China Telecom Corp Ltd Annual Report 2008

FY2008 Annual Report · China Telecom Corp Ltd
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We are

now a

full

services

China Telecom Corporation Limited

31 Jinrong Street, Xicheng District, Beijing, PRC, 100140

www.chinatelecom-h.com

 This report is printed on environmentally friendly paper 

Design and produced by: iOne (Regional) Financial Press Limited    website: www.ioneregional.com

China Telecom Corporation Limited
HKEx Stock Code: 728
NYSE Stock Code: CHA

Annual Report 2008

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Let's Start

China Telecom Corporation Limited

31 Jinrong Street, Xicheng District, Beijing, PRC, 100140

www.chinatelecom-h.com

 This report is printed on environmentally friendly paper 

Design and produced by: iOne (Regional) Financial Press Limited    website: www.ioneregional.com

China Telecom Corporation Limited

HKEx Stock Code: 728

NYSE Stock Code: CHA

Annual Report 2008

We are

now a

full

services

An

2008

Extraordinary

integrated
operator

010

001101

00101 11010011101
100100010100

10100001

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書冊2.indb   02

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An
Extraordinary
2008

integrated

operator

010

001101

00101 11010011101

100100010100

10100001

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2008Milestones

January 
The Southern regions of China suffered from a rare 
snowstorm disaster. The Management of China 
Telecom rushed to the affected areas to lead the 
relief and rescue work.

May
After a devastating earthquake measuring 8.0 on the Richter 
scale at Wenchuan county in the Sichuan province of China, 
the Management of China Telecom and the staff devoted their 
full efforts to fight against the disaster, heading up to restore 
the communications of Wenchuan with outside areas.

June 
China Telecom entered into a Framework Agreement 
with China Unicom to acquire its CDMA business for 
a consideration of RMB43,800 million. 

October 
China Telecom commenced the takeover and operation of the 
CDMA business, becoming a full services integrated
operator.

December 
China Telecom launched the “189” preﬁ x number 
mobile service providing customers with enhanced 
mobile experience. 

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02

Contents

3

4

6

16

22

30

38

51

56

70

78

86

89

90

92

94

95

96

98

Corporate Information

Financial Highlights

Chairman’s Statement

Business Review

Management’s Discussion and Analysis of Financial Conditions and Results of Operations

Directors, Supervisors and Senior Management

Report of the Directors

Report of the Supervisory Committee

Corporate Governance Report

Human Resources Development Report

Corporate Social Responsibility Report

Notice of Annual General Meeting

Report of the Independent International Auditor

Consolidated Balance Sheet

Balance Sheet

Consolidated Income Statement

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Financial Statements

155

157

Financial Summary

Shareholder Information

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03

China Telecom Corporation Limited (“China Telecom” or the “Company”, together with 
its subsidiaries, collectively the “Group”) is a full services integrated operator and the 
world’s largest wireline telecommunications and broadband services provider, providing 
telecommunications and information services including wireline voice, mobile voice, 
data, video and multimedia in the PRC. As of the end of 2008, the Company has 
wireline access lines in service of 208 million, broadband subscribers of over 44 million 
and mobile subscribers of about 28 million. The Company’s H shares and American 
Depositary Shares (“ADSs”) are listed on The Stock Exchange of Hong Kong Limited 
and the New York Stock Exchange, respectively.

Corporate
Information

Board of Directors

Audit Committee

Legal Representative

Executive Directors

Wang Xiaochu (Chairman)
Shang Bing
Wu Andi
Zhang Jiping
Zhang Chenshuang
Yang Xiaowei
Yang Jie
Sun Kangmin

Non-Executive Director

Li Jinming

Independent Non-Executive 
Directors

Wu Jichuan
Qin Xiao
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming

Company Secretary & 
Qualifi ed Accountant

Yung Shun Loy, Jacky

Tse Hau Yin, Aloysius (Chairman)
Wu Jichuan
Qin Xiao
Xu Erming

Remuneration 
Committee

Xu Erming (Chairman)
Wu Jichuan
Qin Xiao
Tse Hau Yin, Aloysius

Wang Xiaochu

International Auditor

KPMG

Legal Advisers

Jingtian & Gongcheng
Freshﬁ elds Bruckhaus Deringer
Sullivan & Cromwell LLP

Nomination Committee

Wu Jichuan (Chairman)
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming

Supervisory Committee

Xiao Jinxue (Chairman)
Zhu Lihao (Independent Supervisor)
Ma Yuzhu (Employee Representative)
Xu Cailiao
Han Fang

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Financial
Highlights

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04

Excluding amortisation of the upfront connection fees

Operating revenues (RMB millions)
EBITDA (RMB millions)
EBITDA margin
Net proﬁ t2 (RMB millions)
Capital expenditure (RMB millions)
Free cash ﬂ ow6 (RMB millions)
Total debt/Equity3

Earnings per share (RMB)
Dividend per share (HK$)
Net asset3 value per share (RMB)

2006

172,514
85,719
49.7%
22,591
50,136
28,664
60.2%

0.279
0.085
2.587

2007

177,588
87,054
49.0%
23,0104
46,334
34,016
47.1%

0.2844
0.085
2.774

Including amortisation of the upfront connection fees

Operating revenues (RMB millions)
EBITDA (RMB millions)
EBITDA margin
Net proﬁ t2 (RMB millions)

2006

177,485
90,690
51.1%
27,562

2007

180,882
90,348
49.9%
24,195

Rates of change 
(2008 over 2007)

4.0%
(1.3%)
(2.5p.p.)
(12.8%)
4.5%
8.1%
10.8p.p.

(12.8%)
—
(5.1%)

2008

184,779

85,8891,5
46.5%1,5
20,0665
48,410
36,768
57.9%

0.2485
0.085
2.632

2008

186,801
84,6961
45.3%1
884

1 

2 

3 

4 

5 

6 

7 

For convenience of the investors’ analysis, EBITDA is calculated before CDMA network capacity lease fee.

Net proﬁ t represents proﬁ t attributable to equity holders of the Company.

Equity and net asset value represent total equity attributable to equity holders of the Company.

Excluding the effect of the related assets revaluation in 2007, which is carried out at least once every three years.

Excluding the impact of impairment loss of the PHS assets and natural disasters.

Free cashﬂ ow is calculated from EBITDA minus CDMA network capacity lease fee, capital expenditure and income tax.

The above ﬁ nancial data have included Beijing Telecom acquired in 2008.

For further information, please browse our website at www.chinatelecom-h.com

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The charts below are based on ﬁ nancials excluding amortisation of the upfront connection fees

Financial
Highlights

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Chairman’s
Statement

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06

07

“

For the past few years, being a 

wireline operator without a mobile 
license, we actively tackled the severe 
market challenges. Beneﬁ ting from the 
passion of our people for excellence and 
their dedication to strategic 
transformation, we succeeded in 
maintaining the company’s robust 
fundamentals. Now we have obtained a 
mobile license and started our full 
services integrated operations. Our 
people’s long dream has ﬁ nally come 
true! Their determination to succeed and 
revitalise our business has nurtured in 
me a ﬁ rm belief that China Telecom will 
be a legend again as we advance our full 
services integrated offering.

”

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Chairman’s
Statement

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08

2008 was a signature year for China Telecom. We seized the opportunity brought about by the restructuring 
of the telecommunications industry and successfully completed the CDMA business acquisition, 
accomplishing our long-awaited goal of full services integrated operations. In October 2008, we began the 
operation of CDMA mobile services, followed by the launch of our mobile brand “e surﬁ ng”. In December 
2008, we launched our “189” preﬁ x mobile number and established a brand new image for China Telecom’s 
mobile service. In 2008, we experienced the severe and unprecedented natural disasters of snowstorms and 
earthquakes. Our management and all our people have devoted their full efforts towards the ﬁ ght against the 
disasters and the subsequent relief works, which demonstrated their high regards of responsibility as well as 
their tremendous contribution to the country and its people. Beneﬁ ting from our robust operating 
fundamentals, the underlying results for the year remained solid.

Operating Results in 2008

In 2008, the Company deepened strategic transformation with continuous rapid growth in various 
transformation services, which effectively mitigated and offset the decline in the traditional wireline voice 
services and enabled the Company to maintain robust fundamentals. In 2008, the operating revenues 
reached RMB186,801 million, out of which the total revenue from the mobile service accounted for 
RMB6,154 million. EBITDA1 was RMB84,696 million and the proﬁ t attributable to equity holders of the 
Company was RMB884 million. Excluding the amortisation of upfront connection fees and the impact of one-
off items including impairment loss of the Personal Handyphone System (PHS) assets and losses related to 
natural disasters2, the operating revenues were RMB184,779 million, representing a growth of 4.0% over last 
year. EBITDA1 was RMB85,889 million, representing a decrease of 1.3% from 2007, and the EBITDA margin 
was 46.5%. Proﬁ t attributable to equity holders of the Company was RMB20,066 million, representing a 
decline of 12.8% over last year. Capital expenditure was RMB48,410 million, accounting for 26.2% of our 
revenues, similar to that for 2007. Free cash ﬂ ow3 reached RMB36,768 million, representing an increase of 
8.1% from 2007.

Taking into consideration the return to shareholders, the Company’s cash ﬂ ow and its capital requirements 
for future development, the Board of Directors has decided to recommend to the shareholders at the 
forthcoming Annual General Meeting that the dividend being an equivalent of HK$0.085 per share, which is 
the same as last year, despite the 2008 results being severely impacted by certain one-off items. This fully 
reﬂ ects the conﬁ dence of the Board of Directors in the future business development.

1 

2 

3 

For convenience of the investors’ analysis, EBITDA is calculated before CDMA network capacity lease fee.

The amortisation of upfront connection fees were RMB2,022 million; losses related to natural disasters were RMB3,428 
million, after-tax effect was RMB2,838 million; impairment loss of the PHS assets was RMB23,954 million, after-tax effect 
was RMB18,366 million. For the convenience of the investors’ analysis and based on the IFRS, we had adjusted certain 
ﬁ nancial indicators correspondingly. Excluding the amortisation of upfront connection fees, the operating revenues of the 
Company were RMB184,779 million. Excluding the amortisation of upfront connection fees and the impact of natural 
disasters, the EBITDA was RMB85,889 million. Excluding the amortisation of upfront connection fees and the impact of 
natural disasters and impairment loss of the PHS assets, the adjusted proﬁ t attributable to equity holders of the Company 
was RMB20,066 million.

Free cash ﬂ ow is calculated from EBITDA (excludin g amortisation of upfront connection fees) minus CDMA network capacity 
lease fee, capital expenditure and income tax.

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Chairman’s
Statement

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09

Deepening Strategic Transformation and Laying a Solid 
Foundation

In modern information society, there has been rapid development and change in people’s demand for 
information. Several years ago, we already realised that with the accelerating national informatisation, social 
communications channels would quickly transform from traditional voice to integrated information services 
including voice, data, video and etc. The comprehensive usage of the Internet and the growing popularity of 
mobile telecommunications services would soon become the mainstream in the telecommunications market. 
In order to adapt to such changes in advance and to grasp the new growth opportunities, we were the ﬁ rst 
one in the Chinese telecommunications sector to implement strategic transformation to mitigate the 
substitution and cannibalisation of wireline voice usage. We conﬁ dently innovated our business model, 
adjusted our business structure, as well as ﬁ rmly executed our strategies and precision management. After 
several years of execution and exploration, the Company’s strategic transformation achieved remarkable 
results. The rapid growth of the non-voice services successfully maintained the Company’s robust 
fundamentals. Our broadband service has always been at the market leading position, laying a solid 
foundation for the promotion of informatisation. Scale development of value-added services and integrated 
information services allowed us to satisfy the growing information needs of the society. The launch of mobile 
services and obtaining of the 3G license provided us with the new energy and momentum to prepare for a 
new stage of integration of our wireline and mobile services.

In 2008, the Company continued to advocate the “Customer-focused Innovative Informatisation Strategy”. 
We put enormous efforts into our brand operation and customer segmentation for differentiated customer 
service offering. Thus, the scale of our brand customers continued to expand. As at the end of 2008, 
customers of “BizNavigator” and “One Home” reached 2.53 million and 23.93 million, respectively. In 2008, 
revenue from government and enterprises customers increased by 10.9%, while revenue from household 
customers increased by 2.9%. We also launched our new mobile service brand “e surﬁ ng” shortly after the 
acquisition of the CDMA business. We established an image of “Internet handsets” and focused on the 
customers’ demand for informatisation to rapidly expand into the mobile service market. After a few months’ 
efforts, the Company’s mobile service has shown favourable growth momentum with a net increase of 2.72 
million customers in the ﬁ rst two months of 2009, a turnaround from the decline in subscribers after the 
acquisition of the CDMA business in the fourth quarter of last year. The total number of mobile subscribers 
reached 30.63 million as at the end of February 2009.

The Company was constantly innovating its business model and adjusting its business structure, while 
expanding the operational scale of its wireline non-voice services. Revenue from the wireline non-voice 
services reached RMB82,294 million, accounting for 46.1% of the wireline revenue in 2008, an increase of 
8.9 percentage points from last year. In order to support our integrated information services, we continued to 
accelerate the development of broadband services. Broadband access revenue for the whole year of 2008 
reached RMB40,243 million, a rise of 28.6% compared to last year and contributed 5.0 percentage points of 
the Company’s overall revenue growth. We emphasised on cultivating the development of direct information 
services such as “Best Tone” services and devoted our efforts to its core services including information 
search, business traveling information and integrated media. Revenue from direct information services 
including “Best Tone” services for the whole year reached RMB4,787 million, an increase of 44.6% from 
2007. Our goal is to increase the revenue from direct information services including “Best Tone” services to 
RMB10 billion level within two to three years.

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Chairman’s
Statement

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10

Insisting on value-oriented principle and optimising resources allocation, we strived to enhance the 
Company’s operating efﬁ ciency and effectiveness, which is one of the key goals of our strategic 
transformation. By fully utilising our existing wireline resources, we continued to strictly control capital 
expenditure and timely adjusted our investment direction by tilting investments towards high growth 
transformation services to ensure our development and enhance our investment return. We have 
strengthened our budget management by progressively implementing customer based multi-dimensional 
budget management. Our resources allocation targeted at those customer groups, businesses and regions 
with high growth and high returns. We have innovated our ﬁ nancial management system and strengthened 
our comprehensive risk management. We paid special attention to high-risk areas and reinforced control of 
major issues and key aspects to improve the Company’s risk management capacity.

A New Era of Full Services Integrated Operations

Now, we are entering into the new era of full services integrated operations. The next two to three years will 
be an important strategic opportunity for us. We will adhere to the “Customer-Focused Innovative 
Informatisation Strategy” to implement initiatives to consolidate wireline services. 3G business development 
will be a golden chance for us to integrate the 3G services into our full services integrated operations, so as 
to achieve uniﬁ ed deployment and steady corporate development. We will take full advantage of the technical 
advantage of CDMA for its timely and cost effective upgrade to accelerate the construction and optimisation 
of the CDMA2000EV-DO network in key and popular areas. In order to seize the opportunities in mobile 
internet services, we will establish “Internet handset” operation model to accelerate the introduction to the 
market of applications and functions such as wireless broadband services, “e surﬁ ng” video applications, 
Push Mail, wireless “Mega-Eye”, “Integrated Ofﬁ ce”, “imusic”, “Mobile IM” and “e surﬁ ng chat”.

We persisted in our integrated operations and differentiated development, leveraging the synergies of our 
wireline and mobile networks. We bundled our core services such as wireline, Internet and information 
content and application with mobile services while fully utilising the strengths of CDMA technology. We 
carried out business integration and innovation, integrated our products, in accordance with the needs of our 
customers and established competitive edge through differentiated offerings. We provided our customers 
with enriched and more convenient integrated information services capitalising on our full services integrated 
operations with a view to achieving success on our way progressing towards integrated operation of wireline 
and mobile services.

Enhancing Corporate Governance

In order to enhance operating efﬁ ciency and investor 
conﬁ dence, we are ﬁ rmly committed to adopting 
international best practices to continuously improve 
corporate governance and transparency. In 2008, we 
completed the re-election of the Board of Directors. The 
proportion of independent Directors remains above 1/3, 
comprising prominent experts in telecommunications, 
securities, law, ﬁ nance and management, while further 
strengthening the decision-making capability of the 
Board of Directors. Our continuous efforts in corporate 
governance were widely recognised by the capital 

markets. We have been accredited with a number of awards, including “Asia’s Best Managed Fixed Telecom 
Company” by Euromoney for two consecutive years and the “Best Managed Company  — China 2008” by 
FinanceAsia.

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Chairman’s
Statement

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11

Corporate Social Responsibility

As one of the leading telecommunications operators in China, we shoulder the important mission and social 
responsibility to stabilise economic development in the backdrop of the global ﬁ nancial crisis. We actively 
participated in the construction of social informatisation and strive to enhance the level of informatisation of 
the society. We devoted ourselves to contributing to the country’s economic development. In light of the 
challenges brought about by the severe natural disasters in 2008, we completed our mission of post-disaster 
relief works outstandingly to provide timely emergency repairs of telecommunications facilities, fully 
demonstrating a high degree of social responsibility awareness and emergency communications capability. In 
accordance with the corporate belief of “Customer First, Service Foremost”, we practically fulﬁ lled our 
promises to provide high quality services and promoted the simultaneous growth of the Company’s value 
and customers’ value.

Outlook for Future

Looking ahead, we are fully conﬁ dent. China’s vigorously promoting the integration of industry and 
informatisation as well as a series of initiatives to stimulate domestic demand provides valuable opportunities 
for our business development. The successful strategic transformation over the past few years has laid a 
solid foundation for full services integrated operations. The CDMA technology have characteristics of superior 
level of security, higher data speed and more effective spectrum utilisation, which provides a unique technical 
strength for our differentiated services. We are fully aware that extra efforts are required to expand and 
consolidate our CDMA services, which are of relatively small scale at present. We will ﬁ rmly seize the 
opportunities and diligently leverage our strengths to promote more advanced and more in-depth corporate 
transformation to enhance shareholders’ value.

Finally, on behalf of the Board of Directors, I would like to take this opportunity to express my sincere 
appreciation to all our shareholders and customers for their support. I would also like to express sincere 
thanks to Mr. Leng Rongquan, Mr. Li Ping, Mr. Zhang Youcai, Mr. Lo Hong Sui, Vincent and Mr. Shi Wanpeng 
for their brilliant contributions during their term of services as the Directors of our Company and welcome 
Mr. Shang Bing, Mr. Yang Xiaowei, Mr. Wu Jichuan, Mr. Qin Xiao and Madam Cha May Lung, Laura in joining 
our team.

Wang Xiaochu
Chairman and Chief Executive Ofﬁ cer

Beijing, China
24 March 2009

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29/3/2009   23:47:12

 
 
 
 
 
 
 
 
Getting
United

書冊9.indb   12

29/3/2009   23:47:12 書冊9.indb   13

29/3/2009   23:47:12

Through acquisition, we obtained 
the long-awaited nationwide 
mobile business in China together 
with the relevant talents. The 
successful unity and integration 
into our business has facilitated 
and strengthened our 
infrastructure to provide full 
services integrated operations, 
signifi cantly enhancing our 
competitive edge.

書冊9.indb   14

29/3/2009   23:47:12 書冊9.indb   15

29/3/2009   23:47:17

Business
Review

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16

The following table sets out key operating data for 2006, 2007 and 2008:

Local wireline access lines in service
Wireline local voice usage
Wireline domestic long distance usage
Wireline international, Hong Kong, 
  Macau and Taiwan long distance usage
Broadband subscribers
Wireless broadband subscribers
Wireline caller ID service subscribers
Wireline SMS usage
Wireline Color Ring Tone subscribers
Mobile subscribers
Mobile voice usage
Mobile Color Ring Tone subscribers
“One Home” subscribers

Unit

2006

2007

2008

Million
Million pulses
Million minutes

223.31
423,453
96,830

220.64
407,445
99,902

208.34
372,477
98,723

Million minutes
Million
Million
Million
Million messages
Million
Million
Million minutes
Million
Million

1,679
28.38
—
145.84
23,278
36.69
—
—
—
—

1,664
35.74
—
146.88
23,346
63.21
—
—
—
10.61

1,572
44.27
2.35
146.74
18,496
79.25
27.91
26,375
8.64
23.93

Rates of change
(2008 over 2007)

(5.6%)
(8.6%)
(1.2%)

(5.5%)
23.9%
N/A
(0.1%)
(20.8%)
25.4%
N/A
N/A
N/A
125.4%

In 2008, the Company continued to adhere to 
customer branding management, insisted on 
integrated development strategy, vigorously promoted 
integrated information application services, overcame 
the adverse effects brought onto its business 
operations by snowstorms, earthquakes and the 
international ﬁ nancial crisis, and accomplished steady 
business development. In the meantime, the Company 
successfully completed the acquisition and transition 
of the CDMA business and launched the CDMA 
services operations, entering into a new era of full 
services integrated operations.

In 2008, total operating revenues were RMB186,801 
million, an increase of 3.3% from 2007. Excluding the 
amortisation of upfront connection fees, the operating 
revenues were RMB184,779 million, representing an 
annual growth rate of 4.0%. Within these ﬁ gures, 
revenue from the wireline services amounted to 
RMB178,625 million, representing an increase of 0.6% 

One  Ho me — Integrated  Co mm u n i cat io n s   and  I n f o rm at io n se r v i ce s for  

househ o ld  cus to me rs

from 2007. Total revenue from the mobile services was RMB6,154 million. The increase in 
operating revenues was mainly attributed to the wireline non-voice services, accounting for 
46.1% of revenue from wireline services, an increase of 8.9 percentage points from 2007. 
Among these, Internet and data services, wireline value-added services and integrated 
information application services drove up revenue growth of the wireline services by 5.6 
percentage points and 3.3 percentage points, respectively.

書冊9.indb   16

29/3/2009   23:47:20

 
 
 
 
 
 
 
 
e surfing — A new era of mobile
Internet experience

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17

BizNavigator — Total solutions of Communications & Information Technology 

services for government & enterprise customers

Wireline Transformation Services

Wireline transformation services such as the Internet services, value-added services and 
integrated information application services recorded rapid growth in 2008. Revenue from 
wireline non-voice services was RMB82,294 million, an increase of 24.8% from 2007. Among 
them, revenue from Internet and data services totaled RMB51,017 million, representing an 
annual growth rate of 24.4%. Revenue from value-added services and integrated information 
application services amounted to RMB25,658 million, an annual growth rate of 29.7% from 
2007.

In 2008, the Company continued to deepen its Internet services operations, offering 
broadband speed upgrade services for mid-to-high-end customers to enhance customer 
loyalty. Broadband ARPU rose steadily to RMB83.8. The Company also cooperated 
extensively with computer resellers to lower their prices, accelerating the expansion in the 
scale of its broadband subscriber base. Broadband subscribers grew by 8.53 million on a net 
basis to 44.27 million in 2008. The Company’s broadband operational strategy continued to 
focus on interaction of broadband access and applications, cooperated extensively through a 
more open business model to integrate high-quality and rich content and applications. Under 
our full services integrated operations, the Company launched new broadband products 
such as wireless broadband services (CDMA + Wi-Fi) and advocated the integrated 
development of its mobile services and Internet services. Leveraging the CDMA veriﬁ cation 
advantages, the Company promoted broadband account number-based operations and 
continued to develop internet services and internet application services, to stimulate faster 
and healthier development of the broadband services.

Revenue from integrated information application services was RMB10,853 million, delivering 
an annual growth rate of 65.1% and driving up revenue growth by 2.4 percentage points, 
while the direct information services including “Best Tone” services, IT services and IT 
application services driving up revenue growth by 0.8 and 0.9 percentage points respectively. 
By focusing on key services such as business traveling services and information search, the 
Company accelerated the scale development of the “Best Tone” services, promoted the 
construction of standardised platforms within the Company, pro-actively carried out peer 
benchmarking within the industry, strengthened specialised operational capacity and 
enhanced customer service perception. Revenue from direct information services including 
“Best Tone” services in 2008 was RMB4,787 million, an increase of 44.6% from 2007. In 

書冊9.indb   17

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18

order to meet the customised demand for communications and information services from 
government and enterprise customers, the Company concentrated on the promotion of 
specialised operations such as video applications and network management experts, 
cooperated extensively and developed industry-speciﬁ c applications to highlight the 
advantages of multi-services integration and customisation. The Company also built cross-
regional specialised supporting teams to accomplish the fast scale development of IT 
services and IT application services. Revenue from IT services and IT application services in 
2008 was RMB3,517 million, an increase of 83.8% from 2007. Going forward, the Company 
will continue to intensify its efforts in promoting the scale development of its integrated 
information services. With the integration of its traditional wireline services and mobile 
services, the Company will provide customers with more comprehensive and integrated 
information applications and services.

Wireline Voice Services

Revenue from the Company’s wireline voice services in 2008 was RMB96,331 million, a 
decrease of 13.7% from 2007. This continuous decline in revenue was mainly attributable to 
further loss of subscribers and decrease in usage following further reduction of mobile tariffs. 
Wireline subscribers at the end of 2008 were 208.35 million, a net decrease of 12.29 million, 
among which PHS subscribers decreased by 11.20 million. Additionally, the international 
ﬁ nancial crisis and natural disasters also led to a decline in the usage of the wireline voice 
services in some regions and customer groups, resulting in a decrease in revenue for the 
wireline voice services. In 2008, revenue from local telephone services was RMB59,307 
million, a decrease of 15.9% from 2007. Revenue from domestic long distance services 
amounted to RMB22,081 million, a decrease of 10.3% from 2007. Revenue from 
international, Hong Kong, Macau and Taiwan long distance services totaled RMB2,579 
million, a decrease of 15.5% from 2007. Revenue from interconnection services was 
RMB12,364 million, a decrease of 8.3% from 2007.

Facing continuous decline in the usage of its wireline voice services, the Company continued 
to focus on integrated development strategy and service packaging to slow down the rate of 
revenue decline in its wireline voice services. Through the promotion of integrated services 
packages to government and enterprise customers as well as household customers, the 
Company has stabilised the subscriber groups of wireline services other than PHS services. 
In light of the exacerbating loss of PHS subscribers, the Company strengthened the 
packaging of PHS, ﬁ xed line, broadband and mobile services. As of the end of 2008, 38.9% 
of PHS subscribers took multi-service packages, effectively increasing the loyalty of PHS 
subscribers in service. Going forward, the Company will gradually migrate its mid-to-high-end 
PHS subscribers to our mobile services through value enhancing schemes, reducing PHS 
marketing costs and operational costs and improving operational efﬁ ciency while respecting 
the rights of PHS subscribers for a stable and quality PHS network, accomplishing a smooth 
and steady transfer to the mobile services. Moreover, in order to mitigate the decrease of its 
long-distance voice services usage, the Company launched a series of services packages 
including “One price for domestic and long-distance calls” and FNS (Family Number Service) 
for value-segmented customers based on their consuming characteristics, and focused on 
effective advertising to reduce customer-perceived prices to stabilise the long-distance voice 
services.

書冊9.indb   18

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19

“BizNavigator” 
Subscribers

Thousand

2,530

+ 3 4.1 %

1,886

2008

2007

“One Home” 
Subscribers

Thousand

23,931

+125.4%

10,616

2008

2007

Customer Branding Management

In 2008, the Company continued to deepen customer branding management of 
“BizNavigator” and “One Home”.

For government and enterprise customers, the Company continued to optimise applications 
of the communication and industry versions of “BizNavigator” integrating voice services, data 
services and broadband access services to add value, promote its scale development to 
meet the demands of small and medium enterprises for more communication and information 
services. In 2008, the penetration rate of the communication and industry versions of 
“BizNavigator” reached 21.0%. At the same time, in order to satisfy the needs of key 
government and enterprise customers for “integrated ofﬁ ce administration” and information 
management, the Company deepened its exploration of needs of its industry-speciﬁ c 
customers, by devoting enormous efforts in developing integrated information services such 
as “Best Tone” services, IT services and IT application services, while continuing to promote 
the developed industries applications such as “e-Campus”, “e-Hospital” and “Hotel Prefection 
Alliance”. Revenue from government and enterprise customers in 2008 increased by 10.9% 
from 2007.

For household customers, the Company continued to optimise the multi-services integrated 
packages of “One Home” services, especially the “e6” and “e8” services, enriching their 
service content and accelerating scale promotion. In 2008, the number of “One Home” 
subscribers increased by 13.32 million on the net basis, with a penetration rate of 20.2% 
among household subscribers. At the same time, the Company further differentiated the 
household market, providing integrated household information solutions including 
communications, wealth management and entertainment to satisfy the needs of its mid-to-
high-end customers for convenient Internet access and daily life information. Those 
integrated information solutions were marketed and promoted through free trials and package 
discounts. In 2008, revenue from household customers increased by 2.9% from 2007.

CDMA Business Acquisition, Transition and Operation

In 2008, the Company successfully acquired CDMA mobile business, entering a new era of 
full services integrated operations. In the three months from October to December 2008, the 
Company smoothly completed the acquisition and transition of the CDMA business. The 
Company also promptly consolidated CDMA products and applications, fulﬁ lled basic 
management functions such as streamlining KPIs and optimising process. As of the end of 
2008, there were 27.91 million CDMA mobile subscribers. In the fourth quarter of 2008, our 
total mobile revenue amounted to RMB6,154 million.

Following the acquisition and transition of the CDMA business, the Company carried out a 
comprehensive analysis of the internal and external environment as well as industry 
development trends to identify the mobile services development strategy of “capturing the 
mid-to-high-end market, offering differentiated services, and developing an effective economy 
of scale”. Through the launch of “e surﬁ ng” in December 2008, the Company preceded to 
adopt the concept of “Internet handset” backed by strong promotional efforts, creating a 
high-quality brand image in the eyes of customers. Based on customer resources and 
multi-services advantages, the Company supplemented its original brand packages, including 
“BizNavigator” and “One Home”, with mobile services elements to achieve rapid penetration 

書冊9.indb   19

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20

Best Tone —  I nform ati o n se arch  en gi ne  a nd  
booking  s er vi ces

of the mid-to-high-end customer market. There has been a turnaround from the 
decline in subscribers after the acquisition of the CDMA business in October 2008, 
with the monthly net increases of subscribers for January and February 2009 
being 1.02 million and 1.70 million, respectively, demonstrating a relatively rapid 
trend of customer expansion. The increase in the number and quality of 
subscribers has driven up mobile usage as well as revenue.

In the meantime, the Company persistently pursued innovation, trying to make a 
breakthrough in its products and business model in order to create differentiated 
competitive edge. The Company has completed the development and launch of 
various differentiated mobile value-added products such as wireless broadband 
services (CDMA + Wi-Fi) and “Mobile Global Mega-Eye” services, striving to 
establish visible comparative competitive advantages. For the cooperation model 

with CP/SP, the Company abandoned the traditional operator-dominated models to attract more dynamic teams to join the 
Company’s product innovation and content operation. Combined with the introduction of its 3G services, the Company will target at 
those inﬂ uential youngsters with stronger preferences for information applications, and integrate mobile Internet information services 
and applications with the mobile terminals, which provide customers with an end-to-end mobile Internet experience.

In addition, to better support the development of the mobile services, the Company constantly enhanced its service distribution 
channel system with an aim to offer full integrated services covering all customer groups. The Company pro-actively advocated 
social channels for mobile handsets purchase, management and sales. For channel service, the Company strengthened the sharing 
of channel resources, optimised service process, reinforced trainings and consolidated billing and customer service to uphold 
integrated business development. The Company also devoted enormous efforts to develop electronic channels and enhance self-
servicing capability to provide customers with user-friendly services which will enable them to handle business through mobile 
handsets and the Internet. The Company has also reinforced the construction of infrastructures such as operations ofﬁ ces in the 
Northern regions and accelerating intensive sales coverage in cities through the integration of electronic and direct sales channels to 
support full services integrated operations. In terms of business development for terminals, the Company, on one hand, boosted the 
motivation of each level of the mobile handset industry value chain through scale development of its customers, progressively 
reduced the proportion of centralised procurement and accelerated the localisation and commercialisation of handset purchases. 
On the other hand, the Company has also increased terminal customisation and support for handset manufacturers and retailers, in 
particular encouraging manufacturers to increase inputs in the production of mid-to-high-end mobile phones to promote a wider 
variety of handset products to meet the needs of business development.

Rational Allocation of Resources to Support Full Services Integrated 
Operations

In 2008, the Company’s capital expenditure was RMB48,410 million, an increase of 4.5% from 2007, accounting for 26.2% of total 
revenues, and remained at similar level as 2007. For investment management and control, the Company further emphasised the 
corporate principle of “optimising resources allocation via focusing on key areas,” and reinforced investment in its broadband 
services, value-added services and integrated information services to keep investment in line with business priorities and revenue 
growth. Investment in the transformation services increased by 19.3% compared to last year. The ratio of transformation services 
investment to total investment increased 12 percentage points from last year. With the increasing demand for infrastructure under 
full services integrated operations, the Company has continued a strict investment control over its wireline voice infrastructure and 
communications infrastructure to achieve the goal of reducing investment risk and improving the Company’s overall return on 
investment.

書冊9.indb   20

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The Company spared no effort in supporting customer branding operations and scale development. For government and enterprise 
customers, we successfully completed the development of “BizNavigator” terminals and broadband management system platforms, 
upgraded “Global Mega-eye” platforms, and expanded and enhanced our outsourcing call centers. For household customers, we 
deployed “e8” terminal management platforms, completed network construction related to WLAN and optical access networks, etc. 
and promoted the standardisation of IPTV 2.0 upgrades. For the key products of “e surﬁ ng”, we completed key integrated product 
development and system construction for the launch of “189” preﬁ x mobile number and the deployment of special feature products 
for the CDMA network.

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We continuously upgraded the scale of our broadband services. As of the end of 2008, all urban service areas of the Company are 
capable of providing 2M broadband Internet access. The proportions of 8M and 16M broadband access capacity increased by 10 
and 15 percentage points, respectively. The number of Wi-Fi hotspots reached 25,000. Total number of broadband access ports 
reached 62.69 million.

21

After the successful acquisition and transition of the CDMA business, we immediately implemented mobile network construction in 
preparation for full services integrated operations. Leveraging the mobile service platform construction as an entry point, we have 
promoted the standardisation and integration of the different service networks, and successfully launched “189” preﬁ x mobile 
number with the distinguishing features of China Telecom.

On the basis of the existing, mainly wireline services supportive IT system, the Company proactively strengthened construction of 
mobile supporting capability, aiming to forge wireline and mobile integrated IT supporting capabilities. Based on this, the Company 
efﬁ ciently completed the transition of “Unicom” CDMA network IT system, timely supported the launch of “189” preﬁ x mobile 
number, ensuring the launch and integrated operation of full services. The Company also further enhanced IT supporting capabilities 
for customer segmentation operation and full services integrated operations to implement the Company’s operating strategy of “full 
services integrated operations with customised services offering.”

Outlook for 2009

The Company commenced its full services integrated 
operations in full wing in 2009. The Company will implement 
its development strategy for its mobile services by “capturing 
the mid-to-high-end market, offering customised services, 
and developing an effective economy of scale”, leveraging the 
Company’s advantages of strong customer base and full 
services integrated operations to create a competitive edge 
with integrated products and services. The Company will 
insist on its integrated mobile and Internet services strategy, 
and its focus on diversiﬁ cation and innovation to ensure the 
sustainable development of mobile services. The Company 
will continue to insist on customer branding management, 
focus on mid-to-high-end customers, and further enrich its 
products and services, supplementing mobile services 
elements to realise scale development of customer brands. 
Based on the strength of its customer brands and integrated 
services, the Company will further stabilise its revenues from 
its traditional wireline services and create integrated 
information service capabilities with core competitiveness in 
order to achieve healthy and stable development.

China  Telecom — An  i nte grated  i nf o rm at i o n  s er vi ces   pr ov ide r

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Management’s Discussion and Analysis of
Financial Conditions and Results of Operations

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Summary

The Group, in June 2008, acquired the entire equity interest in China Telecom Group Beijing Corporation ("Beijing Company”) for a 
total consideration of RMB5,557 million from China Telecommunications Corporation. Since the Group and Beijing Company were 
under common control of China Telecommunications Corporation, the acquisition has been treated as a “combination of entities 
under common control”, and was accounted for in a manner similar to a pooling of interests ("as if pooling of interests accounting”). 
Accordingly, the assets and liabilities of Beijing Company have been accounted for based on their historical amounts and our 
ﬁ nancial statements for the period prior to the acquisition have been restated to include the ﬁ nancial position and results of 
operations of Beijing Company on a combined basis. Unless otherwise speciﬁ ed in this section, the ﬁ nancial data of the Group for 
the period prior to the acquisition are presented based on those restated amounts.

According to the acquisition agreement entered into between the Company, China Unicom Limited and China Unicom Corporation 
Limited (the latter two collectively, the “Unicom Group”) in July 2008, the Group, effective from 1 October 2008, has owned and 
operated the entire CDMA business (including the entire equity interest in China Unicom (Macau) Company Limited and 99.5% of 
the equity interest in Unicom Huasheng Telecommunications Technology Co. Ltd.) and related assets and liabilities in relation to the 
CDMA subscribers. The acquisition price was RMB43,800 million and the business combination was accounted for using the 
purchase method.

The Group’s operating revenues in 2008 were RMB186,801 million, representing an increase of 3.3% from 2007. Operating 
expenses were RMB181,656 million, representing an increase of 26.9% from 2007; proﬁ t attributable to equity holders of the 
Company was RMB884 million, and basic earnings per share were RMB0.01. EBITDA1 (before CDMA network capacity lease fee of 
RMB1,504 million) was RMB84,696 million and the EBITDA margin was 45.3%.

