(1)

  4.83   --  Syndicated loan agreement for RMB 7,500,000,000 among China
             Mobile (Shenzhen) Limited, Construction Bank of China, Bank
             of China, State Development Bank, Agriculture Bank of China,
             Industrial and Commercial Bank of China, Bank of
             Communications, Hong Kong and Shanghai Banking Corporation
             Ltd., China Merchants Bank & Construction Bank of China,
             Shenzhen Branch, dated October 7, 2000.(1)

  4.84   --  Syndicated loan agreement for RMB 5,000,000,000 among China
             Mobile (Shenzhen) Limited, Construction Bank of China, Bank
             of China, State Development Bank, Agriculture Bank of China,
             Industrial and Commercial Bank of China, Bank of
             Communications, Hong Kong & Shanghai Banking Corporation
             Ltd., China Merchants Bank and Construction Bank of China,
             Shenzhen Branch, dated October 7, 2000.(1)

  4.85   --  Prepaid services agreement dated May 11, 2001, between China
             Mobile (Hong Kong) Limited and China Mobile Communications
             Corporation.

  4.86   --  Conditional Acquisition Agreement, dated April 28, 1998,
             between China Telecom (Hong Kong) Limited and China Telecom
             Hong Kong (BVI) Limited.(5)

  4.87   --  Conditional Sale and Purchase Agreement, dated October 4,
             1999, among China Telecom Hong Kong (BVI) Limited, China
             Telecom (Hong Kong) Group Limited and China Telecom (Hong
             Kong) Limited.(2)

  4.88   --  Conditional Sale and Purchase Agreement, dated October 4,
             2000, among China Mobile Communications Corporation, China
             Mobile Hong Kong (BVI) Limited and China Mobile (Hong Kong)
             Limited.(1)

  4.89   --  Deed of Indemnity, dated October 8, 1997, among China
             Telecom (Hong Kong) Group Limited, China Telecom (Hong Kong)
             Limited, Guangdong Mobile and Zhejiang Mobile.(3)

  4.90   --  Investment Agreement, dated September 27, 1997, between
             Zhejiang Provincial PTA and Zhejiang Mobile.(3)

  4.91   --  Joint Venture Agreement, dated July 27, 1997, among China
             Mobile (Hong Kong) Limited, Zhejiang Financial Development
             Company, Zhejiang Jianda Industrial Development Company,
             Zhejiang Wireless Electric Communications Technology Company
             and MPT Hangzhou Communications Equipment Factory.(3)

  4.92   --  Transmission Line Leasing Agreement, dated April 27, 1998,
             between Jiangsu Mobile and Jiangsu PTA.(5)

  4.93   --  Collection Agreement, dated April 27, 1998, between Jiangsu
             Mobile and Jiangsu PTA.(5)
</TABLE>

                                        79
<PAGE>   82

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                          DESCRIPTION OF EXHIBIT
-------                         ----------------------
<C>     <C>  <S>

  4.94   --  Distribution and Marketing Agreement, dated April 27, 1998,
             between Jiangsu Mobile and Jiangsu PTA.(5)

  4.95   --  Master Building Contract, dated May 30, 1997, between
             Guangdong Mobile and Guangdong PTA.(3)

  4.96   --  Master Building Contract, dated April 27, 1998, between
             Jiangsu Mobile and Jiangsu PTA.(5)

  4.97   --  Marketing Agreement, dated October 15, 1998, between
             Guangdong Mobile and Guangdong PTA.(5)

  8.1    --  List of major subsidiaries.
</TABLE>

---------------

(1) Incorporated by reference to our Registration Statement on Form F-3 (File
    No. 333-47256), filed with the Securities and Exchange Commission on October
    30, 2000.

(2) Incorporated by reference to our Registration Statement on Form F-3 (File
    No. 333-10956), filed with the Securities and Exchange Commission on October
    30, 1999.

(3) Incorporated by reference to our Registration Statement on Form F-1 (File
    No. 333-7634), filed with the Securities and Exchange Commission on
    September 29, 1997.

(4) Incorporated by reference to our Annual Report on Form 20-F for the fiscal
    year ended December 31, 1999 (File No. 1-14696), filed with the Securities
    and Exchange Commission on June 20, 2000.

(5) Incorporated by reference to our Annual Report on Form 20-F for the fiscal
    year ended December 31, 1998 (File No. 1-14696), filed with the U.S.
    Securities and Exchange Commission on June 25, 1999.

                                        80
<PAGE>   83

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE NO.
                                                              --------
<S>                                                           <C>
Independent Auditors' Report................................     F-2
Consolidated Statements of Income for Each of the Three
  Years Ended December 31, 1998, 1999 and 2000..............     F-3
Consolidated Statement of Recognized Gains and Losses for
  Each of the Three Years Ended December 31, 1998, 1999 and
  2000......................................................     F-4
Consolidated Balance Sheets as of December 31, 1999 and
  2000......................................................     F-5
Consolidated Statements of Cash Flows for Each of the Three
  Years Ended December 31, 1998, 1999 and 2000..............     F-6
Consolidated Statements of Shareholders' Equity for Each of
  the Three Years Ended December 31, 1998, 1999 and 2000....    F-11
Notes to Consolidated Financial Statements..................    F-12
</TABLE>

                                       F-1
<PAGE>   84

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
China Mobile (Hong Kong) Limited:

     We have audited the accompanying consolidated balance sheets of China
Mobile (Hong Kong) Limited (previously known as "China Telecom (Hong Kong)
Limited") and subsidiaries (the "Group") as of December 31, 1999 and 2000 and
the related consolidated statements of income, recognized gains and losses,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2000, all expressed in Renminbi. These consolidated
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards in the United States of America and Hong Kong. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of China Mobile
(Hong Kong) Limited and subsidiaries as of December 31, 1999 and 2000 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in Hong Kong.

     Accounting principles generally accepted in Hong Kong vary in certain
material respects from accounting principles generally accepted in the United
States of America. Application of accounting principles generally accepted in
the United States of America would have affected results of operations for each
of the years in the three-year period ended December 31, 2000 and shareholders'
equity as of December 31, 1999 and 2000 to the extent summarized in Note 29 to
the consolidated financial statements.

     The accompanying consolidated financial statements as of and for the year
ended December 31, 2000 have been translated into United States dollars solely
for the convenience of the reader. We have audited the translation, and in our
opinion, the consolidated financial statements expressed in Renminbi have been
translated into United States dollars on the basis set forth in Note 1 to the
consolidated financial statements.

Hong Kong
April 9, 2001

                                       F-2
<PAGE>   85

                       CONSOLIDATED STATEMENTS OF INCOME
                  (AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                      ---------------------------------------------------------
                               NOTE       1998           1999           2000           2000
                               ----   ------------   ------------   -------------   -----------
                                          RMB            RMB             RMB            US$
<S>                            <C>    <C>            <C>            <C>             <C>
Operating revenue:
  Usage fees.................               16,346         25,812          46,287         5,592
  Monthly fees...............                4,347          4,981           9,623         1,162
  Connection fees............                3,323          4,319           2,213           267
  Other operating revenue....                2,329          3,511           6,861           829
                                      ------------   ------------   -------------   -----------
          Total operating
            revenue..........  3            26,345         38,623          64,984         7,850
                                      ------------   ------------   -------------   -----------
Operating expenses:
  Leased lines...............                3,917          3,723           5,501           665
  Interconnection............                4,752          6,453           8,329         1,006
  Depreciation...............                4,598          7,411           9,759         1,179
  Personnel..................                1,595          2,256           3,991           482
  Other operating expenses...                3,548          5,140          10,578         1,278
                                      ------------   ------------   -------------   -----------
          Total operating
            expenses.........  4            18,410         24,983          38,158         4,610
                                      ============   ============   =============   ===========
Operating profit.............                7,935         13,640          26,826         3,240
Write-down and write-off of
  analog network equipment...  5              (282)        (8,242)         (1,525)         (184)
Other net income.............  6               336            552             915           111
Non-operating net
  (expenses)/income..........  7               (51)            70              (5)           (1)
Interest income..............                1,609            767           1,006           122
Finance costs................  19             (160)          (343)           (824)         (100)
                                      ------------   ------------   -------------   -----------
Profit before tax............                9,387          6,444          26,393         3,188
Income tax...................  8            (2,486)        (1,647)         (8,366)       (1,010)
                                      ------------   ------------   -------------   -----------
Profit after tax.............                6,901          4,797          18,027         2,178
Minority interests...........                   (1)            --              --            --
                                      ------------   ------------   -------------   -----------
Profit attributable to
  shareholders...............                6,900          4,797          18,027         2,178
                                      ============   ============   =============   ===========
Basic net profit per share...  2(s)   RMB 59 cents   RMB 40 cents   RMB 125 cents   US$15 cents
                                      ============   ============   =============   ===========
Weighted average number of
  shares used in calculating
  basic net profit per share
  (thousands)................           11,780,788     12,069,108      14,394,313
                                      ============   ============   =============
Diluted net profit per
  share......................  2(s)   RMB 59 cents   RMB 40 cents   RMB 125 cents   US$15 cents
                                      ============   ============   =============   ===========
Weighted average number of
  shares used in calculating
  diluted net profit per
  share (thousands)..........           11,782,521     12,072,383      14,409,503
                                      ============   ============   =============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>   86

             CONSOLIDATED STATEMENTS OF RECOGNIZED GAINS AND LOSSES
                             (AMOUNTS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                           --------------------------------------
                                                            1998      1999       2000      2000
                                                           -------   -------   --------   -------
                                                             RMB       RMB       RMB        US$
<S>                                                        <C>       <C>       <C>        <C>
Net profit for the year..................................    6,900     4,797     18,027     2,178
Elimination of goodwill arising on the acquisition of
  subsidiaries against reserves..........................  (15,622)  (42,440)  (239,540)  (28,936)
                                                           -------   -------   --------   -------
                                                            (8,722)  (37,643)  (221,513)  (26,758)
                                                           =======   =======   ========   =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>   87

                          CONSOLIDATED BALANCE SHEETS
                             (AMOUNTS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                     -------------------------
                                                              NOTE    1999     2000      2000
                                                              ----   ------   -------   ------
                                                                      RMB       RMB      US$
<S>                                                           <C>    <C>      <C>       <C>
                                            ASSETS
Current assets:
  Cash and cash equivalents.................................         19,349    27,702    3,346
  Deposits with banks.......................................          8,227    12,204    1,474
  Accounts receivable.......................................    9     4,957     7,252      876
  Other receivables.........................................   10       549     2,297      278
  Inventories...............................................            207       828      100
  Prepayments and other current assets......................            517     1,289      156
  Amounts due from related parties..........................   11     1,700        --       --
  Amount due from ultimate holding company..................   12        92       557       67
                                                                     ------   -------   ------
          Total current assets..............................         35,598    52,129    6,297
  Fixed assets..............................................   13    42,699    87,465   10,566
  Construction in progress..................................          6,735    13,527    1,634
  Interest in associates....................................   14        46        46        6
  Investment securities.....................................   15        --        61        7
  Deferred tax assets.......................................   16     2,306     3,046      368
  Deferred expenses.........................................   17        51       164       20
                                                                     ------   -------   ------
          Total assets......................................         87,435   156,438   18,898
                                                                     ======   =======   ======
                   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................   18     6,026    11,581    1,399
  Bills payable.............................................          1,779     1,005      121
  Bank loans and other interest-bearing borrowings..........   19     4,351    10,471    1,265
  Taxes payable.............................................          2,868     6,735      814
  Obligations under capital lease -- current portion........   20        68     1,624      196
  Amount due to immediate holding company...................   12        --     4,136      500
  Amount due to ultimate holding company....................   12       664       678       82
  Amounts due to related parties............................   11     1,696        --       --
  Accrued expenses and other payables.......................   21     4,115     8,408    1,016
                                                                     ------   -------   ------
          Total current liabilities.........................         21,567    44,638    5,393
  Bank loans and other interest-bearing borrowings..........   19     7,177    23,134    2,795
  Obligations under capital lease -- long term portion......   20       107     1,235      149
  Deferred revenue..........................................   22     1,492     3,654      441
                                                                     ------   -------   ------
          Total liabilities.................................         30,343    72,661    8,778
Minority interests..........................................             --        17        2
Shareholders' equity........................................         57,092    83,760   10,118
                                                                     ------   -------   ------
          Total liabilities and shareholders' equity........         87,435   156,438   18,898
                                                                     ======   =======   ======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>   88

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                             -------------------------------------
                                                  NOTE        1998      1999      2000      2000
                                               -----------   -------   -------   -------   -------
                                                               RMB       RMB       RMB       US$
<S>                                            <C>           <C>       <C>       <C>       <C>
Net cash inflows from operating activities...  (a)            13,567    21,662    41,401     5,001
                                                             -------   -------   -------   -------
Returns on investments and servicing of
  finance:
  Interest received..........................                  1,815       934       994       120
  Interest paid..............................                   (352)     (445)     (863)     (104)
                                                             -------   -------   -------   -------
Net cash inflow from returns on investments
  and servicing of finance...................                  1,463       489       131        16
                                                             -------   -------   -------   -------
Taxation:
  Hong Kong profits tax (paid)/refunded......                    (11)        1        --        --
  PRC income tax paid........................                 (1,575)   (2,479)   (5,952)     (719)
                                                             -------   -------   -------   -------
Tax paid.....................................                 (1,586)   (2,478)   (5,952)     (719)
                                                             -------   -------   -------   -------
Investing activities:
  Payment for acquisition of minority
     interests...............................                     --       (15)       --        --
  Payment for acquisition of subsidiaries
     (net of cash and cash equivalents
     acquired)...............................  (b) and (c)   (24,114)  (18,187)  (67,299)   (8,130)
  Capital expenditures.......................                (11,040)  (11,708)  (21,964)   (2,653)
  Proceeds from sale of fixed assets.........                     36       709       264        32
  Decrease in amounts due from related
     parties.................................                     72        --        --        --
  Increase in deposits with banks............                 (1,311)   (6,916)   (3,881)     (469)
                                                             -------   -------   -------   -------
          Net cash outflow from investing
            activities.......................                (36,357)  (36,117)  (92,880)  (11,220)
                                                             =======   =======   =======   =======
Net cash outflow before financing
  activities.................................                (22,913)  (16,444)  (57,300)   (6,922)
                                                             -------   -------   -------   -------
Financing activities:
  Proceeds from issue of shares, net of
     expenses................................                     --    16,223    55,812     6,742
  Proceeds from issue of fixed rates notes,
     net of discount.........................  (d)                --     4,952        --        --
  Expenses on issue of fixed rate notes......                     --       (53)       --        --
  Proceeds from issue of convertible notes...  (d)                --        --     5,708       690
  Expenses on issue of convertible notes.....                     --        --      (128)      (15)
  Proceeds from bank and other loans.........  (d)             3,754     6,868    12,736     1,538
  Repayments of bank and other loans.........  (d)            (3,207)   (9,653)   (8,130)     (982)
  Decrease in amounts due to related
     parties.................................                   (222)       --        --        --
  Repayments of obligation under capital
     lease...................................  (d)                --        --      (362)      (44)
  Increase in amounts due to minority
     interests...............................  (d)                --        --        17         2
                                                             -------   -------   -------   -------
          Net cash inflow from financing
            activities.......................                    325    18,337    65,653     7,931
                                                             -------   -------   -------   -------
(Decrease)/increase in cash and cash
  equivalents................................                (22,588)    1,893     8,353     1,009
Effect of changes in foreign exchange
  rates......................................                     (1)      (25)       --        --
Cash and cash equivalents at beginning of
  year.......................................                 40,070    17,481    19,349     2,337
                                                             -------   -------   -------   -------
Cash and cash equivalents at end of year.....                 17,481    19,349    27,702     3,346
                                                             =======   =======   =======   =======
Analysis of the balances of cash and cash
  equivalents:
  Deposits with banks maturing within three
     months when placed......................                  7,538     6,986     6,457       780
  Cash and bank balances.....................                  9,943    12,363    21,245     2,566
                                                             -------   -------   -------   -------
                                                              17,481    19,349    27,702     3,346
                                                             =======   =======   =======   =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>   89
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                             (AMOUNTS IN MILLIONS)

(A) THE RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH INFLOWS FROM OPERATING
    ACTIVITIES IS AS FOLLOWS:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              --------------------------------
                                                               1998     1999     2000    2000
                                                              ------   ------   ------   -----
                                                               RMB      RMB      RMB      US$
<S>                                                           <C>      <C>      <C>      <C>
Profit before taxation......................................   9,387    6,444   26,393   3,188
Depreciation of fixed assets................................   4,598    7,411    9,759   1,179
Write-down and write-off of analog network equipment........     282    8,242    1,525     184
Provision for doubtful accounts.............................     558      771    1,346     163
Amortization of deferred expenses...........................      --        2       15       2
Loss on sale of fixed assets................................      59        1      126      15
Interest income.............................................  (1,609)    (767)  (1,006)   (122)
Interest expenses and capital lease charges.................     160      343      824     100
Dividend income.............................................      --       --      (26)     (3)
Unrealized exchange loss/(gain), net........................       1       25       (2)     --
Increase in accounts receivable.............................  (1,080)  (2,167)    (985)   (119)
Decrease/(increase) in other receivables....................     392     (245)      54       7
Decrease/(increase) in inventories..........................      49      (43)    (408)    (49)
Decrease in amount due from ultimate holding company........      --       14      409      49
(Increase)/decrease in prepayments and other current
  assets....................................................    (932)     781     (262)    (32)
(Increase)/decrease in amounts due from related parties.....     (55)    (127)   1,700     205
(Decrease)/increase in accounts payable.....................    (117)     (36)   1,179     142
Increase in amount due to ultimate holding company..........      --      329       14       2
Increase/(decrease) in amounts due to related parties.......     548      426   (1,696)   (205)
Increase in accrued expenses and other payables.............     922      523    1,319     159
Increase/(decrease) in deferred revenue, net................     404     (265)   1,123     136
                                                              ------   ------   ------   -----
          Net cash inflows from operating activities........  13,567   21,662   41,401   5,001
                                                              ======   ======   ======   =====
</TABLE>

                                       F-7
<PAGE>   90
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                             (AMOUNTS IN MILLIONS)

(B) ACQUISITION OF SUBSIDIARIES

<TABLE>
<CAPTION>
                                                               1998     1999     2000
                                                              ------   ------   -------
                                                               RMB      RMB       RMB
<S>                                                           <C>      <C>      <C>
Net assets acquired:
  Fixed assets..............................................   7,443   11,186    37,391
  Construction in progress..................................   1,488    1,060     5,104
  Interest in an associate..................................      --       16        --
  Investment securities.....................................      --       --        35
  Deferred tax assets.......................................       1        3       723
  Inventories...............................................      73       63       213
  Amount due from ultimate holding company..................      --      106       874
  Amounts due from related parties..........................     233    1,286        --
  Accounts receivable.......................................     367    1,079     2,656
  Other receivables.........................................     137      145     1,790
  Prepayments and other current assets......................       9      181       510
  Cash and bank balances....................................       6    2,081     7,681
  Deposits with banks.......................................      --       --        96
  Bank and other loans......................................    (683)  (1,267)   (4,241)
  Bills payable.............................................      --     (310)      (57)
  Obligations under capital lease -- current portion........      --       --    (1,706)
  Deferred revenue..........................................      --       --    (1,039)
  Amount due to ultimate holding company....................      --     (335)       --
  Amounts due to related parties............................      (4)    (674)       --
  Accounts payable..........................................    (333)  (1,121)   (4,926)
  Accrued expenses and other payables.......................    (158)    (796)   (2,897)
  Taxation..................................................      --     (249)   (1,436)
  Long-term bank and other loans............................     (81)  (1,766)   (7,521)
  Obligations under capital lease -- long term portion......      --     (175)   (1,305)
                                                              ------   ------   -------
                                                               8,498   10,513    31,945
Goodwill arising on acquisition.............................  15,622   42,440   239,540
                                                              ------   ------   -------
                                                              24,120   52,953   271,485
                                                              ======   ======   =======
Satisfied by:
  Cash consideration........................................  24,120   20,268    79,116
  Issue of ordinary shares..................................      --   32,685   192,369
                                                              ------   ------   -------
                                                              24,120   52,953   271,485
                                                              ======   ======   =======
</TABLE>

     The subsidiaries acquired during the year ended December 31, 2000
contributed RMB4,257 to the Group's net operating cash flows, paid RMB183 in
respect of the net returns on investments and serving of finance, and utilized
RMB2,899 for investing activities and RMB454 for financing activities.

     The subsidiaries acquired during the year ended December 31, 1999
contributed RMB1,439 to the Group's net operating cash flows, paid RMB44 in
respect of the net returns on investments and servicing of finance, and utilized
RMB657 for investing activities and RMB717 for financing activities.

     The subsidiaries acquired during the year ended December 31, 1998
contributed RMB1,340 to the Group's net operating cash flows, paid RMB44 in
respect of the net returns on investments and servicing of finance, and utilized
RMB2,533 for investing activities and RMB2,208 for financing activities.

                                       F-8
<PAGE>   91
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                             (AMOUNTS IN MILLIONS)

(C) ANALYSIS OF NET OUTFLOW OF CASH AND CASH EQUIVALENTS IN RESPECT OF THE
    ACQUISITION OF SUBSIDIARIES

<TABLE>
<CAPTION>
                                                               1998     1999     2000
                                                              ------   ------   ------
                                                               RMB      RMB      RMB
<S>                                                           <C>      <C>      <C>
Cash consideration..........................................  24,120   20,268   79,116
Cash and bank balances acquired.............................      (6)  (2,081)  (7,681)
Amount due to immediate holding company.....................      --       --   (4,136)
                                                              ------   ------   ------
          Net outflow of cash and cash equivalents in
            respect of the acquisition of subsidiaries......  24,114   18,187   67,299
                                                              ======   ======   ======
</TABLE>

(D) ANALYSIS OF CHANGES IN FINANCING DURING THE YEARS:

<TABLE>
<CAPTION>
                                                                                      OBLIGATION
                                            BANK AND     FIXED RATES   CONVERTIBLE   UNDER CAPITAL   MINORITY
                                           OTHER LOANS      NOTES         NOTES          LEASE       INTEREST
                                           -----------   -----------   -----------   -------------   --------
                                               RMB           RMB           RMB            RMB          RMB
<S>                                        <C>           <C>           <C>           <C>             <C>
Balance at January 1, 1998...............     5,017            --            --             --          --
Acquired on acquisition of subsidiaries
  (Note (b)).............................       764            --            --             --          --
Proceeds from bank and other loans.......     3,754            --            --             --          --
Repayments of bank and other loans.......    (3,207)           --            --             --          --
                                             ------         -----         -----          -----          --
Balance at December 31, 1998.............     6,328            --            --             --          --
                                             ======         =====         =====          =====          ==
Balance at January 1, 1999...............     6,328            --            --             --          --
Acquired on acquisition of subsidiaries
  (Note (b)).............................     3,033            --            --            175          --
Proceeds from bank and other loans.......     6,868            --            --             --          --
Repayment of bank and other loans........    (9,653)           --            --             --          --
Issue of fixed rates notes...............        --         4,952            --             --          --
                                             ------         -----         -----          -----          --
Balance at December 31, 1999.............     6,576         4,952            --            175          --
                                             ======         =====         =====          =====          ==
Balance at January 1, 2000...............     6,576         4,952            --            175          --
Acquired on acquisition of subsidiaries
  (Note (b)).............................    11,762            --            --          3,011          --
Proceeds from bank and other loans.......    12,736            --            --             --          --
Repayments of bank and other loans.......    (8,130)           --            --             --          --
Effect of foreign exchange rates.........        --            (2)           --             --          --
Amortization of discount arising on
  issuance of notes......................        --             3            --             --          --
Issue of convertible notes...............        --            --         5,708             --          --
Inception of capital lease contracts.....        --            --            --             35          --
Repayment of obligation under capital
  leases.................................        --            --            --           (362)         --
Proceeds from minority interests.........        --            --            --             --          17
                                             ------         -----         -----          -----          --
Balance at December 31, 2000.............    22,944         4,953         5,708          2,859          17
                                             ======         =====         =====          =====          ==
</TABLE>

(E) SIGNIFICANT NON-CASH TRANSACTIONS:

     The Group incurred payables of RMB5,555 and RMB1,005 to equipment suppliers
and banks respectively for additions of construction in progress during the year
ended December 31, 2000.

     The Group incurred payables of RMB3,374 and RMB1,486 to equipment suppliers
and banks respectively for additions of construction in progress during the year
ended December 31, 1999.

                                       F-9
<PAGE>   92
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                             (AMOUNTS IN MILLIONS)

     The Group incurred payables of RMB3,977 and RMB13 to equipment suppliers
and related parties respectively for additions of construction in progress
during the year ended December 31, 1998.

     In November 2000, the Group issued new shares to China Mobile Hong Kong
(BVI) Limited ("CMHK BVI") (formerly China Telecom Hong Kong (BVI) Limited) at
HK$181,412 (RMB equivalent 192,369) as part of the consideration for the
acquisition of Beijing Mobile (BVI) Limited ("Beijing Mobile BVI"), Shanghai
Mobile (BVI) Limited ("Shanghai Mobile BVI"), Tianjin Mobile (BVI) Limited
("Tianjin Mobile BVI"), Hebei Mobile (BVI) Limited ("Hebei Mobile BVI"),
Liaoning Mobile (BVI) Limited ("Liaoning Mobile BVI"), Shandong Mobile (BVI)
Limited ("Shandong Mobile BVI") and Guangxi Mobile (BVI) Limited ("Guangxi
Mobile BVI").

     In November 1999, the Group issued new shares to CMHK (BVI) at HK$30,684
(RMB equivalent 32,685) as part of the consideration for the acquisition of
Fujian Mobile (BVI) Limited ("Fujian Mobile BVI"), Henan Mobile (BVI) Limited
("Henan Mobile BVI") and Hainan Mobile (BVI) Limited ("Hainan Mobile BVI").

                                       F-10
<PAGE>   93

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS:

<TABLE>
<CAPTION>
                                        NUMBER OF                           CAPITAL                  PRC
                                         ORDINARY       SHARE     SHARE     RESERVE/    GENERAL   STATUTORY   RETAINED
                                          SHARES       CAPITAL   PREMIUM   (GOODWILL)   RESERVE   RESERVES    EARNINGS    TOTAL
                                      --------------   -------   -------   ----------   -------   ---------   --------   --------
                                                         RMB       RMB        RMB         RMB        RMB        RMB        RMB
<S>                                   <C>              <C>       <C>       <C>          <C>       <C>         <C>        <C>
Shareholders' equity at January 1,
  1998..............................  11,780,788,000    1,261    50,643        1,132      72          111       1,330      54,549
Goodwill arising on acquisition of
  Jiangsu Mobile....................              --       --        --      (15,622)     --           --          --     (15,622)
Transfer from statement of income...              --       --        --           --      --           --       6,900       6,900
Appropriation.......................              --       --        --           --      --        2,092      (2,092)         --
                                      --------------    -----    -------    --------      --       ------      ------    --------
Shareholders' equity at December 31,
  1998..............................  11,780,788,000    1,261    50,643      (14,490)     72        2,203       6,138      45,827
                                      ==============    =====    =======    ========      ==       ======      ======    ========
Shareholders' equity at January 1,
  1999..............................  11,780,788,000    1,261    50,643      (14,490)     72        2,203       6,138      45,827
Goodwill arising on acquisition of
  Fujian Mobile, Henan Mobile and
  Hainan Mobile.....................              --       --        --      (42,440)     --           --          --     (42,440)
Transfer from statement of income...              --       --        --           --      --           --       4,797       4,797
Shares issued under share option
  scheme............................       7,500,000        1        88           --      --           --          --          89
Issue of new shares to the
  professional and institutional
  investors.........................     644,804,000       69    16,484           --      --           --          --      16,553
Issue of consideration shares for
  acquisition of subsidiaries.......   1,273,195,021      136    32,549           --      --           --          --      32,685
Expenses incurred in connection with
  the issue of new shares to
  professional and institutional
  investors.........................              --       --      (419)          --      --           --          --        (419)
Appropriation.......................              --       --        --           --      --        3,524      (3,524)         --
                                      --------------    -----    -------    --------      --       ------      ------    --------
Shareholders' equity at December 31,
  1999..............................  13,706,287,021    1,467    99,345      (56,930)     72        5,727       7,411      57,092
                                      ==============    =====    =======    ========      ==       ======      ======    ========
Shareholders' equity at January 1,
  2000..............................  13,706,287,021    1,467    99,345      (56,930)     72        5,727       7,411      57,092
Goodwill arising on acquisition of
  Beijing Mobile, Shanghai Mobile,
  Tianjin Mobile, Hebei Mobile,
  Liaoning Mobile, Shandong Mobile
  and Guangxi Mobile................              --       --        --     (239,540)     --           --          --    (239,540)
Transfer from statement of income...              --       --        --           --      --           --      18,027      18,027
Shares issued under share option
  scheme............................       3,974,000       --        89           --      --           --          --          89
Issue of new shares to the
  professional and institutional
  investors.........................   1,115,643,845      119    56,694           --      --           --          --      56,813
Issue of consideration shares for
  acquisition of subsidiaries.......   3,779,407,375      400    191,969          --      --           --          --     192,369
Expenses incurred in connection with
  the issue of new shares to
  professional and institutional
  investors.........................              --       --    (1,090)          --      --           --          --      (1,090)
Appropriation.......................              --       --        --           --      --        6,916      (6,916)         --
                                      --------------    -----    -------    --------      --       ------      ------    --------
Shareholders' equity at December 31,
  2000..............................  18,605,312,241    1,986    347,007    (296,470)     72       12,643      18,522      83,760
                                      ==============    =====    =======    ========      ==       ======      ======    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-11
<PAGE>   94

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

1. ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION

     China Mobile (Hong Kong) Limited ("the Company") (previously known as China
Telecom (Hong Kong) Limited) and its subsidiaries (hereinafter collectively
referred to as the "Group") are principally engaged in the provision of cellular
telephone and related services in Guangdong, Zhejiang, Jiangsu, Fujian, Henan,
Hainan, Hebei, Liaoning, Shandong provinces, Beijing, Shanghai and Tianjin
municipalities and Guangxi autonomous region of the People's Republic of China
("PRC") and market their services under the "China Mobile" logo, which is a
registered trademark owned by China Mobile Communications Corporation ("China
Mobile"), a company incorporated in the PRC in July 1999 to hold and operate the
cellular telecommunications networks nationwide as a result of restructuring of
the telecommunications industry in the PRC. The telecommunications operations in
the PRC previously controlled by the Ministry of Information Industry ("MII")
have been separated into four business lines: fixed line communications, mobile
communications, paging services and satellite communications. Since then, the
MII act exclusively as the industry regulator and are not involved in managing
the day-to-day operations of telecommunications service providers in the PRC.

     Prior to the restructuring (as described below, the "Restructuring"), the
Group's Total Access Communications Systems ("TACS") and Global System for
Mobile Communications ("GSM") cellular networks in Guangdong were owned by
Guangdong Mobile Communication Corporation (together with the successor
wholly-owned foreign enterprise formed in connection with the Restructuring,
"Guangdong Mobile"), an enterprise formed in September 1988 and wholly owned by
the MII on behalf of the State. Prior to the Restructuring, the Group's GSM
cellular network in Zhejiang was owned by Zhejiang GSM Mobile Communication
Company Limited (together with the successor sino-foreign joint venture company
formed in connection with the Restructuring, "Zhejiang Mobile"), a company
formed in February 1996 and 98.55% owned by the Zhejiang Provincial Posts and
Telecommunications Administrations ("PTA") ("Zhejiang PTA"), while the Group's
TACS cellular networks in Zhejiang were owned and operated directly by the
Zhejiang PTA.

  Restructuring

     Pursuant to the Restructuring, the Company was established as a
wholly-owned subsidiary of China Mobile Hong Kong (BVI) Limited ("CMHK (BVI)"),
a company incorporated with limited liability in the British Virgin Islands.
CMHK (BVI) is controlled by China Mobile (Hong Kong) Group Limited ("CMHKG"),
which in turn is 51% owned by Telpo Communications (Group) Limited ("Telpo"), a
Hong Kong company wholly owned by the MII, and as to 49% by the China
Telecommunications Corporation (previously known as the Directorate General of
Telecommunications, or the DGT). At December 31, 1999, the percentages of equity
interests of CMHK (BVI), which in turn were owned by Telpo and DGT were changed
to 57% and 43%, respectively. On May 12, 2000, China Mobile acquired a 100%
controlling interest in CMHKG. As a result of this, China Mobile now indirectly
holds approximately 75% equity interest in the Company. Guangdong Mobile was
formed as a wholly foreign-owned enterprise whereas Zhejiang Mobile was formed
as a sino-foreign joint venture company. The Company is the sole equity owner in
Guangdong Mobile and was initially the 99.63% joint venture partner in Zhejiang
Mobile, with the remaining interests held by various local investors. The
Company acquired the remaining 0.37% interest in Zhejiang Mobile in April 1999.
Subsequent to the acquisition, Zhejiang Mobile became a wholly foreign-owned
enterprise.

     In connection with the Restructuring and in anticipation of the initial
offering of the Company's ordinary shares, the fixed assets of Guangdong Mobile
and Zhejiang Mobile were revalued as of May 31, 1997, by a firm of independent
valuers and approved by the China State-owned Assets Administration Bureau. The
value of fixed assets of Guangdong Mobile and Zhejiang Mobile pursuant to the
valuation, based on a depreciated replacement cost basis, was determined at
RMB15,630. Upon the transfer of interests in Guangdong Mobile and Zhejiang
Mobile by the MII and the DGT to the Company, 9,010,000,000 ordinary shares of
HK$0.10 each were issued by the Company to CMHK (BVI) for consideration valued
at RMB19,466. Such amount
                                       F-12
<PAGE>   95
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

was based on the net asset value of Guangdong Mobile and Zhejiang Mobile as at
May 31, 1997, the effective date of the Restructuring, adjusted for additional
earnings to September 26, 1997, the completion date of the Restructuring, of
RMB1,132, which is reflected as capital reserve.

  Equity Offering

     Subsequent to the Restructuring, in October 1997, the Company completed an
initial public offering (the "Offering") of an aggregate of 2,770,788,000
ordinary shares. Net proceeds to the Company for the Offering, after deduction
of offering expenses, were approximately RMB33,570.

  Acquisition of Jiangsu Mobile Communication Company Limited ("Jiangsu Mobile")

     Pursuant to the ordinary resolution passed by the Company's shareholders on
June 3, 1998, the Company acquired the entire issued share capital of China
Telecom Jiangsu Mobile (BVI) Limited ("Jiangsu Mobile BVI") from CMHK (BVI) by a
total cash consideration of HK$22,475 (RMB equivalent 24,120) (hereinafter
referred to as the "First Acquisition").

     The only asset of Jiangsu Mobile BVI is its interest in the entire equity
of Jiangsu Mobile. Subsequent to the First Acquisition, Jiangsu Mobile became a
wholly foreign-owned enterprise.

     In connection with the First Acquisition, the fixed assets of Jiangsu
Mobile were revalued as of December 31, 1997, by a firm of independent valuers
and approved by the China State-owned Assets Administration Bureau. The value of
fixed assets of Jiangsu Mobile pursuant to the valuation, based on a depreciated
replacement cost basis, was determined at RMB7,879.

     Goodwill arising on the acquisition of Jiangsu Mobile BVI and Jiangsu
Mobile (RMB15,622), being the excess of the cost of investments (RMB24,120) over
the fair value of the Group's share of the separable net assets acquired
(RMB8,498), was eliminated against reserves immediately on acquisition. The fair
value of the Group's share of the separable net assets acquired was based on the
net asset value of Jiangsu Mobile at December 31, 1997 (RMB8,009), adjusted for
additional earnings to June 3, 1998, the completion date of the First
Acquisition, of RMB489.

  Acquisition of Fujian Mobile Communication Company Limited ("Fujian Mobile"),
  Henan Mobile Communication Company Limited ("Henan Mobile") and Hainan Mobile
  Communication Company Limited ("Hainan Mobile")

     Pursuant to an ordinary resolution passed by the Company's shareholders on
November 11, 1999, the Company acquired the entire issued share capital of
Fujian Mobile (BVI) Limited ("Fujian Mobile BVI"), Henan Mobile (BVI) Limited
("Henan Mobile BVI") and Hainan Mobile (BVI) Limited ("Hainan Mobile BVI") from
CMHK (BVI) for a total consideration of HK$49,715 (RMB equivalent 52,953)
(hereinafter referred to as the "Second Acquisition"). The consideration was
satisfied by cash of HK$19,031 (RMB equivalent 20,268) and an allotment of
1,273,195,021 ordinary shares of HK$0.10 each to CMHK (BVI) amounting to
HK$30,684 (RMB equivalent 32,685). The only assets of each of Fujian Mobile BVI,
Henan Mobile BVI and Hainan Mobile BVI are their interests in the entire equity
of Fujian Mobile, Henan Mobile and Hainan Mobile, respectively.

     In connection with the Second Acquisition, the fixed assets of Fujian
Mobile, Henan Mobile and Hainan Mobile were revalued as of June 30, 1999, by a
firm of independent valuers and approved by the Ministry of Finance. The value
of fixed assets of Fujian Mobile, Henan Mobile and Hainan Mobile pursuant to the
valuation, based on a depreciated replacement cost basis, was determined at
RMB10,684.

     Goodwill arising on the acquisition of Fujian Mobile, Henan Mobile and
Hainan Mobile (RMB42,440), being the excess of the cost of investments
(RMB52,953) over the fair value of the Group's share of the separable net assets
acquired (RMB10,513), was eliminated against reserves immediately on
acquisition. The
                                       F-13
<PAGE>   96
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

fair value of the Group's share of the separable net assets acquired was based
on the net assets of Fujian Mobile, Henan Mobile and Hainan Mobile at June 30,
1999 (RMB9,524), adjusted for additional earnings to November 11, 1999, the
completion date of the Second Acquisition, of RMB989.