Excluding the amortisation of upfront connection fees and the impact of one-off items including impairment loss of the PHS assets 
and the losses related to natural disasters2, the operating revenues of the Group in 2008 were RMB184,779 million, representing an 
increase of 4.0% from 2007; proﬁ t attributable to equity holders of the Company was RMB20,066 million, representing a decrease 
of 12.8% from 20073, basic earnings per share was RMB0.25; EBITDA (before CDMA network capacity lease fee) was RMB85,889 
million and the EBITDA margin was 46.5%.

1 

2 

3 

Our EBITDA refers to proﬁ t before net ﬁ nance costs, investment income, share of proﬁ ts of associates, income tax, depreciation and amortisation, 
impairment loss on property, plant and equipment, CDMA network capacity lease fee and minority interests. As the telecommunications business is a 
capital-intensive industry, capital expenditure, the level of gearing and ﬁ nance costs may have a signiﬁ cant impact on the net proﬁ t of companies with 
similar operating results. Therefore, we believe EBITDA may be helpful in analysing the operating results of a telecommunications service provider like us. 
Although EBITDA has been widely applied in the global telecommunications industry as a benchmark to reﬂ ect the operating performance, ﬁ nancial 
capability and liquidity, it is not regarded as a measure of operating performance and liquidity under generally accepted accounting principles. It also 
does not represent net cash from operating activities. In addition, our EBITDA may not be comparable to similar indicators provided by other companies. 

Losses related to natural disasters were RMB3,428 million with after-tax effect of RMB2,838 million. Impairment loss of the PHS assets was RMB23,954 
million with after-tax effect of RMB18,366 million.

Excluding the deﬁ cit on revaluation of property, plant and equipment and considering the impact of the acquisition of the Beijing Company, proﬁ t 
attributable to equity holders of the Company was RMB23,010 million for 2007.

書冊9.indb   22

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Management’s Discussion and Analysis of
Financial Conditions and Results of Operations

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Operating Revenues

In 2008, by continuously adhering to the customer branding operation, strongly promoting the integrated information application 
services and successfully completing the acquisition and transition of the CDMA business, the Group’s operating revenues 
maintained solid growth. Our operating revenues in 2008 were RMB186,801 million, representing an increase of 3.3% from 2007. 
Excluding the amortisation of upfront connection fees of RMB2,022 million and total mobile revenue of RMB6,154 million (including 
revenue from the mobile voice services of RMB3,972 million, mobile value-added services of RMB1,469 million and other mobile 
services of RMB713 million), our operating revenues in 2008 were RMB178,625 million, representing an increase of 0.6% from 
2007. Our wireline services revenue grew steadily, primarily due to fast growth in the non-voice services which offset the decline in 
the wireline voice services. The ratio of wireline non-voice services revenue to total wireline revenue, excluding the amortisation of 
upfront connection fees, has increased over the years to 46.1% in 2008, representing an increase of 8.9 percentage points from 
2007. With the growth in wireline non-voice revenue, the Group’s revenue structure has become further improved and the risk of 
over-reliance on traditional businesses has been further reduced, enhancing the Group’s capacity to manage risks.

The following table sets forth a breakdown of our operating revenues for 2007 and 2008, together with their respective rates of 
change:

(RMB in millions, except percentage data)

Wireline voice
Mobile voice
Internet
Value-added services
Integrated information application services
Managed data and leased line
Others
Upfront connection fees

For the year ended 
31 December

2008

96,331
3,972
40,786
16,274
10,853
10,231
6,332
2,022

2007

111,625
—
31,817
13,208
6,573
9,183
5,182
3,294

Rates of
 Change

(13.7%)
N/A
28.2%
23.2%
65.1%
11.4%
22.2%
(38.6%)

Total operating revenues

186,801

180,882

3.3%

In prior years, the revenues from wireline services including monthly fees, local usage fees, domestic long distance usage fees, 
International, Hong Kong, Macau and Taiwan long distance usage fees, interconnections, upfront installation fees, managed data 
and leased line revenue were separately disclosed. The amounts of revenue from value-added services and integrated information 
application services were not separately disclosed but were disclosed in aggregate under the caption of “value-added and 
integrated information application service revenue”.

In 2008, the Group changed its internal reporting system by aggregating the revenues from wireline services including monthly fees, 
local usage fees, domestic long distance usage fees, International, Hong Kong, Macau and Taiwan long distance usage fees, 
interconnections and upfront installation fees as “wireline voice revenue”, aggregating the amounts of managed data and leased line 
revenue as “managed data and leased line revenue” and by separating the amounts of revenue from value-added and integrated 
information application services as “value-added service revenue” and “integrated information application service revenue”.

The related comparative ﬁ gures have been aggregated or separated to conform with the current year’s ﬁ gures.

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Management’s Discussion and Analysis of
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Wireline Voice

In 2008, revenue from our wireline voice services was RMB96,331 million, representing a decrease of 13.7% from RMB111,625 
million in 2007, accounting for 51.6% of our operating revenues, or 52.1% of our operating revenues excluding the amortisation of 
upfront connection fees. The major reason for the continuous decline in wireline voice services revenue was the mobile services and 
the new means of communication such as VOIP, which further exacerbated the diversion from wireline services.

Mobile Voice

24

In the fourth quarter of 2008, mobile voice revenue from the CDMA operations was RMB3,972 million, accounting for 2.1% of our 
operating revenues, or 2.1% of our operating revenues excluding the amortisation of upfront connection fees. Mobile services will 
become one of the main revenue drivers in our full services integrated operations.

Internet

In 2008, revenue from our internet access services was RMB40,786 million, representing an increase of 28.2% from RMB31,817 
million in 2007, accounting for 21.8% of our operating revenues, or 22.1% of our operating revenues excluding the amortisation of 
upfront connection fees. Driven by the continuous expansion of our broadband subscriber base in recent years, our internet access 
services revenue has sustained rapid growth. The number of broadband subscribers increased to 44.27 million as of the end of 
2008, representing an increase of 8.53 million or 23.9% from the end of 2007. At the same time, the ARPU of broadband 
subscribers in 2008 was RMB83.8, representing an increase of RMB2.4 from RMB81.4 in 2007, remaining at a relatively high level.

Value-added Services

In 2008, revenue from value-added services was RMB16,274 million, representing an increase of 23.2% from RMB13,208 million in 
2007, accounting for 8.7% of our operating revenues, or 8.8% of our operating revenues excluding the amortisation of upfront 
connection fees. The increase in revenue was mainly attributable to the mobile valued-added services brought by the acquisition of 
the CDMA business, and the rapid development of internet value-added services and the “Colour Ring Tone” service of the wireline 
value-added services, etc. The revenue related to mobile value-added services generated after the acquisition of the CDMA 
business was RMB1,469 million.

Integrated Information Application Services

In 2008, revenue from our integrated information application services was RMB10,853 million, an increase of 65.1% from RMB6,573 
million in 2007, accounting for 5.8% of our operating revenues, or 5.9% of our operating revenues excluding the amortisation of 
upfront connection fees. The increase in revenue was mainly due to the rapid development of IT service and IT application services, 
“Best-tone” services, “V-Net” services and video application services, etc.

Managed Data and Leased Line

In 2008, revenues from managed data and leased line services were RMB10,231 million, representing an increase of 11.4% from 
RMB9,183 million in 2007, accounting for 5.5% of our operating revenues, or 5.5% of our operating revenues excluding the 
amortisation of upfront connection fees. The increase in revenue was mainly due to increasing revenue growth in leased circuits 
services and the IP-VPN services, driven by the increasing demand from non-operator customers for network resources.

Others

In 2008, revenue from our other services was RMB6,332 million, representing an increase of 22.2% from RMB5,182 million in 2007, 
accounting for 3.4% of our operating revenues, or 3.4% of our operating revenues excluding the amortisation of upfront connection 
fees. The increase in revenue was mainly due to the sales revenue of equipment for system integration and terminal equipment such 
as handsets. The revenue related to other mobile services generated after the acquisition of the CDMA business was RMB713 
million.

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Upfront Connection Fees

Upfront connection fees represent the amortised amount of upfront fees received for initial activation of wireline services of the 
Group, amortised over an expected customer relationship period of 10 years. Effective from July 2001, the Group ceased to charge 
new subscribers upfront connection fees. The amortised amount was RMB2,022 million in 2008, representing a decrease of 38.6% 
from RMB3,294 million in 2007.

The amortisation of upfront connection fees will end in 2011, the amortisation of upfront connection fees for the years ended 2009, 
2010 and 2011 will be RMB1,151 million, RMB497 million and RMB98 million respectively.

Operating Expenses

In 2008, the operating expenses of the Group were RMB181,656 million, representing an increase of 26.9% from 2007. The ratio of 
operating expenses to operating revenues increased to 97.2% from 79.1% in 2007, or increased to 98.3% from 80.6% of operating 
revenues excluding the amortisation of upfront connection fees in 2007. Excluding the impact of one-off items including impairment 
loss of the PHS assets and losses related to natural disasters, our operating expenses were RMB154,274 million, or 83.5% of our 
operating revenues excluding the amortisation of upfront connection fees. The increase in expenses was mainly attributable to 
additional investment by the Group in transformation services and the mobile services, so as to enhance the Group’s 
competitiveness and ensure its sustainable and healthy development in the future.

The following table sets out a breakdown of our operating expenses in 2007 and 2008 and their respective rates of change:

(RMB in millions, except percentage data)

Depreciation and amortisation
Network operations and support expenses
Selling, general and administrative expenses
Personnel expenses
Other operating expenses
Property, plant and equipment impairment loss which includes:

Impairment loss of the PHS assets

For the year ended 
31 December

2008

53,880
36,096
27,935
28,946
10,632
24,167

23,954

2007

52,607
29,856
24,294
27,419
8,965
 —

 —

Rates of
 Change

2.4%
20.9%
15.0%
5.6%
18.6%
N/A

N/A

Total operating expenses

181,656

143,141

26.9%

Depreciation and Amortisation

Depreciation and amortisation were RMB53,880 million in 2008, representing an increase of 2.4% from RMB52,607 million in 2007, 
accounting for 28.8% of our operating revenues. The ratio of depreciation and amortisation expenses to our operating revenues 
excluding the amortisation of upfront connection fees decreased to 29.2% in 2008 from 29.6% in 2007.

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Network Operations and Support Expenses

In 2008, network operations and support expenses were RMB36,096 million, representing an increase of 20.9% from RMB29,856 
million in 2007, accounting for 19.3% of our operating revenues, or 19.5% of our operating revenues excluding the amortisation of 
upfront connection fees. The increase was mainly attributable to the increasing investment by the Group in transformation services, 
losses from natural disasters, the CDMA network capacity lease fee and the increasing electricity price.

Selling, General and Administrative Expenses

26

In 2008, selling, general and administrative expenses amounted to RMB27,935 million, representing an increase of 15.0% from 
RMB24,294 million in 2007, accounting for 15.0% of our operating revenues, or 15.1% of our operating revenues excluding the 
amortisation of upfront connection fees. This increase was mainly attributable to additional investment in relation to transformation 
services and the promotion and initial investment in the “e surﬁ ng” brand so as to support the Company’s strategy of “Customer-
focused Innovative Informatisation”.

Personnel Expenses

In 2008, personnel expenses were RMB28,946 million, representing an increase of 5.6% from RMB27,419 million in 2007. 
Personnel expenses accounted for 15.5% of our operating revenues, or  15.7% of our operating revenues excluding the amortisation 
of upfront connection fees. The increase in personnel expenses was mainly attributable to the inclusion of new employees from the 
Unicom Group as well as the recruitment of professional personnel for our mobile communications, IP, IT and information operations, 
to meet the needs of the Group’s full services integrated operations.

Other Operating Expenses

Other operating expenses primarily included expenses from interconnections settlement and cost of goods sold. The Group’s other 
expenses increased by 18.6% from RMB8,965 million in 2007 to RMB10,632 million in 2008. The increase was mainly attributable 
to the newly-incurred expenses of mobile interconnection settlement for mobile services operation and increased expenses for sales 
of terminal equipment, such as handsets.

Impairment Loss on Property, Plant and Equipment

In accordance with the requirements of the International Financial Reporting Standards (IFRS), and considering the impact of the 
mobile development strategy on our PHS service upon the full services integrated operations of the Group, we have estimated a 
signiﬁ cant drop in the cash ﬂ ow generation capability of our PHS assets. The Group carried out impairment tests of the PHS assets 
at the end of 2008 and recognised an impairment loss of RMB23,954 million.

Net Finance Costs

In 2008, the Group’s net ﬁ nance costs were RMB5,076 million, representing an increase of 18.4% from RMB4,288 million in 2007, 
in which net interest expenses increased by RMB564 million under the inﬂ uence of interest rate increases at the end of 2007 and in 
the ﬁ rst half of 2008. Exchange loss was RMB170 million, while the exchange gain was RMB104 million in 2007. The change of net 
exchange gain/loss was mainly attributable to the depreciation of RMB against the Japanese Yen.

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Profi tability Level

Income Tax

The Group’s statutory income tax rate is 25%. In 2008, the Group’s income tax expenses were RMB–793 million, with the effective 
income tax rate excluding upfront connection fees being 21.1% after excluding the impact of one-off items including impairment loss 
of the PHS assets and losses related to natural disasters. The difference between the effective income tax rate and the statutory 
income tax rate was mainly attributable to the exclusion of upfront connection fees from taxable revenue, and the preferential income 
tax rate of 15% or 18% enjoyed by our branches located in special economic zones and in the western part of China. Additional 
reasons for our effective tax rate being lower than the statutory tax rate were the additional deductions of research and development 
expenses for some of our provincial branches and the tax credits received on the purchase of domestically made equipment before 
the implementation of the new tax law in 2008.

Profi t Attributable to Equity Holders of the Company

In 2008, proﬁ t attributable to equity holders of the Company was RMB884 million, representing a decrease of 96.3% from 
RMB24,195 million in 2007. Excluding the amortisation of upfront connection fees and the impact of one-off items including 
impairment loss of the PHS assets and the impact of natural disasters, the proﬁ t attributable to equity holders of the Company was 
RMB20,066 million, representing a decrease of 12.8% from 2007.

Capital Expenditure and Cash Flows

Capital Expenditure

In 2008, the Group continued with its prudent policy on capital expenditure. Capital expenditure was RMB48,410 million, 
representing an increase of 4.5% from RMB46,334 million in 2007 mainly due to the impact of natural disasters.

Cash Flows

In 2008, net cash inﬂ ow of the Group was RMB6,522 million, while the net cash outﬂ ow was RMB1,582 million in 2007.

The following table sets out our cash ﬂ ow position in 2007 and 2008:

(RMB in millions)

Net cash ﬂ ow from operating activities
Net cash used in investing activities
Net cash ﬂ ow from/(used in) ﬁ nancing activities

For the year ended 
31 December

2008

76,756
(75,819)
5,585

2007

75,783
(46,618)
(30,747)

Net increase/(decrease) in cash and cash equivalents

6,522

(1,582)

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In 2008, the net cash ﬂ ow from operating activities was RMB76,756 million, representing an increase of RMB973 million from 
RMB75,783 million in 2007.

In 2008, net cash used in investing activities was RMB75,819 million, representing an increase of RMB29,201 million from 2007, 
mainly resulting from the payment for the acquisition of the Unicom Group’s CDMA business by the Group.

In 2008, the net cash inﬂ ow from ﬁ nancing activities was RMB5,585 million while the net cash outﬂ ow was RMB30,747 million in 
2007. The increase in net cash inﬂ ow was mainly due to the issue of short-term commercial paper and medium term notes totaling 
RMB30,000 million by the Group.

28

Working Capital

At the end of 2008, the Group’s working capital (total current assets minus total current liabilities) deﬁ cit was RMB121,291 million, 
representing an increase of RMB25,156 million from the deﬁ cit of RMB96,135 million in 2007. The deﬁ cit increase was mainly 
attributable to new short-term debt, such as short-term commercial paper. As at the end of 2008, the Group’s cash and cash 
equivalents amounted to RMB27,866 million, of which 94.2% (2007: 93.0%) was denominated in RMB.

Assets and Liabilities

In 2008, the Group continued to maintain a sound capital structure. As at the end of 2008, the Group’s total assets increased to 
RMB440,337 million from RMB413,331 million as of the end of 2007, while total indebtedness increased to RMB123,279 million 
from RMB105,755 million as of the end of 2007. The ratio of the Group’s total indebtedness to total assets increased from 25.6% as 
of the end of 2007 to 28.0% as of the end of 2008.

Indebtedness

Our indebtedness analysis as of the end of 2007 and 2008 is as follows:

(RMB in millions)

Short-term debt
Long-term debt maturing within one year
Finance lease obligations maturing within one year
Long-term debt (excluding current portion)
Finance lease obligations (excluding current portion)

For the year ended 
31 December

2008

83,448
565
22
39,226
18

2007

67,767
3,811
24
34,148
5

Total debt

123,279

105,755

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As of the end of 2008, total indebtedness of the Group was RMB123,279 million, representing an increase of RMB17,524 million 
from 2007. The main reason for the increase was the issue of short-term commercial paper and medium-term notes by the Group. 
Of the total indebtedness of the Group, 97.2% (2007: 96.4%) was denominated in Renminbi, 0.7% (2007: 1.0%) was denominated 
in US Dollar, 1.5% (2007: 1.8%) was denominated in Japanese Yen and 0.6% (2007: 0.8%) was denominated in Euro. 87.2% (2007: 
70.7%) of the indebtedness was loans with ﬁ xed interest rates while the remaining was with ﬂ oating rates. As at 31 December 2008, 
the Group did not (2007: nil) pledge any assets to secure the debts.

Most of the Group’s revenue receipts from and payments made for its business were denominated in Renminbi. Therefore, the 
Group did not have signiﬁ cant risk exposure to foreign exchange ﬂ uctuations.

As at 31 December 2008, the Group’s unutilised committed credit facilities amounted to RMB128,231 million (2007: RMB36,823 
million).

Contractual Obligations

Payable in

(RMB in millions)

Short-term debt

Long-term debt

Finance lease obligations

Operating lease commitments

Capital commitments

1 Jan 2009–

1 Jan 2010–

1 Jan 2011–

1 Jan 2012–

Total

31 Dec 2009

31 Dec 2010

31 Dec 2011

31 Dec 2012

Thereafter

85,576

48,407

40

3,092

3,912

85,576

2,498

22

830

3,912

 —

3,558

18

595

 —

 —

12,011

 —

479

 —

 —

1,457

 —

380

 —

 —

28,883

 —

808

 —

Total contractual obligations

141,027

92,838

4,171

12,490

1,837

29,691

Note: Amounts of short-term debt, long-term debt and ﬁ nance lease obligations include recognised and unrecognised interest payable, and are not discounted.

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1.  Mr. Wang Xiaochu
2.  Mr. Shang Bing
3.  Madam Wu Andi
4.  Mr. Zhang Jiping
5.  Mr. Zhang Chenshuang
6.  Mr. Yang Xiaowei
7.  Mr. Yang Jie
8.  Mr. Sun Kangmin

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1.  Mr. Wang Xiaochu

Age 51, is the Chairman of the Board of Directors and Chief Executive Ofﬁ cer of the Company. Mr. Wang graduated from 
Beijing Institute of Posts and Telecommunications in 1989 and received a doctorate degree in business administration from 
the Hong Kong Polytechnic University in 2005. Mr. Wang served as Deputy Director General and Director General of the 
Hangzhou Telecommunications Bureau in Zhejiang province, Director General of the Tianjin Posts and Telecommunications 
Administration, Chairman and Chief Executive Ofﬁ cer of China Mobile (Hong Kong) Limited, Vice President of China Mobile 
Communications Corporation, Chairman of the board of directors and a Non-Executive Director of China Communications 
Services Corporation Limited. He is also the President of China Telecommunications Corporation and Honorary Chairman of 
China Communications Services Corporation Limited. He was responsible for the development of China Telecom’s telephone 
network management systems and various other information technology projects and as a result, received the Third-Class 
Award from the State Scientiﬁ c and Technological Progress Award and the First-Class Award from the former Ministry of Posts 
and Telecommunications Scientiﬁ c and Technological Progress Award. Mr. Wang has over 28 years of management 
experience in the telecommunications industry.

2.  Mr. Shang Bing

Age 53, is an Executive Director, President and Chief Operating Ofﬁ cer of the Company. Mr. Shang is a senior economist. He 
graduated in 1982 from Shenyang Chemical Industry Institution with a bachelor’s degree in chemical industry and received a 
master’s degree in business administration from New York State University in 2002. He received a doctorate degree in 
business administration from the Hong Kong Polytechnic University in 2005. Mr. Shang served as a Director of Industrial 
Technology Development Centre in Liaoning Province, a Deputy General Manager and General Manager of Economic and 
Technological Development Company in Liaoning Province. Mr. Shang served as a Deputy General Manager and General 
Manager of China United Telecommunications Corporation (“Unicom Group”) Liaoning Branch, a Vice President of Unicom 
Group, a Director of Unicom Group, the President of Unicom Group and an Executive Director and President of China Unicom 
Limited. In addition, Mr. Shang also served as a Director and President of the China United Telecommunications Corporation 
Limited and China Unicom Corporation Limited. He is also a Vice President of China Telecommunications Corporation. Mr. 
Shang has extensive experience in management and telecommunications industry.

3.  Madam Wu Andi

Age 54, is an Executive Director, Executive Vice President and the Chief Financial Ofﬁ cer of the Company. She is responsible 
for the ﬁ nancial management of the Company. Madam Wu is a senior accountant. She graduated from the Beijing Institute of 
Economics with a bachelor degree in ﬁ nance and trading in 1983, and studied in a postgraduate program in business 
economics management at the Chinese Academy of Social Sciences from 1996 to 1998. Prior to joining China 
Telecommunications Corporation in May 2000, she served as Director General of the Department of Economic Adjustment 
and Communication Settlement of the Ministry of Information Industry (“MII”), Director General, Deputy Director General and 
Director of the Department of Finance of the MPT. She is also a Vice President of China Telecommunications Corporation. 
Madam Wu has 27 years of economic and ﬁ nancial management experience in the telecommunications industry in China.

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4.  Mr. Zhang Jiping

Age 53, is an Executive Director and Executive Vice President of the Company. Mr. Zhang is a professor-level senior engineer. 
He graduated from the Beijing University of Posts and Telecommunications with a bachelor degree in radio 
telecommunications engineering in 1982, studied in a postgraduate program in applied computer engineering at Northeastern 
Industrial University from 1986 to 1988, and received a doctorate degree in business administration from the Hong Kong 
Polytechnic University in 2004. Prior to joining China Telecommunications Corporation in May 2000, he served as Deputy 
Director General of DGT of the MPT, a Deputy Director General and Director of the Telecommunication Technology Centre of 
the Posts and Telecommunications Administration of Liaoning Province. He is also a Vice President of China 
Telecommunications Corporation. Mr. Zhang has 27 years of experience in network operation and management in the 
telecommunications industry in China.

5.  Mr. Zhang Chenshuang

Age 57, is an Executive Director and Executive Vice President of the Company. Mr. Zhang is a senior economist. He graduated 
from the Party School of the Communist Party of China (CPC) and received a MBA degree from the Hong Kong Polytechnic 
University.  Mr. Zhang served as Executive Director and Vice President of China Mobile Limited, Vice President of China Mobile 
Communications Corporation, Director of China Mobile Communication Co., Ltd., the Assistant to the President of China 
Mobile Communications Corporation, Director General of the Inner Mongolia Posts and Telecommunications Administration 
Bureau, Deputy Director General of the Ofﬁ ce of the Ministry of Posts and Telecommunications. He is also a Vice President of 
China Telecommunications Corporation. He has over 29 years of experience in the telecommunications industry.

6.  Mr. Li Ping

Age 55, is an Executive Vice President of the Company. Mr. Li graduated from the Beijing University of Posts and 
Telecommunications with a major in radio telecommunications in 1976 and received an MBA degree from the State University 
of New York at Buffalo, U.S.A. in 1989. He served as Chairman and President of China Telecom (Hong Kong) International 
Limited, Vice Chairman and Executive Vice President of China Mobile (Hong Kong) Limited, Deputy Director General of the 
DGT of the MPT and Executive Director of China Telecom Corporation Limited. He is also Vice President of China 
Telecommunications Corporation, and Chairman of the board of directors and an Executive Director of China Communications 
Services Corporation Limited. Mr. Li has extensive experience in managing public companies and 33 years of operational and 
managerial experience in the telecommunications industry in China.

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4.  Mr. Zhang Jiping

7.  Mr. Yang Xiaowei

Age 53, is an Executive Director and Executive Vice President of the Company. Mr. Zhang is a professor-level senior engineer. 

He graduated from the Beijing University of Posts and Telecommunications with a bachelor degree in radio 

telecommunications engineering in 1982, studied in a postgraduate program in applied computer engineering at Northeastern 

Industrial University from 1986 to 1988, and received a doctorate degree in business administration from the Hong Kong 

Polytechnic University in 2004. Prior to joining China Telecommunications Corporation in May 2000, he served as Deputy 

Director General of DGT of the MPT, a Deputy Director General and Director of the Telecommunication Technology Centre of 

the Posts and Telecommunications Administration of Liaoning Province. He is also a Vice President of China 

Telecommunications Corporation. Mr. Zhang has 27 years of experience in network operation and management in the 

telecommunications industry in China.

5.  Mr. Zhang Chenshuang

Age 57, is an Executive Director and Executive Vice President of the Company. Mr. Zhang is a senior economist. He graduated 

from the Party School of the Communist Party of China (CPC) and received a MBA degree from the Hong Kong Polytechnic 

University.  Mr. Zhang served as Executive Director and Vice President of China Mobile Limited, Vice President of China Mobile 

Communications Corporation, Director of China Mobile Communication Co., Ltd., the Assistant to the President of China 

Mobile Communications Corporation, Director General of the Inner Mongolia Posts and Telecommunications Administration 

Bureau, Deputy Director General of the Ofﬁ ce of the Ministry of Posts and Telecommunications. He is also a Vice President of 

China Telecommunications Corporation. He has over 29 years of experience in the telecommunications industry.

6.  Mr. Li Ping

Age 55, is an Executive Vice President of the Company. Mr. Li graduated from the Beijing University of Posts and 

Telecommunications with a major in radio telecommunications in 1976 and received an MBA degree from the State University 

of New York at Buffalo, U.S.A. in 1989. He served as Chairman and President of China Telecom (Hong Kong) International 

Limited, Vice Chairman and Executive Vice President of China Mobile (Hong Kong) Limited, Deputy Director General of the 

DGT of the MPT and Executive Director of China Telecom Corporation Limited. He is also Vice President of China 

Telecommunications Corporation, and Chairman of the board of directors and an Executive Director of China Communications 

Services Corporation Limited. Mr. Li has extensive experience in managing public companies and 33 years of operational and 

managerial experience in the telecommunications industry in China.

Age 45, is an Executive Director and Executive Vice President of the Company. Mr. Yang is a senior engineer. He received a 
bachelor’s degree from the Computer Application Department of Chongqing University in 1998 and a master’s degree in 
engineering from the Management Engineering Department of Chongqing University in 2001. Mr. Yang was the Assistant to 
Director and Deputy Director of Chongqing Telecommunications Bureau, a Deputy Director of the Chongqing 
Telecommunications Administration Bureau and a Director of Chongqing Municipal Communication Administration Bureau. Mr. 
Yang served as General Manager of the Chongqing branch and the Guangdong branch of the Unicom Group, Vice President 
of the Unicom Group, Director of the Unicom Group and Executive Director and Vice President of China Unicom Limited. Mr. 
Yang also served as Director and Vice President of China Unicom Corporation Limited and Chairman of Unicom Huasheng 
Telecommunications Technology Co. Ltd.. He is also a Vice President of China Telecommunications Corporation. Mr. Yang has 
extensive experience in management and telecommunications industry.

8.  Mr. Yang Jie

Age 47, is an Executive Director and Executive Vice President of the Company. Mr. Yang is a professor-level senior engineer. 
He graduated from the Beijing University of Posts and Telecommunications with a major in radio engineering in 1984, and 
subsequently obtained a master degree in telecommunications and information management at the Norwegian School of 
Management. Mr. Yang served as Deputy Director General of Shanxi Posts and Telecommunications Administration Bureau, 
General Manager of Shanxi Telecommunications Corporation, Vice President of China Telecom Beijing Research Institute and 
General Manager of Business Department of the Northern Telecom of China Telecommunications Corporation. He is also a 
Vice President of China Telecommunications Corporation. Mr. Yang has 25 years of operational and managerial experience in 
the telecommunications industry in China.

9.  Mr. Sun Kangmin

Age 52, is an Executive Director and Executive Vice President of the Company. Mr. Sun is a senior engineer. He holds an MBA 
degree from the University of Hong Kong. Mr. Sun served as Department Head of the Information Industry Department of 
Sichuan Province, Director General of Communications Bureau of Sichuan Province, Chairman and General Manager of 
Sichuan Telecom Company Limited. He is also a Vice President of China Telecommunications Corporation. Mr. Sun has 25 
years of operational and managerial experience in the telecommunications industry in China.

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10.  Mr. Li Jinming

Age 57, is a Non-Executive Director of the Company, Chairman of Guangdong Rising Assets Management Co., Ltd. (one of 
the domestic shareholders of the Company) and Chairman of Shenzhen Zhongjin Lingnan Nonfemet Company Limited. Mr. Li 
graduated from Guangdong Radio and TV University, and holds an EMBA degree from Lingnan College, Zhong Shan 
University after the completion of his study in the postgraduate programme of international economics and industrial 
commerce management. Mr. Li served as Chief and Deputy Director General of the Guangdong Provincial Discipline 
Inspection Commission, and Director and Deputy General Manager of Guangdong Rising Assets Management Co., Ltd.. 
Mr. Li has extensive experience in enterprise management.

11.  Mr. Wu Jichuan

Age 71, is an Independent Non-Executive Director of the Company. Mr. Wu is a professor-level senior engineer. Mr. Wu is the 
Honorary Chairman of the Telecommunications and Economics Specialists Committee, Director General of the Chinese 
Institute of Electronics, and Honorary Director General of the Chinese Institute of Communications. Mr. Wu graduated from the 
Beijing University of Posts and Telecommunications with a major in wired telecommunications engineering in 1959. Mr. Wu 
served as Vice Minister and Minister of the Ministry of Posts and Telecommunications, Deputy Director of the Committee of 
the Radio Management of China, Vice Leader of the Informatisation Leading Group of the State Council, Minister of Ministry of 
Information Industry, a member of the Eighth & the Tenth National Committee of Chinese People’s Political Consultative 
Conference (the “CPPCC”), a member of the Standing Committee of the Tenth National Committee of CPPCC and Vice 
Chairman of the Subcommittee of Education, Science, Culture, Health and Sports of the Tenth National Committee of 
CPPCC.

12.  Mr. Qin Xiao

Age 61, is an Independent Non-Executive Director of the Company. Mr. Qin obtained his Ph.D. in economics from University 
of Cambridge. He is the Chairman of China Merchants Group Limited and China Merchants Bank Co., Ltd.. He is a member 
of the eleventh Chinese People’s Political Consultative Conference and the Honorary Chairman of Hong Kong Chinese 
Enterprises Association, a part-time professor at the School of Economics and Management of Tsinghua University and the 
Graduate School of the People’s Bank of China. Before joining China Merchants Group, he served as President and Vice 
Chairman of China International Trust and Investment Corporation (CITIC), and Chairman of CITIC Industrial Bank. He was a 
deputy to the Ninth National People’s Congress, a member of the Tenth Chinese People’s Political Consultative Conference, 
an advisor on the Foreign Currency Policy of the State Administration of Foreign Exchange, and a member of Toyota 
International Advisory Board, he also served as Chairman of APEC Business Advisory Council (ABAC) for the Year 2001. He is 
the author of several papers and books in the ﬁ elds of economics and management.

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35

13.  Mr. Tse Hau Yin, Aloysius

Age 61, is an Independent Non-Executive Director of the Company. Mr. Tse is currently an Independent Non-executive 
Director of CNOOC Limited, China Construction Bank Corporation, Wing Hang Bank Limited, Linmark Group Limited, Sinofert 
Holdings Limited and SJM Holdings Limited and is the Chairman of the International Advisory Council of the People’s 
Municipal Government of Wuhan. Mr. Tse is a fellow of the Institute of Chartered Accountants in England and Wales, and the 
Hong Kong Institute of Certiﬁ ed Public Accountants (“HKICPA”). Mr. Tse is a past president of the HKICPA. He joined KPMG in 
1976, became a partner in 1984 and retired in March 2003. Mr. Tse was a non-executive Chairman of KPMG’s operations in 
China and a member of the KPMG China advisory board from 1997 to 2000. Mr. Tse is a graduate of the University of 
Hong Kong.

14.  Madam Cha May Lung, Laura

Age 59, is an Independent Non-Executive Director of the Company. Mrs. Cha is currently a Hong Kong Delegate to the 11th 
National People’s Congress, PRC, a Member of the Standing Committee of the Chinese People’s Political Consultative 
Conference (“CPPCC”) Shanghai Committee, the Vice Chairman of the International Advisory Council of the China Securities 
Regulatory Commission (“CSRC”), a Member of the Executive Council of the Government of the Hong Kong Special 
Administrative Region, Non-executive Deputy Chairman of The Hongkong and Shanghai Banking Corporation Limited, Non-
executive Director of Bank of Communications Co., Ltd. She is also an Independent Non-executive Director of Hong Kong 
Exchanges and Clearing Limited, Johnson Electric Holdings Limited, Baoshan Iron & Steel Co. Ltd., and Tata Consultancy 
Services Limited. Mrs. Cha served as Vice Chairman of CSRC from February 2001 to September 2004 and Assistant Director 
of Corporate Finance, Senior Director, Executive Director and Deputy Chairman of the Securities and Futures Commission of 
Hong Kong from 1991 to 2001. She received a Juris Doctor degree from Santa Clara University of USA in 1982.

15.  Professor Xu Erming

Age 59, is an Independent Non-Executive Director of the Company. Mr. Xu is a Deputy Dean, professor, and Ph.D. supervisor 
of the Graduate School at the Renmin University of China, Deputy Secretary-General of the Tenth Session of the Academic 
Committee, and a member of the Third Session of the University Affairs Committee of the Renmin University of China, 
Associate Convener of the Sixth Session of the Business Administration Academic Appraisal Group of the Academic Degree 
Committee of the State Council, Vice Chairman of the Chinese Enterprise Management Research Association, and Chairman 
of Beijing Contemporary Enterprise Research Association. He is also entitled to the State Council’s special government 
allowances.

Over the years, Professor Xu has conducted research in areas related to strategic management, organizational theories, 
international management and education management, and has been responsible for research on many subjects put forward 
by the National Natural Science Foundation, the National Social Science Foundation, and other authorities at provincial and 
ministry level. Professor Xu has issued many publications including Business Strategy and Innovative analysis, Business 
Strategic Management, Introduction to International Business Management, a number of case studies, as well as a number of 
academic dissertations such as Empirical Research: Effects on Performance of Supervision Mechanisms Substitution Effect of 
Listed Companies and has also been a columnist in the Economic Daily. He has received many awards such as the Ministry of 
Education’s Class One Excellent Higher Education Textbook Award and the State-Level Class Two Teaching Award. Professor 
Xu has been a visiting professor at over 10 domestic universities and has been awarded the Fulbright Scholar of U.S.A. twice. 
Professor Xu was previously a lecturer at the New York State University at Buffalo, U.S.A., the University of Scranton, U.S.A., 
the University of Technology, Sydney, the Kyushu University, Japan and Hong Kong Polytechnic University.

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Mr. Yung Shun Loy, Jacky

Age 46, is the Assistant Chief Financial Ofﬁ cer, Qualiﬁ ed Accountant and the Company Secretary of the Company. Mr. Yung is a 
fellow member of the Hong Kong Institute of Certiﬁ ed Public Accountants, a fellow member of the Association of Chartered Certiﬁ ed 
Accountants of United Kingdom, and a Certiﬁ ed Practising Accountant in Australia. Mr. Yung has over 20 years of experience in 
auditing, company secretary and senior ﬁ nancial management of listed companies.

Mr. Wang Qi

36

Age 54, is the ﬁ nancial controller of the Company. Mr. Wang is a senior accountant. He graduated from Beijing Institute of Posts and 
Telecommunications and the Australian National University. He holds a Master degree in international management. He served a 
Deputy Director General of Anhui Posts and Telecommunications Administration Bureau and a Deputy General Manager of China 
Telecom Group Anhui Corporation prior to his relocation to the headquarters of China Telecom Group in 2000. Mr. Wang is also 
Managing Director of the Finance Department of China Telecommunications Corporation. Mr. Wang has 34 years of managerial and 
accounting experience in the telecommunications industry in China.

Supervisors

Mr. Xiao Jinxue

Age 45, is the Chairman of the Supervisor Committee and General Manager of Xinjiang branch of the Company. Mr. Xiao graduated 
from Beijing Institute of Posts and Telecommunications with a master degree in engineering management in 1987. Mr. Xiao served 
as Assistant Dean and Ofﬁ cer at the Corporate Management Faculty of the Institute of Cadre Management under the Ministry of 
Posts and Telecommunications, an executive deputy managing director of the Beijing Research Institute of China 
Telecommunications Corporation and the Managing Director of Corporate Strategy Department of China Telecom Corporation 
Limited . Mr. Xiao is a professor-level senior engineer and has 22 years of managerial experience in the telecommunications industry 
in China.

Madam Zhu Lihao

Age 68, is an independent Supervisor of the Supervisory Committee of the Company. Madam Zhu is a senior auditor and a qualiﬁ ed 
accountant in the PRC. She graduated from Beijing Graduate School of Mining and Technology with a major in engineering 
economics in 1963. Madam Zhu served as a Deputy Director General, Director General, Deputy Director and Director of the 
Department of Industry and Communications of the National Audit Bureau of China, and the Director General of the Department of 
Foreign Affairs and Foreign-related Auditing of the Audit Bureau. Madam Zhu has over 40 years of experience in management and 
auditing.

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Mr. Ma Yuzhu

Age 55, is an Employee Representative Supervisor of the Supervisory Committee of the Company, Managing Director of the 
Corporate Culture Department of the Company. Mr. Ma graduated from the Beijing University of Posts and Telecommunications with 
a major in telecommunications in 1982. Mr. Ma studied part-time in Australian National University in 2000 and obtained a master 
degree in international business administration in 2001. Mr. Ma served as a Director General in China International 
Telecommunication Construction 1st Engineering Bureau, Director of the department of General Engineering of DGT. Mr. Ma is a 
senior engineer and has over 30 years of telecommunications construction and operation management experience in the 
telecommunication industry.

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Mr. Xu Cailiao

Age 45, is a Supervisor of the Supervisory Committee of the Company. Mr. Xu is a Director of the Corporate Strategy Department of 
the Company. Mr. Xu graduated from the Law School of Peking University with a master degree in law in 1987. He served as a 
Director of the State Commission for Economic Restructuring and Managing Director of the Hong Kong branch of Irico Group. He 
was qualiﬁ ed to practise law in China in 1988. Mr. Xu is highly experienced in respect of corporate governance, organizational 
development and process management.

37

Madam Han Fang

Age 36, is a Supervisor of the Supervisory Committee of the Company. Madam Han is a Director of the Audit Department of the 
Company. Madam Han graduated from the Beijing University of Posts and Telecommunications with a bachelor’s degree in 
Engineering Management in 1995. She obtained a master degree in business administration at the Norwegian School of 
Management. She worked in ﬁ nance-related jobs serving in China Huaxin Post and Telecommunications Economy Development 
Centre and the audit department of China Telecommunications Corporation. Madam Han is an international internal auditor, a 
qualiﬁ ed accountant in PRC and a senior accountant and has 14 years of ﬁ nance and audit experience.

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38

The Board of Directors (the “Board”) of China Telecom Corporation Limited (the “Company”) hereby presents its report together with 
the audited ﬁ nancial statements of the Company and its subsidiaries (collectively, the “Group”) prepared in accordance with 
International Financial Reporting Standards for the year ended 31 December 2008.

Principal Business

The principal business of the Company and the Group is the provision of basic communications services including comprehensive 
wireline telecommunications services, mobile telecommunications services, value-added services such as Internet access services, 
integrated information services and other related services within the service area of the Group.

Results

Results of the Group for the year ended 31 December 2008 and the ﬁ nancial position of the Company and the Group as at that date 
are set out in the audited ﬁ nancial statements on pages 90 to 154 in this annual report.

Dividend

The Board proposes a ﬁ nal dividend in the amount equivalent to HK$0.085 per share, totalling approximately RMB6,063 million for 
the year ended 31 December 2008. The dividend proposal will be submitted for consideration at the Annual General Meeting to be 
held on 26 May 2009. Dividends will be denominated and declared in Renminbi. Dividends on domestic shares will be paid in 
Renminbi, whereas dividends on H shares will be paid in Hong Kong dollars. The relevant exchange rate will be the average offer 
rates of Renminbi to Hong Kong dollars as announced by the People’s Bank of China for the week prior to the date of declaration of 
dividends at the Annual General Meeting. The ﬁ nal dividends are expected to be paid around 30 June 2009 after obtaining the 
shareholders’ approval at the Annual General Meeting.

Pursuant to the Enterprise Income Tax Law of the People’s Republic of China and the Detailed Rules for the Implementation of the 
Enterprise Income Tax Law of the People’s Republic of China implemented in 2008, beginning from 1 January 2008, any Chinese 
domestic enterprise which pays dividend to a non-resident enterprise shareholder in respect of accounting periods beginning from 
1 January 2008 shall withhold and pay enterprise income tax for such shareholder. Please refer to the relevant announcement to be 
issued by the Company separately for more details.

Mobile Services

In the second half of 2008, the Company acquired China Unicom’s CDMA mobile business, related assets, liabilities and equity for a 
consideration of RMB43,800 million. The Company also reached an agreement to lease the CDMA network capacity from China 
Telecommunications Corporation. In January 2009, the Company was permitted to operate the CDMA2000 3G mobile services. An 
amendment to the Articles of Association on the scope of business to include the CDMA2000 3G mobile services was approved at 
the Extraordinary General Meeting held on 12 March 2009. The above arrangement enables the Group to create the synergies with 
the existing operations by fully leveraging the communication network resources, sales and marketing and operational experience. 
By quickly accessing the fast developing mobile telecommunication market in the PRC and providing comprehensive services to 
customers, the Company will enhance the core competitiveness and create more value for our customers and shareholders.

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39

Directors and Senior Management of the Company

The following table sets out certain information of the Directors and senior management of the Company as at the date of this 
Report:

Name

Age

Position in the Company

Wang Xiaochu
Shang Bing
Wu Andi

Zhang Jiping
Zhang Chenshuang
Li Ping
Yang Xiaowei
Yang Jie
Sun Kangmin
Li Jinming
Wu Jichuan
Qin Xiao
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming
Yung Shun Loy, Jacky

Wang Qi

51
53
54

53
57
55
45
47
52
57
71
61
61
59
59
46

54

Chairman and Chief Executive Ofﬁ cer
Executive Director, President and Chief Operating Ofﬁ cer
Executive Director, Executive Vice President and 
  Chief Financial Ofﬁ cer
Executive Director and Executive Vice President
Executive Director and Executive Vice President
Executive Vice President
Executive Director and Executive Vice President
Executive Director and Executive Vice President
Executive Director and Executive Vice President
Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Assistant Chief Financial Ofﬁ cer, 
  Qualiﬁ ed Accountant and Company Secretary
Financial Controller

Date of Appointment

20 December 2004
9 September 2008
10 September 2002

10 September 2002
31 August 2007
10 September 2002
9 September 2008
20 October 2004
20 October 2004
20 December 2004
9 September 2008
9 September 2008
9 September 2005
9 September 2008
9 September 2005
1 February 2005

10 September 2002

On 9 September 2008, the second session of the Board expired. Mr. Leng Rongquan, Mr. Li Ping, Mr. Zhang Youcai, Mr. Lo Hong 
Sui, Vincent and Mr. Shi Wanpeng no longer served as directors of the Company. The remaining directors from the second session 
of the Board continue to serve their duties for the third session of the Board after election at the Extraordinary General Meeting held 
on 5 September 2008. On the same day, Mr. Shang Bing, Mr. Yang Xiaowei, Mr. Wu Jichuan, Mr. Qin Xiao and Madam Cha May 
Lung, Laura were elected to the third session of the Board of Directors.

Supervisors of the Company

The following table sets out certain information of the supervisors of the Company as at the date of this Report:

Name

Xiao Jinxue
Zhu Lihao
Ma Yuzhu
Xu Cailiao
Han Fang

Age

Position in the Company

45
68
55
45
36

Chairman of the Supervisory Committee
Independent Supervisor
Supervisor (Employee Representative)
Supervisor
Supervisor

Date of Appointment

29 May 2007
10 September 2002
9 September 2005
9 September 2005
9 September 2008

On 9 September 2008, the second session of the Supervisory Committee expired. Ms. Wang Haiyun no longer served in the 
position of Supervisor of the Company. Mr. Xiao Jinxue, Madam Zhu Lihao and Mr. Xu Cailiao, Supervisors of the second session of 
the Supervisory Committee, continue to serve for the third session of the Supervisory Committee after election at the Extraordinary 
General Meeting held on 5 September 2008. On the same day, Ms. Han Fang was elected as Supervisor of the Company for the 
third session of the Supervisory Committee starting from 9 September 2008. Mr. Ma Yuzhu continued to assume the position of 
Supervisor acting as the Employee Representative.

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Report of the
Directors

Share Capital

The share capital of the Company as at 31 December 2008 was RMB80,932,368,321, divided into 80,932,368,321 shares of 
RMB1.00 each. As at 31 December 2008, the share capital of the Company comprised:

40

Share category

Domestic shares (total):

Domestic shares held by:
  China Telecommunications Corporation 
  Guangdong Rising Assets Management Co., Ltd.
  Zhejiang Financial Development Company
  Fujian State-owned Assets Investment Holdings Co., Ltd.
  Jiangsu Guoxin Investment Group Co., Ltd.

Total number of H shares (including ADSs)

Number of shares 
as at 
31 December 2008

Percentage of the 
total number of
 shares in issue as at 
31 December 2008 
(%)

67,054,958,321

82.85

57,377,053,317
5,614,082,653
2,137,473,626
969,317,182
957,031,543

13,877,410,000

70.89
6.94
2.64
1.20
1.18

17.15

Total

80,932,368,321

100.00

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Material Interests and Short Positions in Shares and Underlying Shares of the 
Company

As at 31 December 2008, the interests or short position of persons who are entitled to exercise or control the exercise of 5% or 
more of the voting power at any of the Company’s general meetings (excluding the Directors and Supervisors) in the shares and 
underlying shares of equity derivatives of the Company as recorded in the register required to be maintained under Section 336 of 
the Securities and Futures Ordinance (the “SFO”) are as follows:

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Name of shareholder

held Type of Shares

Number of shares 

Percentage of 
the respective 
type of shares

Percentage of 
the total 
number of 

shares in issue  Capacity

41

China Telecommunications 
  Corporation

57,377,053,317 
(Long position)

Guangdong Rising Assets
  Management Co., Ltd.

5,614,082,653 
(Long position)

Domestic shares

85.57%

70.89% Beneﬁ cial owner

Domestic shares

8.37%

6.94% Beneﬁ cial owner

RFS Holdings B.V.

JPMorgan Chase & Co.

907,191,530 
(Long position)

H shares

1,180,327,134 
(Short position)

H shares

836,933,193 
(Long position)

H shares

6.54%

1.12% Interest of controlled

  corporation

8.51%

1.46% Interest of controlled

  corporation

6.03%

1.03% 177,814,577 shares as

  beneﬁ cial owner, 90,202,000
  shares as investment
  manager and 568,916,616
  shares as security interest
  holder/approved lending 
  agent

98,549,345
(Short position)

H shares

0.71%

0.12% Beneﬁ cial owner

568,916,616 
(Shares available for 
lending)

H shares

4.10%

0.70% Security interest holder/

  approved lending agent

Barclays PLC

828,576,318
(Long position)

H shares

2,052,000
(Short position)

H shares

5.97%

1.02% Interest of controlled

  corporation

0.01%

0.003% Interest of controlled

  corporation

Save as stated above, as at 31 December 2008, in the register required to be maintained under Section 336 of the SFO, no other 
persons were recorded to hold any interests or short positions in the shares or underlying shares of the equity derivatives of the 
Company.

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Directors’ and Supervisors’ Interests and Short Positions in Shares, 
Underlying Shares and Debentures

As at 31 December 2008, none of the directors and supervisors of the Company had any interests or short positions in the shares, 
underlying shares of equity derivatives or debentures of the Company or its associated corporations (as deﬁ ned in Part XV of the 
SFO) as recorded in the register required to be maintained under section 352 of the SFO or as otherwise notiﬁ ed to the Company 
and The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed 
Issuers.

42

As at 31 December 2008, the Company had not granted its directors or supervisors, or their respective spouses or children below 
the age of 18 any rights to subscribe for the shares or debentures of the Company or any of its associated corporations and none of 
them has ever exercised any such right.

Directors’ and Supervisors’ Interests in Contracts

For the year ended 31 December 2008, none of the directors and supervisors of the Company had any material interest, whether 
directly or indirectly, in any of the contracts of signiﬁ cance entered into by the Company, any of its holding companies or subsidiaries 
or subsidiaries of the Company’s holding company, apart from their service contracts. None of the directors and supervisors of the 
Company has entered into any service contract which is not determinable by the Company within one year without payment 
compensation (other than statutory compensation).

Emoluments of the Directors and Supervisors

Please refer to note 27 of the audited ﬁ nancial statements for details of the emoluments of all Directors and Supervisors of the 
Company in 2008.

Purchase, Sale and Redemption of Shares

Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any securities of the Company during the 
reporting period.

Public Float

As at the date of this Report, based on the information that is publicly available to the Company and within the knowledge of the 
Directors, the Company has maintained the prescribed public ﬂ oat under the Listing Rules and as agreed with The Stock Exchange 
of Hong Kong Limited.

Summary of Financial Information

Please refer to pages 155 to 156 of this annual report for a summary of the operating results, assets and liabilities of the Group for 
each of the years in the ﬁ ve-year period ended 31 December 2008.

Bank Loans and Other Borrowings

Please refer to note 15 of the audited ﬁ nancial statements for details of bank loans and other borrowings of the Group.

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Capitalised Interest

Please refer to note 25 of the audited ﬁ nancial statements for details of the Group’s capitalised interest for the year ended 31 
December 2008.

Fixed Assets

Please refer to note 3 of the audited ﬁ nancial statements for movements in the ﬁ xed assets of the Group for the year ended 31 
December 2008.

Reserves

Pursuant to Article 147 of the Company’s articles of association (the “Articles of Association”), where the ﬁ nancial statements 
prepared in accordance with PRC accounting standards and regulations materially differ from those prepared in accordance with 
either International Financial Reporting Standards or those prepared in accordance with the place outside the PRC where the 
Company’s shares are listed, the distributable proﬁ t for the relevant accounting period shall be deemed to be the lesser of the 
amounts shown in those respective ﬁ nancial statements. Distributable reserves of the Company as at 31 December 2008, calculated 
on the above basis and before deducting the proposed ﬁ nal dividends for 2008, amounted to RMB35,173 million.

As the Company has incurred net loss for the year of 2008, according to the PRC accounting standards, the Company did not 
transfer any funds to the statutory surplus reserve and the discretionary surplus reserve.

Please refer to note 20 of the audited ﬁ nancial statements for details of the movements in the reserves of the Company and the 
Group for the year ended 31 December 2008.

Donations

For the year ended 31 December 2008, the Group made charitable and other donations with a total amount of RMB42 million.

Subsidiaries and Associated Companies

Please refer to note 7 and note 8 of the audited ﬁ nancial statements for details of the Company’s subsidiaries and the Group’s 
interests in associated companies as at 31 December 2008.

Changes in Equity

Please refer to the consolidated statement of changes in equity contained in the audited ﬁ nancial statements (page 95 of this annual 
report).

Retirement Benefi ts

Please refer to note 36 of the audited ﬁ nancial statements for details of the retirement beneﬁ ts provided by the Group.

Stock Appreciation Rights

Please refer to note 37 of the audited ﬁ nancial statements for details of the stock appreciation rights offered by the Company.

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44

Pre-Emptive Rights

There are no provisions for pre-emptive rights in the Articles of Association requiring the Company to offer new shares to the existing 
shareholders in proportion to their shareholdings.

Major Customers and Suppliers

For the year ended 31 December 2008, sales to the ﬁ ve largest customers of the Group accounted for an amount no more than 
30% of the operating revenue of the Group.

For the year ended 31 December 2008, purchases from the ﬁ ve largest suppliers of the Group accounted for an amount no more 
than 30% of the total annual purchase of the Group.

To the knowledge of the Board, no director of the Company, their associates, or any person holding more than 5% of the issued 
share capital in the Company has any interests in such suppliers.

Continuing Connected Transactions

The following table sets out the amounts of continuing connected transactions of the Group for the year ended 31 December 2008:

Transactions

Portion of expenses for centralised services
Net expenses for interconnection settlement
Provision of comprehensive services by
  China Telecommunications Corporation2 and its subsidiaries

(the “China Telecom Group”)

Mutual leasing of properties
Provision of IT services by China Telecom Group
Provision of engineering services by China Telecom Group
Provision of community services by China Telecom Group
Provision of ancillary telecommunications services by China Telecom Group
CDMA network capacity lease fee

Annual monetary 
cap for continuing 
connected 
transactions
(RMB millions)

Group
(RMB millions)

250
599

1,190
388
457
7,877
2,297
4,536
1,3973

500
N/A1

1,600
510
490
8,327
2,500
4,850
4,000

1  According to the waiver letter issued to the Company by The Stock Exchange of Hong Kong Limited on 31 July 2008, the Company is not required to set 

an annual monetary cap for the total amount under interconnection settlement agreements.

2  China Telecommunications Corporation is a controlling shareholder of the Company. Each of China Telecommunications Corporation and its subsidiaries 

constitutes a connected person of the Company under the Listing Rules.

3  The CDMA network capacity lease fee has already deducted the capacity maintenance related costs of CDMA network payable to the Company by China 

Telecommunications Corporation amounted to RMB107 million.

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45

Centralised Services Agreement

Centralised services includes the provision of management and operational services by the Company to China Telecommunications 
Corporation in relation to key corporate customers, its network management centre and business support centre, and also the 
provision of certain premises by the China Telecommunications Corporation to the Group. In addition, centralised services also 
include the common use of international telecommunications facilities between both parties. The aggregate costs incurred by the 
Company and China Telecommunications Corporation for the provision of management and operation services will be apportioned 
between the Company and China Telecommunications Corporation on a pro rata basis according to the revenues generated by 
each party. In relation to the common use of international telecommunications facilities, the Company and China Telecommunications 
Corporation have agreed to apportion the costs associated with operating such assets on a pro rata basis according to the 
aggregate volume of the inbound international calls terminated by, and outbound international calls originating from, the Company 
and China Telecommunications Corporation, respectively.

On 26 December 2007 and 31 March 2008, the Company and China Telecommunications Corporation entered into Supplemental 
Agreements related to the Centralised Services Agreement. Pursuant to the Supplemental Agreements, in the situation where the 
Company uses the premises provided by China Telecommunications Corporation, the Company shall pay premises usage fees to 
China Telecommunications Corporation on a pro rata basis according to the actual apportioned used areas on the venues. The 
premises usage fees shall be determined through negotiation between the two parties based on comparable market rates. In the 
situation where both parties use third-party international telecommunications facilities and accept third-party services such as the 
costs of restoration maintenance, the annual utilisation fee shall be determined on a pro rata basis according to the actual utilisation 
each year. In the situation where both parties use the international telecommunications facilities of China Telecommunications 
Corporation, the associated costs shall be determined on a pro rata basis according to volume of the inbound and outbound voice 
calls to and from international regions, Hong Kong, Macau and Taiwan originating from each party divided by the aggregate volume 
of the inbound and outbound voice calls to and from international regions, Hong Kong, Macau and Taiwan originating from both 
parties. The utilisation fee shall be determined through negotiation between the two parties based on market rates.

The Centralised Services Agreement was renewed on 15 December 2008 with expiration on 31 December 2009, and may be 
renewed for further periods of one year upon expiration without limit in the number of renewals, unless the Company provides a 
notice of non-renewal in writing to the China Telecommunications Corporation three months prior to the end of the relevant term.

Comprehensive Services Framework Agreement

The Comprehensive Services Framework Agreement was signed in relation to the integrated services provided by China 
Telecommunications Corporation to the Company. Such integrated services include procurement of telecommunications equipments 
such as optic ﬁ bre, network design, software upgrade, system integration, the manufacture of calling cards and so on. Prices under 
such agreement shall be determined in accordance with the following: (1) government-prescribed prices; (2) in the absence of 
government-prescribed prices, the government-guided prices shall apply; (3) in the absence of both government-prescribed prices 
and government-guided prices, the market prices shall apply, that is, the prices at which the same types of services are provided by 
independent third party in the ordinary course of business; (4) if none of the above prices is applicable, the prices shall be 
determined through negotiation between the parties based on reasonable costs plus reasonable proﬁ t, where “reasonable costs” 
shall mean the costs determined by the parties after negotiations.

The Comprehensive Services Framework Agreement expired on 31 December 2008. In order to simplify the management of 
connected transactions after the acquisition of the CDMA business, both parties decided not to renew this agreement after friendly 
negotiation between the Company and China Telecommunications Corporation. The various types of cross-provincial transactions 
set out under the Comprehensive Services Framework Agreement have been classiﬁ ed into other existing connected transactions 
based on the nature of such transactions.

Interconnection Settlement Agreement

Pursuant to the Interconnection Settlement Agreement, the telephone operator terminating a telephone call made to its local access 
network shall be entitled to receive from the operator from which the telephone call originated, a fee of RMB0.06 per minute as 
currently prescribed by the Ministry of Industry and Information Technology.

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The Company and China Telecommunications Corporation have signed a supplementary agreement on interconnection settlement 
on 27 July 2008. The supplementary agreement prescribed that the Company, when originating a telephone call, shall pay RMB0.06 
per minute to China Telecommunications Corporation. At the same time, the agreed settlement also prescribed that Tianjin city, 
Hebei province, Heilongjiang province, Jilin province, Liaoning province, Shanxi province, Henan province, Shandong province, Inner 
Mongolia Autonomous Region and Tibet Autonomous Region be covered as settlement regions.

The Agreement was renewed on 31 December 2008 for another two years with expiration on 31 December 2010 and will be 
automatically renewed for a period of three years upon expiration without limit in the number of renewals, unless the Company 
provides notice of non-renewal in writing to the China Telecommunications Corporation three months prior to the end of the relevant 
term.

Property Leasing Framework Agreement

The Property Leasing Framework Agreement was signed between the Company and China Telecommunications Corporation and/or 
its associates in relation to the lease of property between the two parties.

The rental charges rents under the Property Leasing Framework Agreement were determined according to market rates, with 
reference to the fees standards of the local price authority and the speciﬁ c needs of both parties at the time of property leasing. The 
property rents are subject to review every three years.

The Property Leasing Framework Agreement was renewed on 15 December 2008 with expiration on 31 December 2009 and may 
be renewed for further periods of one year upon expiration without limit in the number of renewals, unless the Company provides 
notice of non-renewal in writing to the China Telecommunications Corporation three months prior to the end of the relevant term.

IT Services Framework Agreement

The IT Services Framework Agreement was signed in respect to the information technology services provided by China 
Telecommunications Corporation and/or its associates to the Company. Such services include ofﬁ ce automation and software 
testing.

China Telecommunications Corporation and/or its associates is entitled to participate in the bidding for the right to provide services 
under the agreement. The charges payable for such services shall be determined by reference to market rates obtained through the 
tender process. If China Telecommunications Corporation and/or its associates offer terms and conditions that are at least the same 
as those offered by an independent third-party provider, the Group may give priority to using the services provided by China 
Telecommunications Corporation and/or its associates.

The Company and China Telecommunications Corporation signed a supplementary agreement relating to the IT Services Framework 
Agreement on 15 December 2008 to amend certain terms of the Framework Agreement to enable the provisions of, among others, 
cross-provincial information technology services by the Group to China Telecommunications and/or its associates and vice versa. 

The IT Services Framework Agreement was renewed on 15 December 2008 with expiration on 31 December 2009 and may be 
renewed for further periods of one year upon expiration without limit in the number of renewals, unless the Company provides notice 
of non-renewal in writing to the China Telecommunications Corporation three months prior to the expiry of the relevant term.

Supplies Procurement Services Framework Agreement

Pursuant to the Supplies Procurement Services Framework Agreement, the China Telecommunications Corporation and/or its 
associates has agreed to provide comprehensive procurement services, including management of tenders, veriﬁ cation of technical 
speciﬁ cations and installation services. The maximum commission for such procurement services shall be calculated based on the 
following: (1) not more than 1% of the contract value for procurement of imported telecommunications equipment; or (2) not more 
than 3% of the contract value for the procurement of domestic telecommunications equipment and other domestic non-
telecommunications materials.

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The Company and China Telecommunications Corporation signed a supplementary agreement relating to the Supplies Procurement 
Services Framework Agreement on 15 December 2008 to amend certain terms of the Agreement to enable provision of cross-
provincial comprehensive procurement services by the Group to China Telecommunications Corporation and/or its associates and 
vice versa. At the same time, such supplies procurement services can extend to integrated supplies procurement services, the sale 
of proprietary telecommunication equipment, resale of third party equipment, management of tender, review of technical 
speciﬁ cation, storage, transport and installation services.

The Supplies Procurement Services Framework Agreement was renewed on 15 December 2008 with expiration on 31 December 
2009 and may be renewed for further periods of one year upon expiration without limit in the number of renewals, unless the 
Company provides notice of non-renewal in writing to the China Telecommunications Corporation three months prior to the expiry of 
the relevant term.

Engineering Framework Agreement

The Engineering Framework Agreement sets out the terms in respect of the supervision and management of services relating to 
construction, design, equipment installation and testing and/or services as the main contractors for the construction and supervision 
of engineering projects, provided to the Company through bids made by China Telecommunications Corporation and/or its 
associates. The charges payable for such engineering services shall be determined by reference to the market rates. The charges 
payable for the design or supervision of engineering projects with a value over RMB500,000, or construction of engineering projects 
with a value over RMB2 million shall be determined by referring to the tender price.

The Company and China Telecommunications Corporation signed a supplementary agreement relating to the Engineering 
Framework Agreement on 27 July 2008 to amend the terms of the Agreement to expand the scope of services provided to the 
Group by China Telecommunications Corporation and/or its associates including cross-provincial level engineering construction and 
design services.

The Engineering Framework Agreement was renewed on 31 December 2008 with expiration on 31 December 2009 and may be 
renewed for further periods of three years upon expiration without limit in the number of renewals, unless the Company provides 
notice of non-renewal in writing to the China Telecommunications Corporation three months prior to the expiry of the relevant term.

Community Services Framework Agreement

The Community Services Framework Agreement was signed in respect to the services relating to culture, education, property 
management, vehicle service, health and medical care, hotel and conference service, community and sanitary service provided by 
the China Telecommunications Corporation and/or its associates to the Company. The pricing terms for such services are the same 
as those set out in the Comprehensive Services Framework Agreement.

The Company and China Telecommunications Corporation signed a supplementary agreement of the Community Services 
Framework Agreement on 15 December 2008 to amend a number of provisions, enabling China Telecommunications Corporation 
and/or its associates to provide the cross-provincial community services to the Company.

The Community Services Framework Agreement was renewed on 15 December 2008 with expiration on 31 December 2009 and 
may be renewed for further periods of three years upon expiration without limit in the number of renewals, unless either party 
provides notice of non-renewal in writing to the other party three months prior to the expiry of the relevant term.

Ancillary Telecommunications Services Framework Agreement

The Ancillary Telecommunications Services Framework Agreement was signed in respect to the terms and conditions of certain 
repair and maintenance services, including repair of telecommunications equipment, maintenance of ﬁ re equipment and telephone 
booths, as well as other customer services that are provided by the China Telecommunications Corporation and/or its associates to 
the Company. The pricing terms for ancillary telecommunications services in the Ancillary Telecommunications Services Framework 
Agreement are the same as those set out in the Comprehensive Services Framework Agreement.

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The Company and China Telecommunications Corporation signed a supplementary agreement relating to the Ancillary 
Telecommunications Services Framework Agreement on 27 July 2008 to amend the terms of the Agreement, enabling China 
Telecommunications Corporation and/or its associates to provide ancillary telecommunications services including cross-provincial 
services to the Company.

The Ancillary Telecommunications Services Framework Agreement was renewed on 31 December 2008 with expiration on 31 
December 2009 and may be renewed for further periods of three years upon expiration without limit in the number of renewals, 
unless either party provides notice of non-renewal in writing to the other party three months prior to the expiry of the relevant term.

48

CDMA Network Capacity Lease Agreement

Pursuant to the “CDMA Network Capacity Lease Agreement” signed between the Company and China Telecommunications 
Corporation on 27 July 2008, China Telecommunications Corporation agreed to lease its CDMA network capacity under the CDMA 
network to the Company and the Company shall have the exclusive right to use and operate the CDMA network to provide CDMA 
services in its service areas. The lease fee is based on 28% of the audited CDMA service revenue (which is calculated by the total 
revenue from the CDMA services operations minus any upfront non-refundable revenue arising out of the CDMA operations and any 
revenue from sale of telecommunication products in connection with the CDMA operations) per year. For the year ended 31 
December 2008 and for the year ending 2009, there is no minimal annual lease fee. For the year ending 31 December 2010, the 
minimum annual lease fee shall be 90% of the total amount of the lease fee paid by the Company to China Telecommunications 
Corporation in the year ending 31 December 2009. The cost of network construction shall be borne by China Telecommunications 
Corporation, while the maintenance-related costs shall be shared as agreed between the two parties.

Pursuant to the CDMA Network Capacity Lease Agreement, China Telecommunications Corporation has granted to the Company 
an option to purchase the CDMA network. The option may be exercised, at the discretion of the Company, at any time during the 
term of the lease or within one year after the expiry of the lease. No premium has been paid or will be payable by the Company for 
the grant of the option.

The CDMA Network Capacity Lease Agreement is effective till 31 December 2010 and may be renewed for further periods as 
agreed by both parties on similar terms.

Strategic Agreement and its Supplemental Agreement

Independent shareholders of the Company approved in the Extraordinary General Meeting the signing of a Strategic Agreement 
between the Company and China Communications Services Corporation Limited (“China Communications Services”) on 30 August 
2006 and the signing of a Supplemental Agreement (“Strategic Agreement and its Supplemental Agreement”) on 15 June 2007.

Pursuant to the Strategic Agreement and its Supplemental Agreement, the Company agreed that, in the period between 1 January 
2007 and 31 December 2009, if service terms related to the design, implementation and supervision of the communications 
engineering provided by China Communications Services are basically the same as those of other service providers, the subsidiaries 
of the Company (and their successors) in the service area of China Communication Services shall annually receive such services 
from the wholly-owned subsidiaries of China Communications Services with total value no less than 10.6% of total annual capital 
expenditure of the related subsidiaries of the Company in that year. Meanwhile, pursuant to the Strategic Agreement and its 
Supplemental Agreement, the Company pledged that, in the period between 1 January 2007 and 31 December 2009, if the terms 
related to certain maintenance management services provided by China Communications Services are basically the same as those 
of other service providers, the subsidiaries of the Company (and their successors) in the service area of China Communication 
Services shall annually receive such services from the wholly-owned subsidiaries of China Communications Services with total value 
no less than RMB1,780 million.

The business areas of the strategic alliance between the two parties governed by the terms and conditions in the Strategic 
Agreement and its Supplemental Agreement include: design, implementation and supervision of the communications engineering, 
maintenance management service, contents application service, sales channel service, usage of telecommunications and other new 
businesses arising from time to time which are appropriate for the collaboration between the two parties. China Communications 
Services pledges its support to the strategic transformation of the Company from a traditional basic telecommunications operator to 
an integrated information service provider, its active support to the Company’s business development, and its active use of the 

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Company’s products and services in its own business. Such services shall comply with the related standards of China or the 
standards agreed by both parties, and shall be on terms no less favourable than those available to any third parties to which the 
same or similar services are provided by either party. Without breaching the requirements governed by PRC laws, in respect of the 
same services, where the terms and conditions of services provided by either party to the Strategic Agreement and its Supplemental 
Agreement are the same as those provided by an independent third party, the party under the Strategic Agreement and its 
Supplemental Agreement shall have the priority to be appointed as the service provider by the other party.

Pursuant to the Strategic Agreement and its Supplemental Agreement, with the term covered from 1 January 2007 to 31 December 
2009, both parties may negotiate the renewal of the Strategic Agreement upon its expiration, and the renewal is subject to the 
requirements of Chapter 14A of the Listing Rules (including disclosure and independent shareholders’ approval requirements).

Neither the Strategic Agreement nor Supplemental Agreement sets out any annual caps for the transactions thereunder as China 
Telecommunications Corporation, the holding company of China Communications Services, has signed certain framework 
agreements for continuing connected transactions with the Company and the transactions contemplated under the Strategic 
Agreement and Supplemental Agreement are covered by these framework agreements. These frameworks agreements are already 
subject to annual caps and the proposed annual caps for the transactions under the Strategic Agreement (as amended by the 
Supplemental Agreement) are subsumed under the annual caps of those framework agreements between the Company and China 
Telecommunications Corporation (including the Engineering Framework Agreement, the Ancillary Telecommunications Services 
Framework Agreement and the Community Services Framework Agreement).

The Company conﬁ rms that it has complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules in 
respect of the above connected transactions.

The Independent Non-Executive directors of the Company have conﬁ rmed that all continuing connected transactions for the year 
ended 31 December 2008 to which the Group was a party:

1. 

had been entered into, and the agreements governing those transactions were entered into, by the Group in the ordinary and 
usual course of business;

2. 

had been entered into either:

(i) 

on normal commercial terms; or

(ii) 

if there are not sufﬁ cient comparable transactions to judge whether they are on normal commercial terms, on terms no 
less favourable to the Company than those available to or (if applicable) from independent third parties; and

3. 

had been entered into in accordance with the relevant terms that are fair and reasonable and in the overall interests of the 
shareholders of the Company as a whole.

The Independent Non-Executive directors have further conﬁ rmed that:

The values of continuing connected transactions entered into between the Group and its connected persons which are subject to 
annual caps have not exceeded their respective annual caps.

The auditors of the Group have reviewed the continuing connected transactions of the Group and have conﬁ rmed to the Board that 
the transactions:

1. 

have received the approval of the Board;

2. 

have been entered into in accordance with the pricing policies as stated in the relevant agreements; and

3. 

have been entered into in accordance with the terms of the agreements governing such transactions; and the values of 
continuing connected transactions entered into between the Group and its connected persons which are subject to annual 
caps have not exceeded their respective annual caps.

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Compliance with Code on Corporate Governance Practices

Please refer to the “Corporate Governance Report” set out in page 56 of this 2008 annual report of the Company for details of our 
compliance with the Code on Corporate Governance Practices.

Material Legal Proceedings

As at 31 December 2008, the Company was not involved in any material litigation or arbitration, and as far as the Company is 
aware, no material litigation or claims were pending or threatened or made against the Company.

Auditors

KPMG and KPMG Huazhen were appointed as the international and domestic auditors of the Company for the year ended 31 
December 2008. KPMG has audited the accompanying ﬁ nancial statements, which have been prepared in accordance with 
International Financial Reporting Standards. The Company has engaged KPMG and KPMG Huazhen since the date of its listing. A 
resolution for the reappointment of KPMG and KPMG Huazhen as the international and domestic auditors of the Company for the 
year ending 31 December 2009 will be proposed at the Annual General Meeting of the Company to be held on 26 May 2009.

By Order of the Board
Wang Xiaochu
Chairman and Chief Executive Ofﬁ cer

Beijing, PRC
24 March 2009

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During the reporting period, all members of the Supervisory Committee upheld the principle of good faith in safeguarding the 
interests of shareholders and the Company, acting strictly in accordance with the Company Law of the People’s Republic of China 
and the Articles of Association of the Company, as well as following the principle of integrity, rigorousness and discipline, to diligently 
and effectively carry out its supervisory function based on the actual situation of the Company.

During the reporting period, the Supervisory Committee held two meetings. At the seventh meeting of the Second Session of the 
Supervisory Committee held in March 2008, the Supervisory Committee reviewed and approved six agenda items, including the 
ﬁ nancial statements for the year ended 31 December 2007, the independent auditor’s report, proﬁ t distribution and dividend 
proposal, the report on asset revaluation, the Supervisory Committee’s report for the year 2007 and the working plan of the 
Supervisory Committee for the year 2008. At the eighth meeting of the Second Session of the Supervisory Committee held in 
August of the same year, the Supervisory Committee has reviewed the interim ﬁ nancial statements and the independent auditor’s 
review report of 2008. During the reporting period, members of the supervisory, through their attendance at the 2007 General 
Meetings of the Company and the meetings of the Board of Directors, committee supervised the major decision-making processes 
of the Company and the performance of duties carried out by members of the Board of Directors and the senior management.

The Supervisory Committee is of the view that 2008 was an extraordinary year, in that the Company had an arduous task of 
maintaining telecommunications services in an operating environment that has been unprecedented which includes the continuous 
occurrence of natural disasters domestically, the instability caused by the global ﬁ nancial crisis and the complex restructuring within 
the telecommunication industry. During the reporting period, in the face of severe natural disasters, challenging reforms initiatives 
and intense competition, business units at all levels have strived to do a good job in disaster relief, in the acquisition and 
reorganization of production and management, and in achieving new success in business development. Despite of increasingly 
ﬁ erce competition in the Company’s traditional wireline voice sector, the Company aimed to fully maximise shareholders’ value 
through proactive strategic transformation and maintained solid fundamentals. By improving precise management, optimizing the 
allocation of resources, deepening internal reforms and innovating development models, the Company has improved the quality of 
business growth.

The Supervisory Committee believes that during 2008, all members of the Board of Directors and members of the senior 
management of the Company have complied fully with the laws and regulations, diligently implemented the resolutions approved at 
the shareholders’ general meetings, persistently managed operations in accordance with the relevant regulations, exercised 
prudence in its decision making and put enormous efforts in helping the Company in achieving solid operational performance.

Upon the review of the unqualiﬁ ed ﬁ nancial statements of the Company for the year ended 31 December 2008 and other relevant 
information which was prepared in accordance with PRC accounting rules and regulations and International Financial Reporting 
Standards, audited by domestic and international auditors of the Company, and proposed to be submitted to the shareholders’ 
general meeting by the Board of Directors, the Supervisory Committee is of the opinion that the ﬁ nancial statements were prepared 
in line with the principle of consistency and that they truly and fairly reﬂ ect the Company’s ﬁ nancial position and results of operations.

In 2009, the Supervisory Committee will continue to do its best to preserve the interests of all shareholders and the Company in 
accordance with the Articles of Association and other relevant provisions.

By Order of the Supervisory Committee
Xiao Jinxue
Chairman of the Supervisory Committee

Beijing, PRC
24 March 2009

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Serving
all you need

書冊9.indb   52

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29/3/2009   23:47:55

We are well-positioned to launch 
full services integrated operations 
to provide one-stop total 
solutions, serving all our 
customers’ diverse needs on 
communications, entertainment 
and information to make their 
lives more convenient, manageable 
and productive.