  Equity Offering and Debt Offering

     In order to finance the acquisition consideration, the Company completed an
international offering of an aggregate of 644,804,000 ordinary shares and debt
offering with a principal amount of US$600 million with maturity due on November
2, 2004. Further the Company issued totalling 1,273,195,021 consideration shares
to CMHK (BVI), credited as fully paid as part of the acquisition consideration.
Net proceeds to the Company for such equity offering and debt offering, after
deduction of offering expenses and discount, were approximately RMB16,134 and
RMB4,899, respectively.

 Acquisition of Beijing Mobile Communication Company Limited ("Beijing Mobile"),
 Shanghai Mobile Communication Company Limited ("Shanghai Mobile"), Tianjin
 Mobile Communication Company Limited ("Tianjin Mobile"), Hebei Mobile
 Communication Company Limited ("Hebei Mobile"), Liaoning Mobile Communication
 Company Limited ("Liaoning Mobile"), Shandong Mobile Communication Company
 Limited ("Shandong Mobile") and Guangxi Mobile Communication Company Limited
 ("Guangxi Mobile").

     Pursuant to an ordinary resolution passed by the Company's shareholders on
November 10, 2000, the Company acquired the entire issued share capital of
Beijing Mobile (BVI) Limited ("Beijing Mobile BVI"), Shanghai Mobile (BVI)
Limited ("Shanghai Mobile BVI"), Tianjin Mobile (BVI) Limited ("Tianjin Mobile
BVI"), Hebei Mobile (BVI) Limited ("Hebei Mobile BVI"), Liaoning Mobile (BVI)
Limited ("Liaoning Mobile BVI"), Shandong Mobile (BVI) Limited ("Shandong Mobile
BVI") and Guangxi Mobile (BVI) Limited ("Guangxi Mobile BVI") from CMHK (BVI)
for a total consideration of HK$256,021 (RMB equivalent 271,485) (hereinafter
referred to as the "Third Acquisition"). The consideration was satisfied by cash
of HK$74,609 (RMB equivalent 79,116) and an allotment of 3,779,407,375 ordinary
shares of HK$0.10 each to CMHK (BVI) amounting to HK$181,412 (RMB equivalent
192,369). The only assets of each of Beijing Mobile BVI, Shanghai Mobile BVI,
Tianjin Mobile BVI, Hebei Mobile BVI, Liaoning Mobile BVI, Shandong Mobile BVI
and Guangxi Mobile BVI are their interests in the entire equity of Beijing
Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong
Mobile and Guangxi Mobile, respectively.

     In connection with the Third Acquisition, the fixed assets of Beijing
Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong
Mobile and Guangxi Mobile were revalued as of June 30, 2000, by a firm of
independent valuers and approved by the Ministry of Finance. The value of fixed
assets of Beijing Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile,
Liaoning Mobile, Shandong Mobile and Guangxi Mobile pursuant to the valuation,
based on a depreciated replacement cost basis, was determined at RMB37,252.

     Goodwill arising on the acquisition of Beijing Mobile, Shanghai Mobile,
Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi
Mobile (RMB239,540), being the excess of the cost of investments (RMB271,485)
over the fair value of the Group's share of the separable net assets acquired
(RMB31,945), was eliminated against reserves immediately on acquisition. The
fair value of the Group's share of the separable net assets acquired was based
on the net assets of Beijing Mobile, Shanghai Mobile, Tianjin Mobile, Hebei
Mobile, Liaoning Mobile, Shandong Mobile and Guangxi Mobile at June 30, 2000
(RMB29,317), adjusted for additional earnings to November 12, 2000, the
completion date of the Third Acquisition, of RMB2,628.

                                       F-14
<PAGE>   97
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  Equity Offering and Debt Offering

     In order to finance the acquisition consideration, the Company completed an
international offering of an aggregate of 1,115,643,845 ordinary shares and
convertible note offering with a principal amount of US$690 with maturity due on
November 3, 2005. Further the Company issued totalling 3,779,407,375
consideration shares to CMHK (BVI), credited as fully paid as part of the
acquisition consideration. Net proceeds to the Company for such equity offering
and convertible note offering, after deduction of offering expenses and
discount, were approximately RMB55,723 and RMB5,580, respectively.

  Basis of Preparation

     The consolidated financial statements have been prepared on a consolidated
basis to reflect the financial position and results of operations of the
Company, Guangdong Mobile and Zhejiang Mobile from the date of the Restructuring
and of Jiangsu Mobile, Fujian Mobile, Henan Mobile, Hainan Mobile, Beijing
Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong
Mobile and Guangxi Mobile from their respective dates of acquisition. The
consolidated statements of income for the year ended December 31, 2000 includes
the results of the Company, Guangdong Mobile, Zhejiang Mobile, Jiangsu Mobile,
Fujian Mobile, Henan Mobile and Hainan Mobile for the year ended December 31,
2000 and the post-acquisition results of Beijing Mobile, Shanghai Mobile,
Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi
Mobile for the period from November 13, 2000 to December 31, 2000. The
consolidated statements of income for the year ended December 31, 1999 includes
the results of the Company, Guangdong Mobile, Zhejiang Mobile and Jiangsu Mobile
for the year ended December 31, 1999 and the post-acquisition results of Fujian
Mobile, Henan Mobile and Hainan Mobile for the period from November 12, 1999 to
December 31, 1999. The consolidated statements of income for the year ended
December 31, 1998 includes the results of the Company, Guandong Mobile and
Zhejiang Mobile for the year ended December 31, 1998 and the post-acquisition
results of Jiangsu Mobile for the period from June 4, 1998 to December 31, 1998.

     The financial statements have been prepared in accordance with accounting
principles generally accepted in Hong Kong ("HK GAAP"). Significant differences
between HK GAAP and accounting principles generally accepted in the United
States ("US GAAP") are set forth in Note 29.

     The consolidated financial statements are expressed in Renminbi. Solely for
the convenience of the reader, for the December 31, 2000 financial statements
have been translated into United States dollars at the rate of US$1.00 =
RMB8.2781 quoted by the People's Bank of China on December 31, 2000. No
representation is made that the Renminbi amounts could have been, or could be,
converted into United States dollars at that rate or at any other certain rate
on December 31, 2000, or any other certain date.

2. PRINCIPAL ACCOUNTING POLICIES

  (a) Basis of Consolidation

     The consolidated financial statements include the accounts of the Company
and all of its subsidiaries (see Note 28 for details of the Company's principal
subsidiaries). The results of subsidiary companies are included in the
consolidated statements of income, and the share attributable to minority
interests is deducted from or added to the consolidated income after taxation.
All significant inter-company balances and transactions have been eliminated.

  (b) Cash and Cash Equivalents

     Cash and cash equivalents are short-term, highly liquid investments which
are readily convertible into known amounts of cash without notice and which are
within three months of maturity when acquired. For the purposes of the statement
of cash flows, cash equivalents would also include advances from banks repayable

                                       F-15
<PAGE>   98
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

within three months from the date of the advance. None of the Group's cash and
cash equivalents is restricted as to withdrawal.

  (c) Associates

     An associate is a company in which the Group has significant influence, but
not control or joint control, over its management, including participation in
the financial and operating policies decisions.

     The Group's share of the results of its associates is included in the
consolidated statements of income. Such amounts were immaterial for the periods
presented. In the consolidated balance sheets, interest in associates is stated
at cost adjusted for post-acquisition retained results of operations, less any
provisions for diminution in value which is other than temporary as determined
by the directors for each associate individually. Any such provisions are
recognized as an expense in the consolidated statements of income.

  (d) Other Investments in Securities

     The Group's policies for investments in securities other than investments
in associates are as follows:

          (i) Investments held on a continuing basis for an identified long-term
     purpose are classified as investment securities. Investment securities are
     stated in the consolidated balance sheet at cost less any provisions for
     diminution in value. Provisions are made when the fair values have declined
     below the carrying amounts, unless there is evidence that the decline is
     temporary, and are recognized as an expense in the consolidated statements
     of income, such provisions being determined for each investment
     individually.

          (ii) Profits or losses on disposal of investments in securities are
     determined as the difference between the estimated net disposal proceeds
     and the carrying amount of the investments and are accounted for in the
     consolidated statements of income as they arise.

  (e) Fixed assets and depreciation

          (i) Fixed assets are stated at cost/revalued amount less accumulated
     depreciation. The circumstances and basis under which the revalued amount
     is arrived at are set out in details in Note 13.

          (ii) The cost of fixed assets comprises the purchase price and any
     directly attributable costs of bringing the asset to its working condition
     and location for its intended use. Expenditures incurred after the fixed
     asset has been put into operation, such as repairs and maintenance and
     overhaul costs, are normally charged to the statements of income in the
     year incurred. In situations where it can be clearly demonstrated that the
     expenditure has resulted in an increase in the future economic benefits
     expected to be obtained from the use of the fixed asset, the expenditure is
     capitalized as an additional cost of the fixed asset.

          (iii) Gains or losses arising from the retirement or disposal of fixed
     assets are determined as the difference between the net disposal proceeds
     and the carrying amount of the asset and are recognized as income or
     expense in the consolidated statements of income on the date of retirement
     or disposal.

          (iv) The carrying amount of fixed assets carried at depreciated cost
     is reviewed periodically in order to assess whether the recoverable amount
     has declined below the carrying amount. When such a decline has occurred,
     the carrying amount is reduced to the recoverable amount. The amount of the
     reduction is recognized as an expense in the consolidated statements of
     income. In determining the recoverable amount, expected future cash flows
     generated by the fixed assets are discounted to their present values.

     A subsequent increase in the recoverable amount of an asset carried at
     depreciated cost is written back to the consolidated statements of income
     when the circumstances and events that led to the write-down or write-off
     cease to exist. The amount written back is reduced by the amount that would
     have been
                                       F-16
<PAGE>   99
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

     recognized as depreciation had the write-down or write-off not occurred. No
     amounts were written back for the years presented.

          (v) Depreciation is calculated to write off the cost, or revalued
     amount where appropriate, of fixed assets on a straight-line basis over
     their estimated useful lives, to residual values, as follows:

<TABLE>
<CAPTION>
                                                                                RESIDUAL
                                                       DEPRECIABLE LIFE          VALUE
                                                   ------------------------     --------
<S>                                                <C>                       <C>
Land use rights..................................  Over the period of grant       --
Buildings........................................  8-35 years                      3%
Telecommunication transceivers, switching centers  7 years                         3%
  and other network equipment....................
Office equipment, furniture and fixtures and       4-18 years                      3%
  others.........................................
</TABLE>

  (f) Leased Assets

     Where assets are acquired under capital leases, the amounts representing
the outright purchase price, which approximate the present value of the minimum
lease payments, of such assets are included in fixed assets and the
corresponding liabilities, net of finance charges, are recorded as obligations
under capital lease. Depreciation is provided at rates which write off the cost
of the assets in equal annual amounts over the shorter of the period of the
leases or the estimated useful lives of the assets as set out in Note 2(e)
above. Finance charges implicit in the lease payments are charged to the
consolidated statements of income over the period of the leases so as to produce
an approximately constant periodic rate of charge on the remaining balance of
the obligations for each accounting year.

  (g) Construction in Progress

     Construction in progress is stated at cost. Cost comprises direct costs of
construction as well as interest expense and exchange differences capitalized
during the years of construction and installation. Capitalization of these costs
ceases and the construction in progress is transferred to fixed assets when
substantially all the activities necessary to prepare the assets for their
intended use are completed. No depreciation is provided in respect of
construction in progress until it is completed and ready for its intended use.

  (h) Inventories

     Inventories, which consist primarily of handsets, SIM cards and
accessories, are stated at the lower of cost and net realizable value. Cost
represents purchase cost of goods calculated using the weighted average cost
method. Net realizable value is determined by reference to the sales proceeds of
items sold in the ordinary course of business after the balance sheet date or to
management's estimates based on prevailing market conditions.

     When inventories are sold, the carrying amount of those inventories is
recognized as a deduction of other income due to its insignificance. The amount
of any write-down of inventories to net realizable value and all losses of
inventories are recognized as an expense in the year the write-down or loss
occurs. The amount of any reversal of any write-down of inventories, arising
from an increase in net realizable value, is recognized as a reduction in the
amount of inventories recognized as an expense in the year in which the reversal
occurs. No amounts were written back for the years presented.

  (i) Deferred Revenue

     Deferred revenue, which consists of deferred revenue from prepaid service
fees received from subscribers and deferred revenue from assignment of rights to
income from subscribers with distributors of telecommunications services is
stated in the balance sheet at the amount of consideration received according to
the relevant

                                       F-17
<PAGE>   100
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

assignment contracts if applicable, less income recognized in the consolidated
statements of income up to the balance sheet date.

     Income from assignment of rights is deferred and recognized on a
straight-line basis over the relevant assignment period. For assignment
contracts which the distributors surrender for early cancellation, the balance
of the Group's deferred revenue in respect of those contracts is recognized as
non-operating income in the consolidated statements of income when the
assignment contracts are cancelled.

     Revenue from prepaid service fees is recognized when the cellular services
are rendered.

  (j) Fixed Rate Notes

     Fixed rate notes are stated on the consolidated balance sheet at face
value, less unamortized discount arising on issuance of notes. The discount is
amortized on a straight-line basis over the period from the date of issue to the
date of maturity.

  (k) Convertible Notes

     Convertible notes are stated on the consolidated balance sheet at the
principal amount.

  (l) Deferred Expenses

     Deferred expenses comprise incidental costs incurred in relation to the
issue of the Company's fixed rate notes and convertible notes and are amortized
on a straight-line basis over the period from the date of issue to the date of
maturity. In the event that the notes are redeemed prior to the maturity date,
the unamortized expenses are charged immediately to the consolidated statements
of income.

  (m) Borrowing Costs

     Borrowing costs are expensed in the consolidated statements of income in
the year in which they are incurred, except to the extent that such costs are
capitalized as being directly attributable to the acquisition or construction of
an asset which necessarily takes a substantial period of time to get ready for
its intended use.

  (n) Revenue Recognition

     Revenue is recognized when it is probable that the economic benefits will
accrue to the Group and when the revenue can be measured reliably on the
following basis:

          (i) usage fees are recognized as revenue when the service is rendered;

          (ii) monthly fees are recognized as revenue in the month during which
     the service is rendered;

          (iii) connection fees are recognized as revenue when received;

          (iv) deferred revenue from assignment of rights to income from
     subscribers is recognized on a straight-line basis over the duration of the
     assignment period;

          (v) interest income is recognized on a time proportion basis on the
     principal outstanding and at the rate applicable; and

          (vi) sales of handsets and SIM cards are recognized on delivery of
     goods to the buyer. Such revenue, net of cost of goods sold, is included in
     other income due to its insignificance.

  (o) Allowance for Doubtful Accounts

     An allowance for doubtful accounts is provided based upon evaluation of the
recoverability of the receivables at the balance sheet date.
                                       F-18
<PAGE>   101
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  (p) Translation of Foreign Currencies

     The functional currency of the Group's operations is Renminbi. See Note 27.
Foreign currency transactions are recorded at the applicable rates of exchange
prevailing on the transaction dates. Monetary assets and liabilities denominated
in currencies other than the functional currency are translated at the exchange
rates ruling at the balance sheet date. Exchange differences attributable to the
translation of borrowings denominated in currencies other than the functional
currency, and used for financing the construction of fixed assets, are included
in the cost of the related construction in progress. Exchange differences
capitalized to construction in progress are immaterial for the years presented.
Other exchange gains and losses are recognized in the consolidated statements of
income.

  (q) Deferred Taxation

     Deferred taxation is provided under liability method in respect of the tax
effect arising from all material timing differences between the accounting and
tax treatment of income and expenditure, which are expected with reasonable
probability to crystallize in the foreseeable future. Future deferred tax
benefits are not recognized unless their realization is assured beyond
reasonable doubt.

  (r) Retirement Benefits

     Contributions to retirement schemes are charged to the consolidated
statements of income as and when incurred. See Note 24.

  (s) Net Profit Per Share

     The calculation of basic net profit per share for the years ended December
31, 1998, 1999 and 2000 are based on the net profit and the weighted average
number of shares in issue during the years.

     The calculation of diluted net profit per share for the years ended
December 31, 1998, 1999 and 2000 have been computed after adjusting for the
effects of all dilutive potential ordinary shares. All dilutive potential
ordinary shares arise from the share options granted to the directors under the
share option scheme which, if converted to ordinary shares, would decrease net
profit per share.

  (t) Operating Leases

     Rental payable under operating lease are accounted for in the consolidated
statements of income on a straight-line basis over the periods of the respective
leases.

  (u) Related Parties

     For the purposes of these accounts, parties are considered to be related to
the Group if the Group has the ability, directly or indirectly, to control the
party or exercise significant influence over the party in making financial and
operating decisions, or vice versa, or where the Group and the party are subject
to common control or common significant influence. Related parties may be
individuals or other entities.

  (v) Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the years reported. Actual results
could differ from those estimates. Estimates are used when accounting for
allowance for doubtful accounts, the length of fixed assets' lives, and
write-down and write-off of long-lived assets. Actual results may differ from
these estimates.

                                       F-19
<PAGE>   102
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

3. OPERATING REVENUE

     The principal activities of the Group are the provision of cellular
telephone and related services in Guangdong, Zhejiang, Jiangsu, Fujian, Henan,
Hainan, Hebei, Liaoning and Shandong provinces, Beijing, Shanghai and Tianjin
municipalities and Guangxi autonomous region of the PRC. The principal activity
of the Company is investment holding.

     Operating revenue primarily represents usage fees, monthly fees and
connection fees for the use of the Group's cellular telephone networks, net of
PRC business tax and government surcharges and central irrigation construction
levy. Business tax and government surcharges are charged at approximately 3.3%
to 3.65% of the corresponding revenue and central irrigation construction levy
is charged at approximately 3% of certain connection and surcharge revenue.

     Operating revenue consist of:

          (i) Usage fees which represent standard local usage fee for airtime
     and, where applicable, Domestic Direct Dial ("DDD") charges and
     International Direct Dial ("IDD") charges receivable from subscribers for
     the use of the Group's cellular telecommunication networks and facilities;
     revenue from assignment of rights to income from subscribers, and fees in
     respect of roaming out calls. Roaming out calls are those made by the
     Group's subscribers outside the local service areas. See Note 4(ii).

          (ii) Monthly fees which represent fixed amounts charged to subscribers
     each month for their entitlement to use the Group's cellular telephone and
     related services.

          (iii) Connection fees which represent amounts charged to subscribers
     for the initial connection to the Group's cellular telecommunications
     network.

          (iv) Other operating revenue which mainly represents telephone number
     selection fees, charges for value added services, interconnection revenue
     and roaming in fees. Roaming in fees are received from China Mobile
     (previously the MII) in respect of calls made by non-subscribers using the
     Group's cellular telecommunications networks. With effect from April 1,
     2000, all settlements of inter-provincial roaming and corresponding
     interconnection revenues are made through China Mobile (previously the
     MII).