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29/3/2009   23:48:02

Corporate 
Governance Report

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The Company is dedicated to enhance corporate values and ensure long term sustainable development. Inheriting an excellent and 
prudent management style, and insisting on practicing corporate governance with efﬁ cient management and operations, the 
Company strongly believes that sound corporate governance can ensure management effectiveness, prosperous corporate culture, 
successful business development and a sustainable increase in shareholders’ value. In 2008, the Company increasingly improved 
the daily operations of the Board of Directors and its sub-committees, continued to perfect and optimise the Company’s 
organisational structure, and put comprehensive risk management into operational practice, so as to continuously enhance its 
standard of corporate governance and ﬁ rmly protect the interests of shareholders.

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Save for the roles of Chairman and Chief Executive Ofﬁ cer of the Company being performed by the same individual in the ﬁ scal year 
ended 31 December 2008, the Company has been in compliance with all of the code provisions as set out in Appendix 14 “Code 
on Corporate Governance Practices” of the Listing Rules. In the Company’s opinion, through effective supervision of the Board and 
independent non-executive directors, and with the Company’s effective internal control mechanism, the same individual performing 
the roles of Chairman and Chief Executive Ofﬁ cer can achieve the goal of improving the Company’s efﬁ ciency in decision-making 
and executions, and effectively capture business opportunities. Many international leading corporations have a similar arrangement.

Overview of Corporate Governance

As a company incorporated in the PRC, the Company adopts the PRC Company Law and other related laws and regulations as the 
basic guidelines for the Company’s corporate governance. As a company listed both in Hong Kong and the United States, the 
current Articles of Association are in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong 
Kong Limited (“the Listing Rules”) in Hong Kong and the regulatory requirements for non-US companies listed in the United States, 
and these rules serve as guidance for the Company to improve its foundation of corporate governance. The Company has regularly 
published responsibility statements relating to its internal control in accordance with the US Sarbanes-Oxley Act of 2002 and the 
regulatory requirements of the U.S. Securities and Exchange Commission (SEC) and the New York Stock Exchange, to conﬁ rm its 
compliance with related ﬁ nancial reporting, information disclosure and corporate internal controls requirements.

The Company’s continuous efforts in corporate governance have gained wide recognition from the capital market and received a 
number of awards. The Company was accredited as the “Best Managed Company — China 2008” by FinanceAsia. In addition, the 
Company has been awarded the “Asia’s Best Managed Fixed Telecom Company” by Euromoney for two consecutive years, “The 
CAPITAL Outstanding China Enterprise Awards — Telecommunications” by CAPITAL for three consecutive years. The Company’s 
annual report also won the Gold Award in the category of “Annual Reports: Telecommunications” in the “GALAXY 2008 Awards”. 
The Company’s website (www.chinatelecom-h.com) was accredited as the “Best Investor Relations Website in China” by “IR Global 
Rankings 2008”.

China Telecom accredited with
“The CAPITAL Outstanding
China Enterprise Awards — 
Telecommunications” by CAPITAL
for three consecutive years

China Telecom’s annual report awarded Gold 
Winner in “Galaxy Awards”

China Telecom’s corporate website 
accredited as the “Best Investor 
Relations Website in China” by IR Global 
Ranking

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Overall Structure of Corporate Governance

A double-tier structure has been adopted as the overall structure for corporate governance: the Board and the Supervisory 
Committee are established under the Shareholders’ Meeting. The Board is authorised by the Articles of Association to make major 
decisions in regard to the Company’s operations and to oversee the daily operations of the senior management. Audit Committee, 
Remuneration Committee and Nomination Committee were established under the Board. The Supervisory Committee is mainly 
responsible for the supervision of the performance of duties by the Board and the senior management. Each of the Board of 
Directors and the Supervisory Committee is independently accountable to the Shareholders’ Meeting.

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Pursuant to the Company’s strategic transformation and centralised management requirements, the Company was approved, at the 
shareholder meeting in February 2008, to merge with its twenty wholly-owned subsidiaries (“provincial subsidiaries”), such as 
Shanghai Telecom Company Limited, by way of absorption and to establish twenty provincial branches to take over the 
management and operation of the Company’s former provincial subsidiaries. In the second half of 2008, the Company merged with 
Beijing Telecom, which it acquired earlier, by way of absorption. Beijing branch was established to be responsible for the operation 
of wireline and mobile telecommunication services in Beijing. The Company also established provincial branches in Xizang (Tibet) 
Autonomous Region and in nine Northern provinces, including Shandong, etc., which are responsible for the operations of mobile 
telecommunications business in their respective service regions. Since then, the Company had set up provincial branches in all 
thirty-one provinces, autonomous regions and municipalities in Chinese mainland. After the absorptions and mergers, the resulting 
organisational structure and management system are more suitable for the needs of the Group’s development strategies. They will 
also enhance the integration and optimal allocation of the Group’s internal resources, further reduce the Group’s management costs, 
as well as improve its centralised management standards and overall efﬁ ciency.

57

Shareholders’ Meeting

In 2008, the Company convened ﬁ ve shareholders’ general meetings, including the Annual General Meeting (“AGM”) for 2007 and 
four Extraordinary General Meetings (“EGM”). The AGM held on 30 May 2008 reviewed and approved the ﬁ nancial statements for 
the year ended 2007, Report of the Independent International Auditor, proposal for annual proﬁ t distribution and ﬁ nal dividends, 
authorization to the Board for the formulation of a budget for 2008, appointment and remuneration of auditors, and authorisation to 
the Board to issue bonds.

The ﬁ rst EGM held on 25 February 2008 approved the mergers with the 20 wholly-owned provincial subsidiaries by way of 
absorption, including its Shanghai Telecom Company Limited. The second EGM held on 30 May 2008 approved the Company’s 
merger with Beijing Telecom, which it acquired earlier, by way of absorption and the revision of the Articles of Association. The third 
EGM held on 5 September 2008 elected the members of the Board of Directors and Supervisory Committee, and approved the 
authorisation to the Board to issue bonds. The fourth EGM held on 16 September 2008 approved the CDMA network capacity 
lease agreement, the renewal of continuing connected transactions and the revision of the Articles of Association.

At each of the shareholders’ general meetings, a separate shareholders’ resolution was proposed in respect to each independent 
item, and details of the voting procedures and the right of voting by poll at the demand of shareholders were recorded in the 
circulars to shareholders in accordance with the Articles of Association and the governing listing rules. These circulars to 
shareholders also provided details about the resolutions. Voting results were 
published on the websites of the Company and The Stock Exchange of Hong 
Kong Limited. The Company attaches great importance to the shareholders 
general meetings and the communication between directors and shareholders. 
The directors provided detailed and complete answers to the questions raised 
by shareholders at the shareholders’ general meetings. Since the Company’s 
listing in 2002, all resolutions tabled at the Company’s shareholders general 
meetings were already conducted via voting by poll, which were much earlier 
than the newly revised Listing Rules adopted by The Stock Exchange of Hong 
Kong Limited on 1 January 2009, that make it mandatory for all resolutions in 
the shareholders general meetings be conducted via voting by poll.

The Annual General Meeting held in Hong Kong on
30 May 2008

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Board of Directors

Following the expiration of the term of ofﬁ ce for the Second Session of the Board of Directors on 9 September 2008, Mr. Leng 
Rongquan, Mr. Li Ping, Mr. Zhang Youcai, Mr. Lo Hong Sui, Vincent and Mr. Shi Wanpeng resigned from their positions as Directors 
of the Company. The remaining directors of the Second Session of the Board of Directors continued to serve their duties for the 
Third Session of the Board after election at the EGM held on 5 September 2008. On the same day, Mr. Shang Bing, Mr. Yang 
Xiaowei, Mr. Wu Jichuan, Mr. Qin Xiao and Madam Cha May Lung, Laura were elected at the EGM as directors of the Third Session 
of the Board of Directors, effective from 9 September 2008.

58

The current Board of Directors comprises 14 directors with eight executive directors, one non-executive director, and ﬁ ve 
independent non-executive directors. The period of ofﬁ ce lasts for three years, starting from 9 September 2008 until the day of the 
Company’s Annual General Meeting in 2011.

The number of independent non-executive directors constitute more than one-third of the Board members. Mr. Tse Hau Yin, 
Aloysius, Chairman of the Audit Committee, is an internationally renowned ﬁ nancial expert with expertise in accounting and ﬁ nancial 
management. The Audit Committee, Remuneration Committee and Nomination Committee under the Board, all comprise solely 
independent non-executive directors, ensuring that the committees are able to make independent judgments effectively.

The Company strictly complies with the Code on Corporate Governance Practices of the Listing Rules and rigorously regulates the 
operating procedures of the Board and the committees under it, and ensures that the procedures of Board meetings are in 
compliance in terms of organisation, regulations and personnel. The Board is responsible for the effective supervision of the 
preparation of ﬁ nancial statements for each ﬁ nancial period, so that such ﬁ nancial statements truly and fairly reﬂ ect the ﬁ nancial 
position, the operating results and cash ﬂ ows of the Company for each period. In preparing the ﬁ nancial statements for the year 
ended 31 December 2008, the directors selected appropriate accounting policies and made prudent, fair and reasonable judgments 
and estimates, and prepared the ﬁ nancial statements on a going concern basis.

The Articles of Association of the Company provide that the Board is accountable to the shareholders’ meetings, and its duties 
include the execution of resolutions, formulation of major decisions for operations, ﬁ nancial proposals and policies, the Company’s 
management system, and the appointments of managers and other senior management personnel of the Company. The Articles of 
Association clearly deﬁ ne the respective duties of the Board and the management. The management is responsible for the operation 
and management of the Company, the implementation of the resolutions of the Board, developing the annual operation plans and 
investment proposals of the Company, set-up of the Company’s internal administrative organisations and sub-organisations, and 
performs other duties as authorised by the Articles of Association and the Board. In order to maintain a highly efﬁ cient operation, as 
well as ﬂ exibility and swiftness in operational decision-making, the Board, when necessary, may delegate its managing and 
administrative powers to the management, and provide clear guidance regarding such delegation so as to avoid seriously impeding 
or undermining the overall capabilities of the Board in exercising its powers.

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All members of the Board of Directors/Committee will be informed of the meeting schedule for the Board of Directors/Committee for 
the year at the beginning of each year. In addition, all Directors will receive notiﬁ cation at least 14 days prior to the meeting under 
normal circumstances. The Company Secretary is responsible for ensuring that the Board meetings comply with the procedures, 
related rules and regulations while all directors can make inquiries to the Company Secretary for details. In addition, the Company 
reminds directors of their functions and responsibilities regularly. Through regular Board meetings, all directors are able to understand 
the operation, business and development of the Company. The Company also provides all newly appointed directors with updated 
information of industry development through arranging induction activities.

Attendance rates of individual directors (including attendance with written proxies) at Board meetings in 2008

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Number of Directors 

Directors

Executive Directors
Wang Xiaochu (Chairman)
Leng Rongquan
Wu Andi
Zhang Jiping
Zhang Chenshuang
Li Ping
Yang Jie
Sun Kangmin

Independent Non-executive Directors
Zhang Youcai
Lo Hong Sui, Vincent
Shi Wanpeng
Xu Erming
Tse Hau Yin, Aloysius

Non-Executive Director
Li Jinming

Meetings for 
The Second Session of the Board (2008)

Attendance Rates

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14

5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5

5/5
5/5
5/5
5/5
5/5

5/5

100%
100%
100%
100%
100%
100%
100%
100%

100%
100%
100%
100%
100%

100%

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Directors

Executive Directors
Wang Xiaochu (Chairman)
Shang Bing
Wu Andi
Zhang Jiping
Zhang Chenshuang
Yang Xiaowei
Yang Jie
Sun Kangmin

Independent Non-executive Directors
Wu Jichuan
Qin Xiao
Tse Hau Yin, Aloysius
Cha May Lung, Laura
Xu Erming

Non-Executive Director
Li Jinming

Meetings for The
Third Session of the Board (2008)

Attendance Rates

1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1

1/1
1/1
1/1
1/1
1/1

1/1

100%
100%
100%
100%
100%
100%
100%
100%

100%
100%
100%
100%
100%

100%

In 2008, the Board of Directors played a signiﬁ cant role in the Company’s operations, budgeting, decision-making, supervision, 
internal control, organizational restructuring and corporate governance. In 2008, the Board and the committees under it convened 
15 meetings, including two independent board member meetings. At these meetings, the Board reviewed matters including the 
Company’s annual and interim ﬁ nancial statements, acquisition of the CDMA business, approval of the CDMA network capacity 
leasing agreement, annual operational, ﬁ nancial and investment budgets, acquisition of and merger by ways of absorption with 
Beijing Telecom, annual asset appraisals, internal control implementation and assessment report, proposal for annual proﬁ t 
distribution, appointment and remuneration of auditors, authorization to the Company for bond issue, revision of the Articles of 
Association, continuing connected transactions and the optimisation of the Company’s organisational structure.

The Company has adopted the Model Code as set out in Appendix 10 of the Listing Rules to govern securities transactions by the 
Directors. Based on the written conﬁ rmation from the directors, all of the Company’s directors have strictly complied with Appendix 
10 Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules regarding the standard requirements for 
directors in conducting securities transactions. The Company has received annual independence conﬁ rmations from each of the 
independent non-executive directors, and considers them to be independent.

Audit Committee

The Audit Committee comprises four independent non-executive directors. The Charter for the Audit Committee clearly deﬁ nes the 
status, qualiﬁ cations, work procedures, duties and responsibilities, funding and remuneration, etc. of the Audit Committee. The Audit 
Committee’s principal duties include the supervision of the truthfulness and completeness of the Company’s ﬁ nancial statements, 
the effectiveness and completeness of the Company’s internal control and risk management system, as well as the work of the 
Company’s internal audit department. It is also responsible for the monitoring and review of the qualiﬁ cations, selection and 
appointment, independence and services of external independent auditors. The Audit Committee also has the authority to set up a 
reporting system to receive and handle cases of complaints or complaints made on an anonymous basis regarding the Company’s 
accounting, internal control and audit matters. The Audit Committee will regularly reports on its work to the Board.

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In 2008, pursuant to the requirements of the governing laws and regulations of the places of listing and the Articles of Association of 
the Audit Committee, and under the clear mandate of the Board, the Audit Committee fully assumed its responsibilities, improved its 
capacity in reviewing and processing proposals, and continuously optimised the depth and width of the review of proposals. The 
Audit Committee also proposed a number of practical and professional improvement recommendations based on the Company’s 
actual circumstances, in order to promote the continuous improvement and perfection of corporate management. The Audit 
Committee has provided important support to the Board and played a signiﬁ cant role in protecting the interests of independent 
shareholders.

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In 2008, the Audit Committee convened four meetings, where it reviewed important matters related to the Company’s ﬁ nancial 
statements, assessment of the qualiﬁ cations, independence and performance of the external auditors and their appointments, 
effectiveness of internal control, internal audit and connected transactions. The Audit Committee received quarterly reports in relation 
to the internal audit and connected transactions and provided guidance to the internal audit department. Additionally, the Audit 
Committee reviewed internal control assessment and audit reports, reviewed the U.S. annual report, and communicated exclusively 
with the auditors.

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Attendance rates of individual members of the Audit Committee in 2008 (including attendance with written proxies)

Second Session of the Audit Committee

Number of Committee members 

Percentage of Independent Non-executive Directors of the Committee 

4

100%

Member of the Committee

Number of Meetings (2008)

Attendance Rates

Tse Hau Yin, Aloysius (Chairman of the Committee)
Zhang Youcai
Shi Wanpeng
Xu Erming

Third Session of the Audit Committee

Number of Committee members 

Percentage of Independent Non-executive Directors of the Committee 

3/3
3/3
3/3
3/3

100%
100%
100%
100%

4

100%

Member of the Committee

Number of Meetings (2008)

Attendance Rates

Tse Hau Yin, Aloysius (Chairman of the Committee)
Wu Jichuan
Qin Xiao
Xu Erming

1/1
1/1
1/1
1/1

100%
100%
100%
100%

To ensure continued compliance with the newly revised Code on Corporate Governance Practices, the Charter of the Audit 
Committee was revised, specifying its monitoring role in association with ﬁ nancial reporting. Its role includes the responsibility to 
review the Company’s ﬁ nancial accounting and reporting capabilities, such as adequacy of human resources, staff qualiﬁ cations and 
experience, staff training and the related budget.

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Remuneration Committee

The Remuneration Committee comprises four independent non-executive directors. The Charter for the Remuneration Committee 
clearly deﬁ nes the status, qualiﬁ cations, work procedures, duties and responsibilities, funding and remuneration etc. of the 
Remuneration Committee. The Remuneration Committee assists the Company’s Board to formulate overall remuneration policy and 
structure for the Company’s directors and senior management personnel, and to establish related remuneration procedures that are 
standardised and transparent. The Remuneration Committee’s principal duties include supervising the compliance of the Company’s 
remuneration system with legal requirements, presenting the evaluation report on the Company’s remuneration system to the Board, 
as well as giving recommendations to the Board in respect to the overall remuneration policy and structure for the Company’s 
directors and senior management personnel. Its responsibilities comply with the requirements of the Code on Corporate Governance 
Practices. The Remuneration Committee regularly reports on its work to the Board.

In 2008, the Remuneration Committee convened two meetings, where it reviewed the remuneration of executive directors, the 
proposal for stock appreciation rights, the Company’s performance appraisal and reward, and the proposal for the remuneration of 
the members of the Third Session of the Board of Directors.

Attendance rates of individual members of the Remuneration Committee in 2008 (including attendance with written proxies)

Second Session of the Remuneration Committee

Number of Committee members 

Percentage of Independent Non-executive Directors of the Committee 

4

100%

Member of the Committee

Number of Meetings (2008)

Attendance Rates

Lo Hong Sui, Vincent (Chairman of the Committee)
Shi Wanpeng
Xu Erming
Tse Hau Yin, Aloysius

Third Session of the Remuneration Committee

Number of Committee members 

Percentage of Independent Non-executive Directors of the Committee 

1/1
1/1
1/1
1/1

100%
100%
100%
100%

4

100%

Member of the Committee

Number of Meetings (2008)

Attendance Rates

Xu Erming (Chairman of the Committee)
Wu Jichuan
Qin Xiao
Tse Hau Yin, Aloysius

1/1
1/1
1/1
1/1

100%
100%
100%
100%

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Nomination Committee

The Company’s Nomination Committee was formed by four independent non-executive directors. The Charter for the Nomination 
Committee clearly deﬁ nes the status, qualiﬁ cations, work procedures, duties and responsibilities, funding and remuneration etc. of 
the Nomination Committee, and it speciﬁ cally requires that the Nomination Committee members have no signiﬁ cant connection to 
the Company, and comply with the requirements related to independence. The Nomination Committee assists the Board to 
formulate standardised, prudent and transparent procedures and succession plans for the appointment of directors, and further 
improve the composition of the Board. The principal duties of the Nomination Committee include: regularly reviewing the structure, 
number of members and composition of the Board; identifying candidates and advising the Board with the appropriate qualiﬁ cations 
for the position of Directors; evaluating the independence of independent non-executive directors; advising the Board on matters 
regarding the appointment or re-appointment of directors and succession plans for the directors. The Nomination Committee is 
accountable to the Board and regularly reports on its work.

In 2008, the Nomination Committee has convened one meeting, where it advised the Board on candidates for the position of 
Directors for the Third Session of Board of Directors.

Attendance rates of individual members of the Nomination Committee in 2008 (including attendance with written proxies)

Second Session of the Nomination Committee 

Number of Committee members 

Percentage of Independent Non-executive Directors of the Committee 

4

100%

Member of the Committee

Number of Meetings (2008)

Attendance Rates

Shi Wanpeng (Chairman of the Committee)
Zhang Youcai
Xu Erming
Tse Hau Yin, Aloysius

Independent Director Committee

1/1
1/1
1/1
1/1

100%
100%
100%
100%

Pursuant to the Listing Rules, the Company’s Independent Director Committee convened two meetings, where it reviewed and 
approved the acquisition of Beijing Telecom, and the CDMA network capacity leasing agreement with the China Telecommunications 
Corporation, conﬁ rming that the connected transactions are in the interests of the Company as a whole and are fair and reasonable 
to the independent shareholders. The committee also submits recommendations on these matters to the independent shareholders.

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Supervisory Committee

The Company established the Supervisory Committee in accordance with PRC Company Law. At present, the Supervisory 
Committee comprises ﬁ ve supervisors, of which there is an external independent supervisor and an employee representative 
supervisor. Following the expiration of the term of ofﬁ ce for the Second Session of the Supervisory Committee on 9 September 
2008, Madam Wang Haiyun resigned from her position as the supervisor. Three Supervisors of the Second Session of Supervisory 
Committee, Mr. Xiao Jinxue, Madam Zhu Lihao and Mr. Xu Cailiao, were re-elected as the supervisors of the Third Session of the 
Supervisory Committee at the Extraordinary General Meeting held on 5 September 2008. On the same day, Madam Han Fang was 
elected as the supervisor of the Third Session of the Supervisory Committee, effective from 9 September 2008. Mr. Ma Yuzhu was 
re-elected by the employees of the Company to act as the employee representative supervisor.

The principal duties of the Supervisory Committee include supervising, in accordance with the law, the Company’s ﬁ nancials and 
performance of its directors, management and other senior management of the Company so as to prevent them from abusing their 
powers. The Supervisory Committee is a standing supervisory organisation within the Company, which is accountable to and reports 
to all shareholders. The Supervisory Committee holds meetings at least once or twice a year.

Attendance rates of individual members of the Supervisory Committee in 2008

The Second Session of Supervisory Committee

Number of supervisors

Number of meetings in 2008

5

2

Supervisors

Number of Meetings

Attendance Rates

Xiao Jinxue (Chairman of the Committee)
Zhu Lihao (Independent Supervisor)
Ma Yuzhu (Employee Representative Supervisor)
Xu Cailiao
Wang Haiyun

External Auditors

2/2
2/2
2/2
2/2
2/2

100%
100%
100%
100%
100%

The international and domestic auditors of the Company are KPMG and KPMG Huazhen, respectively. In order to maintain their 
independence, the non-audit services provided by the external auditors have not contravened the requirements of the US Sarbanes-
Oxley Act of 2002 and have obtained pre-approval from the Audit Committee.

A breakdown of the remuneration received by the external auditors for audit and non-audit services provided to the Company for the 
year ended 31 December 2008 is as follows:

Service item

Audit services
Non-audit services (Due diligence of the CDMA business acquisition, Internal Control Advisory 
  Service, etc)

Fee
 (RMB in millions)

80.00

46.71

The Audit Committee and the Board have agreed to the re-appointment of KPMG and KPMG Huazhen, respectively, as the 
international and domestic auditors of the Company for the year ending 31 December 2009, and the proposal will be submitted for 
approval at the 2008 Annual General Meeting.

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Internal Control

Internal control system

The Board is aware of its responsibility to ensure a solid, complete and effective internal control system of the Company and to 
monitor the effective implementation of such system, in order to protect shareholders’ investment and the Company’s assets, whilst 
enhancing operation efﬁ ciency and effectiveness, and improving corporate governance, risk assessment, risk management and 
internal control. In this way, the Company can achieve long-term development goals. The Company’s management is responsible for 
the establishment and implementation of the internal control system. The internal control system of the Company is built on clear 
organisational structure and management duties, an effective delegation and accountability system, deﬁ nite targets, policies and 
procedures, comprehensive risk assessment and management, a sound ﬁ nancial accounting system, and continuing analysis and 
supervision of operational performance. It covers all businesses and transactions of the Company. To make the internal control 
system more effective, the Company has formulated a code of conduct for the senior management and employees in order to 
ensure their ethical value and competency. The Company has continued to improve its internal declaration system, which 
encourages anonymous reporting of situations where employees, especially directors and senior management personnel, breach 
the rules.

In August 2003, the Company appointed KPMG Huazhen to provide advisory services in relation to internal control. Over more than 
ﬁ ve years, the Company has formulated manuals, implementing rules and supporting regulations in relation to internal control and 
based on the requirements of the U.S. securities regulatory authorities and the COSO Internal Control Framework. The Company 
has also been strengthening its IT internal control capabilities, which has improved the efﬁ ciency and effectiveness of internal control, 
enhancing the safety of the Company’s information system so that the integrity, timeliness and reliability of data and information are 
maintained.

Despite the fact that The Stock Exchange of Hong Kong Limited, since 1 January 2009, has removed the mandatory requirements 
associated with qualiﬁ ed accountants from its Listing Rules, the Company has continued to engage an internationally recognized 
accountant, who is highly experienced in auditing, company secretarial areas and advanced ﬁ nancial management of listed 
companies, to act as the Assistant Chief Financial Ofﬁ cer and Company Secretary of the Company, and as a Qualiﬁ ed Accountant, 
to assist in reﬁ ning the internal control and ﬁ nancial reporting procedures.

In 2008, in response to industry restructuring, organisational restructuring, new trends in business and management, and the 
regulatory requirements of the Ministry of Finance, the Company has speeded up the renewal and improvement of its internal control 
systems. This has ensured effective internal control implementation under full services integrated operations. The Company also 
accelerated the establishment of a system of internal control support and management to enhance efﬁ ciency and quality. The 
Company has prepared training materials and carried out various trainings for internal control to improve the standard of its daily 
internal control management. Additionally, the Company has developed a professional internal control team through improvements 
in appraisal management and streamlining job responsibilities, forming a close-loop management mechanism for internal control and 
promoting the standardisation of the Company’s internal management.

To ensure the truthfulness, accuracy, completeness and timeliness of the Company’s information disclosure, the Company has 
formulated rules for its information disclosure management in order to improve management of the Company’s information 
disclosure. It primarily focuses on: the disclosure of important information such as share price sensitive data and annual and interim 
reports; standardising the Company’s internal collection, processing, summarisation and reporting of its important information; 
formulating procedures for the regular and irregular external disclosure of documents; and deﬁ ning the responsibilities and behavior 
standards of related internal departments, branches, and subsidiaries of the Company in respect to information disclosure.

Comprehensive Risk Management

The Company views comprehensive risk management as an important task within the Company’s daily operation. Pursuant to 
regulatory requirements in the United States and Hong Kong, the Company has formulated a ﬁ ve-step risk management approach 
based on risk management theory and practice, including risk identiﬁ cation, risk assessment, key risk analysis, risk reaction and risk 
management assessment. The Company has also designed a risk management template and implemented a standardised risk 
management procedure so that risk management terminology was uniﬁ ed across all levels of the Company and the effectiveness of 
risk management was improved.

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Pursuant to the requirement of provision C2 of the Code on Corporate Governance Practices of The Stock Exchange of Hong Kong 
Limited, in 2008, the Company coordinated different business departments, provincial branches and local branches to incorporate 
comprehensive risk management into its daily operation. The Company has implemented risk categorisation and centralised risk 
management, with resources concentrated on the prevention of three major risks, including restructuring risk, wireline business 
operation risk, and labor employment risk.

In 2008, the Company experienced major risk events including the serious snowstorms, earthquakes, the global ﬁ nancial crisis and 
industrial restructuring. The Company carried out its risk management actively and effectively. In accordance with its risk 
management plan, the Company took tailored measures, in particular fully organising and mobilising all efforts and undertaking its 
emergency response mechanism, thus controlling and reducing loss. As a result, the impact and damage from these risks to the 
Company were brought under control, ensuring continued progress of the Company’s strategic transformation and full services 
integrated operations, and protecting the overall interests of the Company and its shareholders to the most extent.

Annual Internal Control Evaluation

The Company has been continuously improving its internal control system. In order to meet the governing regulatory requirements of 
its places of listing, including the United States and Hong Kong, and strengthen its internal control while guarding against operational 
risks, the Company’s internal audit department is responsible for coordinating the supervision and assessment of internal control.

The Company has adopted the COSO Internal Control Framework as the standard for the internal control assessment. With the 
management’s internal control testing guidelines and the Audit Standard No. 5 that were issued by PCAOB as its directives, the 
Company’s internal control assessment is composed of the self-assessment conducted by the persons responsible for internal 
control and of the independent assessment conducted by the internal audit department. In order to judge the nature of deﬁ ciencies 
in internal control and analyse the effectiveness of the internal control system, the Company adopts the following four major steps of 
assessment: (1) analyse and identify areas which require assessment, (2) assess the effectiveness of the design of internal control, (3) 
assess the effectiveness of the execution of internal control, (4) analyse the impact of deﬁ ciencies in internal control. The Company 
then rectiﬁ es any deﬁ ciencies found after the assessment. By formulating “Interim Measures for the Internal Control Assessment of 
Listed Companies”, “Manual for the Self-Assessment of Internal Control”, “Manual for the Independent Assessment of Internal 
Control” and other documents, the Company has ensured the assessment procedures are in compliance.

In 2008, the Company’s internal audit department initiated and coordinated the assessment of internal control in all areas of the 
Company, reported the outcome to the Audit Committee in a timely manner and executed the opinions and recommendations set 
out by the Audit Committee. The internal audit department focused on risk control and worked together with the external auditors to 
formulate and execute different assessment plans with respect to different control areas.

The internal assessment of internal control of the Company is divided into two parts, (1) self-assessment, which is conducted by the 
persons responsible for internal control, (2) independent assessment, which is conducted by internal audit departments to evaluate 
the internal control system. Self-assessment of internal control adopts a top-down approach which reinforces assessment in respect 
of control points at the corporate level and control points corresponding to major accounting items. The Company insisted on 
risk-oriented principles and, on the basis of comprehensive assessment, identiﬁ ed key control areas and control points for major 
assessment through risk analysis. In 2008, based on its past experiences and adhering to the principle of optimising assessment 
procedures and facilitating operations, the Company explored and further improved the ways and measures of self-assessment. In 
order to achieve this, the Company (1) optimised the organisation of self-assessment, based on the assessment undertaken in the 
ﬁ scal year 2008, by increasing self-assessment work on speciﬁ c areas and managing speciﬁ ed risks in a timely manner, (2) carried 
out annual self-assessment in a ﬂ exible and efﬁ cient manner, (3) carried out self-assessment by combining operation and 
management. As a result, the Company succeeded in further improving the risk responses and depth of risk management whilst 
identifying and solving problems in a timely manner, improving both quality and efﬁ ciency.

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In 2008, the Company actively investigated and proposed key issues as major risks for independent assessment that needed to be 
investigated deeply and thoroughly, so as to clearly identify and solve problems. The Company combined effectively its internal 
control manuals with regulations. Instead of merely examining each procedure separately by referring mechanically to the internal 
control manuals, the Company referred to the relevant managing procedures and standard from the regulations. To ensure that the 
nature of risks and problems were identiﬁ ed and captured, the Company’s assessment had to be based on a complete internal 
control system. In addition, the Company proposed to integrate independent assessment and daily audit projects effectively, aiming 
to improve the guidance of effectiveness of the overall audits. In this way, all units of the Company could enhance the quality and 
efﬁ ciency of their independent assessment. In accordance with the ideology and arrangement of assessment for the Company, all 
provincial branches launched a proactive independent assessment within each province. When problems of internal control were 
identiﬁ ed after the assessment, the provincial branches proposed recommendations and oversaw the process to rectify the 
problems. As a result, the independent assessment effectiveness of each provincial branch was improved. The Company guided all 
provincial branches to launch these independent assessments, whilst launching independent assessments of some provincial 
branches by incorporating a number of factors into consideration, such as extraordinary risks of internal control, proportion of assets 
and revenue, and the frequency of assessment made by external auditors. Through independent assessment, the Company not 
only grasped the overall situation of internal control, but also developed key tests for its high-risk processes. In addition, the 
Company inspected the related units in respect of their rectiﬁ cation of internal control deﬁ ciencies and focused on the key issues in 
order to ensure the depth and quality of assessment.

All levels of the Company have been attaching great importance to rectifying internal control deﬁ ciencies. The Company pushes all 
units to carry out rectiﬁ cation in relation to deﬁ ciencies identiﬁ ed through self-assessment, independent assessment and the internal 
control audit made by the external auditors. The Company also highlighted the participation of professional departments whilst 
exploring the establishment of an internal control mechanism with long-term efﬁ ciency. To ensure effective rectiﬁ cation, the Company 
also strengthened the veriﬁ cation and supervision of the rectiﬁ cation of internal control deﬁ ciencies. Pursuant to requests from the 
Company, all provincial companies launched rectiﬁ cation on any deﬁ ciencies identiﬁ ed from the assessment (including the 
assessment by external auditors) in a positive manner.

The Company organised internal control assessment during which the internal control assessment team and other relevant 
departments closely coordinated with the external auditors. The external auditors performed audits on the key processes and 
control points in relation to major accounting items. The Company maintained regular communication with the external auditors and 
rectiﬁ ed deﬁ ciencies in a timely manner and successfully passed the year-end audit undertaken by the external auditors.

Through uniﬁ ed self-assessment, independent assessment as well as supplementary assessment and the independent assessment 
of all provincial branches, the Company carried out multi-layered and full-dimensional reviews of its internal control system, and put 
its utmost efforts into rectifying the problems which were identiﬁ ed. Through this method, the Company was able to ensure the 
effectiveness of internal control. The Board, through the Audit Committee, reviewed the internal control system of the Company and 
its subsidiaries for the ﬁ nancial year ended 31 December 2008, which covered its controls on ﬁ nancial reporting, operations and 
compliance, as well as its risk management functions. The Board is of the view that the Company’s internal control system is solid, 
complete and effective.

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Investor Relations and Transparent Information Disclosure Mechanism

The Company establishes departments for investor relations management that are responsible for maintaining proactive 
communications with shareholders, investors and other capital market participants and providing them, in a timely manner, with the 
necessary information, data and services so as to allow them to fully understand the operations and development of the Company.

With an aim of strengthening communications with the capital market, and enhancing the transparency of information disclosure, the 
Company made quarterly disclosures of revenues, EBITDA, net proﬁ t and some major operating indicators, and monthly 
announcements on the number of local wireline access lines in service and broadband service subscribers. Since the Company 
began its mobile business operations in October 2008, the Company also made monthly disclosures of the number of mobile 
services subscribers. The Company attaches great importance to maintaining daily communication with shareholders, investors and 
analysts. In 2008, the Company has participated in many investment conferences hosted by a number of major international 
investment banks in order to maintain active communication with institutional investors.

In 2008, the Company attended the following investment conferences hosted by major international investment banks:

Date

January 2008
January 2008
March 2008
March 2008
April 2008
May 2008
June 2008
June 2008
July 2008
September 2008
September 2008
October 2008
October 2008
October 2008
November 2008
November 2008
November 2008
November 2008

Name of Conference

Deutsche Bank Access China Conference 2008
UBS Greater China Conference 2008
Credit Suisse Asian Investment Conference 2008
Merrill Lynch Asia Telecom Tour 2008
JP Morgan China Conference 2008
CLSA China Forum 2008
CICC Investment Conference
Nomura Asian Telecom Days
Nomura Asia Equity Forum 2008
Citigroup Telecom Day 2008
Lehman Brothers Telecom Tour 2008
Citigroup Greater China Investor Conference 2008
CLSA China/Hong Kong Corporate Access Day 2008
Merrill Lynch China Investment Summit 2008
HKEx/Daiwa Investors Conference 2008
Daiwa Investment Conference (Hong Kong) 2008
Goldman Sachs China Investment Frontier Conference 2008
Morgan Stanley Asia-Paciﬁ c Summit 2008

Announcement of the CDMA business acquisition 
on 2 June 2008

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November 2008

2008 Interim Results Announcement on 28 August 2008

In recent years, the Company’s website has been continuously reformed and innovated. In accordance with the requirements of 
capital market and international best practices, the Company has further improved the functions, design, interactivity with investors 
and related information disclosure of the website in order to ensure its investor relations website not only function as the primary 
channel to distribute news and company information to investors and the capital market, but also play an important role in the 
valuation of the listed company and the compliance with rules on information disclosure, thus achieving excellent interactive 
communication with investors and shareholders. The Company has also taken the initiative in issuing surveys to shareholders in 
order to seek their suggestions in relation to the improvement of the annual report. Based on the suggestions received, the 
Company has improved its methods of preparing and distributing the annual reports to better achieve environment protection and 
cost saving.

Signifi cant Differences Between the Corporate Governance Practices 
followed by the Company and those followed by NYSE-Listed U.S. 
Companies

The Company was established in the PRC and is currently listed on The Stock Exchange of Hong Kong Limited and the New York 
Stock Exchange (“NYSE”). As a foreign private issuer in respect of its listing on the NYSE, the Company is not required to comply 
with all the corporate governance rules of Section 303A of the NYSE Listed Company Manual. However, the Company is required to 
disclose the signiﬁ cant differences between the corporate governance practices followed by the Company and the listing standards 
followed by NYSE-listed U.S. companies.

Pursuant to the requirements of the NYSE Listed Company Manual, the Board of Directors of all NYSE-listed U.S. companies must 
be made up by a majority of independent directors. Under currently applicable PRC and Hong Kong laws and regulations, the Board 
of the Company is not required to be formed with a majority of independent directors. As a listed company on The Stock Exchange 
of Hong Kong Limited, the Company needs to comply with the Listing Rules. These rules require that at least one third of the Board 
of Directors of a listed company in Hong Kong be independent directors. The Board of the Company comprises of 14 directors, of 
which ﬁ ve are independent directors, making the number of independent directors exceed one third of the total number of directors 
on the Board, in compliance with the number set out as a recommended best practice in the Code on Corporate Governance 
Practices of the Listing Rules. These independent directors also satisfy the requirements on “independence” under the Listing Rules. 
However, the related standard is different from the requirements in Section 303A.02 of The Listed Company Manual of NYSE.

Pursuant to the requirements of the Listed Company Manual of NYSE, companies shall formulate separate corporate governance 
rules. Under the currently applicable PRC and Hong Kong laws and regulations, the Company is not required to formulate any rules 
for corporate governance; therefore, the Company has not formulated any separate corporate governance rules. However, the 
Company has implemented the Code on Corporate Governance Practices of The Stock Exchange of Hong Kong Limited for the 
accounting year ended 31 December 2008.