4. OPERATING EXPENSES

     Operating expenses consist of:

          (i) Leased line charges which represent expenses paid for the use of
     leased lines between the main switches, base transceiver stations, base
     station controllers, base stations, fixed line network connectors and long
     distance network connectors.

          (ii) Interconnection charges which represent amounts paid in respect
     of call made between the Group's cellular networks, the fixed line networks
     in the relevant provinces and other GSM network operators in other
     provinces in the PRC. Included in the amounts are also charges in respect
     of the Group's subscribers roaming outside the service areas of Guangdong
     Mobile, Zhejiang Mobile, Jiangsu Mobile, Fujian Mobile, Henan Mobile,
     Hainan Mobile, Beijing Mobile, Shanghai Mobile, Tianjin Mobile, Hebei
     Mobile, Liaoning Mobile, Shandong Mobile or Guangxi Mobile (see Note 3(i)).

          (iii) Personnel expenses which represent staff salaries, bonuses and
     medical benefits, provision for staff welfare expenses and contributions to
     staff retirement scheme.

                                       F-20
<PAGE>   103
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

          (iv) Other operating expenses which consist of:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                               1998     1999     2000
                                                              ------   ------   -------
                                                               RMB      RMB       RMB
<S>                                                           <C>      <C>      <C>
Selling and promotion.......................................    995    1,582     3,940
Maintenance.................................................    448      499       745
Provision for doubtful accounts (Note 9)....................    558      771     1,346
Operating lease charges.....................................    301      539       936
Other expenses (Note (a))...................................  1,246    1,749     3,611
                                                              -----    -----    ------
                                                              3,548    5,140    10,578
                                                              =====    =====    ======
</TABLE>

          (a) Other expenses consist of offices expenses, utilities charges,
     travelling expenses, entertainment expenses, spectrum charges, insurance
     expenses, consumables and supplies, debt collection fees and other
     miscellaneous expenses.

5. WRITE-DOWN AND WRITE-OFF OF ANALOG NETWORK EQUIPMENT

<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                                  DECEMBER 31,
                                                              --------------------
                                                              1998   1999    2000
                                                              ----   -----   -----
                                                              RMB     RMB     RMB
<S>                                                           <C>    <C>     <C>
Write-down of analog network equipment(a)...................  282    6,720   1,330
Write-off of analog network equipment(b)....................   --    1,522     195
                                                              ---    -----   -----
                                                              282    8,242   1,525
                                                              ===    =====   =====
</TABLE>

          (a) The Group reviewed the carrying value of all analog network and
     related equipment at December 31, 1998 and 1999. Based on the estimated
     recoverable value of these assets, a write-down of RMB282 and RMB6,720 was
     made in 1998 and 1999 respectively. In 2000, based on the operations and
     net cash flow position of the analog network, the Group considers that the
     recoverable amount of the analog network has declined to below its carrying
     amount. Based on the expected future cash flows to be generated by the
     analog network, a full provision has been made against the carrying amount
     of the analog network at December 31, 2000. The amount of the write-down of
     RMB1,330 has been recognized as an expense in the consolidated statements
     of income.

          (b) This represents the write-off of certain analog network equipment
     which has been removed from service.

6. OTHER NET INCOME

     Other net income primarily consists of the gross margin from sales of
cellular telephone SIM cards and handsets.

                                       F-21
<PAGE>   104
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

7. NON-OPERATING NET (EXPENSES)/INCOME

     Non-operating net (expenses)/income consists of:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                              ------------------
                                                              1998   1999   2000
                                                              ----   ----   ----
                                                              RMB    RMB    RMB
<S>                                                           <C>    <C>    <C>
Exchange gain/(loss)........................................   19     (9)    (60)
Loss on sale of other fixed assets..........................  (59)    (1)   (126)
Penalty income on overdue accounts..........................   64     72     149
Others......................................................  (75)     8      32
                                                              ---     --    ----
          Total non-operating net (expenses)/income.........  (51)    70      (5)
                                                              ===     ==    ====
</TABLE>

8. INCOME TAX

          (i) No provision has been made for Hong Kong profits tax as there were
     no estimated Hong Kong assessable profits for the year ended December 31,
     1999 and 2000. The provision for Hong Kong profits tax is calculated at 16%
     of the estimated assessable profits of the holding company's unconsolidated
     financial statements for the year ended December 31, 1998.

          (ii) Pursuant to the income tax rules and regulations of the PRC, the
     Group's subsidiaries in the PRC were subject to the statutory income tax
     rate of 33% for the year ended December 31, 1998, 1999 and 2000, except for
     Hainan Mobile and certain cellular telephone operations of Guangdong Mobile
     located at Special Economic Zones in the PRC, which were subject to a tax
     rate of 15%. According to notices from the PRC Ministry of Finance,
     connection fees and certain surcharges of Beijing Mobile, Shanghai Mobile,
     Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi
     Mobile which were previously not subject to income tax, are subject to
     income tax at the rate of 33% after these companies were registered as
     wholly foreign-owned enterprises.

     Income tax in the consolidated statements of income represents:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                               1998     1999      2000
                                                              ------   -------   ------
                                                               RMB       RMB      RMB
<S>                                                           <C>      <C>       <C>
Provision for Hong Kong profits tax for the year............      3        --       --
Over-provision in respect of Hong Kong profits tax for prior
  year......................................................     --        (2)      --
Provision for PRC income tax on the estimated taxable
  profits for the year......................................  2,609     3,776    8,371
Under-provision in respect of PRC income tax for prior
  year......................................................     --        24       12
                                                              -----    ------    -----
                                                              2,612     3,798    8,383
Deferred tax assets (Note 16)...............................   (126)   (2,151)     (17)
                                                              -----    ------    -----
                                                              2,486     1,647    8,366
                                                              =====    ======    =====
</TABLE>

                                       F-22
<PAGE>   105
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

     The provision for income tax differs from the amount computed by applying
the PRC statutory income tax rate of 33% to profit before tax and minority
interests for the following reasons:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                               ------------------------
                                                                1998     1999     2000
                                                               ------   ------   ------
                                                                RMB      RMB      RMB
<S>                                                            <C>      <C>      <C>
Expected PRC taxation at statutory tax rates................   3,098    2,127    8,710
Non-taxable items:
  Connection fee............................................     (65)     (29)     (36)
  Surcharge.................................................     (87)     (37)     (28)
  Interest income...........................................    (225)     (66)     (74)
Non-deductible expenses.....................................     124      150      422
Rate differential on PRC operations.........................      --     (371)    (718)
Rate differential on Hong Kong operations...................    (233)     (45)      32
Non-recognition of deferred taxes:
  Generation of timing difference...........................      76      254      423
  Reversal of timing difference.............................    (187)    (265)    (388)
Others......................................................     (15)     (71)      23
                                                               -----    -----    -----
Income tax..................................................   2,486    1,647    8,366
                                                               =====    =====    =====
</TABLE>

9. ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                               1999     2000
                                                              ------   ------
                                                               RMB      RMB
<S>                                                           <C>      <C>
Accounts receivable.........................................   6,313   11,312
Less: Allowance for doubtful accounts.......................  (1,356)  (4,060)
                                                              ------   ------
                                                               4,957    7,252
                                                              ======   ======
</TABLE>

     The ageing of accounts receivable, net of allowance for doubtful accounts,
is analyzed as follows:

<TABLE>
<CAPTION>
                                                              1999    2000
                                                              -----   -----
                                                               RMB     RMB
<S>                                                           <C>     <C>
Within 30 days..............................................  4,298   6,451
31-60 days..................................................    399     524
61-90 days..................................................    260     277
                                                              -----   -----
                                                              4,957   7,252
                                                              =====   =====
</TABLE>

     Balances are due for payment within one month from the date of billing.
Customers with balances that are overdue or exceed credit limits are required to
settle all outstanding balances before any further phone calls can be made.

                                       F-23
<PAGE>   106
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

     Allowance for doubtful accounts for the years is analyzed as follows:

<TABLE>
<CAPTION>
                                                               RMB
                                                              ------
<S>                                                           <C>
At January 1, 1998..........................................     694
Acquired on acquisition of subsidiaries.....................     182
Provision for the year......................................     558
Written-off.................................................    (533)
                                                              ------
At December 31, 1998........................................     901
Acquired on acquisition of subsidiaries.....................     517
Provision for the year......................................     771
Written-off.................................................    (833)
                                                              ------
At December 31, 1999........................................   1,356
Acquired on acquisition of subsidiaries.....................   2,533
Provision for the year......................................   1,346
Written-off.................................................  (1,175)
                                                              ------
At December 31, 2000........................................   4,060
                                                              ======
</TABLE>

10. OTHER RECEIVABLES

     Included in other receivables as at December 31, 2000 are amounts due from
the China Telecom Group amounting to RMB998 (see Note 11), representing
primarily revenue collected on behalf of the Group. The balances with the China
Telecom Group were unsecured, non-interest bearing and repayable within one
year.

11. AMOUNTS DUE FROM/TO RELATED PARTIES

     The balances of amounts due from/to related parties at December 31, 1999
represented balances due from/to the MII and entities under the control of the
MII, including primarily the DGT and the PTAs (now known as Provincial
Telecommunications Companies (the "PTCs"). As a result of the PRC
telecommunication industry restructuring (the "restructuring") in May 2000, the
MII and entities under the control of the MII are not considered related
parties. China Telecommunications Corporation ("China Telecom") was established
in May 2000 as a state-owned enterprise to operate the fixed line telephone and
data communications networks nationwide in the PRC, formerly operated by the DGT
and the PTCs, and is also not considered to be a related party (see Note 25(a)).
As at December 31, 2000, all balances due from/to China Telecom and its
subsidiaries (the "China Telecom Group") are separately disclosed from amounts
due from/to related parties (see Notes 10 and 18). The balances of amounts due
from/to related parties at December 31, 1999 were unsecured, non-interest
bearing, repayable on demand and arose in the ordinary course of business.

12. AMOUNTS DUE FROM/TO ULTIMATE HOLDING COMPANY AND AMOUNT DUE TO IMMEDIATE
    HOLDING COMPANY

     Amounts due from/to ultimate holding company are unsecured, non-interest
bearing, repayable on demand and arose in the ordinary course of business.

     Amount due to immediate holding company primarily represents the balance of
the purchase consideration for acquisition of subsidiaries, which is unsecured,
non-interest bearing and repayable on demand.

                                       F-24
<PAGE>   107
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

13. FIXED ASSETS

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              ----------------
                                                               1999     2000
                                                              ------   -------
                                                               RMB       RMB
<S>                                                           <C>      <C>
Land use rights and buildings...............................   2,878     7,996
Telecommunication transceivers, switching centers and other
  network equipment.........................................  58,173   107,911
Office equipment, furniture and fixtures and others.........   1,797     3,702
                                                              ------   -------
                                                              62,848   119,609
Less: accumulated depreciation..............................  20,149    32,144
                                                              ------   -------
                                                              42,699    87,465
                                                              ======   =======
</TABLE>

     All of the Group's buildings are located outside Hong Kong.

     The carrying value of fixed assets of the Group includes an amount of
RMB431 and RMB7,046 in respect of assets held under capital lease as at December
31, 1999 and 2000, respectively.

     In connection with the Restructuring, pursuant to an approval document
dated September 5, 1997 issued by China State-owned Assets Administration
Bureau, the fixed assets of Guangdong Mobile and Zhejiang Mobile as of May 31,
1997 were valued by Zhongqihua Assets Appraisal Company ("ZAAC"), a firm of
independent valuers registered in the PRC, on a depreciated replacement cost
basis. The value of fixed assets of Guangdong Mobile and Zhejiang Mobile has
been determined at RMB15,630 reflecting a surplus on revaluation of
approximately RMB3,529. Such revalued amount for fixed assets of Guangdong
Mobile and Zhejiang Mobile has been reflected as of May 31, 1997 in the
accompanying consolidated financial statements.

     In connection with the acquisition of Jiangsu Mobile, and pursuant to an
approval document dated April 7, 1998 issued by China State-owned Assets
Administration Bureau, the fixed assets of Jiangsu Mobile as of December 31,
1997 were valued by ZAAC on a depreciated replacement cost basis. The value of
fixed assets of Jiangsu Mobile has been determined at RMB7,879 reflecting a
surplus on revaluation of approximately RMB2,443.

     In connection with the acquisition of Fujian Mobile, Henan Mobile and
Hainan Mobile, and pursuant to an approval document dated September 27, 1999
issued by the Ministry of Finance, the fixed assets of Fujian Mobile, Henan
Mobile and Hainan Mobile as of June 30, 1999 were valued by China International
Engineering Consulting Corporation ("CIECC") on a depreciated replacement cost
basis. The aggregate value of fixed assets of Fujian Mobile, Henan Mobile and
Hainan Mobile has been determined at RMB10,684 reflecting a surplus on
revaluation of approximately RMB391.

     In connection with the acquisition of Beijing Mobile, Shanghai Mobile,
Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi
Mobile and pursuant to an approval document dated August 28, 2000 issued by the
Ministry of Finance, the fixed assets of Beijing Mobile, Shanghai Mobile,
Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi
Mobile as of June 30, 2000 were valued by China Assets Appraisal Corporation
Ltd. ("CAAC") on a depreciated replacement cost basis. The aggregate value of
fixed assets of Beijing Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile,
Liaoning Mobile, Shandong Mobile and Guangxi Mobile has been determined at
RMB37,252 reflecting a surplus on revaluation of approximately RMB4,823.

     The Group's land and buildings in Guangdong Mobile and Zhejiang Mobile,
Jiangsu Mobile, Fujian Mobile, Henan Mobile and Hainan Mobile and Beijing
Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong
Mobile and Guangxi Mobile were also valued separately by Chesterton Petty
Limited, independent qualified valuers in Hong Kong as of May 31, 1997, December
31, 1997, June 30,

                                       F-25
<PAGE>   108
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

1999 and June 30, 2000 respectively. The values of such reports have been
determined at approximately the same amounts as the ZAAC, CIECC and CAAC
reports.

     Other than revaluations carried out in compliance with relevant PRC rules
and regulations, the Group has no plan to revalue its fixed assets on a regular
basis.

     The effect of the above four revaluations is to increase annual
depreciation charges by approximately RMB1,927 (1999: approximately RMB1,113).

     The historical cost net book value of the fixed assets of these
subsidiaries in the Group's financial statements as of the respective
revaluation dates and the revalued basis of these fixed assets are as follows:

<TABLE>
<CAPTION>
                                                                               REVALUED
                                                              NET BOOK VALUE    AMOUNT
                                                              --------------   --------
                                                                   RMB           RMB
<S>                                                           <C>              <C>
Land use rights and buildings...............................       2,808         4,251
Telecommunication transceivers, switching centers and other
  network equipment.........................................      55,994        65,706
Office equipment, furniture and fixtures and others.........       1,457         1,488
                                                                  ------        ------
                                                                  60,259        71,445
                                                                  ======        ======
</TABLE>

14. INTEREST IN ASSOCIATES

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              -------------
                                                              1999    2000
                                                              -----   -----
                                                               RMB     RMB
<S>                                                           <C>     <C>
Unlisted shares, at cost....................................    37      37
Capital contributions, at cost..............................     9       9
                                                                --      --
                                                                46      46
                                                                ==      ==
</TABLE>

     Details of the associates, all of which are unlisted corporate entities,
are as follows:

<TABLE>
<CAPTION>
                                  PLACE OF      ATTRIBUTABLE
                                INCORPORATION   INTEREST HELD
NAME OF ASSOCIATE               AND OPERATION   BY THE GROUP          PRINCIPAL ACTIVITY
-----------------               -------------   -------------   ------------------------------
<S>                             <C>             <C>             <C>
China Motion United Telecom       Hong Kong          30%        Provision of telecommunication
  Limited                                                         services
Shenzhen China Motion Telecom   PRC                  30%        Provision of telecommunication
  United Limited                                                  services
Fujian Nokia Mobile             PRC                  50%        Network planning and
  Communication Technology                                        optimizing
  Company Limited                                                 construction-testing and
                                                                  supervising, technology
                                                                  support, development and
                                                                  training of Nokia GSM
                                                                  900/1800 Mobile
                                                                  Communication System
</TABLE>

15. INVESTMENT SECURITIES

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              ------------
                                                              1999    2000
                                                              ----    ----
                                                              RMB     RMB
<S>                                                           <C>     <C>
Unlisted equity securities in the PRC, at cost..............  --       61
                                                               ==      ==
</TABLE>

                                       F-26
<PAGE>   109
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

16. DEFERRED TAX ASSETS

     Movements on deferred tax assets comprise:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              -------------
                                                              1999    2000
                                                              -----   -----
                                                               RMB     RMB
<S>                                                           <C>     <C>
Balance at beginning of year................................    152   2,306
Acquired on acquisition of subsidiaries.....................      3     723
Transferred from consolidated statements of income (Note
  8)........................................................  2,151      17
                                                              -----   -----
Balance at end of year......................................  2,306   3,046
                                                              =====   =====
</TABLE>

     Deferred tax assets of the Group provided for are as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              -------------
                                                              1999    2000
                                                              -----   -----
                                                               RMB     RMB
<S>                                                           <C>     <C>
Provision for obsolete inventories..........................     51      12
Write-down of fixed assets relating to analog network
  equipment.................................................  2,182   2,102
Amortization of deferred revenue............................     73      60
Income recognition on prepaid service fees..................     --     872
                                                              -----   -----
                                                              2,306   3,046
                                                              =====   =====
</TABLE>

     Deferred tax assets of the Group not provided for are as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              -------------
                                                              1999    2000
                                                              ----   ------
                                                              RMB     RMB
<S>                                                           <C>    <C>
Provision for doubtful accounts.............................  402    1,264
                                                              ===    =====
</TABLE>

     As described in Note 13, in connection with the Restructuring and the
subsequent acquisitions, the fixed assets of Guangdong Mobile and Zhejiang
Mobile, Jiangsu Mobile, Fujian Mobile, Henan Mobile and Hainan Mobile, and
Beijing Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile, Liaoning Mobile,
Shandong Mobile and Guangxi Mobile were revalued on May 31, 1997, December 31,
1997, June 30, 1999 and June 30, 2000, respectively. As a result of such
valuation, the fixed assets basis differences that gave rise to the potential
deferred tax liabilities of these subsidiaries as of May 31, 1997, December 31,
1997, June 30, 1999 and June 30, 2000 amounting to RMB547, RMB149, RMB825 and
RMB1,809, respectively, were eliminated.

     Additionally, the tax losses carried forward relating to Liaoning Mobile
and Guangxi Mobile of RMB72 were eliminated as of June 30, 2000.

17. DEFERRED EXPENSES

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                              ------------
                                                              1999    2000
                                                              ----    ----
                                                              RMB     RMB
<S>                                                           <C>     <C>
Balance at beginning of year................................   --      51
Additions during the year...................................   53     128
Less: Amortization for the year.............................   (2)    (15)
                                                               --     ---
Balance at the end of year..................................   51     164
                                                               ==     ===
</TABLE>

                                       F-27
<PAGE>   110
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

18. ACCOUNTS PAYABLE

     Included in accounts payable as at December 31, 2000 are amounts due to the
China Telecom Group amounting to RMB3,449 (see Note 11), representing primarily
payables for leased lines and interconnection expenses.

     The ageing analysis of accounts payable as at 31 December is as follows:

<TABLE>
<CAPTION>
                                                              1999     2000
                                                              -----   ------
                                                               RMB     RMB
<S>                                                           <C>     <C>
Amounts payable in the next:
  1 month or on demand......................................  4,317    6,614
  2-3 months................................................    395      560
  4-6 months................................................    198    1,672
  7-9 months................................................    660      827
  10-12 months..............................................    456    1,908
                                                              -----   ------
                                                              6,026   11,581
                                                              =====   ======
</TABLE>

19. BANK LOANS AND OTHER INTEREST-BEARING BORROWINGS

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                  -----------------------------------------------------------------------
                                                 1999                                 2000
                                  ----------------------------------   ----------------------------------
                                    CURRENT     NON-CURRENT              CURRENT     NON-CURRENT
                           NOTE   LIABILITIES   LIABILITIES   TOTAL    LIABILITIES   LIABILITIES   TOTAL
                           ----   -----------   -----------   ------   -----------   -----------   ------
                                      RMB           RMB        RMB         RMB           RMB        RMB
<S>                        <C>    <C>           <C>           <C>      <C>           <C>           <C>
Bank loans...............  (a)       4,170         1,623       5,793     10,267        12,014      22,281
Other loans..............  (a)         181           602         783        204           459         663
Fixed rate notes.........  (b)          --         4,952       4,952         --         4,953       4,953
Convertible notes........  (c)          --            --          --         --         5,708       5,708
                                     -----         -----      ------     ------        ------      ------
                                     4,351         7,177      11,528     10,471        23,134      33,605
                                     =====         =====      ======     ======        ======      ======
</TABLE>

     As at December 31, 1999 and 2000 included in current liabilities are
short-term bank and other loans amounting to RMB100 and RMB100, respectively,
which are secured by cash at banks amounting to RMB100 and RMB113, respectively.
All other short-term bank and other loans are unsecured.

     All of the above bank and other loans under non-current liabilities are
unsecured.

     The Group's borrowings under short-term bank and other loans are used
primarily to finance construction projects and generally consist of unsecured
loans and are repayable in full on respective due dates with interest rates
ranging from 5.02% to 7.11% at December 31, 1999 and from 5.02% to 6.44% at
December 31, 2000. The Group's weighted average interest rate on short-term
loans was 5.85% and 5.17% at December 31, 1999 and 2000, respectively.

                                       F-28
<PAGE>   111
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

(a) Long-Term Bank and Other Loans

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                               --------------
                                         INTEREST RATE AND FINAL MATURITY      1999     2000
                                         --------------------------------      -----   ------
                                                                                RMB     RMB
<S>                                      <C>                                   <C>     <C>
RENMINBI DENOMINATED BANK LOANS:
For construction of telecommunications   Floating interest rates ranging from
  network                                5.94% to 7.11% per annum as of
                                         December 31, 2000 with maturities
                                         2001 to 2003(i)                         978    3,930
                                         Fixed interest rates ranging from
                                         5.88% to 6.21% per annum with
                                         maturities 2001 to 2007(ii)             650    6,239
                                         Fixed interest rates ranging from
                                         5.25% to 5.75% per annum with
                                         maturities through 2005(iv)              --      308
For working capital                      Floating interest rates ranging from
                                         5.346% to 5.94% per annum as of
                                         December 31, 2000 with maturities
                                         2002 to 2003                             --    4,110
                                         Fixed interest rate at 5.94% per
                                         annum with maturities 2001 to 2003       --      850
US DOLLAR DENOMINATED BANK LOANS:
For construction of telecommunications   Floating interest rates ranging from
  network                                6.676% to 7.603% per annum as of
                                         December 31, 2000 with maturities
                                         2001 to 2002(iii)                        --      136
                                         Floating interest rates of LIBOR
                                         with maturities through 2001            207       --
US DOLLAR DENOMINATED OTHER LOANS:
For construction of telecommunications   Floating interest rates ranging from
  network                                6.700% to 8.24% per annum as of
                                         December 31, 2000 with maturities
                                         through 2002(v)                          --      138
                                         Floating interest rate of LIBOR plus
                                         0.45% per annum with maturities
                                         through 2001                             40       --
                                         Fixed interest rates 7.5% per annum
                                         with maturities through 2004            744      526
                                                                               -----   ------
Total long-term loans                                                          2,619   16,237
Less: current portion                                                           (394)  (3,764)
                                                                               -----   ------
                                                                               2,225   12,473
                                                                               =====   ======
</TABLE>

          (i) At December 31, 2000, bank loans amounting to RMB251, RMB2,015 and
     RMB262 were guaranteed by Fujian PTC, Liaoning PTC and Shandong PTC
     respectively.

          (ii) At December 31, 2000, bank loans amounting to RMB250, RMB1,600
     and RMB771 were guaranteed by Beijing PTC, Hebei PTC and Liaoning PTC,
     respectively.

          (iii) At December 31, 2000, bank loans amounting to RMB103 and RMB33
     were guaranteed by Guangdong PTC and Shandong PTC, respectively.

                                       F-29
<PAGE>   112
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

          (iv) At December 31, 2000, bank loan amounting to RMB308 was
     guaranteed by Beijing PTC.

          (v) At December 31, 2000, other loan amounting to RMB24 was guaranteed
              by Guangdong PTC.

     The aggregate maturities of long-term bank and other loans subsequent to
December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                               RMB
                                                              ------
<S>                                                           <C>
2001........................................................   3,764
2002........................................................   5,282
2003........................................................   5,655
2004........................................................   1,364
2005........................................................     102
Thereafter..................................................      70
                                                              ------
                                                              16,237
                                                              ======
</TABLE>

     Interest expense, net of the amounts capitalized, is as follows:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1998     1999     2000
                                                              -----    -----    -----
                                                               RMB      RMB      RMB
<S>                                                           <C>      <C>      <C>
Interest incurred...........................................   307      421      477
Interest element of capital lease...........................    --        1       52
Interest capitalized........................................  (147)    (143)    (119)
                                                              ----     ----     ----
                                                               160      279      410
Interest expenses of fixed rate notes.......................    --       64      393
Interest expenses of convertible notes......................    --       --       21
                                                              ----     ----     ----
Interest expense............................................   160      343      824
                                                              ====     ====     ====
</TABLE>

  (b) Fixed Rate Notes

     On November 2, 1999, the Company issued unsecured fixed rate notes (the
"notes") with a principal amount of US$600 at an issue price equal to 99.724 per
cent of the principal amount of the notes, due on November 2, 2004. The notes
bear interest at the rate of 7.875 per cent per annum and such interest is
payable semi-annually on May 2 and November 2 of each year, commencing May 2,
2000.

  (c) Convertible Notes

          (i) On November 3, 2000, the Company issued convertible notes (the
     "Notes") in an aggregate principal amount of US$690 at an issue price equal
     to 100 per cent of the principal amount of the Notes. The Notes bear
     interest at the rate of 2.25 per cent per annum, payable semi-annually on
     May 3 and November 3 of each year commencing May 3, 2001. Unless previously
     redeemed, converted or purchased and cancelled, the Notes will be redeemed
     at 100 per cent of the principal amount, plus any accrued and unpaid
     interest on November 3, 2005. The Notes are unsecured, senior and
     unsubordinated obligations of the Company.

          (ii) The Notes are convertible at any time on after December 3, 2000
     and before the close of business on the third business day prior to the
     earlier of (1) the maturity date of November 3, 2005 or (2) the redemption
     date fixed for early redemption, at an initial conversion price, subject to
     adjustment in certain events, of HK$59.04 per share.

          (iii) During the year, no Notes were converted into ordinary shares of
     the Company.

                                       F-30
<PAGE>   113
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

20. OBLIGATIONS UNDER CAPITAL LEASE

          (i) Hainan Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile,
     Liaoning Mobile, Shandong Mobile and Guangxi Mobile entered into certain
     capital lease agreements to finance the purchase of telecommunications
     equipment. The leases are denominated in United States dollars and Renminbi
     and the lease term is expiring through 2003. The legal title of the
     equipment will be transferred to Hainan Mobile, Shanghai Mobile, Tianjin
     Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi Mobile
     when all outstanding lease payments are paid.

          (ii) The following is a schedule by years of future minimum lease
     payments under capital lease together with the present value of the net
     minimum lease payments as of December 31, 2000:

<TABLE>
<CAPTION>
                                                               RMB
                                                              ------
<S>                                                           <C>
2001........................................................   1,778
2002........................................................   1,077
2003........................................................     216
                                                              ------
Total minimum lease payments................................   3,071
Less: Amount representing interest..........................    (212)
                                                              ------
Present value of net minimum lease payments.................   2,859
Less: Obligations under capital lease -- current portion....  (1,624)
                                                              ------
                                                               1,235
                                                              ======
</TABLE>

          (iii) As of December 31, 2000, certain capital lease payments are
     guaranteed by the following parties:

<TABLE>
<CAPTION>
                                                              RMB
                                                              ---
<S>                                                           <C>
Hainan PTC..................................................  102
Liaoning PTC................................................  197
                                                              ---
                                                              299
                                                              ===
</TABLE>

21. ACCRUED EXPENSES AND OTHER PAYABLES

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              -------------
                                                              1999    2000
                                                              -----   -----
                                                               RMB     RMB
<S>                                                           <C>     <C>
Other payables..............................................  1,954   5,409
Accrued salaries, wages and benefits........................  1,549   2,198
Accrued expenses............................................    612     801
                                                              -----   -----
                                                              4,115   8,408
                                                              =====   =====
</TABLE>

22. DEFERRED REVENUE

     Deferred revenue includes primarily prepaid services fees received from
subscribers which is recognized as income when the cellular telephone services
are rendered upon actual usage by subscribers.

     Deferred revenue also includes income from assignment of rights. The
balance at year end represents the unamortized portion of proceeds received by
Guangdong Mobile from certain distributors of telecommunications services
pursuant to agreements under which Guangdong Mobile sold certain mobile phone
numbers to these distributors at RMB0.0092 each, in return for assigning to such
distributors the rights to certain revenue such as usage fees, monthly fees,
connection fees, telephone number selection fees and 50% value-added services
fees from those subscribers over a period of seven years. The distributors have
no recourse to the

                                       F-31
<PAGE>   114
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

Group under the relevant agreements and the Group retains no credit risk from
such subscribers during the seven-year period. The proceeds received by
Guangdong Mobile have been accounted for as deferred revenue and are amortized
over a period of seven years. After the expiration of the relevant agreements,
the rights to income from these subscribers will revert to the Group.

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              --------------
                                                              1999     2000
                                                              -----   ------
                                                               RMB     RMB
<S>                                                           <C>     <C>
Balance at beginning of year................................  1,757    1,492
Additions on acquisition of subsidiaries....................     --    1,039
Additions during the year...................................     48    5,689
Recognized in the consolidated statements of income.........   (313)  (4,566)
                                                              -----   ------
Balance at end of year......................................  1,492    3,654
                                                              =====   ======
</TABLE>

23. COMMITMENTS AND CONTINGENCIES

  (a) Operating Leases

     Future minimum lease payments as of December 31, 2000 under non-cancellable
operating leases having initial or remaining lease terms of more than one year
are as follows:

<TABLE>
<CAPTION>
                                                               RMB
                                                              ------
<S>                                                           <C>
2001........................................................   5,019
2002........................................................   3,438
2003........................................................   2,788
2004........................................................   2,617
2005........................................................   2,459
Thereafter..................................................   3,851
                                                              ------
                                                              20,172
                                                              ======
</TABLE>

  (b) Capital Commitments

     As of December 31, 2000, the Group had capital commitments as follows:

<TABLE>
<CAPTION>
                                                               RMB
                                                              ------
<S>                                                           <C>
Authorized and contracted for...............................  10,712
Authorized but not contracted for...........................  34,056
                                                              ------
                                                              44,768
                                                              ======
</TABLE>

24. EMPLOYEE AND RETIREMENT BENEFITS

     The employees of the subsidiaries participate in defined benefit retirement
plans managed by the local government authorities whereby the subsidiaries are
required to contribute to the schemes at fixed rate of the employees' salary
costs. The subsidiaries have no obligation for the payment of retirement and
other post-retirement benefits of staff other than the contributions described
above. Expenses incurred by the subsidiaries in connection with the retirement
scheme were RMB209, RMB251 and RMB335, respectively, for three years ended
December 31, 1998, 1999 and 2000, respectively.

     Pursuant to PRC regulation and prior to the Restructuring and the
subsequent acquisitions, the subsidiaries were required to provide staff
quarters to eligible employees and their immediate families. The Group has
established separate employee housing reform schemes in order to comply with the
regulation at the provincial level. Under such schemes, the Group is required to
either purchase or build housing which is to

                                       F-32
<PAGE>   115
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

be sold or rented to eligible employees. Through May 31, 1997, housing provided
under the schemes was shared between Guangdong Mobile and the Guangdong PTA, in
Guangdong Mobile's case, and purchased or built entirely by the Zhejiang PTA, in
Zhejiang Mobile's case. Prior to the acquisitions of Jiangsu Mobile, Fujian
Mobile, Henan Mobile, Hainan Mobile, Beijing Mobile, Shanghai Mobile, Tianjin
Mobile, Hebei Mobile, Shandong Mobile and Guangxi Mobile, housing provided under
the schemes were purchased or built entirely by the relevant PTAs or PTCs,
except Liaoning Mobile where prior to the acquisition housing provided under the
schemes were provided by Liaoning Mobile.

     Following the Restructuring and the subsequent acquisitions, management
intends to continue with the housing schemes previously in place for existing
employees. The Group estimates the total cost of the subsidy to be provided for
such housing scheme in respect of employees to be approximately RMB440, of which
RMB230 had been accrued through December 31, 2000. All previous costs incurred
by the relevant PTAs or PTCs have not been charged to the Group.

25. RELATED PARTY TRANSACTIONS

     (a) Parties are considered to be related if the one party has the ability,
directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operating decisions.
Parties are also considered to be related if they are subject to common control
or common significant influence.

     The majority of the Group's business activities are conducted with China
Mobile (the Company's ultimate holding company) and its subsidiaries (the "China
Mobile Group") and the China Telecom Group (see Note 11).

     As a result of the restructuring in May 2000, the MII ceased to have
controlling interests in China Mobile and the DGT and the PTCs and no longer
exercises control over telecommunications operations. However, the MII continues
in its capacity as the industry regulator providing policy guidance and
exercising regulatory authority over all telecommunications services providers
in the PRC. As described in note 11, China Telecom was set up as a result of the
restructuring to operate the fixed line telephone networks in the PRC previously
operated by the DGT and the PTCs, and is owned by the PRC government. As such,
the MII or entities under the control of the MII including the DGT and the PTCs,
and the China Telecom Group are no longer considered to be related parties of
the Group since May 2000.

     The following is a summary of principal transactions which were entered
into by the Group with the China Mobile Group since its formation, and
transactions which were carried out by the Group with the MII and the entities
under the control of the MII including the DGT and the PTCs prior to May 2000.

                                       F-33
<PAGE>   116
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                                  ------------------------
                                                          NOTE     1998     1999     2000
                                                          -----   ------   ------   ------
                                                                   RMB      RMB      RMB
<S>                                                       <C>     <C>      <C>      <C>
Interconnection revenue.................................     (i)    752    1,242    1,744
Interconnection charges.................................    (ii)  3,925    5,275    2,864
Leased line charges.....................................   (iii)  3,917    3,723    2,464
Roaming revenue.........................................    (iv)  1,053    1,497    2,674
Roaming expenses........................................     (v)    827    1,178    2,076
Spectrum fees...........................................    (vi)     12       12       15
Operating lease charges.................................   (vii)    227      280      226
Sales commission........................................  (viii)    264      378      248
Debt collection service fees............................  (viii)    133      143       91
Billing service fees....................................  (viii)      1        2       --
Roaming billing processing fees.........................  (viii)     --       --      148
Equipment maintenance service fees......................    (ix)     --       --        1
Rental charges of synchronized clock ports..............     (x)     --        2        3
Construction and related service fees...................    (xi)     --       --       20
Purchase of transmission tower and transmission
  tower-related service and antenna maintenance service
  fees..................................................   (xii)     --       --       16
Prepaid card sales commission income....................  (xiii)     --       --      114
Prepaid card sales commission expenses..................  (xiii)     --       --       99
Interest paid/payable...................................   (xiv)     83       18       --
</TABLE>

     Notes:

          (i) Interconnection revenue represents the amounts received or
     receivable from the Guangdong PTC, the Zhejiang PTC, the Jiangsu PTC, the
     Fujian PTC, the Henan PTC and the Hainan PTC ("the relevant PTCs") or the
     DGT or the China Mobile Group since its formation in respect of long
     distance calls made by non-subscribers in Guangdong, Zhejiang, Jiangsu,
     Fujian, Henan, Hainan, Hebei, Liaoning and Shandong provinces, Beijing,
     Shanghai and Tianjin municipalities, and Guangxi autonomous region ("the
     relevant provinces") and from the relevant PTCs in respect of calls made
     between the Group's cellular networks and the fixed line networks in the
     relevant provinces and outbound calls originating from the fixed line
     networks in the relevant provinces which terminate on GSM network operators
     in other provinces in the PRC.

          (ii) Interconnection charges represent the amounts paid or payable to
     the relevant PTCs or the DGT or China Mobile Group since its formation in
     respect of long distance calls made by the Group's subscribers roaming
     outside their registered provinces and in respect of calls made between the
     Group's cellular networks, the fixed line networks in the relevant
     provinces and other GSM network operators in other provinces in the PRC.

          (iii) Leased line charges represent expenses paid or payable to China
     Mobile Group or the relevant PTCs for the use of leased lines between the
     base transceiver stations, base station controllers, base stations, fixed
     line network connectors, long distance network connectors and main
     switches.

          (iv) A cellular telephone user using roaming services is charged at
     the respective roaming usage rate for roaming in calls, in addition to
     applicable long distance charges. Roaming revenue represents domestic and
     international roaming in usage charges from non-subscribers received or
     receivable from the relevant domestic and international cellular telephone
     operators through the China Mobile Group.

          (v) A cellular telephone user using roaming services is charged at the
     respective roaming usage rate for roaming out calls, in addition to
     applicable long distance charges. Roaming expenses represent the

                                       F-34
<PAGE>   117
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

     amount of domestic and international roaming out charges received or
     receivable from subscribers which is to be remitted to the relevant
     domestic and international cellular telephone operators for their share of
     the roaming revenue through the China Mobile Group.

          (vi) Spectrum fees represent the spectrum usage fees paid or payable
     to the China Mobile Group for the usage of the frequency bands allocated to
     the Company's subsidiaries in the PRC.

          (vii) Operating lease charges represent the rental and property
     management fees paid or payable to the relevant PTCs prior to May 2000 or
     subsidiaries of China Mobile for operating leases in respect of land and
     buildings and others.