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Summary

In 2008, the Company’s human resources centered around the strategy of “Customer-focused Innovative Information”. Through the 
effective removal of the obstacles that restrain corporate development and the pro-activeness of employees, the role of the 
Company’s human resources management system is reinforced in promoting the goal of “people-based and promotion of strategic 
transformation” and “control of employee numbers, adjustment of structure, enhancement of efﬁ ciency and improvement of energy”, 
ensuring the function of human resources management in supporting corporate transformation and full services integrated 
operations. The Company focuses on the demand of different types of customers and provides diversiﬁ ed, systematic package 
solutions for the management of job positions, the remuneration system, performance management, as well as the training and 
development of employees. Based on the opportunity brought about by the implementation of the “Labor Contract Law” and the 
“Regulation on the Implementation of the Labor Contract Law”, the Company continues to improve ﬂ exible recruitment and 
dismissal, actively exploring various models of employment, business outsourcing and external cooperation, while at the same time 
applying different human resources strategies for different job positions to support the strategic transformation and full services 
integrated operations. In addition, the Company further perfected the allocation model for labor costs to reinforce effective motivation 
under the remuneration appraisal mechanism, tilting resources towards high return services and transformation businesses, and 
towards key areas and business units. Focusing on key transformation business departments, the Company has pushed forward 
the strategic adjustment of its human resources system and carried out stafﬁ ng in key job posts including sales and marketing, 
products development, wireless network planning, construction and maintenance, corporate information services as well as terminal 
management to meet the demand for human resources under full services integrated operations. Furthermore, the Company has 
smoothly transferred the employees from China Unicom in a well-prepared manner, achieving fruitful results and accomplishing its 
desired purpose.

Employees Distribution

At the end of 2008, the Company had a total of 314,541 employees. The employees’ distribution was as follows:

Management, Finance and Administration
Sales and Marketing
Operation and Maintenance
Research and Development

Total

No. of Employees

Percentage

49,441
161,547
101,956
1,597

15.7%
51.4%
32.4%
0.5%

314,541

100%

Corporate-Employee Relationship

Communication between Management and Employees

The Company attaches great importance to the relationship between the management and its employees and has put ample efforts 
into building a harmonious enterprise. Through various methods such as interacting with the frontline staff and holding forums, the 
Company’s management reinforced its communication and information exchange with its employees, enabling their better 

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understanding of the Company’s strategic transformation under full services integrated operations. For young employees, the 
Company continued to organise a series of “face-to-face” dialogues with the theme of “Remarkable 2008, Remarkable Telecom 
People”. Outstanding people who have contributed to the ﬁ ght against blizzards to maintain telecommunication infrastructure, the 
rescue of victims during earthquakes, volunteering at the Olympic Games, and full services integrated operations in 2008 have been 
invited to share their experience with young employees to foster their belief in “sharing a common goal” with the Company.

The Company has set up a mechanism for employees to express their ideas and appeals, including using the Internet and regular 
face-to-face meetings as platforms to enhance two-way communications between the Company and its employees. The Company 
has also carried out an employees’ satisfaction survey to gain a better understanding of the employees’ views and suggestions. A 
timely analysis and action will be conducted to improve the unsatisfactory areas. The mechanism serves as a rational channel for 
employees to provide constructive recommendations for the Company.

Role and Duties of Labor Unions

Insisting on the principle of “promoting corporate and employee development” and the management concept of “concentrating on 
key areas, serving the overall situation, highlighting employee rights, and focusing on participation”, the labor unions play an 
irreplaceable role in the Company’s business management, corporate reforms and full services integrated operations. In promoting 
corporate development, the labor unions have organised job-skill contests, carried out technological innovation and collected 
rational recommendations from employees in order to achieve successful results. In promoting employee development, the labor 
unions provided job training, job-skill competitions and activities to establish a “learning team” to enhance employees’ business skills 
and assist them in adapting to the requirements of full services integrated operations. The labor unions also participated in the 
decision-making process related to employees’ beneﬁ ts and establish rules to cultivate harmonious and stable labor relations. 
Furthermore, the labor unions cared about the work and personal life of employees, assisting them in solving their daily life problems 
to build a mutually beneﬁ cial platform for the realisation of simultaneous growth for the Company and its employees.

Coordination and Communication between the Company and the Labor Unions

The Company has reinforced the coordination and communication with the labor unions in 2008. In order to develop full services 
integrated operations and mobile services, the Company has coordinated with the Work Skill Contest Committee to carry out a total 
of 150 competitions for employees. As part of the successful implementation of the labor laws and regulations such as the “Labor 
Contract Law” and the “Labor Dispute Mediation Arbitration Law”, the labor unions have strengthened their participation in the 
Company’s human resources management and coordination of labor relations to meet the requirements of establishing “a new 
model of corporate-employee relationship which is standardised, fair, reasonable, mutually beneﬁ cial, harmonious and stable”. They 
have also reinforced the coordination and communication with the Company in perfecting its employee management system, and 
improving the settlement of labor disputes through the assistance of the Labor Dispute Mediation Committee. Furthermore, in order 
to have a sound and fair system on the “Collective Contract”, the labor unions have strengthened coordination between the 
Company and its employees speciﬁ cally in areas such as employees’ leave and holidays, learning and training, performance 
appraisal, etc. In an attempt to standardise human resources management, the Group Company and the labor unions have jointly 
amended the “Interim Measures for Management of Employee Representative Meeting for on Provincial Companies” and “Measures 
for Management on Skill Contests” in order to set up a clear mechanism and speciﬁ c responsibilities.

Caring about Employees

In times of earthquakes and blizzards, the companies at all levels and the labor unions were greatly concerned with the suffering of 
employees in the disaster-affected areas and had taken timely and effective measures to help these employees with supply of food, 
medicines, tents, clothes, etc. and also to make every effort to solve their daily life problems. The Company has also provided 
psychological rehabilitation services for the affected employees, appealed for other employees to actively participate in disaster relief 
work, with a donation by its employees of more than RMB80 million to disaster-affected areas.

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The frontline staff of Best Tone attended
the operation training

The Company has set up a “Happy Birthday System” for employees, and vigorously carried out “Share Warmth” activities during the 
Chinese Lunar New Year and critical stages of the Company’s production and operations, as well as visiting and comforting 
employees in difﬁ culties, the frontline staff and retired employees. In order to create a favorable working environment for its 
employees, the Company has promoted the construction of small canteens, small bathrooms, small washrooms, small activity 
rooms and small libraries for employees’ conveniences in remote areas with limited means. The Company has also pro-actively set 
up a mechanism to assist employees in need in improving their living standards. In conjunction with daily activities, the Company 
pro-actively carried out cultural and sports activities such as “Fitness day”, “Culture and Sports for Every Employee”, “Lifelong 
Investment in Health” to enrich spiritual and cultural lives of employees and to promote a healthy lifestyle.

Following the restructuring of the telecommunications industry, the Company was joined by a group of staff from China Unicom. The 
Company attaches great importance to team integration. The Company has strengthened its harmonious labor relations by creating 
a pleasant working environment and constructing a friendly work culture through the timely arrangement of “We are a family”, “Let’s 
embrace once again” activities. It is expected that these activities will unite employees and stimulate their passion and enthusiasm in 
work so as to contribute to the establishment of a harmonious enterprise.

Strengthening Human Resources

The Company has undertaken various measures to attract and retain talents. In order to meet the demand for human resources 
under strategic transformation and full services integrated operations, the Company has intensiﬁ ed the recruitment of experienced 
talents from society, with a focus on the development of strong teams for its IT, IP, information services, mobile and capital 
operations as well as recruitment of talents for overseas business operation. In 2008, the Company recruited more than 3,360 
professionals in the areas of IT, IP and information services and more than 480 network optimisation personnel. The Company also 
continued to replenish and expand its overseas talent base to ensure qualiﬁ ed personnel for its full services integrated operations 
and the expansion of overseas markets.

The Company has always placed the strengthening of leadership at the core of talent cultivation under strategic transformation, and 
has pro-actively pushed forward advanced training for managers. In 2008, the Company organised one session of training for its 
general managers in provincial branches, one session of leadership development training and three sessions of training for general 
managers in local branches, continuing its effort in promoting customised training programs for managers at the local branch level 
and at the provincial branch level. A customised training program for the “Three Levels of Managers” (District, Branch district, and 
Workshop) was also launched.

The Company attaches great importance to upgrading the skills of its professional staff, systematically enhancing their job 
competency to prepare them for full services integrated operations. In 2008, the Company organised intensive trainings for its 
employees customised for its mobile businesses operations, CDMA business platform, network optimisation and maintenance as 
well as IT support. At the same time, the Company also organised a series of training sessions on practical operations and business 
process for frontline customer services personnel and IT technicians, as well as pro-actively arranging training on techniques and 
knowledge of the mobile business for employees.

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In accordance with the corporate principle of “salaries based on performance, 
efﬁ ciency ﬁ rst and fairness ensured”, the Company has set up a mechanism 
that the growth of personnel cost and total amount of salaries correlated with 
corporate earnings’ growth for branch companies, and has continuously 
modiﬁ ed and adjusted it in practice. The Company implemented a strict 
performance management system, with KPI-based performance appraisal 
mechanisms for its employees. Each level of the assessment are implemented 
accordingly to ensure that each employee has his or her own speciﬁ c 
performance indicators. The results of the performance appraisal are 
effectively applied to various areas including adjustments in job post-based 
salaries, performance salaries, promotions, training, redeployment and 
transfers. The integration of the performance appraisal with operating 
performance and capacity improvement program serves as an effective way 
to enhance the capacity and performance of employees. According to the corporate principle of being “objective, fair, democratic, 
open, and performance-oriented”, the Company carried out open recruitment and competitions for job vacancies, and built up job 
posts-centered management with ﬂ exible promotions and degradation and ﬂ exible recruitment and dismissal for the scientiﬁ c and 
rational allocation of human resources.

China Telecom S hang h ai  Branch   h el d  a  r eg ul ar  
interactive d iscussion  fo rum  wi th   em p l o yees

Restructuring Enhanced the Competitiveness of Employees

In the second half of 2008, the Company acquired China Unicom’s CDMA mobile telecommunications business. About 30,000 staff 
from China Unicom joined the Company following the restructuring, strengthening the competitiveness of the Company’s employee 
base in the following aspects:

In respect of cultural integration, the redeployed employees based in southern part of China were able to adapt quickly to the main 
culture of the telecommunications industry due to their relative small scale. Comparatively more employees were redeployed in 
northern part of China. Due to the cultural convergence between North Telecom and China Unicom, which are both entrepreneurial 
and competitive, employees retain a strong sense of identity for themselves to integrate rapidly within a short period of time, 
focusing on corporate operations and development.

In respect of human resources management, the Company implemented a uniﬁ ed human resources management mechanism and 
ensured a stable and active employment team. This proves to be highly efﬁ cient in team building with satisfactory results for the 
smooth redeployment of staff from China Unicom.

The Company’s personnel structure has been optimised. There is a high proportion of technicians out of the redeployed employees. 
Based on the requirements of the organisational structure under full services integrated operations and in accordance with the 
corporate principle of “complementary advantages, rational allocation, effective and efﬁ cient human resources integration”, the 
Company has carried out the reasonable allocation of human resources. The Company speciﬁ cally strengthened the large-scale 
training for its mobile operations, launching a planned redeployment of wireline employees to mobile services based on the need of 
the full services integrated operations, while at the same time carrying out large-scale recruitment of professionals for wireless 
network optimisation based on the corporate principle of “Quicker and Earlier Recruitment”. Through the above initiatives, the 
human resources structure of the full services integrated operations has been optimised, satisfying the need of full services 
integrated operations.

Protecting Employee Welfare

The Company strictly follows the laws and regulations stated in the “Labor Law of the People’s Republic of China” and the “Labor 
Contract Law of the People’s Republic of China” to standardise employment. The Company offers equal payment for equal work. 
The Company has no discriminative policies on employment such as gender discrimination. The Company does not employ child 
labor or forced labor.

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Caring
Society

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In addition to striving to enhance 
value of our customers and 
shareholders, our people have deep 
care for society. Facing the rare 
disasters of snowstorm and 
earthquake, they fearlessly made 
emergency repairs to restore 
communications, supporting the 
emergency rescue works while our free 
emergency call services ensured all 
people in need in the affected areas 
could give a pacifying call to and get 
connected with their families. This 
well-demonstrates our “unwavering 
dedications” to the society.

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During the manned space ﬂ ight mission of 
Shenzhou VII, China Telecom Shanghai 
Branch closely monitored the operation of 
the dedicated transmission lines and network 
to ensure its safe navigation.

As the main national integrated information services provider with a long history of development and extensive scope of business, 
the Company has always adhered to its core philosophy of “all-around innovation, pursuit of truth and pragmatism, human 
resources as a foundation and joint creation of values”, which provides returns to society, services to clients, caring for employees 
and returns to shareholders as its top priority. The Company insists on scientiﬁ c development and dedicates itself to providing 
convenient, smooth and efﬁ cient integrated information services to the society. While maintaining these stable and solid operations, 
the Company remains responsible to all interested parties concerned in order to achieve harmony between corporate development, 
society and the environment.

Facing the general public’s increasing demand for widespread application of information technology, the Company has proposed a 
transformation strategy towards becoming an “integrated information services provider”. The Company, through the integration and 
innovation of services, has expanded the channels for its customers to obtain and exchange information, as well as enhance the 
efﬁ ciency of information applications. While helping promote the popularisation of information technology and improve living 
standards, this has allowed the Company to achieve sustainable and healthy development.

China Telecom and Society

Business operations with integrity and in compliance with legal regulations

The Company has been a model for the compliance of laws and regulations, social morality, business ethics and industry practices, 
making full tax payments in a timely manner. The Company also protects intellectual property rights, honors contract agreements 
and strictly abides by its commercial credit. Additionally, the Company opposes unfair competition and corruption in business 
activities. To understand and respond to public opinion through different channels, the Company strives to increase corporate 
transparency and establish an effective and standardised communication mechanism.

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Assistance for Rural Development

The Company has made great efforts in developing communication in rural areas, improving their infrastructure, reducing and 
eliminating information barriers and effectively promoting a coordinated economic and social development between different regions, 
cities and townships. While meeting the basic requirements for voice communication services in rural areas, the Company is devoted 
to the continuous and overall enhancement of the standards of information technology in rural areas. Taking the lead in establishing 
the notion of “Broadband Goes to Every Township, Information Technology Goes to Every Villager’s Home”, the Company has been 
successful in building a platform and creating innovative programs for the informatisation of rural areas. Through the implementation 
of a model information facility project, “Serving Thousands of Townships and Villages”, the Company has been the pioneer in 
incorporating information technology into construction in rural areas, allowing the advancements of information technology to 
become practically beneﬁ cial to townships and villages. Capitalising on the service branches widely distributed in the townships and 
villages, the Company has introduced “E-farm” services, which integrates information resources that are related to construction in 
rural areas, such as technology, education and commerce, making use of voice, SMS, telephone, radio and broadband networks to 
build up a “Golden Bridge of Science and Technology” for the prosperity of rural areas. Responding proactively to the call from 
government, the Company has formed partnerships with other manufacturers in the industry chain, such as mobile terminals and 
computer manufacturers. Under the full support and active participation of the Company in the “Home Appliance Goes to 
Countryside” project, people in rural areas are able to enjoy improved living conditions, enhanced information technology and living 
standards and other substantial beneﬁ ts. Despite the negative impacts brought by the global ﬁ nancial crisis, the Company has 
assisted with socialist rural development by actively boosting domestic demand.

Participation in Public Welfare Activities

With a strong sense of responsibility, the Company has actively taken the lead in assuming its duties as an excellent corporate 
citizen whilst accelerating its self-development and promoting applications for information technology. In this regard, the Company 
strongly supports public welfare activities and proactively participates in poverty alleviation projects and different public welfare 
activities in relation to education, culture and sports.

The Company actively participates in providing assistance to poverty regions. To offer poverty alleviation for Yanyuan and Muli 
counties in Sichuan Province, the Company deployed four poverty-alleviation teams for the building of three primary schools and 
one hospital, as well as establishing electronic administration web support, education web support and cultural activities centers in 
the two counties. In this way, the Company made a contribution to the improvement of local communication and public 
infrastructures as well as the enhancement of living standards for the people living in poorer areas. Since 2002, the Company has 
been providing special poverty assistance to Bianba county in Tibet. To promote economic development, social advancement and 
to raise the production and living standards of the local people, the Company has deployed three Tibet-supporting teams for the 
implementation of more than 30 construction projects. The Company’s contributions were greatly appreciated by both the local 
government and people.

In respect of the next generation and the growth of youths, the Company has assumed responsibility through its active contribution 
in providing information technology for education in the forms of the “Green Healthy Online Project” and the “Distance-Learning 
Educational System.” As a result, the Company received from the government the “Most Outstanding Contribution Award” in the 
Healthy Online Campaign. The “Chinavnet” services provide under-privileged students in remote mountainous areas with quality 
course materials and online guidance by high-grade teachers, so that the under-privileged students are not left behind.

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To support the construction and to resolve the funding needs of the World Expo 2010 in Shanghai, the Company has been assisting 
in various ways, including offering direct sponsorship, co-operating with the exhibition organisation, providing integrated information 
services and participating in the construction of the Enterprise Pavilion. In addition, the Company has also helped elevate the level of 
informatisation through its information services to enable consumers to experience sense of technology and the future at the Expo. 
Ultimately, the Company will attain its mission and fulﬁ ll its responsibilities as the national main telecom operator by helping 
demonstrate to the world the achievements of China’s reforms and through the popularisation of information technology at the Expo.

Secured Emergency Communication

80

Over the years, the Company has undertaken the responsibility of securing safe and smooth national communications. The 
Company provides support for the successful holding of important political and social events, and has secured communication 
services for important festive holidays, the National People’s Congress of the People’s Republic of China and the Chinese People’s 
Political Consultative Conferences. In 2008, the Company successfully completed its important duties in providing secured 
communications for the New Year’s Day, the Spring Festival, the Beijing Olympics, and the launch and operation of the Shenzhou VII 
spacecraft.

The 2008 Beijing Olympics was an event highly anticipated by all Chinese people around the world. The Company paid great 
attention and devotion to ensuring the safety and secured communications for the event. To achieve this, the Company provided 
complete protection to communications by ensuring the security of infrastructure and the information network. The Company also 
put its utmost efforts in avoiding the destruction of communications facilities by including the security of communications facilities, 
such as infrastructure and other important areas, as well as network circuits into the agenda. To ensure information security on the 
Internet, the Company strengthened its management of malicious information on the Internet. In addition, the Company coordinated 
with other operators to ensure secured communications and quality services to major clients during the Olympics. The Company 
organised volunteer teams to provide attentive services to the Olympic Committee and people in all walks of life involved in the 
event, and therefore the Company’s work was greatly appreciated by all sectors in China.

The Company has established a safe, reliable and ﬂ exible mechanism for emergency protection, which provides reliable 
communication security in case of outbreaks of signiﬁ cant incidents. In the event of catastrophic damage, the Company strives to 
ensure smooth communications and restore communication services in disaster-stricken areas in a timely manner.

An earthquake measuring 8.0 on the Richter scale hit Wenchuan County of Sichuan Province at 2:28 p.m. on 12 May 2008, 
resulting in an enormous disaster for people’s lives and property. Disaster makes command while information gives life. In response 
to the severe situation, the Company understood the signiﬁ cance of maintaining efﬁ cient communications during the earthquakes 
relief effort. Mr. Wang Xiaochu, our Chairman, rushed to the disaster-stricken area at once to command the relief work on the 
frontline. Even though suffering from serious damages, the Company took the national interest ﬁ rst and devoted all its efforts and 
resources into restoring communications services. To provide strong support to the relief effort, the Company restored external 
communications to the disaster-stricken areas at the highest possible speed, thus becoming a pioneer in many aspects, including (1) 
setting up external emergency communications system for the Ofﬁ ce of National Headquarter for Earthquake Resistance and 
Disaster Relief, (2) restoring external communications in Wenchuan, Beichuan and Qingchuan, (3) restoring basic communications in 
Li County and, (4) restoring communications in Pingwu, Maoxian and Xuankou.

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The Company carried forward a spirit of “When one is in need, all render their help” so that the Company was not only restoring its 
own communication services, but also actively fulﬁ lling its corporate social responsibility. The Company put its utmost efforts in 
guaranteeing the efﬁ cient communications for relief workers, the party, the government, the military, the ﬁ nancial sector, and 
electricity supply. The Company also helped its peer telecommunications operators restore communications services and divert 
communication trafﬁ c. The Company made outstanding contributions in the relief work. It installed free telephones within the 
disaster-stricken areas, set up hotlines for people to search for their families, and provided free services for the disaster-stricken 
people. The Company’s contributions were highly recognised and appreciated by the government and people from all walks of life.

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While actively carrying out relief work, the Company organised donations of money and materials to the disaster-stricken areas from 
all branches and employees. China Telecom Group made a donation of RMB330 million in money and material supplies to the 
disaster-stricken areas, in which RMB83.92 million was from its employees. To devote the maximum amount of passion, care and 
help to the people affected, the Company made additional efforts, such as the opening up of a hotline for a TV programme specially 
for the relief and providing free communications services for relief activities. The Company also assisted proactively in the launch of 
post-disaster reconstruction of the earthquake-hit areas. Taking the urgent needs of the disaster-stricken areas and victims as its 
own, the Company donated actively to people in need with passion and provided timely and quality after-sales service for products 
together with a secured service quality. In this way, the Company helped the people in the disaster-stricken areas rebuild their homes 
and resume their production and lives. For its outstanding contributions to donation to Wenchuan areas as well as its products and 
secured service quality, the Company was the only telecom company honored with an award.

81

Receiving positive comments

The Company was awarded as the “Asia’s Best Managed Fixed Telecom Company” for two consecutive years by Euromoney, in the 
ranking of the Asia’s best managed companies. In accrediting Asia’s Best Companies 2008 by FinanceAsia, the Company was 
ranked at the top for the “Best Managed Company—China”. In addition, the Company’s 2007 Annual Report also won the gold 
award in the category of “Annual Reports: Telecommunications” at the “Galaxy 2008 Awards”.

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By establishing a comprehensive business system with independent technology and collective innovation, the Company has been 

actively developing new products, new technology and new business models. With an aim to promote the formulation of new 

standards and regulations and the continuous evolution of communication technology, the Company has strengthened the 

construction of the platform for new technology and knowledge sharing and has actively applied for various patents.

Satisfactory Customer Service Protects Customers’ Interest

The Company has been planning and implementing its customer service as 

an important part of its whole corporate strategy. Inheriting the service 

principle of “Customer First, Service Foremost”, the corporate mission of “Let 

Customers Fully Enjoy New Life of Information Services”, and the operation 

philosophy of being a “Pursuant of Corporate Values and Customers’ Values 

to Sustain Mutual Growth”, the Company dedicates itself to serving customers 

sincerely and enriching the service content. During the Beijing Olympic 

Games, the Company proactively responded to the call from the Consumers 

Association to “Reinforce the social responsibility, and welcome the Olympics 

together”. To actively participate, support and protect the Olympic Games, 

the Company organised carefully activities for providing “Gold Medal Services 

for Olympics”. With its efforts recognised by customers and highly 

appreciated by the Consumer Association, the Company was honored as an 

“Outstanding Unit Realising the Promise for the Olympics”.

China Telecom and Environment

The Company has been actively using environmental-friendly materials and 

paying great attention to maintaining a healthy environment for humankind. Its 

telecommunications projects are constructed under the guidelines and 

measures of environmental protection. When purchasing its 

telecommunications equipment, the Company carefully selects optic ﬁ ber 

cables and transmission systems that are noiseless and free from 

Mr. Yang Jie, our Execut ive  Vice President,  was 

one of the torchbearer s for the Beijing Olympic 

Games

electromagnetic radiation and pollutants. When carrying out ﬁ eld surveys on communication routes, the Company always tries to 

avoid mines, forests, grasslands, wild animal habitats, natural heritage sites, relic sites, natural reserves and famous scenic spots. 

When laying down ﬁ ber optic cables, the Company adopted directional drilling techniques which allow cables to pass directly 

through any obstacle without affecting the surrounding environment. During the snowstorm in the southern region in early 2008, the 

Company demanded all branches to efﬁ ciently collect and handle all abandoned batteries when ﬁ ghting against the snowstorm to 

avoid potential environmental risks.

The Company has been establishing resource-conserving enterprises while striving to achieve energy-saving and emission 

reduction. To reduce costs, the Company enhanced the efﬁ ciency of capital and implemented actions to improve its efﬁ ciency while 

reducing its costs. It separately standardised the costs of different operating functions, including ofﬁ ces, marketing, maintenance, 

labor and investment. To build a strong atmosphere of “resource-conserving enterprise” in all levels of the Company, the Company 

uses energy-saving lamps throughout its production and ofﬁ ces, appropriately adjusts the temperature of telecommunications 

machine rooms and ofﬁ ces, and encourages the entire workforce to save paper and water.

In the future, in line with further strategic adjustment in economic structure and the continuous acceleration of the process of 

popularising information technology within national economic activities in China, the Company, through its strategic transformation, 

will actively engage in various mutual beneﬁ cial collaborations in the industry. This will result in a range of beneﬁ ts, such as the 

combination and extension of the industry value chain, continuous expansion of areas for cooperation, improvement in operating 

efﬁ ciency in the whole industry and the creation and maintenance of a healthy and harmonious industrial environment, all of which 

will contribute to sustainable and healthy development of the industry and will help to achieve the Company’s goal of serving the 

national economy and promoting social development while seeking maximum return for its shareholders. The Company will sincerely 

provide returns to society and make its due contribution to the building of a more harmonious society.

82

China  Telec om eme rg enc y rep air 
te am c limbed  a rug ged mou nt ain to 
re a ch the dama ge d ar ea s o f the
Sichua n e ar thqua ke  to r estor e 
te lec ommunic at ions.

China Telecom and Customers

Informatisation creates value for customers

As the major driver in promoting government informatisation, the Company actively boosted the ofﬁ ce automation of the 
government, the “Three Golden Projects,” e-government and the establishment of electronic administration so that people can gain 
access to government information and services from different channels. To meet the informatisation development requirements of 
different industries, the Company proactively customises informatisation solutions to industries such as quality inspectors, police, 
customs, taxation and logistics. The Company also provides a global one-stop shopping service in line with international standards. 
With safe, quality, and effective expert-level telecommunications services, the Company assists enterprises in controlling information, 
grasping future trends and transform themselves into industry leaders.

The Company introduced two brands and services in relation to integrated information services, “BizNavigator” and “Best Tone”, 
which help a wide range of enterprises elevate their level of informatisation and improve their competitiveness and proﬁ tability. To 
enhance the level of information technology and application efﬁ ciency, the Company launched integrated services under the brand 
“e surﬁ ng”, including integrated ofﬁ ce and corporate switchboard services, after receiving a mobile business license.

Provide Quality Networks Services for Customers

The Company has been continuously strengthening its information infrastructure to meet the infrastructure requirements for the 
informatisation of the national economy. To satisfy the ever-increasing demand for communication services, the Company has 
established a large-scale, safe and stable communication network and has fully utilised existing network and data resources. The 
network is also improved to match the business development of the Company and has been developed as a world-class 
telecommunications network with both broadband and narrowband, voice/data integration and harmonious wireline/wireless 
development. In this way, the Company has contributed to providing its customers with quality, efﬁ cient and safe communication 
services, improving the information infrastructure of the nation and establishing a smooth information network.

Innovative Technology Raises Service Standards

The Company strived to promote timely beneﬁ ts and bring forward the fruits of technology improvement to customers. To achieve 
this, the Company has actively launched the business and product development of its four brands,“BizNavigator”, “One Home”, 
“e surﬁ ng” and “Best Tone”. The Company also launched research and development of solutions for integrated informatisation which 
are applicable to different industries, such as education, health care, public security, industry and commercial administration, and 
hotels. In addition, the Company has actively carried out major strategic technology research on third-generation mobile 
communication, broadband connection, artiﬁ cial intelligence optical ﬁ ber network and Next Generation Internet, thus fully supporting 
the Company’s strategic transformation from a traditional basic network operator into a modern integrated information service 
provider.

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By establishing a comprehensive business system with independent technology and collective innovation, the Company has been 
actively developing new products, new technology and new business models. With an aim to promote the formulation of new 
standards and regulations and the continuous evolution of communication technology, the Company has strengthened the 
construction of the platform for new technology and knowledge sharing and has actively applied for various patents.

Satisfactory Customer Service Protects Customers’ Interest

The Company has been planning and implementing its customer service as 
an important part of its whole corporate strategy. Inheriting the service 
principle of “Customer First, Service Foremost”, the corporate mission of “Let 
Customers Fully Enjoy New Life of Information Services”, and the operation 
philosophy of being a “Pursuant of Corporate Values and Customers’ Values 
to Sustain Mutual Growth”, the Company dedicates itself to serving customers 
sincerely and enriching the service content. During the Beijing Olympic 
Games, the Company proactively responded to the call from the Consumers 
Association to “Reinforce the social responsibility, and welcome the Olympics 
together”. To actively participate, support and protect the Olympic Games, 
the Company organised carefully activities for providing “Gold Medal Services 
for Olympics”. With its efforts recognised by customers and highly 
appreciated by the Consumer Association, the Company was honored as an 
“Outstanding Unit Realising the Promise for the Olympics”.

China Telecom and Environment

The Company has been actively using environmental-friendly materials and 
paying great attention to maintaining a healthy environment for humankind. Its 
telecommunications projects are constructed under the guidelines and 
measures of environmental protection. When purchasing its 
telecommunications equipment, the Company carefully selects optic ﬁ ber 
cables and transmission systems that are noiseless and free from 
electromagnetic radiation and pollutants. When carrying out ﬁ eld surveys on communication routes, the Company always tries to 
avoid mines, forests, grasslands, wild animal habitats, natural heritage sites, relic sites, natural reserves and famous scenic spots. 
When laying down ﬁ ber optic cables, the Company adopted directional drilling techniques which allow cables to pass directly 
through any obstacle without affecting the surrounding environment. During the snowstorm in the southern region in early 2008, the 
Company demanded all branches to efﬁ ciently collect and handle all abandoned batteries when ﬁ ghting against the snowstorm to 
avoid potential environmental risks.

Mr. Ya ng Jie, our Ex ec utive  Vice Pr esid ent, was 
one  of the tor c hbe are rs fo r the B eijing  O ly mpi c 
Game s

The Company has been establishing resource-conserving enterprises while striving to achieve energy-saving and emission 
reduction. To reduce costs, the Company enhanced the efﬁ ciency of capital and implemented actions to improve its efﬁ ciency while 
reducing its costs. It separately standardised the costs of different operating functions, including ofﬁ ces, marketing, maintenance, 
labor and investment. To build a strong atmosphere of “resource-conserving enterprise” in all levels of the Company, the Company 
uses energy-saving lamps throughout its production and ofﬁ ces, appropriately adjusts the temperature of telecommunications 
machine rooms and ofﬁ ces, and encourages the entire workforce to save paper and water.

In the future, in line with further strategic adjustment in economic structure and the continuous acceleration of the process of 
popularising information technology within national economic activities in China, the Company, through its strategic transformation, 
will actively engage in various mutual beneﬁ cial collaborations in the industry. This will result in a range of beneﬁ ts, such as the 
combination and extension of the industry value chain, continuous expansion of areas for cooperation, improvement in operating 
efﬁ ciency in the whole industry and the creation and maintenance of a healthy and harmonious industrial environment, all of which 
will contribute to sustainable and healthy development of the industry and will help to achieve the Company’s goal of serving the 
national economy and promoting social development while seeking maximum return for its shareholders. The Company will sincerely 
provide returns to society and make its due contribution to the building of a more harmonious society.

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A
promising 
future

208,000,000

 ACCESS LINES
in Service 

44,000,000

BROADBAND 

Subscribers

28,000,000 
MOBILE 

Subscribers

1,500,000,000

INFORMATION SEARCH 
& BOOKING SERVICES calls

The world’s LARGEST WIRELINE

 & BROADBAND operator

To be 
continued...

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Notice of 
Annual General Meeting

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NOTICE IS HEREBY GIVEN that the annual general meeting of China Telecom Corporation Limited (the “Company”) for the year 
ended 2008 will be held at 11:00 am on 26 May 2009 in the Ballroom, Level 3, JW Marriott Hotel Hong Kong, Paciﬁ c Place, 88 
Queensway, Hong Kong to consider and, if thought ﬁ t, pass the following businesses:

Ordinary Resolutions
1.  

THAT the consolidated ﬁ nancial statements of the Company, the report of the Board of Directors, the report of the Supervisory 
Committee and the report of the international auditor for the year ended 31 December 2008 be considered and approved, 
and the Board of Directors (the “Board”) be authorised to prepare the budget of the Company for year 2009;

86

2. 

3.  

THAT the proﬁ t distribution proposal and the declaration and payment of a ﬁ nal dividend for the year ended 31 December 
2008 be considered and approved;

THAT the reappointment of KPMG and KPMG Huazhen as the international auditor and domestic auditor of the Company 
respectively for the year ending 31 December 2009 be considered and approved, and the Board be authorised to ﬁ x the 
remuneration of the auditors;

and to consider and approve other businesses (if any).

And as special business, to consider and, if thought ﬁ t, pass the following as special resolutions:

Special Resolutions
4.  

To consider and approve, by way of special resolutions, each of the following resolutions in relation to the proposed granting 
of a general mandate to the board of directors of the Company to issue debentures:

(1) 

THAT the granting of a general mandate to the board of directors of the Company to issue debentures denominated in 
local or foreign currencies, in one or more tranches, including, but not limited to, short-term commercial paper, medium 
term note, company bonds, corporate debts, convertible bonds, asset securitization products and asset-backed notes, 
from the date of this meeting until the date on which the annual general meeting of the Company for the year 2009 is 
held, with a maximum outstanding repayment amount of up to RMB90 billion;

(2)   THAT the board of directors of the Company or any two or more directors of the Company duly authorized by the 

board of directors, taking into account the speciﬁ c needs of the Company and market conditions, be and are hereby 
generally and unconditionally authorized to:

(a)   determine the speciﬁ c terms and conditions of, and other matters relating to, the issue of debentures, including, 

but not limited to, the determination of the type, amount, interest rate, term, rating, security, any repurchase or 
redemption provisions, any placing arrangements, any option to adjust the nominal interest rate and use of 
proceeds, secure approvals, engage professional advisors, disseminate relevant application documents to the 
regulatory authorities, obtain approvals from the regulatory authorities, execute all requisite legal documentation 
relating to the issue as requested by the regulatory authorities and make relevant disclosure;

(b) 

(c)  

do all such acts which are necessary and incidental to the issue of debentures (including, but not limited to, the 
securing of approvals, the determination of underwriting arrangements, preparation and dissemination of relevant 
application documents to the regulatory authorities, and the securing of approvals from the regulatory authorities); 
and

take all such steps which are necessary for the purposes of executing the issue of debentures (including, but not 
limited to, the execution of all requisite documentation and the disclosure of relevant information in accordance 
with applicable laws)

and to the extent that any of the aforementioned acts and steps that have already been undertaken by the board of 
directors of the Company or the duly authorized directors in connection with the issue of debentures, be and are hereby 
approved, conﬁ rmed and ratiﬁ ed.

5. 

To consider and approve, by way of special resolutions, each of the following resolutions in relation to the proposed issue of 
debentures:

(1) 

THAT the Company’s issue of debentures denominated in local or foreign currencies with an aggregate amount of 
RMB90 billion, within which the issue of company bonds in the PRC in one or more tranches not exceeding RMB30 
billion be and is hereby approved with:

(a) 

(b) 

Size of issue: Up to RMB30 billion.

Placing to existing shareholders: The company debentures will not be issued to existing shareholders on a 
preferred basis by way of placing.

書冊9.indb   86

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Notice of
Annual General Meeting

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(c) 

Term: The company debentures will have a term not exceeding 10 years and may have the same term or different 
terms, which will be determined in accordance with the market conditions and the Company’s capital 
requirements.

(d)  Use of proceeds: The company bonds issued will be for the purpose of supplementing the general working 

capital of the Company.

(e) 

Effective period: from the date on which the resolutions passed to the date on which the annual general meeting 
of the Company for the year 2009 is held.

(2) 

THAT the board of directors of the Company (the “Board”) or any two or more directors of the Company duly authorized 
by the board of directors (the “Directors”) be and are hereby generally and unconditionally authorized to:

(a) 

(b) 

(c) 

(d) 

(e) 

determine the type, speciﬁ c terms and conditions of, and other matters relating to, the issue (including, but not 
limited to, the determination of the type, amount, interest rate, term, rating, security, whether there will be 
repurchase or redemption provisions, whether there will be an option to adjust the nominal interest rate and 
speciﬁ c arrangements relating to the use of proceeds within the scope approved by the shareholders in this 
meeting);

do all such acts which are necessary and incidental to the issue (including, but not limited to, the securing of 
approvals, engaging professional advisors, the determination of underwriting arrangements, preparation and 
dissemination of relevant application documents to the regulatory authorities, and the securing of approvals from 
the regulatory authorities);

take all such steps which are necessary for the purposes of executing the issue (including, but not limited to, the 
execution of all requisite documentation and the disclosure of relevant information in accordance with applicable 
laws), and to the extent that any of the above acts and steps that have already been undertaken by the Board or 
the Directors in connection with the issue, be and are hereby approved, conﬁ rmed and ratiﬁ ed;

if there are changes in the regulatory policies or market conditions, adjust the speciﬁ c proposal relating to the 
issue and related matters in accordance with the opinion of the regulatory authorities; and

after completion of the issue, determine and approve matters relating to the listing of the relevant company 
bonds.

6. 

THAT:

(a)  

(b) 

(c) 

subject to paragraph (c) below, the exercise by the Board during the Relevant Period (as hereinafter deﬁ ned) of all the 
powers of the Company to allot, issue and deal with additional shares of the company and to make or grant offers, 
agreements and options which might require the exercise of such powers be hereby generally and unconditionally 
approved;

the approval in paragraph (a) shall authorise the Board during the Relevant Period to make or grant offers, agreements 
and options which might require the exercise of such powers after the end of the Relevant Period;

the amount of additional domestic Shares or overseas-listed foreign invested shares (“H Shares”) (as the case may be) 
allotted, issued and dealt with or agreed conditionally or unconditionally to be allotted, issued and dealt with either 
separately or concurrently by the Board pursuant to the approval in paragraph (a), otherwise than pursuant to (i) a 
Rights Issue (as hereinafter deﬁ ned) or (ii) any scrip dividend or similar arrangement providing for the allotment of Shares 
in lieu of the whole or part of a dividend on Shares in accordance with the articles of association of the Company shall 
not exceed 20% of each of the Company’s existing domestic Shares and H Shares (as the case may be) in issue at the 
date of passing this special resolution; and 

(d) 

for the purpose of this special resolution 6:

“Relevant Period” means the period from the passing of special resolution 6 until the earliest of:

(i) 

the conclusion of the next annual general meeting of the Company;

(ii) 

the expiration of the 12 months period following the passing of these special resolutions; and

(iii) 

the revocation or variation of the authority given to the Board under these special resolutions by a special 
resolution of the Company’s shareholders in its general meeting.

書冊9.indb   87

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Notice of
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88

“Rights Issue” means an offer of shares open for a period ﬁ xed by the Board to holders of Shares on the register of 
members on a ﬁ xed record date in proportion of their holdings of such Shares (subject to such exclusion or other 
arrangements as the Board may deem necessary or expedient in relation to fractional entitlements or having regard to 
any legal or practical restrictions or obligations under the laws of, or the requirement of, any recognised regulatory body 
or any stock exchange in any territory applicable to the Company) and an offer, allotment or issue of shares by way of 
rights shall be construed accordingly.

7. 

THAT the Board be authorised to increase the registered capital of the Company to reﬂ ect the issue of shares in the Company 
authorised under special resolution 6, and to make such appropriate and necessary amendments to the articles of association 
of the Company as they think ﬁ t to reﬂ ect such increases in the registered capital of the Company and to take any other action 
and complete any formality required to effect such increase of the registered capital of the Company.

By Order of the Board
Yung Shun Loy, Jacky 
Company Secretary

Beijing, PRC
9 April 2009

Notes:

(1)   Shareholders who submit their share transfer application forms to the Company’s share registrar before 4:30 p.m. on 24 April 2009 and then register as 

shareholders on the register of members of the Company are entitled to attend the annual general meeting.

(2) 

(3) 

(4) 

Each shareholder entitled to attend and vote at the annual general meeting may appoint one or more proxies to attend and vote on his behalf at the 
annual general meeting. A proxy need not be a shareholder. Each shareholder who wishes to appoint one or more proxies should ﬁ rst review the annual 
report of the Company for the year 2008, which is expected to be dispatched to shareholders around 9 April 2009.

In accordance with the relevant requirements under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and for 
good corporate governance practice, the Chairman of the Board has indicated that he would direct that each the resolutions set out in the notice of the 
Meeting be voted on by poll.

To be valid, the form of proxy together with the power of attorney or other authorisation document (if any) signed by the authorised person or notarially 
certiﬁ ed power of attorney must be delivered to the Ofﬁ ce of the Board of the Company for holders of domestic shares and to the Computershare Hong 
Kong Investor Services Limited for holders of H shares not less than 24 hours before the designated time for the holding of the annual general meeting. 
Completion and return of a form of proxy will not preclude a shareholder from attending in person and voting at the annual general meeting if he so 
wishes. The address of the share registrar for the Company’s H shares is Computershare Hong Kong Investor Services Limited Room 1806-1807, 18th 
Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

(5)   The registration procedure for attending the annual general meeting:

(a) 

shareholders attending the annual general meeting in person or by proxy shall present their identity certiﬁ cation. If the attending shareholder is a 
corporation, its legal representative or person authorised by the Board or other decision making authority shall present a copy of the relevant 
resolution of the Board or other decision making authority in order to attend the annual general meeting.

(b) 

shareholders intending to attend the annual general meeting shall return the attendance slip via hand delivery, mail or fax to the Ofﬁ ce of the 
Board of the Company on or before 5 May 2009.

(6)  Closure of the register of members:

The register of members of the Company will be closed from 26 April 2009 to 26 May 2009 (both days inclusive).

(7) 

The annual general meeting is expected to last for half a day and shareholders (in person or by proxy) attending the annual general meeting shall be 
responsible for their own transport and accommodation expenses.

(8)   The address of the Ofﬁ ce of the Board is as follows:

31 Jinrong Street
Xicheng District, Beijing 100140
PRC
Contact person: Yung Shun Loy, Jacky
Telephone: 
Facsimile: 

(8610) 6642 8166
(8610) 6601 0728

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Report of the
Independent International Auditor

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89

To the Shareholders of
China Telecom Corporation Limited
(Incorporated in The People’s Republic of China with limited liability)

We have audited the consolidated financial statements of China Telecom Corporation Limited (the ‘‘Company’’) set out on pages
90 to 154, which comprise the consolidated and company balance sheets as at 31 December 2008, and the consolidated income
statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and
a summary of significant accounting policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and the
disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and
maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a
body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of
the report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified
Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance as to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and true and fair presentation of the financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the
Group as at 31 December 2008 and of the Group’s profit and cash flows for the year then ended in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board and the disclosure requirements of the
Hong Kong Companies Ordinance.

KPMG
Certified Public Accountants
8th Floor, Prince’s Building
10 Chater Road
Central, Hong Kong

24 March 2009

Consolidated
Balance Sheet

At 31 December 2008
(Amounts in millions)

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90

ASSETS
Non-current assets

Property, plant and equipment, net
Construction in progress
Lease prepayments
Goodwill
Intangible assets
Interests in associates
Investments
Deferred tax assets
Other assets

Total non-current assets

Current assets
Inventories
Accounts receivable, net
Prepayments and other current assets
Time deposits with original maturity over three months
Cash and cash equivalents

Total current assets

Total assets

LIABILITIES AND EQUITY
Current liabilities
Short-term debt
Current portion of long-term debt
Accounts payable
Accrued expenses and other payables
Income tax payable
Current portion of finance lease obligations
Current portion of deferred revenues

Total current liabilities

Net current liabilities

Total assets less current liabilities

Non-current liabilities
Long-term debt
Finance lease obligations
Deferred revenues
Deferred tax liabilities

Total non-current liabilities

Total liabilities

The notes on pages 98 to 154 form part of these financial statements.

3
4

5
6
8
9
10
18

11
12
13

14

15
15
16
17

18

15

18
10

Note

2008
RMB

2007
RMB
(restated)

329,292
13,626
5,451
—
2,814
800
274
9,281
7,683

299,159
13,615
5,608
29,922
14,235
882
177
14,628
6,612

384,838

369,221

2,561
17,289
7,386
397
27,866

55,499

2,665
16,979
2,817
222
21,427

44,110

440,337

413,331

83,448
565
34,458
53,628
164
22
4,505

67,767
3,811
29,013
30,670
3,314
24
5,646

176,790

140,245

(121,291)

(96,135)

263,547

273,086

39,226
18
6,939
2,816

48,999

34,148
5
9,840
3,121

47,114

225,789

187,359

Consolidated
Balance Sheet (Continued)

At 31 December 2008
(Amounts in millions)

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Equity

Share capital
Reserves

Total equity attributable to equity holders of the Company
Minority interests

Total equity

Total liabilities and equity

Note

19
20

2008
RMB

80,932
132,104

213,036
1,512

2007
RMB

(restated)

80,932
143,589

224,521
1,451

214,548

225,972

440,337

413,331

Approved and authorised for issue by the Board of Directors on 24 March 2009.

Wang Xiaochu
Chairman and
Chief Executive Officer

Shang Bing
Executive Director,
President and
Chief Operating Officer

Wu Andi
Executive Director,
Executive Vice President
and Chief Financial Officer

The notes on pages 98 to 154 form part of these financial statements.

Balance
Sheet

At 31 December 2008
(Amounts in millions)

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ASSETS
Non-current assets

Property, plant and equipment, net
Construction in progress
Lease prepayments
Goodwill
Intangible assets
Investments in subsidiaries
Interests in associates
Investments
Deferred tax assets
Other assets

Total non-current assets

Current assets

Inventories
Accounts receivable, net
Prepayments and other current assets
Time deposits with original maturity over three months
Cash and cash equivalents

Total current assets

Total assets

LIABILITIES AND EQUITY
Current liabilities

Short-term debt
Current portion of long-term debt
Accounts payable
Accrued expenses and other payables
Income tax payables
Current portion of finance lease obligations
Current portion of deferred revenues

Total current liabilities

Net current (liabilities)/assets

Total assets less current liabilities

Non-current liabilities

Long-term debt
Finance lease obligations
Deferred revenues
Deferred tax liabilities

Total non-current liabilities

Total liabilities

The notes on pages 98 to 154 form part of these financial statements.

Note

2008
RMB

2007
RMB

3
4

5
6
7
8
9
10
18

11
12
13

14

15
15
16
17

18

15

18
10

296,201
13,525
5,600
29,877
14,147
8,435
737
177
14,520
6,577

389,796

1,907
16,185
7,426
113
21,556

47,187

641
202
11
—

24
178,642
—
—
—

4

179,524

—

255
69,337
—

5,814

75,406

436,983

254,930

83,443
556
33,108
54,140
123
22
4,502

175,894

(128,707)

10,000
—

110
15,937
1,106
—
—

27,153

48,253

261,089

227,777

39,226
18
6,939
2,802

48,985

224,879

30,150
—
—
—

30,150

57,303

Balance
Sheet (Continued)

At 31 December 2008
(Amounts in millions)

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Equity

Share capital
Reserves

Total equity

Total liabilities and equity

Note

19
20

2008
RMB

80,932
131,172

212,104

436,983

2007
RMB

80,932
116,695

197,627

254,930

Approved and authorised for issue by the Board of Directors on 24 March 2009.

Wang Xiaochu
Chairman and
Chief Executive Officer

Shang Bing
Executive Director,
President and
Chief Operating Officer

Wu Andi
Executive Director,
Executive Vice President
and Chief Financial Officer

The notes on pages 98 to 154 form part of these financial statements.

Consolidated
Income Statement

For the year ended 31 December 2008
(Amounts in millions, except per share data)

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Operating revenues

Operating expenses

Depreciation and amortisation
Network operations and support
Selling, general and administrative
Personnel expenses
Other operating expenses
Impairment loss on property, plant and equipment

Total operating expenses

Operating profit

Deficit on revaluation of property, plant and equipment

Net finance costs

Investment income

Share of profits of associates

Profit before taxation

Income tax

Profit for the year

Attributable to

Equity holders of the Company
Minority interests

Profit for the year

Basic earnings per share

Weighted average number of shares

The notes on pages 98 to 154 form part of these financial statements.

Note

2008
RMB

21

186,801

(53,880)
(36,096)
(27,935)
(28,946)
(10,632)
(24,167)

2007
RMB
(restated)

180,882

(52,607)
(29,856)
(24,294)
(27,419)
(8,965)
—

22
23
3

24

3

25

26

31

31

(181,656)

(143,141)

5,145

—

(5,076)

5

112

186

793

979

884
95

979

37,741

(2,755)

(4,288)

83

215

30,996

(6,704)

24,292

24,195
97

24,292

0.01

0.30

80,932

80,932

Consolidated
Statement of Changes in Equity

For the year ended 31 December 2008
(Amounts in millions)

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Attributable to equity holders of the Company

Share
capital
RMB

Capital
reserve
RMB

Share
premium
RMB

Note

Re-
valuation
reserve
RMB

Statutory
reserves
RMB

Other
reserves
RMB

Exchange
reserve
RMB

Retained
earnings
RMB

Minority
interests
RMB

Total
RMB

Total
equity
RMB

1

10

10

30
20

Balance as at 1 January 2007, as previously

reported

Adjusted for the Fourth Acquisition

Balance as at 1 January 2007, as restated
Gains and losses recognised directly in equity:

Effect of changes in tax rates
Surplus on revaluation of property, plant

and equipment

Deferred tax on revaluation surplus
Change in fair value of available-for-sale

equity securities (net of deferred tax of
RMB14 million)

Exchange difference on translation of

financial statements of subsidiaries
outside mainland PRC

Profit for the year ended 31 December 2007,

as restated

Total recognised income and expenses
Deferred tax on revaluation surplus of

property, plant and equipment realised

Revaluation surplus realised
Deferred tax on land use rights realised
Distribution to minority interests
Dividends
Appropriations
Distribution to China Telecom
Transfer from retained earnings to other

reserves

Adjustment to statutory reserves
Consideration for the acquisition of the Third

Acquired Group

Balance as at 31 December 2007, as restated
Gains and losses recognised directly in equity:
Change in fair value of available-for-sale

equity securities (net of deferred tax of
RMB23 million)

Exchange difference on translation of

financial statements of subsidiaries
outside mainland PRC

Profit for the year ended 31 December 2008

Total recognised income and expenses
Deferred tax on revaluation surplus of

property, plant and equipment realised

Revaluation surplus realised
Deferred tax on land use rights realised
Distributions to minority interests
Dividends
Appropriations
Distribution to China Telecom
Adjustment to statutory reserves
Transfer from retained earnings to other

reserves

Consideration for the acquisition of the Fourth

Acquired Company

30
20

1

80,932
—

(2,804)
—

10,746
—

7,357
—

49,818
—

11,656
3,148

(479)
—

48,975
—

206,201
3,148

1,448
—

207,649
3,148

80,932

(2,804)

10,746

7,357

49,818

14,804

(479)

48,975

209,349

1,448

210,797

—

—
—

—

—

—

—

—

—
—
—
—
—
—
—

—
—

—

—

—
—

—

—

—

—

—

—
—
—
—
—
—
—

—
—

—

—

—
—

—

—

—

—

—

—
—
—
—
—
—
—

—
—

—

—

4,809
—

—

—

4,809

—

4,809

—
(194)
—
—
—
—
—

—
—

—

—

—
—

—

—

—

—

—

—
—
—
—
—
5,388
—

—
(2,839)

(1,577)

—
(1,136)

64

—

(2,649)

—

(2,649)

31
—
(169)
—
—
—
(2,931)

649
—

—

(1,408)

—

—
—

—

(103)

(103)

—

—

—
—

—

—

—

(1,577)

4,809
(1,136)

64

(103)

2,057

24,195

24,195

—

—
—

—

—

—

97

(1,577)

4,809
(1,136)

64

(103)

2,057

24,292

(103)

24,195

26,252

97

26,349

—
—
—
—
—
—
—

—
—

—

(31)
194
169
—
(6,741)
(5,388)
—

(649)
2,839

—
—
—
—
(6,741)
—
(2,931)

—
—

—

(1,408)

—
—
—
(94)
—
—
—

—
—

—

—
—
—
(94)
(6,741)
—
(2,931)

—
—

(1,408)

80,932

(2,804)

10,746

11,972

52,367

8,327

(582)

63,563

224,521

1,451

225,972

—

—

—
—

—

—
—
—
—
—
—
—
—

—

—

—

—

—
—

—

—
—
—
—
—
—
—
—

—

—

—

—

—
—

—

—
—
—
—
—
—
—
—

—

—

—

—

—
—

—

—
(562)
—
—
—
—
—
—

—

—

—

—

—
—

—

—
—
—
—
—
—
—
3,718

—

—

(69)

—

(69)
—

(69)

127
—
(132)
—
—
—
(535)
—

425

(5,557)

—

(83)

(83)
—

—

—

—
884

(69)

(83)

(152)
884

(83)

884

732

—
—
—
—
—
—
—
—

—

—

(127)
562
132
—
(6,125)
—
—
(3,718)

—
—
—
—
(6,125)
—
(535)
—

(425)

—

—

(5,557)

—

—

—
95

95

—
—
—
(34)
—
—
—
—

—

—

(69)

(83)

(152)
979

827

—
—
—
(34)
(6,125)
—
(535)
—

—

(5,557)

Balance as at 31 December 2008

80,932

(2,804)

10,746

11,410

56,085

2,586

(665)

54,746

213,036

1,512

214,548

The notes on pages 98 to 154 form part of these financial statements.

Consolidated
Cash Flow Statement

For the year ended 31 December 2008
(Amounts in millions)

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Net cash from operating activities

(a)

76,756

Note

2008
RMB

i

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Cash flows from investing activities

Capital expenditure
Purchase of investments
Lease prepayments
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of investments
Purchase of time deposits with maturity over three months
Maturity of time deposits with maturity over three months
Payment of purchase price for the acquisition of CDMA business,

net of cash acquired

2007
RMB
(restated)

75,783

(46,847)
(72)
(260)
362
42
(222)
379

(46,652)
(92)
(120)
620
111
(397)
222

5

(29,511)

—

Net cash used in investing activities

(75,819)

(46,618)

Cash flows from financing activities

Principal element of finance lease payments
Proceeds from bank and other loans
Proceeds from issuance of medium-term notes
Repayments of bank and other loans
Repayment of loan in connection with the First Acquisition
Payment of purchase price for the Third Acquisition
Payment of purchase price for the Fourth Acquisition
Payment of dividends
Distribution to China Telecom
Net cash distributions to minority interests

(24)
109,235
19,787
(96,650)
(15,000)
—
(5,557)
(6,167)
—
(39)

(48)
84,990
—

(105,037)
—

(1,408)
—

(6,273)
(2,931)
(40)

Net cash generated from/(used in) financing activities

5,585

(30,747)

Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January

Effect of changes in foreign exchange rate

Cash and cash equivalents at 31 December

6,522
21,427
(83)

(1,582)
23,113
(104)

27,866

21,427

The notes on pages 98 to 154 form part of these financial statements.

Consolidated
Cash Flow Statement (Continued)

For the year ended 31 December 2008
(Amounts in millions)

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(a) Reconciliation of profit before taxation to net cash from operating activities

Profit before taxation

Adjustments for:

Depreciation and amortisation
Impairment loss on property, plant and equipment
Deficit on revaluation of property, plant and equipment
Impairment losses for bad and doubtful debts
Investment income
Share of profits of associates
Interest income
Interest expense
Unrealised foreign exchange loss/(gains)
Loss on retirement and disposal of property, plant and equipment

Operating profit before changes in working capital, net of effect of

acquisition
Increase in accounts receivable
Decrease in inventories
Increase in prepayments and other current assets
Decrease in other non-current assets
Increase/(decrease) in accounts payable
Increase in accrued expenses and other payables
Decrease in deferred revenues

Cash generated from operations

Interest received
Interest paid
Investment income received
Income tax paid

2008
RMB

186

53,880
24,167
—
1,828
(5)
(112)
(430)
5,336
170
2,550

87,570
(1,439)
357
(1,155)
1,309
3,745
3,000
(4,042)

89,345
440
(5,055)
21
(7,995)

2007
RMB
(restated)

30,996

52,607
—

2,755
1,386
(83)
(215)
(380)
4,772
(104)
1,697

93,431
(1,965)
550
(205)
1,486
(3,010)
2,803
(5,279)

87,811
402
(5,206)
66
(7,290)

Net cash from operating activities

76,756

75,783

The notes on pages 98 to 154 form part of these financial statements.

Notes to the
Financial Statements

For the year ended 31 December 2008

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98

1. PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF

PRESENTATION

Principal activities

China Telecom Corporation Limited (the ‘‘Company’’) and its subsidiaries (hereinafter, collectively referred to as the ‘‘Group’’)
provides wireline telecommunications services and related services in Beijing Municipality, Shanghai Municipality,
Guangdong Province, Jiangsu Province, Zhejiang Province, Anhui Province, Fujian Province, Jiangxi Province, Guangxi
Zhuang Autonomous Region, Chongqing Municipality, Sichuan Province, Hubei Province, Hunan Province, Hainan
Province, Guizhou Province, Yunnan Province, Shaanxi Province, Gansu Province, Qinghai Province, Ningxia Hui
Autonomous Region, Xinjiang Uygur Autonomous Region and Hong Kong Special Administrative Region of the People’s
Republic of China (the ‘‘PRC’’). As described in Note 5, following the acquisition of Code Division Multiple Access (‘‘CDMA’’)
mobile communication business in October 2008, the Group began to provide nation-wide mobile telecommunications and
related services in the mainland of the PRC and the Macau Special Administrative Region of the PRC. The Group also
provides leased line and other related services in certain countries of the Asia Pacific, South America and North America
regions. The Group offers a comprehensive range of wireline and mobile telecommunications services including wireline
voice, mobile voice, Internet and managed data, leased line, value added services, integrated information application
services and other related services.

The operations of the Group in the mainland PRC are subject to the supervision and regulation by the PRC government. The
Ministry of Industry and Information Technology of the PRC (formerly known as ‘‘Ministry of Information Industry’’, hereinafter
‘‘MIIT’’), pursuant
formulating the
levels for basic
telecommunications industry policies and regulations,
telecommunications services, such as wireline and mobile local and long distance telephony services, managed data
services, leased line, roaming and interconnection arrangements.

to the authority delegated to it by the PRC State Council,

is responsible for
tariff

including the regulation and setting of

Organisation

China Telecommunications Corporation (‘‘China Telecom’’ and together with its subsidiaries other than the Group referred
to as ‘‘China Telecom Group’’) is a state-owned enterprise which is under the supervision and regulation of the Ministry of
Industry and Information Technology of the PRC. In November 2001, pursuant to an industry restructuring plan approved by
the State Council, China Telecom’s wireline telecommunications networks and related operations in 10 northern provinces,
municipalities and autonomous regions of the PRC were transferred to the former China Netcom Group. China Telecom
retained the wireline telecommunications networks and related operations of 21 provinces, municipalities and autonomous
regions of the PRC, including those of the Company’s subsidiaries. In accordance with this industry restructuring plan,
China Telecom and the former China Netcom Group own 70% and 30%, respectively, of the nationwide inter-provincial
optic fibers.

As part of the reorganisation (the ‘‘Restructuring’’) of China Telecom, the Company was incorporated in the PRC on 10
In connection with the Restructuring, China Telecom transferred to the Company the wireline
September 2002.
telecommunications business and related operations in Shanghai Municipality, Guangdong Province, Jiangsu Province and
Zhejiang Province together with the related assets and liabilities (the ‘‘Predecessor Operations’’) in consideration for 68,317
million ordinary domestic shares of the Company. The shares issued to China Telecom have a par value of RMB1.00 each
and represented the entire registered and issued share capital of the Company at that date.

Pursuant to the resolution passed by the Company’s independent shareholders at an Extraordinary General Meeting held on
15 December 2003, the Company acquired the entire equity interests in Anhui Telecom Company Limited, Fujian Telecom
Company Limited, Jiangxi Telecom Company Limited, Guangxi Telecom Company Limited, Chongqing Telecom Company
Limited and Sichuan Telecom Company Limited (collectively the ‘‘First Acquired Group’’) and certain network management
and research and development facilities from China Telecom for a total purchase price of RMB46,000 million on 31
December 2003 (hereinafter, referred to as the ‘‘First Acquisition’’). The purchase price consisted of a cash payment of
RMB11,000 million and a long-term payable of RMB35,000 million (see Note 15).

Notes to the
Financial Statements

For the year ended 31 December 2008

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99

1. PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF

PRESENTATION (CONTINUED)

Organisation (continued)

Pursuant to the resolution passed by the Company’s independent shareholders at an Extraordinary General Meeting held on
9 June 2004, the Company acquired the entire equity interests in Hubei Telecom Company Limited, Hunan Telecom
Company Limited, Hainan Telecom Company Limited, Guizhou Telecom Company Limited, Yunnan Telecom Company
Limited, Shaanxi Telecom Company Limited, Gansu Telecom Company Limited, Qinghai Telecom Company Limited,
Ningxia Telecom Company Limited and Xinjiang Telecom Company Limited (collectively the ‘‘Second Acquired Group’’) from
China Telecom for a total purchase price of RMB27,800 million on 30 June 2004 (hereinafter, referred to as the ‘‘Second
Acquisition’’). The purchase price consisted of a cash payment of RMB8,340 million and a long-term payable of RMB19,460
million. On 30 June 2004, the Company repaid RMB4,310 million of this payable amount using the net proceeds from the
issuance of new H shares in May 2004 (see Note 15).

Pursuant to an equity purchase agreement entered into by the Company with China Telecom on 15 June 2007, the
Company acquired the entire equity interests in China Telecom System Integration Co., Ltd. (‘‘CTSI’’), China Telecom (Hong
Kong) International Limited (‘‘CT (HK)’’) and China Telecom (Americas) Corporation (‘‘CT Americas’’) (collectively the ‘‘Third
Acquired Group’’) from China Telecom for a total purchase price of RMB1,408 million (hereinafter, referred to as the ‘‘Third
Acquisition’’). The purchase price was fully paid in July 2007.

Pursuant to an acquisition agreement entered into by the Company and China Telecom on 31 March 2008, the Company
acquired the entire equity interest in China Telecom Group Beijing Corporation (‘‘Beijing Telecom’’ or the ‘‘Fourth Acquired
Company’’) from China Telecom for a total purchase price of RMB5,557 million (hereinafter, referred to as the ‘‘Fourth
Acquisition’’). The purchase price was fully paid in July 2008.

Hereinafter, the First Acquired Group, the Second Acquired Group, the Third Acquired Group and the Fourth Acquired
Company are collectively referred to as the ‘‘Acquired Groups’’.

Basis of presentation

Since the Group and the Fourth Acquired Company are under common control of China Telecom, the Fourth Acquisition has
been accounted for as a combination of entities under common control
in a manner similar to a pooling-of-interests.
Accordingly, the assets and liabilities of the Fourth Acquired Company have been accounted for at historical amounts and
the consolidated financial statements of the Group prior to the Fourth Acquisition have been restated to include the results
of operations and assets and liabilities of the Fourth Acquired Company on a combined basis. The retained profits of the
Fourth Acquired Company prior to 30 June 2008 of RMB535 million were distributed to China Telecom and have been
reflected as a distribution to China Telecom in the consolidated statement of changes in equity for the year ended 31
December 2008. The consideration for the acquisition of the Fourth Acquired Company has been accounted for as an equity
transaction in the consolidated statement of changes in equity.

Notes to the
Financial Statements

For the year ended 31 December 2008

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100

1. PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF

PRESENTATION (CONTINUED)

Basis of presentation (continued)

The results of operations for the year ended 31 December 2007 and the financial position as at 31 December 2007 as
previously reported by the Group and the combined amounts presented in the accompanying consolidated financial
statements to reflect the acquisition of the Fourth Acquired Company are set out below:

Result of operations for the year ended 31 December 2007:

Operating revenues
Profit for the year

Financial position as at 31 December 2007:

Total assets
Total liabilities
Total equity

The Group
(as previously
reported)
RMB
millions

The Fourth
Acquired
Company
RMB
millions

The Group
(as restated)
RMB
millions

178,656
23,799

408,004
185,632
222,372

2,226
493

5,327
1,727
3,600

180,882
24,292

413,331
187,359
225,972

For the periods presented, all significant balances and transactions between the Group and the Fourth Acquired Company
have been eliminated on combination.

Merger with subsidiaries

Pursuant to the resolution passed by the Company’s shareholders at an Extraordinary General Meeting held on 25 February
2008, the Company entered into merger agreements with each of the following subsidiaries: Shanghai Telecom Company
Limited, Guangdong Telecom Company Limited, Jiangsu Telecom Company Limited , Zhejiang Telecom Company Limited,
Anhui Telecom Company Limited, Fujian Telecom Company Limited, Jiangxi Telecom Company Limited, Guangxi Telecom
Company Limited, Chongqing Telecom Company Limited, Sichuan Telecom Company Limited, Hubei Telecom Company
Limited, Hunan Telecom Company Limited, Hainan Telecom Company Limited, Guizhou Telecom Company Limited,
Yunnan Telecom Company Limited, Shaanxi Telecom Company Limited, Gansu Telecom Company Limited, Qinghai
Telecom Company Limited, Ningxia Telecom Company Limited and Xinjiang Telecom Company Limited. In addition, the
Company entered into merger agreements with Beijing Telecom on 1 July 2008. Pursuant to these merger agreements, the
Company merged with these subsidiaries and the assets, liabilities and business operations of these subsidiaries were
transferred to the Company’s branches in the respective regions. The merger is accounted for as a distribution of profits
from these subsidiaries to the Company and has no impact on the Group’s consolidated financial statements.

Notes to the
Financial Statements

For the year ended 31 December 2008

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101

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The accompanying financial statements have been prepared in accordance with International Financial Reporting
Standards (‘‘IFRS’’) as issued by the International Accounting Standards Board (‘‘IASB’’). IFRS includes International
Accounting Standards (‘‘IAS’’) and interpretations. These financial statements also comply with the disclosure
requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules
Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. The accounting policies described
below have been consistently applied by the Group, unless otherwise stated.

These financial statements are prepared on the historical cost basis as modified by the revaluation of certain property,
plant and equipment (Note 2(g)) and available-for-sale equity securities (Note 2(m)).

The preparation of the financial statements in conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be reasonable under the circumstances, the results
of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from those estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods.

Judgement made by management in the application of IFRS that have significant effect on the financial statements
and estimates with a significant risk of material adjustment in future financial periods are described in Note 38.

The IASB has issued certain new and revised IFRS which are effective for accounting periods on or after 1 January
2008 (see Note 39). The Group has elected to early adopt IFRS 8 ‘‘Operating Segments’’ for the year ended 31
December 2008 (see Note 2(z)).

(b) Basis of consolidation

The consolidated financial statements comprise the Company and its subsidiaries and the Group’s interests in
associates. A subsidiary is an entity controlled by the Company. Control exists when the Company has the power,
directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from
its activities.

The financial results of subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases, and the profit attributable to minority interests is separately presented
on the face of the consolidated income statement as an allocation of the profit or loss for the year between the
minority interests and the equity holders of the Company. Minority interests at the balance sheet date, being the
portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether
directly or indirectly through subsidiaries, are presented in the consolidated balance sheet and consolidated
statement of changes in equity within equity, separately from equity attributable to the equity holders of the Company.

An associate is an entity, not being a subsidiary, in which the Group exercises significant influence, but not control,
over its management. Significant influence is the power to participate in the financial and operating policy decisions of
the investee but is not control over those policies.

Notes to the
Financial Statements

For the year ended 31 December 2008

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102

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Basis of consolidation (continued)

An investment in an associate is accounted for in the consolidated financial statements under the equity method and
is initially recorded at cost and adjusted thereafter for the Group’s equity share of the post-acquisition results of the
associate.

All significant
intercompany balances and transactions and any unrealised gains arising from intercompany
transactions are eliminated on consolidation. Unrealised gains arising from transactions with associates are
eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence of impairment.

(c)

Translation of foreign currencies

The functional and presentation currency of the Company and its subsidiaries in mainland PRC is Renminbi (‘‘RMB’’).
The functional currency of CT (HK), CT Americas and CT Macau is Hong Kong dollars (HK$), US dollars (US$) and
Macau Pataca (MOP) respectively. Transactions denominated in currencies other than the functional currency during
the year are translated into the functional currency at the applicable rates of exchange prevailing on the transaction
dates. Foreign currency monetary assets and liabilities are translated into the functional currency using the applicable
exchange rates at the balance sheet date. The resulting exchange differences, other than those capitalised as
construction in progress (Note 2(i)), are recognised as income or expense in the consolidated income statement. For
the periods presented, no exchange differences were capitalised.

When preparing the Company’s consolidated financial statements, the results of operations of CT (HK), CT Americas
and CT Macau are translated into Renminbi at average rate prevailing during the year. Balance sheet items of CT (HK)
and CT Americas and CT Macau are translated into Renminbi at the foreign exchange rates ruling at the balance sheet
date. The resulting exchange differences are recognised directly in exchange reserve, a component of equity.

(d) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and time deposits with original maturities of three
months or less when purchased. Cash equivalents are stated at cost, which approximates fair value. None of the
Group’s cash and cash equivalents is restricted as to withdrawal.

(e)

Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance
for impairment of doubtful debts (Note 2(o)) unless the effect of discounting would be immaterial, in which case they
are stated at cost.

(f)

Inventories

Inventories consist of materials and supplies used in maintaining the telecommunications network and goods for
resale. Materials and supplies are valued at cost using specific identification method or the weighted average cost
method, less a provision for obsolescence.

Inventories that are held for resale are stated at the lower of cost or net realisable value. Net realisable value is the
estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated
costs necessary to make the sale.

Notes to the
Financial Statements

For the year ended 31 December 2008

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103

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(g) Property, plant and equipment

Property, plant and equipment are initially recorded at cost,
less subsequent accumulated depreciation and
impairment losses (Note 2(o)). The cost of an asset comprises its purchase price, any directly attributable costs of
bringing the asset to working condition and location for its intended use and the cost of borrowed funds used during
the periods of construction. Expenditure incurred after the asset has been put into operation, including cost of
replacing part of such an item, is capitalised only when it increases the future economic benefits embodied in the item
of property, plant and equipment and the cost can be measured reliably. All other expenditure, including the cost of
repairs and maintenance which is substantially included in network operations and support expenses, is expensed as
it is incurred.

the revaluation are buildings and improvements;

Subsequent to the revaluation as described in Note 3, property, plant and equipment are carried at revalued amount,
being the fair value at the date of the revaluation, less subsequent accumulated depreciation and impairment losses.
When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the
revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying
amount of the asset after revaluation equals its revalued amount. The separate classes into which the Company
groups assets for
telecommunications network plant and
transmission and switching equipment; and furniture, fixture, motor vehicles and other equipment. When an item of
property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset
belongs is revalued simultaneously. When an asset’s carrying amount is increased as a result of a revaluation, the
increase is credited directly to equity under the component of revaluation reserve. However, a revaluation increase is
recognised as income to the extent that it reverses a revaluation decrease of the same asset previously recognised as
an expense. When an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised as
an expense in the consolidated income statement. However, a revaluation decrease is charged directly against any
related revaluation surplus to the extent that the decrease does not exceed the amount held in the revaluation reserve
in respect of that same asset. Revaluations are performed with sufficient regularity such that the carrying amount
does not differ materially from that which would be determined using fair value at the balance sheet date. Revaluations
are performed annually on items which experience significant and volatile movements in fair value while items which
experience insignificant movements in fair value are revalued every three years.

Assets acquired under leasing agreements which effectively transfer substantially all the risks and benefits incidental
to ownership from the lessor to the lessee are classified as assets under finance leases. Assets held under finance
leases are initially recorded at amounts equivalent to the present value of the minimum lease payments (computed
using the rate of interest implicit in the lease) which approximate the fair value at the inception of the lease. The net
present value of the future minimum lease payments is recorded correspondingly as a finance lease obligation. Assets
held under finance leases are amortised over their estimated useful lives on a straight-line basis. As at 31 December
2008, the carrying amount of assets held under finance leases was RMB93 million (2007: RMB32 million).

Gains or losses arising from retirement or disposal of property, plant and equipment are determined as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognised as income or expense in
the consolidated income statement on the date of disposal. On disposal of a revalued asset, the related revaluation
surplus is transferred from the revaluation reserve to retained earnings.

Notes to the
Financial Statements

For the year ended 31 December 2008

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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(g) Property, plant and equipment (continued)

Depreciation is provided to write off the cost/revalued amount of each asset over its estimated useful life on a straight-
line basis, after taking into account its estimated residual value, as follows:

104

Buildings and improvements
Telecommunications network plant, transmission and switching equipment
Furniture, fixture, motor vehicles and other equipment

Depreciable lives
primarily range from

8 to 30 years
6 to 10 years
5 to 10 years

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of the item is
allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an
asset and its residual value are reviewed annually.

(h)

Lease prepayments

Lease prepayments represent land use rights paid to the PRC’s land bureau. Land use rights are initially carried at
cost and then charged to profit or loss on a straight-line basis over the respective periods of the rights which range
from 20 years to 70 years.

(i)

Construction in progress

Construction in progress represents buildings, telecommunications network plant, transmission and switching
equipment and other equipment and intangible assets under construction and pending installation, and is stated at
cost less impairment losses (Note 2(o)). The cost of an item comprises direct costs of construction, interest charges,
and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to
interest charges, during the periods of construction. Capitalisation of these costs ceases and the construction in
progress is transferred to property, plant and equipment and intangible assets when the asset is substantially ready
for its intended use.

No depreciation is provided in respect of construction in progress.

(j)

Goodwill

Goodwill represents the excess of the cost of the Group’s interest in the net fair value of CDMA business’s identifiable
assets, liabilities and contingent liabilities.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and
is tested annually for impairment (Note 2(o)). On disposal of a cash generating unit during the year, any attributable
amount of the goodwill is included in the calculation of the profit or loss on disposal.

(k)

Intangible assets

The Group’s intangible assets comprise computer software and customer relationships acquired in the CDMA
business acquisition (Note 5).

The computer software that is not an integral part of any tangible assets, is recorded at cost less subsequent
accumulated amortisation and impairment losses (Note 2(o)). Amortisation of computer software is calculated on a
straight-line basis over the estimated useful lives, which range from 3 to 5 years.

The customer relationships acquired in the CDMA acquisition is recorded at the acquisition-date fair value and
amortised on a straight-line basis over the expected customer relationship of 5 years.

Notes to the
Financial Statements

For the year ended 31 December 2008

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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(l)

Investments in subsidiaries

In the Company’s stand-alone balance sheet, investments in subsidiaries are stated at cost less impairment losses
(Note 2(o)).