          (viii) The Group entered into certain services agreements in respect
     of marketing services with authorized dealers, debt collection services and
     billing services with the relevant PTCs or subsidiaries of China Mobile.

          Sales commission represents the amounts paid or payable to the
     relevant PTCs or subsidiaries of China Mobile for their marketing of the
     cellular services in the relevant provinces.

          Debt collection service fees represent the amounts paid or payable to
     the relevant PTCs or subsidiaries of China Mobile for their provision of
     debt collection services to the Company's subsidiaries.

          Billing service fees represent the amounts paid or payable to the
     relevant PTCs for their provision of billing services to the Company's
     subsidiaries.

          Roaming billing processing fees represent the amounts paid or payable
     to the China Mobile Group for the provision of the roaming billing
     processing services to the Company's subsidiaries.

          (ix) Equipment maintenance service fees represent the amount paid or
     payable to the Fujian PTC or subsidiaries of China Mobile for the provision
     of the maintenance services to Fujian Mobile, Beijing Mobile, Shanghai
     Mobile and Liaoning Mobile.

          (x) Rental charges of synchronized clock ports represent expenses paid
     or payable to the relevant PTCs for leasing of synchronized clock ports by
     the Company's subsidiaries.

          (xi) Construction and related service fees represent the amount paid
     or payable to subsidiaries of China Mobile for the provision of
     construction services to Beijing Mobile, Shanghai Mobile, Liaoning Mobile
     and Shandong Mobile.

          (xii) Payment represents cash payment by Hebei Mobile to acquire
     transmission towers from relevant subsidiaries of China Mobile and expenses
     paid or payable to relevant subsidiaries of China Mobile for the provision
     of transmission tower related services and antenna maintenance services
     provided to Hebei Mobile.

          (xiii) Prepaid card sales commission income and commission expenses
     represent handling charges received/receivable from subsidiaries of China
     Mobile to the Company's subsidiaries or paid/payable by the Company's
     subsidiaries to subsidiaries of China Mobile in respect of prepaid card
     services.

          (xiv) Interest paid/payable represents the interest incurred on loans
     borrowed from Zhejiang PTA and Telpo.

     (b) Pursuant to the ordinary resolution passed by the Company's
shareholders on November 10, 2000, the Company acquired the entire issued share
capital of Beijing Mobile BVI, Shanghai Mobile BVI, Tianjin Mobile BVI, Hebei
Mobile BVI, Liaoning Mobile BVI, Shandong Mobile BVI and Guangxi Mobile BVI from
CMHK BVI, the immediate holding company of the Company, for a total
consideration of HK$256,021 (RMB equivalent 271,485). The consideration was
satisfied by a cash payment of HK$74,609 (RMB equivalent 79,116) and allotment
of shares to CMHK BVI amounted to HK$181,412 (RMB equivalent 192,369). The only
assets of each of Beijing Mobile BVI, Shanghai Mobile BVI, Tianjin Mobile BVI,
Hebei
                                       F-35
<PAGE>   118
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

Mobile BVI, Liaoning Mobile BVI, Shandong Mobile BVI and Guangxi Mobile BVI are
their interests in the entire equity of Beijing Mobile, Shanghai Mobile, Tianjin
Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi Mobile,
respectively.

     Pursuant to the ordinary resolution passed by the Company's shareholders on
November 11, 1999, the Company acquired the entire issued share capital of
Fujian Mobile BVI, Henan Mobile BVI and Hainan Mobile BVI from CMHK (BVI)
(formerly China Telecom Hong Kong (BVI) Limited), the immediate holding company
of the Company, for a total consideration of HK$49,715 (RMB equivalent 52,953).
The consideration was satisfied by a cash payment of HK$19,031 (RMB equivalent
20,268) and allotment of shares to CMHK (BVI) amounted to HK$30,684 (RMB
equivalent 32,685). The only assets of each of Fujian Mobile BVI, Henan Mobile
BVI and Hainan Mobile BVI are their interests in the entire equity of Fujian
Mobile, Henan Mobile and Hainan Mobile, respectively.

     Pursuant to the ordinary resolution passed by the Company's shareholders on
June 3, 1998, the Company acquired the entire issued share capital of Jiangsu
Mobile BVI from CMHK (BVI), for a total cash consideration of HK$22,475 (RMB
equivalent 24,120). The only asset of Jiangsu Mobile BVI is its interest in the
entire equity of Jiangsu Mobile.

26. SHAREHOLDERS' EQUITY

  Share Capital

<TABLE>
<CAPTION>
                                                                        NOMINAL
                                                      NUMBER OF        AMOUNT OF
                                                       ORDINARY      EACH ORDINARY
                                                        SHARES           SHARE       AMOUNT
                                                    --------------   -------------   ------
                                                                                      HK$
<S>                                                 <C>              <C>             <C>
AUTHORIZED:
Balance at December 31, 1999......................  16,000,000,000   HK$0.10         1,600
                                                    ==============                   =====
Balance at December 31, 2000......................  30,000,000,000   HK$0.10         3,000
                                                    ==============                   =====
ISSUED AND FULLY PAID:
Balance at January 1, 1999........................  11,780,788,000   HK$0.10         1,178
Issue of new shares to the professional and
  institutional investors.........................     644,804,000   HK$0.10            65
Issue of consideration shares for acquisition of
  subsidiaries....................................   1,273,195,021   HK$0.10           127
Shares issued under share option scheme...........       7,500,000   HK$0.10             1
                                                    --------------                   -----
Balance at December 31, 1999......................  13,706,287,021                   1,371
                                                    ==============                   =====
                                                                      RMB
                                                                      equivalent     1,467
                                                                                     =====
Balance at January 1, 2000........................  13,706,287,021   HK$0.10         1,371
Issue of new shares to the professional and
  institutional investors.........................   1,115,643,845   HK$0.10           112
Issue of consideration shares for acquisition of
  subsidiaries....................................   3,779,407,375   HK$0.10           378
Shares issued under share option scheme...........       3,974,000   HK$0.10            --
                                                    --------------                   -----
Balance at December 31, 2000......................  18,605,312,241                   1,861
                                                    ==============                   =====
                                                                      RMB
                                                                      equivalent     1,986
                                                                                     =====
</TABLE>

                                       F-36
<PAGE>   119
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

     The Company was established in Hong Kong on September 3, 1997 as a limited
company, with a registered share capital of HK$10,000 divided into 100,000
shares of HK$0.10 each, two of which were issued and credited as fully paid.

     At an extraordinary general meeting of the Company held on September 27,
1997,

          (i) the authorised share capital of the Company was increased from
     HK$10,000 to HK$1,600,000,000 by the creation of an additional
     15,999,900,000 shares of HK$0.10 each; and

          (ii) 9,009,999,998 shares were credited as fully paid and issued to
     CMHK (BVI) for the transfer of interests in Guangdong Mobile and Zhejiang
     Mobile to the Company.

     Pursuant to the resolutions passed on October 21, 1997, the Company issued
2,600,000,000 shares of HK$0.10 each at HK$11.68 per share and the shares were
listed on the New York Stock Exchange and The Stock Exchange of Hong Kong
Limited on October 22, 1997 and October 23, 1997, respectively. On November 7,
1997, the Company issued 170,788,000 shares of HK$0.10 each at HK$11.68 per
share by way of a placing among professional and institutional investors.

     Pursuant to ordinary resolutions passed at directors' meetings held on
November 1, 1999 and November 3, 1999 respectively, the Company issued
560,700,000 and 84,104,000 ordinary shares of HK$0.10 each to professional and
institutional investors, at a consideration of HK$24.10 per share, for financing
the acquisition of Fujian Mobile BVI, Henan Mobile BVI and Hainan Mobile BVI.

     Pursuant to an ordinary resolution passed at an extraordinary general
meeting held on November 11, 1999, 1,273,195,021 ordinary shares of HK$0.10 each
were issued and credited as fully paid to CMHK (BVI), at a consideration of
HK$24.10 per share as part of the consideration for the acquisition of Fujian
Mobile BVI, Henan Mobile BVI and Hainan Mobile BVI.

     Pursuant to resolutions passed at directors' meetings held on November 2,
2000 and November 8, 2000 respectively, the Company issued 1,068,396,405 and
47,247,440 ordinary shares of HK$0.10 each to professional and institutional
investors, at a consideration of HK$48 per share, for financing the acquisition
of Beijing Mobile BVI, Shanghai Mobile BVI, Tianjin Mobile BVI, Hebei Mobile
BVI, Liaoning Mobile BVI, Shandong Mobile BVI and Guangxi Mobile BVI.

     Pursuant to ordinary resolutions passed at an extraordinary general meeting
held on November 10, 2000, the Company's authorized share capital was increased
to HK$3,000,000,000 by the creation of an additional 14,000,000,000 ordinary
shares of HK$0.10 each, ranking pari passu with the existing shares of the
Company, and 3,779,407,375 ordinary shares of HK$0.10 each were issued and
credited as fully paid to CMHK (BVI), at a consideration of HK$48 per share as
part of the consideration for the acquisition of Beijing Mobile BVI, Shanghai
Mobile BVI, Tianjin Mobile BVI, Hebei Mobile BVI, Liaoning Mobile BVI, Shandong
Mobile BVI and Guangxi Mobile BVI.

  Reserves

     Capital Reserve

     As mentioned in Note 1, this amount represents the total of the following:

     - the additional earnings of Guangdong Mobile and Zhejiang Mobile from June
       1, 1997 to September 26, 1997, the completion date of the Restructuring
       (RMB1,132);

     - goodwill arising on the acquisition of Jiangsu Mobile BVI and Jiangsu
       Mobile on June 3, 1998 (RMB15,622), which has been eliminated against
       capital reserve immediately upon acquisition;

                                       F-37
<PAGE>   120
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

     - goodwill arising on the acquisition of Fujian Mobile BVI, Henan Mobile
       BVI, Hainan Mobile BVI, Fujian Mobile, Henan Mobile and Hainan Mobile on
       November 11, 1999 (RMB42,440), which has been eliminated against capital
       reserve immediately upon acquisition; and

     - goodwill arising on the acquisition of Beijing Mobile BVI, Shanghai
       Mobile BVI, Tianjin Mobile BVI, Hebei Mobile BVI, Liaoning Mobile BVI,
       Shandong Mobile BVI, Guangxi Mobile BVI, Beijing Mobile, Shanghai Mobile,
       Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile and
       Guangxi Mobile on November 12, 2000 (RMB239,540), which has been
       eliminated against capital reserve immediately upon acquisition.

     PRC Statutory Reserves

     PRC statutory reserves include general reserve, enterprise expansion fund,
statutory surplus reserve and statutory public welfare fund.

     At December 31, 2000, Guangdong Mobile, Zhejiang Mobile, Jiangsu Mobile,
Fujian Mobile, Henan Mobile, Hainan Mobile, Beijing Mobile, Tianjin Mobile,
Hebei Mobile, Liaoning Mobile, Shandong Mobile and Guangxi Mobile are wholly
foreign-owned enterprises. In accordance with Accounting Regulations for PRC
Enterprises with Foreign Investment, they are required to transfer at least 10%
of their profit after taxation, as determined under accounting principles
generally accepted in the PRC ("PRC GAAP") to the general reserve until the
balance of the general reserve is equal to 50% of their registered capital.
Moreover, they are required to transfer a certain percentage of their profit
after taxation, as determined under PRC GAAP, to the enterprise expansion fund.
During the year, appropriations were made by each of the above subsidiaries to
the general reserve at 10% of their profit after taxation determined under PRC
GAAP. During the year, Guangdong Mobile, Zhejiang Mobile, Jiangsu Mobile, Fujian
Mobile, Henan Mobile and Hainan Mobile transferred 30% of their profit after
taxation, as determined under PRC GAAP, to the enterprise expansion fund.
Beijing Mobile, Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong Mobile
and Guangxi Mobile did not make any appropriation to the enterprise expansion
fund during the year.

     The general reserve can be used to make good losses and to increase the
capital of the subsidiaries while the enterprise expansion fund can be used to
increase the capital of the subsidiaries, to acquire fixed assets and to
increase current assets.

     As Shanghai Mobile has not yet registered as a wholly foreign-owned
enterprise at December 31, 2000, it is not required to make the above transfers
for the year ended December 31, 2000. According to the Articles of Association,
Shanghai Mobile is required to transfer a certain percentage of profit after
taxation, as determined under PRC GAAP, to the statutory surplus reserve and
statutory public welfare fund. During the year, appropriations were made by
Shanghai Mobile to the statutory surplus reserve and the statutory public
welfare fund both at 10 per cent of its profit after taxation determined under
PRC GAAP.

     Statutory surplus reserve can be used to make good previous years' losses,
if any, and may be converted into paid-up capital, provided that the balance
after such conversion is not less than 25% of the registered capital of the
subsidiaries. Statutory public welfare fund can only be utilized on capital
items for the collective benefits of the employees such as the construction of
staff quarters and other staff welfare facilities. This reserve is
non-distributable other than in liquidation.

     At December 31, 1999 and 2000, the balances of the general reserve,
enterprise expansion fund, statutory surplus reserve and statutory public
welfare fund were RMB1,400 and RMB3,263, RMB4,198 and RMB9,067, RMB83 and RMB175
and RMB46 and RMB138, respectively.

     Distributable Reserves

     At December 31, 1999 and 2000, the amount of distributable reserves of the
Company amounted to RMB3,082 and RMB7,752.
                                       F-38
<PAGE>   121
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  Share Option Scheme

     On October 8, 1997, the Company adopted a share option scheme pursuant to
which the directors of the Company may, at their discretion, invite employees,
including executive directors, of the Company or any of its subsidiaries, to
take up options to subscribe for shares up to a maximum aggregate number of
shares equal to 10% of the total issued share capital of the Company. According
to the share option scheme, the consideration payable by a participant for the
grant of an option under the share option scheme will be HK$1.00. The price of a
share payable by a participant upon the exercise of an option will be determined
by the directors of the Company at their discretion, except that such price may
not be set below a minimum price which is the higher of:

          (i) the nominal value of a share; and

          (ii) 80% of the average of the closing prices of shares on The Stock
     Exchange of Hong Kong Limited on the five trading days immediately
     preceding the date of grant of the option.

     The period during which an option may be exercised will be determined by
the directors at their discretion, except that no option may be exercised later
than 10 years after the adoption date of the scheme.

     During the year ended December 31, 1999 and 2000, a total number of share
options of 8,200,000 and 31,590,000 were granted under the share option scheme
to certain directors and employees of the Company. During the year ended
December 31 1999 and 2000, options were exercised to subscribe for 7,500,000 and
3,974,000 ordinary shares of HK$0.10 each at a total consideration of
HK$84,000,000 (RMB equivalent 88,000,000) and HK$84,000,000 (RMB equivalent
89,000,000).

     At December 31, 1999 and 2000, the outstanding options were as follows:

<TABLE>
<CAPTION>
                                                              PRICE PER      NUMBER OF SHARES
                                                             SHARE TO BE     INVOLVED IN THE
                                     NORMAL PERIOD DURING      PAID ON           OPTIONS
                                        WHICH OPTIONS        EXERCISE OF    OUTSTANDING AT THE
DATE OPTIONS GRANTED                     EXERCISABLE           OPTIONS           YEAR END
--------------------                 --------------------    -----------    ------------------
<S>                                  <C>                     <C>            <C>
AT DECEMBER 31, 2000:
March 9, 1998......................  March 9, 1998            HK$11.10           2,100,000
                                     to March 8, 2006
November 26, 1999..................  November 26, 1999        HK$33.91           3,500,000
                                     to October 7, 2007
November 26, 1999..................  November 26, 2002        HK$33.91           3,500,000
                                     to October 7, 2007
April 25, 2000.....................  April 25, 2002           HK$45.04          15,608,000
                                     to October 7, 2007
April 25, 2000.....................  April 25, 2005           HK$45.04          15,608,000
                                     to October 7, 2007
AT DECEMBER 31, 1999:
March 9, 1998......................  March 9, 1998            HK$11.10           4,500,000
                                     to March 8, 2006
November 26, 1999..................  November 26, 1999        HK$33.91           4,100,000
                                     to October 7, 2007
November 26, 1999..................  November 26, 2002        HK$33.91           4,100,000
                                     to October 7, 2007
</TABLE>

                                       F-39
<PAGE>   122
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

27. FOREIGN CURRENCY EXCHANGE

     The Renminbi is not freely convertible into foreign currencies. All foreign
exchange transactions involving Renminbi must take place through the People's
Bank of China or other institutions authorized to buy and sell foreign exchange
or at a swap center.

     Currently the Company's subsidiaries established in the PRC are able to
purchase foreign exchange for settlement of "current account transactions" (as
defined in the applicable regulations), including payment of dividends without
the approval of the State Administration of Foreign Exchange ("SAFE"). However,
there can be no assurance that the current authorization for Foreign Investment
Enterprises to retain their foreign exchange to satisfy foreign exchange
liabilities or to pay dividends in the future will not be limited or eliminated
or that the subsidiaries of the Company will be able to obtain sufficient
foreign exchange to pay dividends or satisfy their foreign exchange
requirements. Foreign exchange transactions under the capital account continue
to be subject to limitations and require approvals of the SAFE, which could
affect the ability of the Company's subsidiaries established in the PRC to
obtain foreign exchange through debt or equity financing, including by means of
loans or capital contribution from the Company.