(m)

Investments

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Investments in available-for-sale equity securities are carried at fair value with any change in fair value being
recognised directly in equity. When these investments are derecognised or impaired, the cumulative gain or loss
previously recognised in equity is recognised in the consolidated income statement. Investments in equity securities
that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are
stated at cost less impairment losses (Note 2(o)).

105

(n) Operating lease charges

Where the group has the use of assets held under operating leases, payments made under the leases are charged to
profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative
basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received
are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are
charged to profit or loss in the accounting period in which they are incurred.

(o)

Impairment

(i)

(ii)

Impairment of investments in equity securities and trade and other receivables
Investments in equity securities and trade and other receivables are reviewed at each balance sheet date to
determine whether there is objective evidence of impairment. If such evidence exists, the impairment loss is
measured as the difference between the asset’s carrying amount and the estimated future cash flows,
discounted at the current market rate of return for a similar financial asset where the effect of discounting is
material, and is recognised as an expense in the consolidated income statement. Impairment losses for trade
and other receivables are reversed through profit and loss if
in a subsequent period the amount of the
impairment losses decreases. Impairment losses for equity securities are not reversed.

Impairment of long-lived assets
The carrying amounts of the Group’s long-lived assets, including property, plant and equipment, intangible
assets, construction in progress, investments in subsidiaries and investments are reviewed periodically to
determine whether there is any indication of impairment. These assets are tested for impairment whenever
events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. For
goodwill, the impairment testing is performed annually at the end of each year balance sheet date.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and the net selling
price. When an asset does not generate cash flows largely independent of those from other assets, the
recoverable amount is determined for the smallest group of assets that generates cash inflows independently
(i.e. a cash-generating unit). In determining the value in use, expected future cash flows generated by the
assets are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of time value of money and the risks specific to the asset. The goodwill arising from a business
combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to
benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its
estimated recoverable amount. Impairment loss is recognised as an expense in the consolidated income
statement. Impairment loss recognised in respect of cash-generating units is allocated first to reduce the
carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other
assets in the unit (group of units) on a pro rata basis.

Notes to the
Financial Statements

For the year ended 31 December 2008

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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(o)

Impairment (continued)

(ii)

Impairment of long-lived assets (continued)
The Group assesses at each balance sheet date whether there is any indication that an impairment loss
recognised for an asset in prior years may no longer exist. An impairment loss is reversed if there has been a
favourable change in the estimates used to determine the recoverable amount. A subsequent increase in the
recoverable amount of an asset, when the circumstances and events that led to the write-down or write-off
cease to exist, is recognised as an income in the consolidated income statement. The reversal is reduced by
the amount that would have been recognised as depreciation had the write-down or write-off not occurred. For
the years presented, no reversal of impairment loss was recognised in the consolidated income statement. An
impairment loss in respect of goodwill is not reversed.

(p) Revenue recognition

The Group’s revenues are principally derived from the provision of
local, domestic long distance (‘‘DLD’’) and
international long distance (‘‘ILD’’) wireline and mobile telephony services which consist of (i) usage fees, which vary
depending on the day, the time of day, distance and duration of the telephone call, (ii) a monthly service fee, (iii) service
activation and installation fees, and (iv) charges for value-added telecommunications services, such as caller ID
services, short messaging services, information services and ring tone services. The Group recognises wireline and
mobile telephony service revenue over the periods they are earned as follows:

(i)

(ii)

Revenue derived from local, DLD and ILD usage are recognised as the services are provided.

Upfront fees received for activation of wireline services and wireline installation charges are deferred and
recognised over the expected customer relationship period. The direct incremental costs associated with the
installation of wireline services are deferred to the extent of the upfront fees and are amortised over the same
expected customer relationship period.

(iii)

Monthly service fees are recognised in the month during which the services are provided to customers.

(iv)

Revenue from sale of prepaid calling cards are recognised as the cards are used by customers.

(v)

Revenue derived from value-added services are recognised when the services are provided to customers.

Other related telecommunications service revenue are recognised as follows:

(i)

(ii)

Revenue from the provision of Internet and managed data services are recognised when the services are
provided to customers.

Interconnection fees from domestic and foreign telecommunications operators are recognised when the
services are rendered as measured by the minutes of traffic processed.

(iii)

Lease income from operating leases is recognised over the term of the lease.

(iv)

(v)

Revenue derived from integrated information application services are recognised when the services are
provided to customers.

Sale of customer-end equipment is recognised on delivery of the equipment to customers and when the
significant risks and rewards of ownership and title have been transferred to the customers.

Notes to the
Financial Statements

For the year ended 31 December 2008

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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(q) Advertising and promotion expense

The costs for advertising and promoting the Group’s telecommunications services are expensed as incurred.
Advertising and promotion expense, which is included in selling, general and administrative expenses, was
RMB13,210 million for the year ended 31 December 2008 (2007: RMB10,638 million).

(r)

Net finance costs

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Net finance costs comprise interest income on bank deposits, interest expense on borrowings, and foreign exchange
gains and losses. Interest income from bank deposits is recognised as it accrues using the effective interest method.

107

Interest costs incurred in connection with borrowings, calculated using the effective interest method, are expensed as
incurred, except to the extent that they are capitalised as being directly attributable to the construction of an asset
which necessarily takes a substantial period of time to get ready for its intended use.

(s)

Research and development expense

Research and development expenditure is expensed as incurred. For the year ended 31 December 2008, research
and development expense was RMB490 million (2007: RMB524 million).

(t)

Employee benefits

The Group’s contributions to defined contribution retirement plans administered by the PRC government are
recognised as an expense in the consolidated income statement as incurred. Further information is set out in Note 36.

Compensation expense in respect of the stock appreciation rights granted is accrued as a charge to the consolidated
income statement over the applicable vesting period based on the fair value of the stock appreciation rights. The
liability of the accrued compensation expense is re-measured to fair value at each balance sheet date with the effect
of changes in the fair value of the liability charged or credited to the consolidated income statement. Further details of
the Group’s stock appreciation rights scheme are set out in Note 37.

(u)

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount
initially recognised and the redemption value recognised in the consolidated income statement over the period of the
borrowings, together with any interest, using the effective interest method.

(v)

Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect
of discounting would be immaterial, in which case they are stated at cost.

(w) Provisions and contingent liabilities

A provision is recognised in the consolidated balance sheet when the Group has a legal or constructive obligation as a
result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.
Where the time value of money is material, provisions are stated at the present value of the expenditure expected to
settle the obligation.

Notes to the
Financial Statements

For the year ended 31 December 2008

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108

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(w) Provisions and contingent liabilities (continued)

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated
reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is
remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or
more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is
remote.

(x)

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the consolidated income statement
except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is calculated on the taxable income for the year by applying the applicable tax rates. Deferred tax is
provided using the balance sheet liability method, providing for all temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The
amount of deferred tax is calculated on the basis of the enacted tax rates that are expected to apply in the period
when the asset is realised or the liability is settled. The effect on deferred tax of any changes in tax rates is charged or
credited to the consolidated income statement, except for the effect of a change in tax rate on the carrying amount of
deferred tax assets and liabilities which were previously charged or credited directly to equity upon initial recognition,
in such case the effect of a change in tax rate is also charged or credited to equity.

A deferred tax asset is recognised only to the extent that it is probable that future taxable income will be available
against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that
the related tax benefit will be realised.

(y) Dividends

Dividends are recognised as a liability in the period in which they are declared.

(z)

Segmental reporting

An operating segment is a component of the Group that engages in business activities from which the Group may
earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to
and regularly reviewed by the Group’s chief operating decision maker in order to allocate resource and assess
performance of the segment. For the periods presented, management has determined that the Group has no
operating segments as the Group is only engaged in telecommunication business. No geographical area information
has been presented as such information is immaterial. The Group’s assets located and operating revenues derived
from activities outside the PRC are less than 1% of the Group’s assets and operating revenues, respectively.

Notes to the
Financial Statements

For the year ended 31 December 2008

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3. PROPERTY, PLANT AND EQUIPMENT, NET

The Group:

Buildings and
improvements
RMB
millions

Telecommunications
network plant
and equipment
RMB
millions

Furniture,
fixture, motor
vehicles
and other
equipment
RMB
millions

Cost/valuation:
Balance at 1 January 2007
Additions
Transferred from construction in progress
Disposals
Reclassification
Revaluations

Balance at 31 December 2007

Additions
Transferred from construction

in progress

Acquisition of CDMA business
Disposals
Reclassification

74,510
199
3,649
(193)
(23)
3,739

81,881

100

2,511
920
(148)
—

525,293
725
43,964
(13,464)
230
19,405

576,153

1,014

40,784
1,622
(14,564)
174

19,299
628
1,460
(968)
(207)
(4)

20,208

871

1,584
91
(991)
(174)

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109

Total
RMB
millions

619,102
1,552
49,073
(14,625)
—

23,140

678,242

1,985

44,879
2,633
(15,703)
—

Balance at 31 December 2008

85,264

605,183

21,589

712,036

Accumulated depreciation

and impairment:

Balance at 1 January 2007
Depreciation charge for the year
Written back on disposal
Reclassification
Revaluations

Balance at 31 December 2007

Acquisition of CDMA business
Depreciation charge for the year
Provision for impairment
Written back on disposal
Reclassification

(16,867)
(3,098)
78
(69)
(161)

(20,117)

—
(3,436)
(36)
76
—

(260,867)
(46,409)
11,585
59
(20,928)

(10,931)
(2,258)
903
10
3

(288,665)
(51,765)
12,566
—

(21,086)

(316,560)

(12,273)

(348,950)

(27)
(46,661)
(24,131)
11,545
(99)

(9)
(2,160)
—
912
99

(36)
(52,257)
(24,167)
12,533
—

Balance at 31 December 2008

(23,513)

(375,933)

(13,431)

(412,877)

Net book value at 31 December 2008

61,751

229,250

8,158

299,159

Net book value at 31 December 2007

61,764

259,593

7,935

329,292

Notes to the
Financial Statements

For the year ended 31 December 2008

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110

3. PROPERTY, PLANT AND EQUIPMENT, NET (CONTINUED)

The Company:

Buildings and
improvements
RMB
millions

Telecommunications
network plant
and equipment
RMB
millions

Furniture,
fixture, motor
vehicles
and other
equipment
RMB
millions

Cost/valuation:
Balance at 1 January 2007
Additions
Transferred from construction in progress
Disposals
Revaluations

Balance at 31 December 2007

Transferred from subsidiaries
Additions
Transferred from construction in progress
Acquisition of CDMA business
Disposals
Reclassification

—
—

216
—
—

216

80,852
93
2,422
913
(148)
—

406
2
68
(40)
32

468

570,381
954
40,647
1,511
(14,393)
177

122
4
69
(14)
(4)

177

19,506
755
1,523
36
(954)
(177)

Total
RMB
millions

528
6
353
(54)
28

861

670,739
1,802
44,592
2,460
(15,495)
—

Balance at 31 December 2008

84,348

599,745

20,866

704,959

Accumulated depreciation:
Balance at 1 January 2007
Depreciation charge for the year
Written back on disposal
Revaluations

Balance at 31 December 2007

Transferred from subsidiaries
Depreciation charge for the year
Provision for impairment
Written back on disposal
Reclassification

—

(2)
—
—

(2)

(19,769)
(3,409)
(36)
76
—

(85)
(49)
25
(36)

(145)

(313,326)
(46,320)
(24,131)
11,438
(83)

(72)
(17)
13
3

(73)

(11,855)
(2,090)
—
884
83

(157)
(68)
38
(33)

(220)

(344,950)
(51,819)
(24,167)
12,398
—

Balance at 31 December 2008

(23,140)

(372,567)

(13,051)

(408,758)

Net book value at 31 December 2008

61,208

227,178

7,815

296,201

Net book value at 31 December 2007

214

323

104

641

Notes to the
Financial Statements

For the year ended 31 December 2008

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In accordance with the Group’s accounting policy (Note 2(g)), the property, plant and equipment of the Group as at 31
December 2007 were revalued for each asset class by the Company on a depreciated replacement cost basis. The
property, plant and equipment as at 31 December 2007 was revalued at RMB326,123 million. The surplus on revaluation of
certain property, plant and equipment totalling RMB4,809 million was credited to the revaluation reserve while the deficit on
revaluation of certain property, plant and equipment totalling RMB2,755 million was recognised as an expense for the year
ended 31 December 2007.

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The following is a summary of the carrying value of the Group’s property, plant and equipment (excluding Beijing Telecom)
before the revaluation and the revalued amounts of these assets as at 31 December 2007:

111

Buildings and improvements
Telecommunications network plant

and equipment

Furniture, fixture, motor vehicles and

other equipment

Carrying
value
before the
revaluation
RMB
millions

56,913

259,349

7,807

Revaluation
surplus
RMB
millions

Revaluation
deficit
RMB
millions

Revalued
amounts
RMB
millions

3,578

1,231

—

—

60,491

(2,754)

257,826

(1)

7,806

324,069

4,809

(2,755)

326,123

For the year ended 31 December 2007, no provision for impairment loss on property, plant and equipment was recognised.
For the year ended 31 December 2008, an impairment loss on property, plant, and equipment of RMB24,167 million was
recognised, which included an impairment loss on wireless access service (‘‘PHS’’) specific equipment of RMB23,954
million. The recoverable amounts of the PHS specific equipment were determined based on the asset held in use model that
estimated the future cash flows and outflows to be derived from continuing use of the asset for three years and from its
ultimate disposal and applying a discount rate that reflects current market assessment of the time value of money and the
risks specific to the asset. The primary factor resulting in the impairment loss was due to lower revenue expected to be
generated from this equipment following the acquisition of the CDMA business and operate with full services integrated
operations.

In addition, as the Group anticipated that the period for continuing use of the PHS specific equipment will be reduced, the
lives of these assets will not extend beyond three years accordingly. The Group’s depreciation and
estimated useful
amortisation expense is expected to be increased by approximately RMB500 million for each of the three years ended 31
December 2011.

Notes to the
Financial Statements

For the year ended 31 December 2008

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4. CONSTRUCTION IN PROGRESS

Balance at 1 January 2007
Additions
Transferred to property, plant and equipment

Balance at 31 December 2007

Additions
Transferred from subsidiaries
Transferred to property, plant and equipment
Transferred to intangible assets

The Group
RMB millions

The Company
RMB millions

19,564
43,135
(49,073)

13,626

46,328
—
(44,879)
(1,460)

249
306
(353)

202

46,024
13,338
(44,592)
(1,447)

Balance at 31 December 2008

13,615

13,525

5. GOODWILL

The Group

The Company

2008
RMB
millions

2007
RMB
millions

2008
RMB
millions

2007
RMB
millions

Cost:
Goodwill arising from acquisition of CDMA business

29,922

—

29,877

—

On 1 October, 2008, the Group acquired the CDMA mobile communication business and related assets and liabilities, which
also included the entire equity interests of China Unicom (Macau) Company Limited and 99.5% equity interests of Unicom
Huasheng Telecommunications Technology Company Limited (collectively the ‘‘CDMA business’’)
from China Unicom
Limited and China Unicom Corporation Limited (collectively ‘‘China Unicom’’). The purchase price of
the business
combination was RMB43,800 million. In addition, pursuant to the acquisition agreement, the Group assumed customer-
related assets and liabilities of the CDMA business and will receive a net settlement amount of RMB3,471 million from China
Unicom. The business combination was accounted for using the purchase method.

Notes to the
Financial Statements

For the year ended 31 December 2008

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5. GOODWILL (CONTINUED)

The fair value of the identifiable assets acquired and liabilities assumed on acquisition date and the purchase price allocation
are as follows:

Pre-acquisition
carrying
amounts
RMB millions

Fair value
adjustments
RMB millions

Recognised
values on
acquisition
RMB millions

Property, plant and equipment
Lease prepayments
Deferred tax assets
Intangible assets
Other non-current assets
Inventories
Accounts receivable
Prepayment and other current assets
Cash and cash equivalents
Accounts payable
Accrued expenses and other payables
Tax payable

Identifiable net assets acquired
Minority interest
Goodwill

Total cost of acquisition, including direct
transaction cost of RMB84 million

Consideration payable
Settlement amount due from China Unicom in relation

to the acquisition (reduction to the original purchase price)

Cash acquired

Net cash outflow

2,892
181
23
15
208
487
737
16
1,150
(385)
(5,583)
(32)

(295)
—
—
11,286
30
(234)
—
—
—
—
—
—

2,597
181
23
11,301
238
253
737
16
1,150
(385)
(5,583)
(32)

10,496
(5)
29,922

40,413
(13,223)

3,471
(1,150)

29,511

The goodwill recognised in the business combination is attributable to the skills and technical talent of the acquired
business’s workforce, and the synergies expected to be achieved from integrating and combining the CDMA mobile
communication business into the Group’s telecommunication business.

For purposes of goodwill impairment testing, the goodwill arising from the acquisition of CDMA business was allocated to
the appropriate cash-generating unit of the Group, which is the Group’s telecommunication business. The recoverable
amount of the Group’s telecommunication business is estimated based on the value in use model, which considers the
Group’s financial budgets approved by management covering a five-year period and a pre-tax discount rate of 12%. Cash
flows beyond the five-year period are projected to perpetuity at annual growth rate of 1%. Management believes any
reasonably possible change in the key assumptions on which the recoverable amount is based would not cause its
recoverable amount to be less than carrying amount.

Key assumptions used for the value in use calculation model are the number of subscribers, average revenue per subscriber
and gross margin. Management determined the number of subscribers, average revenue per subscriber and gross margin
based on historical trends and financial information.

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114

Notes to the
Financial Statements

For the year ended 31 December 2008

5. GOODWILL (CONTINUED)

The operating revenues from CDMA mobile services for the period from 1 October 2008 to 31 December 2008 was
RMB6,154 million. The amount of net income or loss of the acquired CDMA business since the acquisition date included in
the consolidated income statement for the year ended 31 December 2008 and the amounts of operating revenues and net
income or loss of the Group for the year ended 31 December 2008 as though the CDMA business was acquired as of 1
January 2008 have not been provided because the disclosure of such information was impracticable. The reason why such
disclosure was considered impracticable was because no discrete and/or historical profit or loss or operating revenues
information of the CDMA business for the relevant periods was available or existed to determine the disclosure amounts.
The Group has made every reasonable effort to provide such information, however, after considering the number of
significant adjustments and estimates that would be required to be made, the Group determine that, without any objective
information, it was impossible to provide such information that is reliable and meaningful.

6.

INTANGIBLE ASSETS

The Group:

Cost:
Balance at 1 January 2007
Additions
Disposals

Balance at 31 December 2007

Additions
Acquisition of CDMA business
Transferred from construction in progress
Disposals

Computer
software
RMB millions

Customer
relationships
RMB millions

Total
RMB millions

3,065
1,637
(102)

4,600
148
63
1,460
(113)

—
—
—

—

—
11,238
—
—

3,065
1,637
(102)

4,600
148
11,301
1,460
(113)

Balance at 31 December 2008

6,158

11,238

17,396

Accumulated amortisation:
Balance at 1 January 2007
Amortisation charge for the year
Written back on disposal

Balance at 31 December 2007

Amortisation charge for the year
Provision for impairment
Written back on disposal

(1,142)
(723)
79

(1,786)
(917)
(5)
109

—
—
—

—

(562)
—
—

(1,142)
(723)
79

(1,786)
(1,479)
(5)
109

Balance at 31 December 2008

(2,599)

(562)

(3,161)

Net book value at 31 December 2008

3,559

10,676

14,235

Net book value at 31 December 2007

2,814

—

2,814

6.

INTANGIBLE ASSETS (CONTINUED)

The Company:

Cost:
Balance at 1 January 2007
Additions

Balance at 31 December 2007

Transferred from subsidiaries
Additions
Transferred from construction in progress
Acquisition of CDMA business
Disposals

Notes to the
Financial Statements

For the year ended 31 December 2008

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a
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Computer
software
RMB millions

Customer
relationships
RMB millions

Total
RMB millions

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60
8

68
4,364
115
1,447
51
(104)

—
—

—

—
—
—
11,238
—

115

60
8

68
4,364
115
1,447
11,289
(104)

Balance at 31 December 2008

5,941

11,238

17,179

Accumulated amortisation:
Balance at 1 January 2007
Amortisation charge for the year

Balance at 31 December 2007

Transferred from subsidiaries
Amortisation charge for the year
Provision for impairment
Written back on disposal

(36)
(8)

(44)
(1,628)
(893)
(5)
100

—
—

—

—
(562)
—
—

(36)
(8)

(44)
(1,628)
(1,455)
(5)
100

Balance at 31 December 2008

(2,470)

(562)

(3,032)

Net book value at 31 December 2008

3,471

10,676

14,147

Net book value at 31 December 2007

24

—

24

Notes to the
Financial Statements

For the year ended 31 December 2008

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7.

INVESTMENTS IN SUBSIDIARIES

Unquoted investments, at cost

The Company

2008
RMB
millions

2007
RMB
millions

8,435

178,642

116

Pursuant to the resolution passed by the Company’s shareholders at an Extraordinary General Meeting held on 25 February
2008, certain of the Company’s subsidiaries were merged into the Company in an internal reorganisation. Details of the
Company’s principal subsidiaries at 31 December 2008 are as follows:

Name of Company

Type
of legal entity

Date of
incorporation

Place of
incorporation
and operation

Registered/
Issued capital
(in RMB millions
unless otherwise
stated)

China Telecom System Integration

Limited Company 13 September 2001 PRC

392

Co., Limited

China Telecom (Hong Kong)

Limited Company 25 February 2000

International Limited

Hong Kong Special
Administrative
Region of the PRC

HK$100,000

China Telecom (Americas)

Limited Company 22 November 2001

The United States

US$23 million

Corporation

of America

China Telecom Best Tone

Limited Company 15 August 2007

PRC

350

Information Service Co., Limited

China Telecom (Macau) Company
Limited (formerly known as
‘‘China Unicom (Macau)
Company Limited’’)

Limited Company 15 October 2004

Macau Special

MOP60 million

Administrative
Region of the PRC

Tianyi Telecom Terminals Company

Limited Company 1 July 2005

PRC

500

Limited (formerly known as
‘‘Unicom Huasheng
Telecommunications Technology
Company Limited’’)

Except for Tianyi Telecom Terminals Company Limited which is 99.5% owned by the Company, all of the above subsidiaries
are directly or indirectly wholly-owned by the Company.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
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0
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a
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117

8.

INTERESTS IN ASSOCIATES

Unlisted equity investments, at cost
Share of post-acquisition changes in net assets

The Group

The Company

2008
RMB
millions

2007
RMB
millions

2008
RMB
millions

2007
RMB
millions

330
552

882

339
461

800

737
—

737

—
—

—

The Group’s and the Company’s interests in associates are accounted for under the equity method and the cost method
respectively, and are individually and in aggregate not material to the Group’s financial condition or results of operations for
all periods presented. Details of the Group’s principal associates are as follows:

Name of company

Attributable
equity interest

Principal activities

Shenzhen Shekou Telecommunications

50%

Provision of telecommunications

Company Limited

services

Shanghai Information Investment Incorporation

24%

Provision of information technology

consultancy services

The above associates are established in the PRC and are not traded on any stock exchange.

9.

INVESTMENTS

Available-for-sale equity securities
Other unlisted equity investments

The Group

The Company

2008
RMB
millions

2007
RMB
millions

2008
RMB
millions

2007
RMB
millions

85
92

177

177
97

274

85
92

177

—
—

—

Unlisted equity investments mainly represent the Group’s and the Company’s various interests in PRC private enterprises
which are mainly engaged in the provision of information technology services and Internet contents.

Notes to the
Financial Statements

For the year ended 31 December 2008

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118

10. DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets and deferred tax liabilities are attributable to the items set out below:

The Group:

Assets

Liabilities

Net balance

2008
RMB
millions

2007
RMB
millions

2008
RMB
millions

2007
RMB
millions

2008
RMB
millions

2007
RMB
millions

Current

Provisions and impairment losses,

primarily for receivables

Non-current

Property, plant and equipment
Deferred revenues and installation costs
Land use rights
Available-for-sale equity securities

726

559

—

—

726

6,738
1,424
5,740
—

1,219
1,631
5,872
—

(1,982)
(821)
—
(13)

(2,222)
(863)
—

(36)

4,756
603
5,740
(13)

559

(1,003)
768
5,872
(36)

Deferred tax assets/(liabilities)

14,628

9,281

(2,816)

(3,121)

11,812

6,160

Movements in temporary differences are as follows:

Current

Provisions and impairment losses,

primarily for receivables

Non-current

Property, plant and equipment
Deferred revenues and installation costs
Land use rights
Available-for-sale equity securities

Balance at
1 January
2007
RMB millions

Recognised
in income
statement
RMB millions

Recognised
in equity
RMB millions

Balance at
31 December
2007
RMB millions

Note

(ii), (iii)

(i)

550

(965)
1,032
7,690
(22)

9

1,026
(264)
(169)
—

—

(1,064)
—

(1,649)
(14)

559

(1,003)
768
5,872
(36)

Net deferred tax assets

8,285

602

(2,727)

6,160

(Note 26)

Notes to the
Financial Statements

For the year ended 31 December 2008

8
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0
2
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10. DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED)

Balance at

Acquisition

Recognised

Balance at

1 January

2008

of CDMA

business

in income

Recognised

31 December

statement

in equity

2008

Note

RMB millions

RMB millions

RMB millions

RMB millions

RMB millions

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Current

Provisions and impairment

losses, primarily for

receivables

Non-current

Property, plant and equipment

Deferred revenues and

installation costs

Land use rights

Available-for-sale equity

securities

Net deferred tax assets

(i)

The Company:

559

(1,003)

768
5,872

(36)

6,160

23

—

—
—

—

23

144

5,759

(165)
(132)

—

5,606

(Note 26)

119

—

—

—
—

23

23

726

4,756

603
5,740

(13)

11,812

Assets

Liabilities

Net balance

2008
RMB
millions

2007
RMB
millions

2008
RMB
millions

2007
RMB
millions

2008
RMB
millions

2007
RMB
millions

695

6,702
1,398
5,725
—

14,520

—

—
—
—
—

—

—

(1,978)
(811)
—
(13)

—

—
—
—
—

695

4,724
587
5,725
(13)

(2,802)

—

11,718

—

—
—
—
—

—

Current

Provisions and impairment losses,

primarily for receivables

Non-current

Property, plant and equipment
Deferred revenues and installation costs
Land use rights
Available-for-sale equity securities

Deferred tax assets/(liabilities)

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
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R

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a
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10. DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED)

There was no movement in temporary differences for the year ended 31 December 2007. Movements in temporary
differences for the year ended 31 December 2008 are as follows:

Balance at
1 January
2008
RMB
millions

Transferred
from
subsidiaries
RMB
millions

Recognised
in income
statement
RMB
millions

Recognised
in equity
RMB
millions

Balance at
31 December
2008
RMB
millions

Note

120

Current
Provisions and impairment
losses, primarily for
receivables

Non-current
Property, plant and

equipment

Deferred revenues and
installation costs

Land use rights
Available-for-sale equity

securities

Net deferred tax assets

(i)

(iv)

—

—

—
—

—

—

527

168

(889)

5,613

631
5,856

(36)

(44)
(131)

—

6,089

5,606

—

—

—
—

23

23

695

4,724

587
5,725

(13)

11,718

The Group and the Company recognise a deferred tax asset only to the extent that it is probable that future taxable income
will be available against which the asset can be utilised. Based on the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are utilised, management believes that it is probable
the Group and the Company will realise the benefits of these temporary differences.

Note:

(i)

(ii)

(iii)

In connection with the Restructuring and the Acquisitions, the land use rights of the Predecessor Operations, the First Acquired Group and the
Second Acquired Group were revalued as required by the relevant PRC rules and regulations. The tax bases of the land use rights were
adjusted to conform to such revalued amounts. The land use rights were not revalued for financial reporting purposes and accordingly,
deferred tax assets were created with corresponding increases in shareholders’ equity under the caption of other reserves.

As described in Note 3, in accordance with the Group’s accounting policy, the property, plant and equipment of the Group were revalued as at
31 December 2007. The tax bases of these assets were not adjusted to conform to such revalued amounts and accordingly, a deferred tax
asset of RMB646 million and a deferred tax liability of RMB1,136 million in respect of the revaluation deficit and surplus respectively were
recognised.

On 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax Law of the People’s
Republic of China (‘‘new tax law’’), which takes effect on 1 January 2008. According to the new tax law, a unified corporate income tax rate of
25% is applied to PRC entities; however certain entities previously taxed at preferential rates are subject to a transition period during which
their tax rate will gradually be increased to the unified rate of 25% over a five year period starting from 1 January 2008.

Based on the new tax law, the income tax rate applicable to the Company and certain of its mainland PRC subsidiaries which were previously
taxed at 33% is reduced to 25% from 1 January 2008. Based on a tax notice issued by the State Council on 26 December 2007, the applicable
tax rates for entities operating in special economic zones, which were previously taxed at the preferential rate of 15%, are 18%, 20%, 22%, 24%
and 25% for the years ending 31 December 2008, 2009, 2010, 2011 and 2012 onwards, respectively. According to the same notice, the
applicable tax rate for entities operating in the western region of the PRC which were granted a preferential tax rate of 15% from 2004 to 2010,
remains at 15% for the years ending 31 December 2008, 2009 and 2010 and will be increased to 25% from 1 January 2011. Accordingly,
deferred tax assets that are expected to be recovered and deferred tax liabilities that are expected to be settled after 31 December 2007 were
adjusted to reflect the changes in tax rates. For deferred tax assets and liabilities which were previously credited or charged to consolidated
income statement upon initial recognition, the overall effect of changes in tax rates amounting to RMB117 million was charged to the
consolidated income statement for the year ended 31 December 2007. For deferred tax assets and liabilities which previously credited or
charged to equity, the overall effect of changes in tax rates amounting to RMB1,577 million was recognised in the consolidated statement of
changes in equity for the year ended 31 December 2007.

(iv)

As described in Note 1, the assets and liabilities of provincial subsidiaries were transferred to the Company’s branches in the respective
regions. As the tax bases of certain of these assets and liabilities were not conformed with the accounting bases after the merger, deferred tax
assets of RMB9,198 million and deferred tax liabilities of RMB3,109 million in respect of these temporary differences were recognised in the
Company’s balance sheet as at the effective date of transfer.

Notes to the
Financial Statements

For the year ended 31 December 2008

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11. INVENTORIES

Inventories represent:

Materials and supplies
Goods for resale

12. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, are analysed as follows:

The Group

The Company

2008
RMB
millions

1,067
1,494

2007
RMB
millions

1,451
1,214

2008
RMB
millions

1,043
864

2,561

2,665

1,907

2007
RMB
millions

—
—

—

The Group

The Company

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121

2008
RMB
millions

2007
RMB
millions

Accounts receivable
Third parties
Amounts due from subsidiaries
China Telecom Group
Other state-controlled telecommunications operators

in the PRC

Less: Allowance for impairment of doubtful debts

2008
RMB
millions

17,923
—
372

1,112

19,407
(2,118)

2007
RMB
millions

16,796
—

248

1,378

18,422
(1,443)

16,907
—
218

1,082

18,207
(2,022)

157
46
—

52

255
—

255

17,289

16,979

16,185

Amounts due from the provision of telecommunications services to customers are generally due within 30 days from the
date of billing.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
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o
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R

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a
u
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A

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i

i

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At beginning of year
Transferred from subsidiaries
Acquisition of CDMA business
Allowance for impairment of doubtful debts
Accounts receivable written off

12. ACCOUNTS RECEIVABLE, NET (CONTINUED)

The following table summarises the changes in allowance for impairment of doubtful debts:

The Group

The Company

2008
RMB
millions

1,443
—
491
1,797
(1,613)

2007
RMB
millions

1,522
—
—
1,361
(1,440)

2008
RMB
millions

—
1,368
481
1,754
(1,581)

2007
RMB
millions

—
—
—
—
—

—

At end of year

2,118

1,443

2,022

Ageing analysis of accounts receivable from telephone and Internet subscribers is as follows:

Current, within 1 month
1 to 3 months
4 to 12 months
More than 12 months

Less: Allowance for impairment of doubtful debts

The Group

The Company

2008
RMB
millions

11,282
2,170
1,514
495

2007
RMB
millions

11,016
2,408
1,009
304

2008
RMB
millions

11,125
2,132
1,504
494

15,461
(2,009)

14,737
(1,313)

15,255
(1,998)

13,452

13,424

13,257

2007
RMB
millions

—
—
—
—

—
—

—

Ageing analysis of accounts receivable from telecommunications operators and customers is as follows:

Current, within 1 month
1 to 3 months
4 to 12 months
More than 12 months

Less: Allowance for impairment of doubtful debts

The Group

The Company

2008
RMB
millions

1,397
1,210
834
505

3,946
(109)

2007
RMB
millions

1,645
1,042
498
500

3,685
(130)

2008
RMB
millions

1,008
1,076
487
381

2,952
(24)

3,837

3,555

2,928

2007
RMB
millions

73
95
47
40

255
—

255

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
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o
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R

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a
u
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A

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i

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123

13. PREPAYMENTS AND OTHER CURRENT ASSETS

Prepayments and other current assets represent:

The Group

The Company

2008
RMB
millions

2007
RMB
millions

2008
RMB
millions

Note

Amounts due from China Telecom Group
Amounts due from subsidiaries
Amounts due from other state-controlled

telecommunications operators in the PRC
Amount due from China Unicom in relation to

the acquisition of CDMA business

5

Prepayments in connection with construction

work and equipment purchases

Prepaid expenses and deposits
Other receivables

700
—

1,052

3,471

836
720
607

435
—

261

—

855
708
558

698
344

1,052

3,471

720
649
492

2007
RMB
millions

—

69,239

—

—

88
—

10

7,386

2,817

7,426

69,337

14. CASH AND CASH EQUIVALENTS

Cash at bank and in hand
Time deposits with original maturity within three months

The Group

The Company

2008
RMB
millions

21,916
5,950

2007
RMB
millions

17,002
4,425

2008
RMB
millions

17,546
4,010

2007
RMB
millions

2,090
3,724

27,866

21,427

21,556

5,814

Notes to the
Financial Statements

For the year ended 31 December 2008

8
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0
2
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o
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R

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a
u
n
n
A

d
e
t
i

15. SHORT-TERM AND LONG-TERM DEBT

Short-term debt comprises:

i

m
L
n
o
i
t
a
r
o
p
r
o
C
m
o
c
e
e
T
a
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h
C

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l

124

Loans from state-controlled banks — unsecured
Short-term commercial paper — unsecured
Loans from China Telecom Group — unsecured

The Group

The Company

2008
RMB
millions

9,693
9,979
63,776

2007
RMB
millions

29,326
—

38,441

2008
RMB
millions

9,688
9,979
63,776

2007
RMB
millions

—
—

10,000

Total short-term debt

83,448

67,767

83,443

10,000

The weighted average interest rate of the Group’s and the Company’s total short-term debt as at 31 December 2008 was
5.1% (2007: 4.4%) and 5.1% (2007: 2.8%) respectively. As at 31 December 2008, the loans from state-controlled banks
bear interest at rates ranging from 2.5% to 7.5% per annum and are repayable within one year; the commercial paper bears
interest at a fixed rate of 4.72% per annum and repayable in August 2009; the loans from China Telecom Group bear interest
at fixed rates ranging from 3.9% to 7.3% per annum and are repayable within one year.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
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0
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15. SHORT-TERM AND LONG-TERM DEBT (CONTINUED)

Long-term debt comprises:

Interest rates and final maturity

2008
RMB millions

2007
RMB millions

2008
RMB millions

2007
RMB millions

The Group

The Company

i

m
L
n
o
i
t
a
r
o
p
r
o
C
m
o
c
e
e
T
a
n
h
C

l

i

Interest rates ranging from 4.53%
to 7.05% per annum with
maturities through 2020

Interest rates ranging from 1.00%
to 7.55% per annum with
maturities through 2060

Interest rates ranging from 2.30%
to 3.50% per annum with
maturities through 2040

Interest rates ranging from 2.30%
to 4.50% per annum with
maturities through 2032

Bank loans — unsecured

Renminbi denominated

US Dollars denominated

Japanese Yen denominated

Euro denominated

Other currencies denominated

Other loans — unsecured

Renminbi denominated

Medium-term notes —
unsecured (Note (i))

Amount due to China Telecom —

unsecured

In connection with the First
Acquisition — Renminbi
denominated (Note (ii))
In connection with the Second
Acquisition — Renminbi
denominated (Note (iii))

Total long-term debt

Less: current portion

Non-current portion

1,533

4,113

1,524

877

1,012

877

1,690

1,768

1,690

686

839

686

43

4,829

1

19,811

71

7,803

6

—

43

4,820

1

19,811

125

—

—

—

—

—

—

—

—

—

15,000

—

15,000

15,150

15,150

15,150

15,150

39,791

(565)

37,959

(3,811)

39,782

30,150

(556)

—

39,226

34,148

39,226

30,150

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
r
o
p
e
R

l

a
u
n
n
A

d
e
t
i

i

m
L
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o
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a
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126

15. SHORT-TERM AND LONG-TERM DEBT (CONTINUED)

Note:

(i)

(ii)

(iii)

On 22 April 2008, the Company issued three-year, 10 billion RMB denominated medium-term note with annual interest rate of 5.3% per annum
and incurred issuing costs of RMB88 million. The medium-term note is unsecured and is repayable on 21 April 2011. On 23 October 2008, the
Company issued five-year 10 billion RMB denominated medium-term note with annual interest rate of 4.15% per annum and incurred issuing
costs of RMB125 million. The medium-term note is unsecured and is repayable on 22 October 2013.