28. PRINCIPAL SUBSIDIARIES

     Details of the Company's principal subsidiaries are as follows:

<TABLE>
<CAPTION>
                             PLACE AND
                              DATE OF                                          ATTRIBUTABLE
                           INCORPORATION/       AUTHORIZED, ISSUED AND            EQUITY
     NAME OF COMPANY       ESTABLISHMENT            PAID UP CAPITAL             INTEREST %    PRINCIPAL ACTIVITIES
     ---------------       --------------  ---------------------------------   ------------   --------------------
                                            AUTHORIZED    ISSUED AND PAID UP
<S>                        <C>             <C>            <C>                  <C>            <C>
Guangdong Mobile.........  PRC             --             RMB 5,595                100%       Cellular telephone
                           September 28,                                                      operator
                           1988
Zhejiang Mobile..........  PRC February    --             RMB 2,118                100%       Cellular telephone
                           2, 1996                                                            operator
Jiangsu Mobile BVI.......  BVI March 6,    10,000 shares  1 share at HK$1          100%       Investment holding
                           1998            at HK$1                                            company
Jiangsu Mobile...........  PRC December    --             RMB 2,800                100%       Cellular telephone
                           10, 1992                                                           operator
Fujian Mobile BVI........  BVI September   10,000 shares  1 share at HK$1          100%       Investment holding
                           1, 1999         at HK$1                                            company
Fujian Mobile............  PRC September   --             RMB 5,247                100%       Cellular telephone
                           7, 1999                                                            operator
Henan Mobile BVI.........  BVI September   10,000 shares  1 share at HK$1          100%       Investment holding
                           1, 1999         at HK$1                                            company
Henan Mobile.............  PRC August 6,   --             RMB 4,368                100%       Cellular telephone
                           1999                                                               operator
Hainan Mobile BVI........  BVI September   10,000 shares  1 share at HK$1          100%       Investment holding
                           1, 1999         at HK$1                                            company
</TABLE>

                                       F-40
<PAGE>   123
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                             PLACE AND
                              DATE OF                                          ATTRIBUTABLE
                           INCORPORATION/       AUTHORIZED, ISSUED AND            EQUITY
     NAME OF COMPANY       ESTABLISHMENT            PAID UP CAPITAL             INTEREST %    PRINCIPAL ACTIVITIES
     ---------------       --------------  ---------------------------------   ------------   --------------------
                                            AUTHORIZED    ISSUED AND PAID UP
<S>                        <C>             <C>            <C>                  <C>            <C>
Hainan Mobile............  PRC August 19,  --             RMB 643                  100%       Cellular telephone
                           1999                                                               operator
Beijing Mobile BVI.......  BVI September   10,000 shares  1 share at HK$1          100%       Investment holding
                           1, 2000         at HK $1                                           company
Beijing Mobile...........  PRC July 26,    --             RMB5,358                 100%       Cellular telephone
                           2000                                                               operator
Shanghai Mobile BVI......  BVI September   10,000 shares  1 share at HK$1          100%       Investment holding
                           1, 2000         at HK $1                                           company
Shanghai Mobile..........  PRC August 4,   --             RMB5,405                 100%       Cellular telephone
                           2000                                                               operator
Tianjin Mobile BVI.......  BVI September   10,000 shares  1 share at HK$1          100%       Investment holding
                           1, 2000         at HK $1                                           company
Tianjin Mobile...........  PRC July 24,    --             RMB1,857                 100%       Cellular telephone
                           2000                                                               operator
Hebei Mobile BVI.........  BVI September   10,000 shares  1 share at HK$1          100%       Investment holding
                           1, 2000         at HK $1                                           company
Hebei Mobile.............  PRC July 31,    --             RMB4,015                 100%       Cellular telephone
                           2000                                                               operator
Liaoning Mobile BVI......  BVI September   10,000 shares  1 share at HK$1          100%       Investment holding
                           1, 2000         at HK $1                                           company
Liaoning Mobile..........  PRC August 7,   --             RMB4,758                 100%       Cellular telephone
                           2000                                                               operator
Shandong Mobile BVI......  BVI September   10,000 shares  1 share at HK$1          100%       Investment holding
                           1, 2000         at HK $1                                           company
Shandong Mobile..........  PRC August 7,   --             RMB5,772                 100%       Cellular telephone
                           2000                                                               operator
Guangxi Mobile BVI.......  BVI September   10,000 shares  1 share at HK$1          100%       Investment holding
                           1, 2000         at HK $1                                           company
Guangxi Mobile...........  PRC August 3,   --             RMB2,095                 100%       Cellular telephone
                           2000                                                               operator
China Mobile (Shenzhen)
  Limited................  PRC June 9,     --             US$30                    100%       Corporate operation
                           2000                                                               controller
</TABLE>

                                       F-41
<PAGE>   124
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                             PLACE AND
                              DATE OF                                          ATTRIBUTABLE
                           INCORPORATION/       AUTHORIZED, ISSUED AND            EQUITY
     NAME OF COMPANY       ESTABLISHMENT            PAID UP CAPITAL             INTEREST %    PRINCIPAL ACTIVITIES
     ---------------       --------------  ---------------------------------   ------------   --------------------
                                            AUTHORIZED    ISSUED AND PAID UP
<S>                        <C>             <C>            <C>                  <C>            <C>
Aspire Holdings
  Limited................  Cayman Islands  1,500,000,000  HK$78                     80%       Investment holding
                           June 5, 2000    shares at HK                                       company
                                           $0.1
Aspire (BVI) Limited.....  BVI June 7,     50,000 shares  US$0.001                  80%       Investment holding
                           2000            of US$1                                            company
</TABLE>

     Total dividend declared by the Company's subsidiaries for the financial
year ended December 31, 1999 and 2000 amounted to RMB985 and RMB5,032,
respectively. No dividend was declared for the financial year ended December 31,
1998.

29. SIGNIFICANT DIFFERENCES BETWEEN HK GAAP AND US GAAP

     The Group's accounting policies conform with generally accepted accounting
principles in Hong Kong ("HK GAAP") which differ in certain material respects
from those applicable generally accepted accounting principles in the United
States of America ("US GAAP").

     The significant differences relate principally to the following items and
the adjustments considered necessary to present the net profit and shareholders'
equity in accordance with US GAAP are shown in the tables set out below:

  (a) Effect of Combination of Entities Under Common Control

     Under HK GAAP, the Group adopted the acquisition method to account for the
purchase of Jiangsu Mobile, Fujian Mobile, Henan Mobile, Hainan Mobile, Beijing
Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong
Mobile and Guangxi Mobile. Under the acquisition method, the acquired results
are included in the results of operations from the date of their acquisition.
Goodwill arising on the acquisition, being the excess of the cost over the fair
value of the Group's share of the separable net assets acquired, is eliminated
against reserves immediately on acquisition.

     As a result of the Group, Jiangsu Mobile, Fujian Mobile, Henan Mobile,
Hainan Mobile, Beijing Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile,
Liaoning Mobile, Shandong Mobile and Guangxi Mobile being under common control
prior to the acquisition, such acquisitions under US GAAP are considered
"combinations of entities under common control". Under US GAAP, combinations of
entities under common control are accounted for under the "as if
pooling-of-interests" method, whereby assets and liabilities are accounted for
at historical cost and the financial statements of previously separate companies
for periods prior to the combination generally are restated on a combined basis.
The cash consideration paid by the Group has been treated as an equity
transaction in the year of acquisition for US GAAP purposes.

  (b) Capitalization of Interest

     Under HK GAAP, the Group capitalizes interest costs to the extent that the
related borrowings are directly attributable to the acquisition or construction
of an asset which necessarily takes a substantial period of time to get ready
for its intended use.

     Under US GAAP, interest costs capitalized are determined based on specific
borrowings related to the acquisition or construction of an asset, if an
entity's financing plans associate a specific new borrowing with a qualifying
asset. If average accumulated expenditures for the asset exceed the amounts of
specific new borrowings associated with an asset, additional interest costs
capitalized are based on the weighted average interest rate applicable to other
borrowings of the entity.

                                       F-42
<PAGE>   125
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  (c) Revaluation and Impairment of Fixed Assets

     For certain periods prior to May 31, 1997, the fixed assets of the
subsidiaries were revalued in compliance with PRC rules and regulations,
resulting in an increase in shareholders' equity.

     Additionally, the fixed assets of Guangdong Mobile and Zhejiang Mobile were
revalued as of May 31, 1997 as a result of the Restructuring occurred in 1997.
The fixed assets of Jiangsu Mobile were revalued as of December 31, 1997 upon
its acquisition by the Group on June 3, 1998. The fixed assets of Fujian Mobile,
Henan Mobile and Hainan Mobile were revalued as of June 30, 1999 upon their
acquisitions by the Group on November 11, 1999. The fixed assets of Beijing
Mobile, Shanghai Mobile, Tianjin Mobile, Hebei Mobile, Liaoning Mobile, Shandong
Mobile and Guangxi Mobile were revalued as of June 30, 2000 upon their
acquisition by the Group on November 10, 2000. These fixed asset revaluations
result in an increase in shareholders' equity with respect to the increase in
carrying amount of certain fixed assets above their historical cost bases.

     The carrying amount of fixed assets under HK GAAP is reviewed periodically
in order to assess whether the recoverable amount has declined below the
carrying amount. When such a decline occurs, the carrying amount is reduced to
the recoverable amount based on the expected future cash flows generated by the
fixed assets, discounted to their present values. A subsequent increase in the
recoverable amount is written back to results of operations when circumstances
and events that led to the write-down or write-off cease to exist.

     Under US GAAP, fixed assets are stated at their historical cost, less
accumulated depreciation. However, as a result of the tax deductibility of the
revaluation reserve, a deferred tax asset related to the reversal of the
revaluation reserve is created under US GAAP with a corresponding increase in
shareholders' equity.

     Under US GAAP, fixed assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amounts of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

  (d) Employee Housing Scheme

     The Group provides staff quarters under its employee housing schemes at
below market prices. Under HK GAAP, employee housing scheme costs borne by the
corresponding PTAs and not charged to the subsidiaries are not recognized by the
subsidiaries.

     Under US GAAP, employee housing scheme costs borne by the corresponding
PTAs and not charged to the subsidiaries are reflected as an expense in the
statement of income and a corresponding capital contribution. Additionally,
under US GAAP, the costs to be borne by the subsidiaries are accrued over the
term of the program.

  (e) Deferred Taxation

     Under HK GAAP, the Group provides for deferred tax liabilities only to the
extent that there is a reasonable probability that such deferred tax liabilities
will become payable in the foreseeable future. Deferred tax assets are not
recognized unless their realization is assured beyond reasonable doubt.

     Under US GAAP, provisions are made for all deferred taxes as they arise,
except a valuation allowance is provided against deferred tax assets when
realization of such amounts does not meet the criterion of "more likely than
not".

                                       F-43
<PAGE>   126
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  (f) Share Option Scheme

     The Group grants share options to directors and employees. Under HK GAAP,
the proceeds received are recognized as an increase to capital upon the exercise
of the share options.

     Under US GAAP, the Group determines compensation expenses based upon the
excess, if any, of the quoted market price of the shares on the date of grant
over the exercise price of the options and amortizes this amount over the
vesting period of the option concerned.

  (g) Revenue Recognition

     Until June 30, 1999, under both HK GAAP and US GAAP, connection fee revenue
and telephone number selection fees were recognized as received. Under US GAAP,
effective July 1, 1999, net connection fees and telephone number selection fees
received in excess of direct costs were deferred and recognized over the
estimated customer usage period for the related service.

     Under US GAAP, effective January 1, 2000, the Group adopted the provisions
of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB101"). Under SAB 101, connection fees and telephone number
selection fees received and incremental direct costs up to, but not exceeding
such fees, are deferred and amortised over the estimated customer usage period
for the related service. The cumulative effect from the adoption of SAB 101 was
not material.

  (h) Interconnection, Roaming and Leased Line Agreements

     In May 2000, the Group entered into new agreements with China Mobile for
inter-provincial interconnection and domestic and international roaming
services, and inter-provincial long distance transmission leased line
arrangement with retrospective effect from October 1, 1999 for Guangdong Mobile,
Zhejiang Mobile and Jiangsu Mobile and from April 1, 1999 for Fujian Mobile,
Henan Mobile and Hainan Mobile. Under HK GAAP, the net savings refunded to the
Group as a result of the two agreements taking retrospective effect were
recorded in operations for the year ended December 31, 2000. Under US GAAP, such
net savings are deferred and amortized on a straight-line basis over seven
years.

  (i) Recently Issued Accounting Standards

     In June 1998, the United States Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. SFAS 133, as amended, is
effective for fiscal years beginning after June 15, 2000. Because the Group does
not hold any derivate instruments and does not engage in hedging activities, the
adoption of SFAS 133 as of January 1, 2001 did not have any impact on the
Group's operations or financial position under US GAAP.

  (j) Related Party Transactions

     Under HK GAAP, transactions of the Group entered into with entities under
the control by the MII prior to May 2000, and China Telecom Group are not
disclosed as related party transactions. As such, related party transactions as
disclosed in note 11 only refers to transactions with entities under the control
by the MII prior to May 2000, and subsidiaries of China Mobile.

     Under US GAAP, transactions between the Group and the entities under the
control by MII prior to May 2000, and China Telecom Group are also disclosed as
related party transactions.
                                       F-44
<PAGE>   127
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

     The effect on net profit of significant differences between HK GAAP and US
GAAP is as follows:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               1998     1999     2000
                                                              ------   ------   ------
                                                               RMB      RMB      RMB
<S>                                                           <C>      <C>      <C>
Net profit under HK GAAP....................................   6,900    4,797   18,027
Adjustments:
  Effect of combination of entities under common control....   7,357    4,886    7,139
  Capitalized interest......................................      84       96       17
  Revaluation of fixed assets...............................   1,250    3,781      603
  Employee housing scheme...................................    (346)    (227)       2
  Deferred taxation.........................................    (189)     352     (395)
  Share option scheme.......................................     (32)     (22)     (99)
  Amortization of net connection fees and telephone number
     selection fees.........................................      --   (1,511)    (542)
  Amortization of net savings from interconnection, roaming
     and leased line agreements.............................      --       --     (543)
  Deferred tax effects of US GAAP adjustments...............    (441)  (1,159)      71
                                                              ------   ------   ------
          Net profit under US GAAP..........................  14,583   10,993   24,280
                                                              ======   ======   ======
Basic and diluted net profit per share in accordance with US
  GAAP......................................................    0.87     0.65     1.37
                                                              ======   ======   ======
</TABLE>

     The effect on shareholders' equity of significant differences between HK
GAAP and US GAAP is as follows:

<TABLE>
<CAPTION>
                                                              AS OF DECEMBER 31,
                                                              ------------------
                                                               1999       2000
                                                              -------   --------
                                                                RMB       RMB
<S>                                                           <C>       <C>
Shareholders' equity under HK GAAP..........................  57,092     83,760
Adjustments:
  Effect of combination of entities under common control....  21,030         --
  Capitalized interest......................................     475        491
  Revaluation of fixed assets:
     Cost...................................................  (6,586)   (11,410)
     Accumulated depreciation and other.....................   5,506      6,167
  Deferred tax adjustments on revaluations..................     304      1,697
  Employee housing scheme...................................  (1,195)    (1,193)
  Deemed capital contribution for employee housing scheme...   1,110      1,193
  Deferral of net connection fees and telephone number
     selection fees.........................................  (1,511)    (2,054)
  Deferral of net savings from interconnection, roaming and
     leased line agreements.................................      --       (543)
  Recognition of deferred taxes.............................     833      1,264
  Deferred tax effects of US GAAP adjustments...............      15        288
                                                              ------    -------
          Shareholders' equity under US GAAP................  77,073     79,660
                                                              ======    =======
</TABLE>

     The following are condensed consolidated balance sheets of the Group as of
December 31, 1999 and 2000, and the related condensed consolidated statements of
income, total shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2000, restated to reflect the impact of the
differences between HK GAAP and US GAAP.

                                       F-45
<PAGE>   128
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  Condensed Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                               1998     1999     2000
                                                              ------   ------   -------
                                                               RMB      RMB       RMB
<S>                                                           <C>      <C>      <C>
Operating revenue:
  Usage fees................................................  33,447   47,726    64,220
  Monthly fees..............................................   8,806   10,935    14,364
  Connection fees...........................................   7,546    4,479     1,811
  Other operating revenue...................................   4,576    7,463    10,585
                                                              ------   ------   -------
          Total operating revenue...........................  54,375   70,603    90,980
                                                              ------   ------   -------
Operating expenses:
  Leased lines..............................................   8,928    7,999     7,937
  Interconnection...........................................   8,264   12,550    13,773
  Depreciation..............................................   8,539   12,952    14,169
  Personnel.................................................   2,560    3,271     4,871
  Other operating expenses..................................   9,046    9,896    14,121
  Write-down and write-off of analog network equipment......     136    9,775     1,547
          Total operating expenses..........................  37,473   56,443    56,418
                                                              ------   ------   -------
Operating profits...........................................  16,902   14,160    34,562
Other net income............................................     206      628     1,107
Non-operating net income/(expenses).........................      58      (49)       38
Interest income.............................................   1,624      809     1,070
Finance costs...............................................    (294)    (938)   (1,399)
                                                              ------   ------   -------
Profit before tax...........................................  18,496   14,610    35,378
Income Tax..................................................  (3,912)  (3,617)  (11,097)
                                                              ------   ------   -------
Profit after tax............................................  14,584   10,993    24,281
Minority interests..........................................      (1)      --        (1)
                                                              ------   ------   -------
          Net profit........................................  14,583   10,993    24,280
                                                              ======   ======   =======
</TABLE>

                                       F-46
<PAGE>   129
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  Condensed Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1999      2000
                                                              -------   -------
                                                                RMB       RMB
<S>                                                           <C>       <C>
                                    ASSETS
Current assets:
  Cash and cash equivalents.................................   23,990    27,702
  Deposits with banks.......................................    8,252    12,204
  Accounts receivable.......................................    7,642     7,252
  Other receivables.........................................      955     1,299
  Inventories...............................................      359       828
  Prepayments and other current assets......................      968     1,289
  Amount due from ultimate holding company..................      542       557
  Amounts due from related parties..........................    3,002       998
                                                              -------   -------
          Total current assets..............................   45,710    52,129
  Fixed assets..............................................   71,791    82,223
  Construction in progress..................................   12,096    14,019
  Investment securities.....................................       88        61
  Interest in associates....................................       46        46
  Deferred tax assets.......................................    3,912     6,295
  Deferred expenses.........................................      960     1,765
                                                              -------   -------
          Total assets......................................  134,603   156,538
                                                              =======   =======
                     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    9,298     8,132
  Bills payable.............................................    1,779     1,005
  Bank loans and other interest-bearing borrowings..........    9,179    10,471
  Taxes payable.............................................    2,868     6,735
  Obligation under capital lease -- current portion.........    1,753     1,624
  Amounts due to related parties............................    3,643     3,449
  Accrued expenses and other payables.......................    6,150     8,408
  Amount due to immediate holding company...................       --     4,136
  Amount due to ultimate holding company....................      664       678
                                                              -------   -------
          Total current liabilities.........................   35,334    44,638
  Bank loans and other interest -- bearing borrowings.......   16,035    23,134
  Deferred revenue..........................................    3,912     7,854
  Obligation under capital leases -- long-term portion......    2,249     1,235
                                                              -------   -------
          Total liabilities.................................   57,530    76,861
Minority interests..........................................       --        17
Shareholders' equity........................................   77,073    79,660
                                                              -------   -------
          Total liabilities and shareholders' equity........  134,603   156,538
                                                              =======   =======
</TABLE>

                                       F-47
<PAGE>   130
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  Condensed Consolidated Statements of Total Shareholders' Equity for the
  Following Years:

<TABLE>
<CAPTION>
                                                                RMB
                                                              --------
<S>                                                           <C>
Shareholders' equity at January 1, 1998.....................    81,652
Net profit for the year ended December 31, 1998.............    14,583
Deemed capital distribution.................................   (24,121)
Distribution to owner.......................................    (2,820)
Contribution by owner.......................................       425
Deemed capital contribution for employee housing scheme.....       376
Stock-based compensation....................................        32
                                                              --------
Shareholders' equity at December 31, 1998...................    70,127
Net profit for the year ended December 31, 1999.............    10,993
Issue of ordinary shares....................................    48,908
Deemed capital distribution.................................   (52,953)
Distribution to owner.......................................    (2,185)
Contribution by owner.......................................       955
Deemed capital contribution for employee housing scheme.....       252
Tax effect of revaluation...................................       954
Stock-based compensation....................................        22
                                                              --------
Shareholders' equity at December 31, 1999...................    77,073
Net profit for the year ended December 31, 2000.............    24,280
Issue of ordinary shares....................................   248,181
Deemed capital distribution.................................  (271,485)
Distribution to owner.......................................    (1,297)
Contribution by owner.......................................       278
Deemed capital contribution for employee housing scheme.....        84
Tax effect of revaluation...................................     2,469
Stock-based compensation....................................        99
Others......................................................       (22)
                                                              --------
Shareholders' equity at December 31, 2000...................    79,660
                                                              ========
</TABLE>

  Condensed Consolidated Statements of Cash Flows

     The Group applies Hong Kong Statement of Standard Accounting Practice No.
15 "Cash Flow Statements" ("HK SSAP 15"). Its objectives and principles are
similar to those set out in Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows" ("SFAS 95"). The principal differences between the
standards relate to classification. Under HK SSAP 15, the Group presents its
cash flows for (a) operating activities; (b) returns on investments and
servicing of finance; (c) taxation; (d) investing activities; and (e) financing
activities. Cash flows from taxation and returns on investments and servicing of
finance shown herein would be included as operating activities under SFAS 95,
with the exception of

                                       F-48
<PAGE>   131
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

distributions, which under SFAS 95 would be classified as financing activities.
Summarized cash flow data by operating, investing and financing activities in
accordance with SFAS 95 are as follows:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                            ---------------------------
                                                             1998      1999      2000
                                                            -------   -------   -------
                                                              RMB       RMB       RMB
<S>                                                         <C>       <C>       <C>
Net cash inflow from:
  Operating activities....................................   23,840    35,137    49,341
  Investing activities....................................  (27,558)  (30,646)  (33,722)
  Financing activities....................................  (18,720)    1,259   (11,907)
                                                            -------   -------   -------
(Decrease)/increase in cash and cash equivalents..........  (22,438)    5,750     3,712
Cash and cash equivalents at beginning of year............   40,678    18,240    23,990
                                                            -------   -------   -------
Cash and cash equivalents at end of year..................   18,240    23,990    27,702
                                                            =======   =======   =======
Interest paid (net of amounts capitalized)................      405       844     1,304
                                                            =======   =======   =======
Income taxes paid.........................................    2,389     4,093     6,956
                                                            =======   =======   =======
</TABLE>

  Significant Non-Cash Transactions

     The Group incurred payables of RMB7,637 and RMB1,779, and RMB6,185 and
RMB1,068, to equipment suppliers and banks respectively for additions of
construction in progress during the year ended December 31, 1999 and 2000,
respectively.

     The Group incurred payables of RMB11,608 and RMB13 to equipment suppliers
and related parties respectively for additions of construction in progress
during the year ended December 31, 1998.

30. ADDITIONAL INFORMATION REQUIRED BY US GAAP

     The following additional financial statement disclosures are required under
US GAAP and are presented on a US GAAP basis.

  WRITE-DOWN AND WRITE-OFF OF ANALOG NETWORK EQUIPMENT

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                               -----------------------
                                                               1998     1999     2000
                                                               -----   ------   ------
                                                                RMB     RMB      RMB
<S>                                                            <C>     <C>      <C>
Write-down of analog network equipment......................    136    8,841    1,352
Write-off of analog network equipment.......................     --      934      195
                                                                ---    -----    -----
                                                                136    9,775    1,547
                                                                ===    =====    =====
</TABLE>

     Due to the rapid change of technology, the Company has re-assessed the
recoverability of the carrying amount of the analog network equipment which are
held for use at December 31, 1998, 1999 and 2000. The Company determined the
existence of impairment by comparing the carrying amount of these equipment to
their future undiscounted net cash flows expected to be generated over the
economic life of each analog network in service at December 31, 1998, 1999 and
2000. The Company has recognized impairment write downs of RMB136, RMB8,841 and
RMB1,352 on these equipment in 1998, 1999 and 2000, respectively. Such amount of
loss is measured by the amount by which the carrying amounts of the individual
analog network assets exceed their fair value determined based on the discounted
net cash flow expected to be generated by each analog network. Additionally, the
Company has written-off RMB934 and RMB195 of certain analog network equipment
which had been removed from service at December 31, 1999 and 2000, respectively.

                                       F-49
<PAGE>   132
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  Income Tax

     The Company is subject to Hong Kong profits tax at 16% for the years ended
December 31, 1998, 1999 and 2000.

     The Group's PRC subsidiaries are subject to the statutory income tax rate
of 33%, except Hainan Mobile, which is assessed at a tax rate of 15%.

     The components of income tax expense are as follows:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1998     1999     2000
                                                              -----   ------   ------
                                                               RMB     RMB      RMB
<S>                                                           <C>     <C>      <C>
Current.....................................................  3,415    5,386    8,714
Deferred....................................................    497   (1,769)   2,383
                                                              -----   ------   ------
                                                              3,912    3,617   11,097
                                                              =====   ======   ======
</TABLE>

     The provision for income tax differs from the amount computed by applying
the PRC statutory income tax rate of 33% to profit before tax and minority
interests for the following reasons:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                               1998    1999     2000
                                                              ------   -----   ------
                                                               RMB      RMB     RMB
<S>                                                           <C>      <C>     <C>
Expected PRC taxation at statutory tax rates................   6,104   4,822   11,675
Non-taxable items:
  Connection fee............................................  (1,459)   (571)    (287)
  Surcharge.................................................    (506)   (430)    (207)
  Interest income...........................................    (225)    (66)     (74)
Non-deductible expenses.....................................     260     263      586
Rate differential on PRC operations.........................      --    (385)    (688)
Rate differential on Hong Kong operations...................    (233)    (46)      32
Reversal of deferred taxation due to change of income tax
  rate......................................................      --      84       --
Others......................................................     (29)    (54)      60
                                                              ------   -----   ------
Income tax..................................................   3,912   3,617   11,097
                                                              ======   =====   ======
</TABLE>

                                       F-50
<PAGE>   133
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below.

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              --------------
                                                               1999    2000
                                                              ------   -----
                                                               RMB      RMB
<S>                                                           <C>      <C>
Deferred tax assets:
  Provision for obsolete inventories........................      73      12
  Provision for doubtful accounts...........................   1,077   1,264
  Revaluation of fixed assets...............................   3,967   3,799
  Amortization of deferred items............................     235     501
  Income recognition on prepaid service fees................      --     872
  Tax loss carried forward..................................      45      --
                                                              ------   -----
Gross deferred tax assets...................................   5,397   6,448
Deferred tax liabilities:
  Capitalized interest......................................    (147)   (153)
  Fixed assets basis difference.............................  (1,338)     --
                                                              ------   -----
          Net deferred tax assets...........................   3,912   6,295
                                                              ======   =====
</TABLE>

  Accounts Receivable

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                               1999     2000
                                                              ------   ------
                                                               RMB      RMB
<S>                                                           <C>      <C>
Accounts receivable.........................................  11,026   11,312
Less: Allowance for doubtful accounts.......................  (3,384)  (4,060)
                                                              ------   ------
                                                               7,642    7,252
                                                              ======   ======
</TABLE>

     Allowance for doubtful accounts is analyzed as follows:

<TABLE>
<CAPTION>
                                                               RMB
                                                              ------
<S>                                                           <C>
At January 1, 1998..........................................   1,972
Provision for the year......................................   1,999
Written-off.................................................    (638)
                                                              ------
At December 31, 1998........................................   3,333
Provision for the year......................................   2,073
Written-off.................................................  (2,022)
                                                              ------
At December 31, 1999........................................   3,384
Provision for the year......................................   1,985
Written-off.................................................  (1,309)
                                                              ------
At December 31, 2000........................................   4,060
                                                              ======
</TABLE>

                                       F-51
<PAGE>   134
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  Fixed Assets

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1999      2000
                                                              -------   -------
                                                                RMB       RMB
<S>                                                           <C>       <C>
Land use rights and buildings...............................    4,717     6,612
Telecommunication transceivers, switching centers and other
  network equipment.........................................   91,546   113,511
Office equipment, furniture and fixtures and others.........    2,804     3,835
                                                              -------   -------
                                                               99,067   123,958
Less: accumulated depreciation..............................  (27,276)  (41,735)
                                                              -------   -------
                                                               71,791    82,223
                                                              =======   =======
</TABLE>

  Deferred Revenue and Other Items

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              --------------
                                                              1999     2000
                                                              -----   ------
                                                               RMB     RMB
<S>                                                           <C>     <C>
Balance at beginning of year................................  1,757    3,912
Addition during the year....................................  2,869   13,692
Recognized in the condensed consolidated statements of
  income....................................................   (714)  (9,750)
                                                              -----   ------
Balance at end of year......................................  3,912    7,854
                                                              =====   ======
</TABLE>

     Deferred revenue comprises:

          (i) the unamortized portion of proceeds received by Guangdong Mobile
     from certain distributors of telecommunications services which are
     amortized over a period of seven years;

          (ii) the unamortized portion of connection fees and telephone number
     selection fees received which are recognized over the estimated subscriber
     usage period for the related services;

          (iii) the prepaid services fee received from subscribers which is
     recognized as income when the cellular telephone services are rendered upon
     actual usage by subscribers; and

          (iv) the unamortized portion of net savings attributable to the Group
     as a result of the provincial interconnection, roaming and leased line
     agreements.

  Deferred Expenses

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              -------------
                                                              1999    2000
                                                              -----   -----
                                                               RMB     RMB
<S>                                                           <C>     <C>
Balance at beginning of year................................     --     960
Addition during the year....................................  1,072   1,695
Recognized in the condensed consolidated statements of
  income....................................................   (112)   (890)
                                                              -----   -----
Balance at end of year......................................    960   1,765
                                                              =====   =====
</TABLE>

     Deferred expenses comprises:

          (i) the unamortized portion of issurance costs in respect of the fixed
     rate notes and convertible bonds; and

                                       F-52
<PAGE>   135
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

          (ii) the unamortized portion of direct costs related to connection fee
     and telephone number selection fees received.

  Stock Option Plan

     Details of the Company's stock option plan and options granted under the
plan are contained in Note 26. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following assumptions used for grants: no dividend yield for all years; expected
volatility of 66.0 percent, 75.0 percent and 89.97% percent for the share option
granted during 1998, 1999 and 2000 respectively; risk-free interest rate of 9.5
percent; and expected life of 8 years. The per share fair value of stock options
granted during 1998, 1999 and 2000 were HK$10.85, HK$31.48 and HK$48.92 on the
date of grant, respectively.

     The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations, in accounting for its plan.
As such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price. The
compensation cost that has been charged against income for US GAAP for the
Company's stock option plan was RMB32 for 1998, RMB22 for 1999 and RMB99 for
2000. Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant date for it stock options under Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's net profit and net profit per share would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED
                                                                DECEMBER 31,
                                                              ----------------
                                                               1999      2000
                                                              ------    ------
                                                               RMB       RMB
<S>                                                           <C>       <C>
Net profit:
  As reported...............................................  10,993    24,280
  Pro forma.................................................  10,873    23,941
Basic net profit per share:
  As reported...............................................    0.65      1.37
  Pro forma.................................................    0.64      1.36
Diluted net profit per share:
  As reported...............................................    0.65      1.37
  Pro forma.................................................    0.64      1.35
</TABLE>

                                       F-53
<PAGE>   136
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

  Net Profit Per Share

     The following is a reconciliation of the numerators and denominators of the
basic and diluted net profit per share computations prepared under US GAAP.
<TABLE>
<CAPTION>
                        FOR THE YEAR ENDED DECEMBER 31, 1998      FOR THE YEAR ENDED DECEMBER 31, 1999
                       ---------------------------------------   ---------------------------------------
                         INCOME         SHARES       PER SHARE     INCOME         SHARES       PER SHARE
                       (NUMERATOR)   (DENOMINATOR)    AMOUNT     (NUMERATOR)   (DENOMINATOR)    AMOUNT
                       -----------   -------------   ---------   -----------   -------------   ---------
                                                         (IN MILLIONS)
<S>                    <C>           <C>             <C>         <C>           <C>             <C>
Basic net profit per
  share..............    14,583         16,833         0.87        10,993         16,944         0.65
                                                       ====                                      ====
Effect of dilutive
  securities.........
Stock options........                        2                                         3
                                        ------                                    ------
Diluted net profit
  per share..........    14,583         16,835         0.87        10,993         16,947         0.65
                         ======         ======         ====        ======         ======         ====

<CAPTION>
                        FOR THE YEAR ENDED DECEMBER 31, 2000
                       ---------------------------------------
                         INCOME         SHARES       PER SHARE
                       (NUMERATOR)   (DENOMINATOR)    AMOUNT
                       -----------   -------------   ---------
                                    (IN MILLIONS)
<S>                    <C>           <C>             <C>
Basic net profit per
  share..............    24,280         17,666         1.37
                                                       ====
Effect of dilutive
  securities.........
Stock options........                       16
                                        ------
Diluted net profit
  per share..........    24,280         17,682         1.37
                         ======         ======         ====
</TABLE>

  Fair Value

     Financial assets of the Group include cash and cash equivalents, accounts
receivable, other receivables and due from related parties. Financial
liabilities of the Group include accounts payable, bank and other loans, other
payables and due to related parties. It is not practicable to estimate the fair
value of the amounts due from and due to related parties without incurring
excessive cost.

     The following table presents the carrying amounts and fair values of the
Group's bank and other loans as of December 31, 1999 and 2000:

<TABLE>
<CAPTION>
                                              DECEMBER 31, 1999          DECEMBER 31, 2000
                                           ------------------------   ------------------------
                                                              FAIR                       FAIR
                                           CARRYING AMOUNT   VALUE    CARRYING AMOUNT   VALUE
                                           ---------------   ------   ---------------   ------
                                                 RMB          RMB           RMB          RMB
<S>                                        <C>               <C>      <C>               <C>
Fixed rate bank and other loans..........      16,477        16,535       14,630        14,700
Variable rate bank and other loans.......       3,785         3,785        8,314         8,315
Fixed rate notes.........................       4,952         4,965        4,953         5,134
Convertible notes........................          --            --        5,708         5,709
                                               ------        ------       ------        ------
          Total bank and other loans.....      25,214        25,285       33,605        33,858
                                               ======        ======       ======        ======
</TABLE>

     The fair values of all other financial instruments approximate their
carrying amounts due to the nature or short maturity of these instruments.

  Related Party Transactions

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               1998     1999     2000
                                                              ------   ------   ------
                                                               RMB      RMB      RMB
<S>                                                           <C>      <C>      <C>
Interconnection revenue.....................................  1,356    2,477    4,681
Interconnection charges.....................................  6,082    9,516    9,586
Leased line charges.........................................  8,928    7,999    8,090
Roaming revenue.............................................  2,342    3,396    4,038
Roaming expenses............................................  2,182    3,033    3,503
Spectrum fees...............................................     27       28       27
Operating lease charges.....................................    447      540      617
Sales commission............................................    310      426      398
</TABLE>

                                       F-54
<PAGE>   137
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               1998     1999     2000
                                                              ------   ------   ------
                                                               RMB      RMB      RMB
<S>                                                           <C>      <C>      <C>
Debt collection service fees................................    176      181      216
Billing service fees........................................     11       23       17
Roaming billing processing fees.............................     --       --      150
Equipment maintenance service fees..........................     --        2        8
Rental charges of synchronized clock ports..................     --        5       12
Construction and related services fees......................     --       --       38
Purchase of transmission tower and transmission
  tower-related service and antenna maintenance service
  fees......................................................     --       --       27
Prepaid card sales commission income........................     --       --      129
Prepaid card sales commission expenses......................     --       --      131
Purchase of mobile phones and equipment.....................    328       --       --
Interest paid/payable.......................................     87       23       --
Interest received...........................................     --       --       --
Capital contributions.......................................    425      604       --
Distributions...............................................  2,820      849       --
</TABLE>

     Descriptions of the nature of the related party transactions are set forth
in Note 25.

  Segment Reporting

     Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", established standards for
reporting information about operating segments in financial statements.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance.

     The Company's operating segments are comprised of its cellular businesses
operated within the Guangzhou, Zhejiang, Jiangsu, Fujian, Henan, Hainan, Hebei,
Liaoning and Shandong provinces, Beijing, Shanghai, Tianjin municipalities and
Guangxi antonomous region of the PRC. The operating segments are managed
separately because each operating segment represents a strategic business unit
that serves different markets. All operating segments provide cellular services
to individual customers within their geographic market. The Company's operating
segments have been aggregated into a single operating segment as they are
expected to exhibit similar future economic characteristics.

  Business Risks

     The Group conducts its principal operations in the PRC and accordingly is
subject to special considerations and significant risks not typically associated
with investments in equity securities of United States and Western European
companies. These include risks associated with, among others, the political,
economic and legal environment, extensive government regulations and competition
in the cellular telephone industry.

  New Telecommunications Law

     In order to provide a uniform regulatory framework for the
telecommunications industry in the PRC, the MII, pursuant to the direction of
the PRC State Council, is currently preparing a draft of the Telecommunications
Law of the PRC (the "Telecommunications Law"). The draft law, when formulated,
will be submitted to the National People's Congress for review and adoption. It
is unclear if and when the Telecommunications Law will be adopted, and the
nature and scope of regulation envisaged by the Telecommunications Law are

                                       F-55
<PAGE>   138
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                    (AMOUNTS IN MILLIONS, EXCEPT SHARE DATA)

not fully known. There can be no assurance that the Telecommunications Law, if
adopted, would not have a material adverse effect on the Group's business,
financial condition and results of operations.

  Amount of Spectrum Availability

     The Group's cellular system's subscriber capacity is limited by the amount
of spectrum available for use by the system. The former State Radio Regulatory
Commission, now a department within the MII, is responsible for the overall
allocation of radio frequency spectrum in the PRC. There can be no assurance
that the Group would be granted additional spectrum when and if required, and
any resulting levels of system congestion could result in subscriber
dissatisfaction, decreased system usage by subscribers and increased churn rate.

  Dependence on the PSTN and Interconnection Arrangement

     The Group's cellular services depend in large part upon access to the fixed
line network. Limitations on the fixed line network would lower local,
long-distance and international call completion rates for the Group's
subscribers. There can be no assurance that increasing usage of the network
would not result in additional strain on the fixed line network switching
capacity, or that the existing quality of the fixed line network will remain
adequate.

     In addition, the Group's operating revenues and expenses are affected by
the terms of its interconnection arrangements. A material increase in
interconnection charges payable by the Group could have a material adverse
effect on the Group's results of operations. There can be no assurance that the
commercial terms of future interconnection arrangements will be acceptable to
the Group.

  Self Insurance Risk

     The Group does not maintain any insurance policies to cover its assets.

  Interest Rate Risk

     The interest rates and terms of repayment of the bank and other loans
payable of the Group are disclosed in Note 19.

  Foreign Currency Risk

     The Group has foreign currency risk as certain loans and cash and cash
equivalents are denominated in foreign currencies, principally US dollars and
Hong Kong dollars. Depreciation or appreciation of the Renminbi against foreign
currencies affects the Group's results of operations.

  Credit Risk

     Substantially all of the Group's cash and cash equivalents are deposited
with Hong Kong and PRC financial institutions. The accounts receivable of the
Group are spread among a number of customers.

                                       F-56