Represents the deferred consideration payable to China Telecom in respect of the First Acquisition (Note 1). The amount bears interest on the
outstanding balance at 5.184% per annum until 31 December 2008. Thereafter the interest rate is adjusted based on the prevailing market
interest rate. This amount was repayable on 31 December 2013 and the Company may, from time to time, repay all or part of the amount at any
time until 31 December 2013 without penalty. In October 2008, the Company repaid the remaining balance of RMB15,000 million to China
Telecom.

Represents the remaining balance of the deferred consideration payable to China Telecom in respect of the Second Acquisition (Note 1). The
amount bears interest on the outstanding balance at 5.184% per annum until 30 June 2009. Thereafter the interest rate is adjusted based on
the prevailing market interest rate. This amount is repayable on 30 June 2014 and the Company may, from time to time, repay all or part of the
amount at any time until 30 June 2014 without penalty.

The aggregate maturities of the Group’s and the Company’s long-term debts subsequent to 31 December 2008 are as
follows:

Within 1 year
Between 1 to 2 years
Between 2 to 3 years
Between 3 to 4 years
Between 4 to 5 years
Thereafter

The Group

The Company

2008
RMB
millions

565
1,676
10,391
190
10,081
16,888

2007
RMB
millions

3,811
699
983
190
196
32,080

2008
RMB
millions

556
1,676
10,391
190
10,081
16,888

2007
RMB
millions

—
—
—
—
—

30,150

39,791

37,959

39,782

30,150

The Group’s short-term and long-term debts do not contain any financial covenants. As at 31 December 2008, the Group
and the Company had available credit facilities of RMB128,231 million (2007: RMB36,823 million) and RMB128,231 million
(2007: nil) respectively which it can draw upon.

16. ACCOUNTS PAYABLE

Accounts payable are analysed as follows:

Third parties
China Telecom Group
Other state-controlled telecommunications operators

in the PRC
Subsidiaries

The Group

The Company

2008
RMB
millions

27,698
6,387

373
—

2007
RMB
millions

23,364
5,514

135
—

2008
RMB
millions

25,271
6,358

372
1,107

2007
RMB
millions

92
18

—
—

34,458

29,013

33,108

110

Notes to the
Financial Statements

For the year ended 31 December 2008

8
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0
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16. ACCOUNTS PAYABLE (CONTINUED)

Amounts due to China Telecom Group are repayable in accordance with contractual terms which are similar to those terms
offered by third parties.

Ageing analysis of accounts payable is as follows:

The Group

The Company

i

m
L
n
o
i
t
a
r
o
p
r
o
C
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o
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e
e
T
a
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h
C

i

l

Due within 1 month or on demand
Due after 1 month but within 3 months
Due after 3 months but within 6 months
Due after 6 months

2008
RMB
millions

7,530
10,289
6,807
9,832

2007
RMB
millions

5,329
8,185
6,381
9,118

2008
RMB
millions

6,939
9,786
6,990
9,393

127

2007
RMB
millions

22
11
7
70

34,458

29,013

33,108

110

17. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables represent:

Amounts due to China Telecom Group
Amounts due to subsidiaries
Amounts due to other state-controlled

telecommunication operators in the PRC

Accrued expenses
Customer deposits and receipts in advance
Dividend payable
Purchase price payable to China Unicom for the

acquisition of CDMA business

The Group

The Company

Note

2008
RMB
millions

1,448
—

102
15,452
23,060
426

2007
RMB
millions

947
—

219
14,292
14,744
468

2008
RMB
millions

1,237
1,921

102
14,953
22,412
426

(i)

13,140

—

13,089

2007
RMB
millions

88
14,445

75
754
107
468

—

53,628

30,670

54,140

15,937

(i)

The amount is non-interest bearing and is repayable before 31 March 2009.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
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18. DEFERRED REVENUES

Deferred revenues represent the unearned portion of upfront connection fees and installation fees for wireline services
received from customers and the unused portion of calling cards. Connection fees and installation fees are amortised over
the expected customer relationship period of 10 years. Beginning 1 July 2001, connection fees were no longer collected
from new customers.

The Group

The Company

i

m
L
n
o
i
t
a
r
o
p
r
o
C
m
o
c
e
e
T
a
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h
C

l

i

128

Balance at beginning of year
Transferred from subsidiaries
Additions for the year
— installation fees
— calling cards

Reduction for the year

— amortisation of connection fees
— amortisation of installation fees
— usage of calling cards

2008
RMB
millions

15,486
—

656
4,119

4,775

2007
RMB
millions

20,766
—

795
4,428

5,223

2008
RMB
millions

—
15,486

617
4,111

4,728

(2,022)
(2,574)
(4,221)

(3,294)
(2,736)
(4,473)

(2,022)
(2,535)
(4,216)

Balance at end of year

11,444

15,486

11,441

Representing:

— current portion
— non-current portion

4,505
6,939

5,646
9,840

4,502
6,939

11,444

15,486

11,441

Included in other non-current assets are capitalised direct incremental costs associated with the installation of wireline
services. As at 31 December 2008, the unamortised portion of these costs was RMB5,584 million (2007: RMB6,986
million).

19. SHARE CAPITAL

Registered, issued and fully paid
67,054,958,321 ordinary domestic shares of RMB1.00 each
13,877,410,000 overseas listed H shares of RMB1.00 each

All ordinary domestic shares and H shares rank pari passu in all material respects.

The Group and
the Company

2008
RMB
millions

67,055
13,877

80,932

2007
RMB
millions

67,055
13,877

80,932

2007
RMB
millions

—
—

—
—

—

—
—
—

—

—
—

—

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
r
o
p
e
R

l

a
u
n
n
A

d
e
t
i

i

m
L
n
o
i
t
a
r
o
p
r
o
C
m
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e
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T
a
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i

129

20. RESERVES

The Group

Share
premium
RMB
millions

Re-
valuation
reserve
RMB
millions

Capital
reserve
RMB
millions
(Note (i))

Balance as at 1 January 2007, as previously reported
Adjusted for the Fourth Acquisition

(2,804)
—

10,746
—

Balance as at 1 January 2007, as restated
Effect of changes in tax rates (Note 10)
Surplus on revaluation of property,

plant and equipment

Deferred tax on revaluation surplus (Note 10)
Change in fair value of available-for-sale equity

securities (net of deferred tax of RMB14 million)

Exchange difference on translation of financial

statements of subsidiaries outside mainland PRC

Profit for the year ended 31 December 2007,

as restated

Deferred tax on revaluation surplus of property, plant

and equipment realised
Revaluation surplus realised
Deferred tax on land use rights realised
Dividends (Note 30)
Appropriations (Note (iii))
Distribution to China Telecom
Transfer from retained earnings to other reserves
Adjustment to statutory reserves (Note (iii))
Consideration for the acquisition of the

Third Acquired Group

(2,804)
—

10,746
—

—
—

—

—

—

—
—
—
—
—
—
—
—

—

—
—

—

—

—

—
—
—
—
—
—
—
—

—

7,357
—

7,357
—

4,809
—

—

—

—

—
(194)
—
—
—
—
—
—

—

Statutory
reserves
RMB
millions
(Note (iii))

49,818
—

49,818
—

—
—

—

—

—

—
—
—
—
5,388
—
—
(2,839)

—

Other
reserves
RMB
millions
(Note (ii))

11,656
3,148

14,804
(1,577)

—
(1,136)

64

—

—

31
—
(169)
—
—
(2,931)
649
—

(1,408)

Exchange
reserve
RMB
millions

Retained
earnings
RMB
millions

Total
RMB
millions

(479)
—

(479)
—

—
—

—

(103)

—

—
—
—
—
—
—
—
—

—

48,975
—

125,269
3,148

48,975
—

128,417
(1,577)

—
—

—

—

4,809
(1,136)

64

(103)

24,195

24,195

(31)
194
169
(6,741)
(5,388)
—
(649)
2,839

—

—
—
—
(6,741)
—
(2,931)
—
—

(1,408)

Balance as at 31 December 2007, as restated

(2,804)

10,746

11,972

52,367

8,327

(582)

63,563

143,589

Change in fair value of available-for-sale equity

securities (net of deferred tax of RMB23 million)

Exchange difference on translation of financial

statements of subsidiaries outside mainland PRC

Profit for the year ended 31 December 2008
Deferred tax on revaluation surplus of property, plant

and equipment realised
Revaluation surplus realised
Deferred tax on land use rights realised
Dividends (Note 30)
Appropriations (Note (iii))
Distribution to China Telecom
Adjustment to statutory reserves (Note (iv))
Transfer from retained earnings to other reserves
Consideration for the acquisition of the
Fourth Acquired Company (Note 1)

—

—
—

—
—
—
—
—
—
—
—

—

—

—
—

—
—
—
—
—
—
—
—

—

—

—
—

—
(562)
—
—
—
—
—
—

—

—

—
—

—
—
—
—
—
—
3,718
—

(69)

—
—

127
—
(132)
—
—
(535)
—
425

—

(5,557)

—

(83)
—

—
—
—
—
—
—
—
—

—

—

—
884

(127)
562
132
(6,125)
—
—
(3,718)
(425)

(69)

(83)
884

—
—
—
(6,125)
—
(535)
—
—

—

(5,557)

Balance as at 31 December 2008

(2,804)

10,746

11,410

56,085

2,586

(665)

54,746

132,104

8
0
0
2
t
r
o
p
e
R

l

a
u
n
n
A

d
e
t
i

i

m
L
n
o
i
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a
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p
r
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C
m
o
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T
a
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C

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l

Notes to the
Financial Statements

For the year ended 31 December 2008

20. RESERVES (CONTINUED)

The Company

Capital
reserve
RMB millions
(Note (i))

Share
premium
RMB millions

Statutory
reserves
RMB millions
(Note (iii))

Retained
earnings
RMB millions

Total
RMB millions

130

Balance as at 1 January 2007
Profit for the year
Appropriations (Note (iii))
Adjustment to statutory reserves (Note (iii))
Dividends (Note 30)

29,168
—
—
—
—

10,746
—
—
—
—

49,818
—

5,388
(2,839)
—

Balance as at 31 December 2007

29,168

10,746

52,367

Profit for the year (Note (v))
Appropriations (Note (iii))
Adjustment to statutory reserves (Note (iv))
Dividends (Note 30)

—
—
—
—

—
—
—
—

—
—
3,718
—

13,249
20,455
(5,388)
2,839
(6,741)

24,414

20,602
—
(3,718)
(6,125)

102,981
20,455
—
—

(6,741)

116,695

20,602
—
—
(6,125)

Balance as at 31 December 2008

29,168

10,746

56,085

35,173

131,172

Note:

(i)

Capital reserve of the Group represents the sum of (a) the difference between the carrying amount of the Company’s net assets and the par
value of the Company’s shares issued upon its formation; and (b) the difference between the consideration paid by the Company for the
entities acquired from China Telecom as described in Note 1, which were accounted for as equity transactions as disclosed in Note 1 to the
financial statements, and the historical carrying amount of the net assets of these acquired entities.

Capital reserve of the Company represents the difference between the carrying amount of the Company’s net assets and the par value of the
Company’s shares issued upon its formation.

(ii)

Other reserves of the Group represent primarily the balance of the deferred tax assets recognised due to the revaluation of land use rights for
tax purposes (and not for financial reporting purposes) as described in Note 10(i) and the balance of the deferred tax liabilities recognised due
to the revaluation of property, plant and equipment for financial reporting purposes (and not for tax purposes) as described in Note 10(ii).

(iii)

The statutory reserves consist of statutory surplus reserve and discretionary surplus reserve.

According to the Company’s Articles of Association, the Company is required to transfer 10% of its net profit, as determined in accordance
with the PRC accounting rules and regulations, to the statutory surplus reserve until such reserve balance reaches 50% of the registered
capital. The transfer to this reserve must be made before distribution of any dividend to shareholders. For the year ended 31 December 2008,
the Company does not transfer any amount to this reserve as it has net loss during the year determined in accordance with the PRC
accounting rules and regulations. For the year ended 31 December 2007, the Company transferred RMB2,072 million, being 10% of the year’s
net profit determined in accordance with the PRC accounting rules and regulations, to this reserve.

On 1 January 2007, the Group adopted the PRC Accounting Standards for Business Enterprises issued by the PRC Ministry of Finance of the
PRC on 15 February 2006, which resulted in the statutory surplus reserve being adjusted accordingly.

According to the Company’s Articles of Association, the Directors authorised, subject to shareholders’ approval, the Company does not
transfer any amount to the discretionary surplus reserve for the year ended 31 December 2008. For the year ended 31 December 2007, the
Company transfer RMB3,316 million, being 16% of the year’s net profit determined in accordance with the PRC accounting rules and
regulations, to the discretionary surplus reserve.

The statutory and discretionary surplus reserves are non-distributable other than in liquidation and can be used to make good of previous
years’ losses, if any, and may be utilised for business expansion or converted into share capital by issuing new shares to existing shareholders
in proportion to their shareholdings or by increasing the par value of the shares currently held by them, provided that the remaining reserve
balance after such issue is not less than 25% of the registered capital.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
r
o
p
e
R

l

a
u
n
n
A

d
e
t
i

i

m
L
n
o
i
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a
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C
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T
a
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l

131

20. RESERVES (CONTINUED)

Note: (continued)

(iv)

(v)

(vi)

Upon the merger of certain subsidiaries of the Company into the company in connection with an internal reorganisation, the subsidiaries’ non-
distributable profits at the date of the internal reorganisation were transferred from retained earnings to statutory reserves of the Company as
required by the Company’s Articles of Association.

Upon the internal reorganisation, certain subsidiaries of the Company were merged into the Company. Therefore, the Company’s profit for the
year includes the difference between the net assets of these subsidiaries on the date of merger and the cost of
investment in these
subsidiaries, which amounted to RMB20,770 million.

According to the Company’s Articles of Association, the amount of retained earnings available for distribution to shareholders of the Company
is the lower of the amount determined in accordance with the PRC accounting rules and regulations and the amount determined in accordance
with IFRS. At 31 December 2008, the amount of retained earnings available for distribution was RMB35,173 million (2007: RMB24,414 million),
being the amount determined in accordance with IFRS. Final dividend of approximately RMB6,063 million in respect of the financial year 2008
proposed after the balance sheet date has not been recognised as a liability at the balance sheet date (Note 30).

21. OPERATING REVENUES

Operating revenues represent revenues from the provision of telecommunications services. The components of the Group’s
operating revenues are as follows:

Wireline voice
Mobile voice
Internet
Value-added services
Integrated information application services
Managed data and leased line
Others
Upfront connection fees

Note

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)

The Group

2008
RMB
millions

96,331
3,972
40,786
16,274
10,853
10,231
6,332
2,022

2007
RMB
millions

111,625
—
31,817
13,208
6,573
9,183
5,182
3,294

186,801

180,882

In the prior year financial statements, the revenues from wireline services including monthly fees, local usage fees, domestic
long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees, interconnections, upfront
installation fees, managed data and leased line revenue were separately disclosed in notes to the financial statements. The
amounts of revenue from value-added services and integrated information application services were not separately
disclosed in notes to the financial statements but were disclosed in aggregate under the caption of ‘‘value-added and
integrated information application service revenue’’.

In 2008, the Group changed its internal reporting system by aggregating the revenues from wireline services including
monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long
distance usage fees, interconnections and upfront installation fees as ‘‘wireline voice revenue’’, aggregating the amounts of
managed data and leased line revenue as ‘‘managed data and leased line revenue’’ and by separating the amounts of
revenue from value-added and integrated information application services as ‘‘value-added service revenue’’ and
‘‘integrated information application service revenue’’.

The related comparative figures have been aggregated or separated to conform with the current year’s figures.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
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R

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a
u
n
n
A

d
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t
i

i

m
L
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a
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p
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C
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T
a
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l

21. OPERATING REVENUES (CONTINUED)

Note:

(i)

(ii)

Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and
Taiwan long distance usage fees, interconnections and upfront installation fees charged to customers for the provision of wireline telephony
services.

Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and
Taiwan long distance usage fees and interconnections fees charged to customers for the provision of mobile telephony services.

132

(iii)

Represent amounts charged to customers for the provision of Internet access services.

(iv)

(v)

(vi)

Represent the aggregate amount of fees charged to customers for the provision of wireline, mobile and Internet value-added services, which
comprise primarily caller ID services, short messaging services, ring tone services, Internet data centre and IP-Virtual Private Network services.

Represent the aggregate amount of fees charged to customers for the provision of integrated information application services, which comprise
primarily voice-based hotline, IPTV, video monitoring and system integration and consulting services.

Represent primarily the aggregate amount of fees charged to customers for the provision of managed data transmission services and lease
income from other domestic telecommunications operators and business customers for the usage of the Group’s wireline telecommunication
networks and equipment.

(vii)

Represent primarily revenue from sale, rental and repairs and maintenance of customer-end terminal equipment.

(viii)

Represent the amortised amount of the upfront fees received for initial activation of wireline services.

22. PERSONNEL EXPENSES

Personnel expenses are attributable to the following functions:

Network operations and support
Selling, general and administrative

The Group

2008
RMB
millions

19,162
9,784

2007
RMB
millions

17,440
9,979

28,946

27,419

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
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a
u
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n
A

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i

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133

23. OTHER OPERATING EXPENSES

Other operating expenses consist of:

Interconnection charges
Cost of goods sold
Donations
Others

Note

(i)

The Group

2008
RMB
millions

7,543
3,009
42
38

10,632

2007
RMB
millions

6,938
1,931
54
42

8,965

Note:

(i)

Interconnection charges represent amounts incurred for the use of other domestic and foreign telecommunications operators’ networks for
delivery of voice and data traffic that originate from the Group’s wireline telecommunications networks.

24. TOTAL OPERATING EXPENSES

Total operating expenses for the year ended 31 December 2008 include auditor’s remuneration in relation to audit and non-
audit services are RMB80 million and RMB47 million respectively (2007: RMB58 million and Nil).

25. NET FINANCE COSTS

Net finance costs comprise:

Interest expense incurred
Less: Interest expense capitalised*

Net interest expense
Interest income
Foreign exchange losses
Foreign exchange gains

The Group

2008
RMB
millions

5,753
(417)

5,336
(430)
371
(201)

5,076

2007
RMB
millions

5,227
(455)

4,772
(380)
44
(148)

4,288

*

Interest expense was capitalised in construction in progress at the following

rates per annum

2.7%–7.1%

2.3%–6.7%

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
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26. INCOME TAX

Income tax in the consolidated income statement comprises:

i

m
L
n
o
i
t
a
r
o
p
r
o
C
m
o
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e
e
T
a
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C

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134

Provision for PRC income tax
Provision for income tax in other tax jurisdictions
Deferred taxation (Note 10)

A reconciliation of the expected tax with the actual tax expense is as follows:

Profit before taxation

Expected income tax expense at statutory tax rate of 25% (2007: 33%)
Differential tax rate on PRC subsidiaries’ and branches’ income
Differential tax rate on other subsidiaries’ income
Non-deductible expenses
Non-taxable income
Effect of changes in tax rates
Tax credit for domestic equipment purchases and other tax benefits

Note

(i)
(i)
(ii)
(iii)
(iv)
10 (iii)

The Group

2008
RMB
millions

4,792
21
(5,606)

(793)

The Group

2008
RMB
millions

186

47
248
(19)
660
(1,071)
—
(658)

2007
RMB
millions

7,274
32
(602)

6,704

2007
RMB
millions

30,996

10,229
(1,678)
(41)
1,362
(1,966)
117
(1,319)

Actual income tax (benefit)/expense

(793)

6,704

Note:

(i)

(ii)

The provision for PRC current income tax is based on a statutory rate of 25% (2007: 33%) of the assessable income of the Company, its
subsidiaries and branches as determined in accordance with the relevant income tax rules and regulations of the PRC, except for certain
subsidiaries and branches which are taxed at a preferential rate of 15% or 18%.

Income tax provision of the Company’s subsidiaries in the Hong Kong and Macau Special Administrative Regions of PRC, and in other
countries is based on the subsidiaries’ assessable income and income tax rates applicable in the respective tax jurisdictions which range from
12% to 35%.

(iii)

Amounts represent miscellaneous expenses in excess of statutory deductible limits for tax purpose.

(iv)

Amounts primarily represent connection fees received from customers which are not subject to income tax.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
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135

27. DIRECTORS’ AND SUPERVISORS’ REMUNERATION

The following table sets out the remuneration received or receivable by the Company’s directors and supervisors:

Directors’/
supervisors’
fees
RMB
thousands

Salaries,
allowances
and benefits
in kind
RMB
thousands

Discretionary
bonuses
RMB
thousands

Retirement
scheme
contributions
RMB
thousands

Share-
based
payments
RMB
thousands

Total
RMB
thousands

2008

Executive directors
Wang Xiaochu
Leng Rongquan^
Shang Bing^
Wu Andi
Zhang Jiping
Zhang Chenshuang
Yang Jie
Sun Kangmin
Yang Xiaowei^
Li Ping^

Non-executive directors
Li Jinming

Independent non-executive

directors

Xu Erming
Tse Hau Yin
Wu Jichuan^
Qin Xiao^
Cha May Lung^
Zhang Youcai^
Vincent Lo Hong Sui^
Shi Wanpeng^

Supervisors
Xiao Jinxue
Xu Cailiao
Ma Yuzhu
Wang Haiyun*
Han Fang*

Independent supervisor
Zhu Lihao

—
—
—
—
—
—
—
—
—
—

—

150
441
50
50
59
100
118
100

—
—
—
—
—

75

324
219
108
276
276
276
276
276
92
207

—

—
—
—
—
—
—
—
—

159
85
154
32
28

—

446
329
108
379
379
319
379
379
92
310

—

—
—
—
—
—
—
—
—

339
266
394
165
44

—

68
46
19
58
57
58
56
57
19
43

—

—
—
—
—
—
—
—
—

52
41
56
28
14

—

1,060
898
—
398
398
—
848
848
—
398

—

—
—
—
—
—
—
—
—

332
183
333
—
—

1,898
1,492
235
1,111
1,110
653
1,559
1,560
203
958

—

150
441
50
50
59
100
118
100

882
575
937
225
86

—

75

1,143

2,788

4,328

672

5,696

14,627

^

*

Mr Leng Rongquan and Mr Li Ping retired as an executive director of the Company and Mr Zhang Youcai, Mr Vincent Lo Hong
Sui and Mr Shi Wanpeng retired as independent non-executive directors of the Company on 9 September 2008. Mr Shang
Bing and Mr Yang Xiaowei were appointed as the executive directors of the Company and Mr Wu Jichuan, Mr Qin Xiao and
Ms Cha May Lung were appointed as independent non-executive directors of the Company on 9 September 2008.

Ms Wang Haiyun retired as a supervisor of the Company on 9 September 2008. Ms Han Fang was appointed as a supervisor
of the Company on 9 September 2008.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
r
o
p
e
R

l

a
u
n
n
A

d
e
t
i

i

m
L
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27. DIRECTORS’ AND SUPERVISORS’ REMUNERATION (CONTINUED)

Directors’/
supervisors’
fees
RMB
thousands

Salaries,
allowances
and benefits in
kind
RMB
thousands

Discretionary
bonuses
RMB
thousands

Retirement
scheme
contributions
RMB
thousands

Share-
based
payments
RMB
thousands

Total
RMB
thousands

136

2007

Executive directors
Wang Xiaochu
Leng Rongquan
Wu Andi
Zhang Jiping
Huang Wenlin*
Zhang Chenshuang*
Li Ping
Yang Jie
Sun Kangmin

Independent non-executive

directors
Zhang Youcai
Vincent Lo Hong Sui
Shi Wanpeng
Xu Erming
Tse Hau Yin

Supervisors
Xiao Jinxue^
Zhang Xiuqin^
Li Jian^
Xu Cailiao
Ma Yuzhu
Wang Haiyun^

Independent supervisor
Zhu Lihao

—
—
—
—
—
—
—
—
—

150
200
150
150
500

—
—
—
—
—
—

75

324
292
276
276
161
115
276
276
276

—
—
—
—
—

91
15
62
116
184
50

—

1,080
972
1,127
1,127
1,013
115
1,127
1,052
1,052

—
—
—
—
—

202
147
212
230
349
56

—

66
60
56
55
33
—
56
54
55

—
—
—
—
—

30
—
19
38
52
20

—

513
410
331
331
1,962
—
331
410
410

—
—
—
—
—

276
—
—
152
249
—

—

1,983
1,734
1,790
1,789
3,169
230
1,790
1,792
1,793

150
200
150
150
500

599
162
293
536
834
126

75

1,225

2,790

9,861

594

5,375

19,845

*

^

Ms Huang Wenlin resigned as an executive director of the Company on 31 August 2007. Mr Zhang Chenshuang was
appointed as an executive director of the Company on 31 August 2007.

Ms Zhang Xiuqin and Mr Li Jian resigned as supervisors in May 2007. Mr Xiao Jinxue and Ms Wang Haiyun were appointed
as supervisors of the Company on 29 May 2007.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
r
o
p
e
R

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a
u
n
n
A

d
e
t
i

i

m
L
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137

28. INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five highest paid individuals of the Group for the year ended 31 December 2008, one (2007: five) was director of the
Company and whose remuneration was disclosed in Note 27.

The aggregate of the emoluments in respect of the other four (2007: nil) individuals are as follows:

Salaries, allowances and benefits in kind
Discretionary bonuses
Retirement scheme contributions

2008
RMB
thousands

2007
RMB
thousands

3,698
3,768
122

7,588

—
—
—

—

The emoluments of the four (2007: nil) individuals with the highest emoluments are within the following bands:

RMB1,500,001–RMB2,000,000
RMB2,000,001–RMB2,500,000

2008
Number of
individuals

2
2

2007
Number of
individuals

—
—

None of these employees received any inducements or compensation for loss of office, or waived any emoluments during
the periods presented.

29. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

For the year ended 31 December 2008, the consolidated profit attributable to equity holders of the Company includes a loss
of RMB168 million which has been dealt with in the stand-alone financial statements of the Company.

For the year ended 31 December 2007, the consolidated profit attributable to equity holders of the Company includes a
profit of RMB20,455 million which has been dealt with in the stand-alone financial statements of the Company.

30. DIVIDENDS

Pursuant to a resolution passed at the Directors’ meeting on 24 March 2009, a final dividend of equivalent to HK$0.085 per
share totalling approximately RMB6,063 million for the year ended 31 December 2008 was proposed for shareholders’
approval at the Annual General Meeting. The dividend has not been provided for in the consolidated financial statements for
the year ended 31 December 2008.

Pursuant to the shareholders’ approval at the Annual General Meeting held on 30 May 2008, a final dividend of RMB
0.075747 (equivalent to HK$0.085) per share totalling RMB6,125 million in respect of the year ended 31 December 2007
was declared, of which RMB5,699 million and RMB426 million was paid on 16 June 2008 and 25 February 2009
respectively.

to the shareholders’ approval at

Pursuant
the Annual General Meeting held on 29 May 2007, a final dividend of
RMB0.083302 (equivalent to HK$0.085) per share totalling RMB6,741 million in respect of the year ended 31 December
2006 was declared, of which RMB6,273 million and RMB468 million were paid on 15 June 2007 and 23 January 2008
respectively.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
r
o
p
e
R

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a
u
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n
A

d
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i

i

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31. BASIC EARNINGS PER SHARE

The calculation of basic earnings per share for the years ended 31 December 2008 and 2007 is based on the profit
attributable to equity holders of
the Company of RMB884 million and RMB24,195 million respectively, divided by
80,932,368,321 shares.

The amount of diluted earnings per share is not presented as there were no dilutive potential ordinary shares in existence for
all periods presented.

138

32. COMMITMENTS AND CONTINGENCIES

Operating lease commitments

The Group leases business premises and equipment through non-cancellable operating leases. Other than the CDMA
network lease arrangements as set out in Note 35(a), these operating leases do not contain provisions for contingent lease
rentals. None of the rental agreements contain escalation provisions that may require higher future rental payments nor
impose restrictions on dividends, additional debt and/or further leasing.

As at 31 December 2008 and 2007, the Group’s and the Company’s future minimum lease payments under non-cancellable
operating leases were as follows:

Within 1 year
Between 1 to 2 years
Between 2 to 3 years
Between 3 to 4 years
Thereafter

The Group

The Company

2008
RMB
millions

830
595
479
380
808

2007
RMB
millions

558
372
305
233
580

2008
RMB
millions

746
561
471
380
808

Total minimum lease payments

3,092

2,048

2,966

2007
RMB
millions

—
—
—
—
—

—

Total rental expense in respect of operating leases charged to the consolidated income statement for the year ended 31
December 2008 was RMB3,645 million (2007: RMB1,832 million).

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
r
o
p
e
R

l

a
u
n
n
A

d
e
t
i

i

m
L
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139

32. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Capital commitments

As at 31 December 2008 and 2007, the Group and the Company had capital commitments as follows:

Authorised and contracted for

— property
— telecommunications network plant

and equipment

Authorised but not contracted for

— property
— telecommunications network plant

and equipment

The Group

The Company

2008
RMB
millions

2007
RMB
millions

2008
RMB
millions

2007
RMB
millions

629

3,283

3,912

764

3,857

4,621

730

2,945

3,675

1,005

3,449

4,454

629

3,282

3,911

764

3,790

4,554

53

62

115

54

24

78

Contingent liabilities

(a)

The Company and the Group were advised by their PRC lawyers that, except for liabilities arising out of or relating to
the businesses of the Predecessor Operations and the Acquired Groups transferred to the Company in connection
with the Restructuring and the Acquisitions, no other liabilities were assumed by the Company or the Group, and the
Company or the Group are not jointly and severally liable for other debts and obligations incurred by China Telecom
Group prior to the Restructuring and the Acquisitions.

(b)

As at 31 December 2008 and 2007, the Group did not have contingent liabilities in respect of guarantees given to
banks in respect of banking facilities granted to other parties, or other forms of contingent liabilities.

As at 31 December 2008, the Company did not have contingent liabilities in respect of guarantees given to banks in
respect of banking facilities granted to subsidiaries. As at 31 December 2007, the Company’s undiscounted
maximum amount of potential future payments under guarantees given to banks in respect of banking facilities
granted to subsidiaries was RMB1,195 million.

Legal contingencies

The Group is a defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of
business. Management has assessed the likelihood of an unfavourable outcome of such contingencies, lawsuits or other
proceedings and believes that any resulting liabilities will not have a material adverse effect on the financial position,
operating results or cash flows of the Group.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
r
o
p
e
R

l

a
u
n
n
A

d
e
t
i

i

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33. FINANCIAL INSTRUMENTS

Financial assets of the Group include cash and cash equivalents, time deposits, investments, accounts receivable, amounts
due from China Telecom Group, advances and other receivables. Financial
liabilities of the Group include short-term and
long-term debts, accounts payable, amounts due to China Telecom Group, accrued expenses and other payables. The
Group does not hold nor issue financial instruments for trading purposes.

(a)

Fair value

140

The estimated fair value amounts have been determined by management using market information and valuation
methodologies considered appropriate. However, considerable judgment is required to interpret market data to
develop the estimates of fair values. Accordingly, the estimates presented herein are not necessarily indicative of the
amounts the Group could realise in a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value amounts.

The fair values of the Group’s financial instruments (other than long-term debt and investment securities) approximate
their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term indebtedness
are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with
substantially the same characteristics and maturities. The interest rates used in estimating the fair values of long-term
debt, having considered the foreign currency denomination of the debt, ranged from 1.5% to 5.94% (2007: 1.5% to
7.047%). As at 31 December 2008 and 2007, the carrying amounts and fair values of the Group’s long-term debt
were as follows:

2008

Carrying
amount
RMB millions

Fair value
RMB millions

2007

Carrying
amount
RMB millions

Fair value
RMB millions

Long-term debt

39,791

38,871

37,959

35,037

The fair value of available-for-sale equity investment securities, which amounted to RMB85 million as at 31 December
2008 (2007: RMB177 million) was based on quoted market price on a PRC stock exchange. The Group’s long-term
investments are unlisted equity interests for which no quoted market prices exist in the PRC and accordingly, a
reasonable estimate of their fair values could not be made without incurring excessive costs.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
r
o
p
e
R

l

a
u
n
n
A

d
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t
i

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141

33. FINANCIAL INSTRUMENTS (CONTINUED)

(b) Risks

The Group’s financial
instruments are exposed to three main types of risks, namely, credit risk, liquidity risk and
market risk (which comprises of interest rate risk and foreign currency exchange rate risk). The Group’s overall risk
management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effects on the Group’s financial performance. Risk management is carried out under policies approved by the Board
of Directors. The Board provides principles for overall risk management, as well as policies covering specific areas,
such as liquidity risk, credit risk, and market risk. The Board regularly reviews these policies and authorises changes if
necessary based on operating and market conditions and other relevant risks. The following summarises the
qualitative and quantitative disclosures for each of the three main types of risks:

(i)

(ii)

Credit risk
Credit risk refers to the risk that a counterparty will be unable to pay amounts in full when due. For the Group,
this arises mainly from deposits it maintains at financial institutions and credit it provides to customers for the
provision of telecommunication services. To limit exposure to credit risk relating to deposits, the Group
institution in the PRC with acceptable
primarily places cash deposits only with large state-owned financial
credit ratings. For accounts receivable, management performs ongoing credit evaluations of its customers’
financial condition and generally does not require collateral on accounts receivable. Furthermore, the Group
has a diversified base of customers with no single customer contributing more than 10% of revenues for the
periods presented. Further details of the Group’s credit policy for, and quantitative disclosures in respect of the
Group’s exposure on credit risk for trade receivables are set out in Note 12.

The amounts of cash and cash equivalents, time deposits, accounts receivable and other receivables represent
the Group’s maximum exposure to credit risk in relation to financial assets.

Liquidity risk
Liquidity risk refers to the risk that funds will not be available to meet liabilities as they fall due, and results from
timing and amount mismatches of cash inflow and outflow. The Group manages liquidity risk by maintaining
sufficient cash balances and adequate amount of committed banking facilities to meet its funding needs,
including working capital, principal and interest payments on debts, dividend payments, capital expenditures
and new investments for a set minimum period of between 3 to 6 months.

Notes to the
Financial Statements

For the year ended 31 December 2008

8
0
0
2
t
r
o
p
e
R

l

a
u
n
n
A

d
e
t
i

i

m
L
n
o
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142

33. FINANCIAL INSTRUMENTS (CONTINUED)

(b) Risks (continued)

(ii)

Liquidity risk (continued)
The following table sets out the remaining contractual maturities at the balance sheet date of the Group’s
financial
liabilities, which are based on contractual undiscounted cash flows (including interest payments
computed using contractual rates or, if floating, based on prevailing rates at the balance sheet date) and the
earliest date the Group would be required to repay:

2008

Total
contractual
undiscounted
cash flow
RMB millions

Within
1 year or
on demand
RMB millions

More than
1 year but
less than
2 years
RMB millions

More than
2 years but
less than
5 years
RMB millions

More than
5 years
RMB millions

Carrying
amount
RMB millions

Short-term debt
Long-term debt
Accounts payable
Accrued expenses and
other payables
Income tax payable
Finance lease obligations

83,448
39,791
34,458

53,628
164
40

(85,576)
(48,407)
(34,458)

(53,628)
(164)
(40)

(85,576)
(2,498)
(34,458)

(53,628)
(164)
(22)

—
(3,558)
—

—
—
(18)

—
(24,813)
—

—
(17,538)
—

—
—
—

—
—
—

211,529

(222,273)

(176,346)

(3,576)

(24,813)

(17,538)

2007

Total
contractual
undiscounted
cash flow
RMB millions

Within
1 year or
on demand
RMB millions

More than
1 year but
less than
2 years
RMB millions

More than
2 years but
less than
5 years
RMB millions

More than
5 years
RMB millions

Carrying
amount
RMB millions

Short-term debt
Long-term debt
Accounts payable
Accrued expenses and
other payables
Income tax payable
Finance lease obligations

67,767
37,959
29,013

30,670
3,314
29

(69,258)
(48,524)
(29,013)

(30,670)
(3,314)
(29)

(69,258)
(5,539)
(29,013)

(30,670)
(3,314)
(24)

—
(2,407)
—

—
—
(5)

—
(6,178)
—

—
—
—

—
(34,400)
—

—
—
—

168,752

(180,808)

(137,818)

(2,412)

(6,178)

(34,400)

Management believes that the Group’s current cash on hand, expected cash flows from operations and
available credit facilities from banks (see Note 15) will be sufficient to meet the Group’s working capital
requirements and repay its borrowings and obligations when they become due.

Notes to the
Financial Statements

For the year ended 31 December 2008

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33. FINANCIAL INSTRUMENTS (CONTINUED)

(b) Risks (continued)

(iii)

Interest rate risk
The Group’s interest rate risk exposure arises primarily from its short-term and long-term debts. Debts carrying
interest at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest
rate risk respectively. The Group manages its exposure to interest rate risk by maintaining high proportion of
fixed rate debts with maturity within one year.

The following table sets out the interest rate profile of the Group’s debt at the balance sheet date:

Effective
interest rate
%

5.1
4.8

2008

2007

Effective
interest rate
%

4.4
3.9

RMB
millions

83,448
24,012

107,460

RMB
millions

67,767
7,010

74,777

5.2

15,779

5.2

30,949

123,239

87.2%

105,726

70.7%

Fixed rate debt:

Short-term debt
Long-term debt

Variable rate debt:

Long-term debt

Total debt

Fixed rate debt as a

percentage of total debt

As at 31 December 2008, it is estimated that an increase of 100 basis points in interest rate, with all other
variables held constant, would decrease the Group’s net profit
for the year and retained earnings by
approximately RMB118 million (2007: RMB207 million).

The above sensitivity analysis has been prepared on the assumptions that the change in interest rate had
occurred at the balance sheet date and the change was applied to the Group’s debt in existence at that date
with exposure to cash flow interest rate risk. The analysis is prepared on the same basis for 2007.

(iv)

Foreign currency exchange rate risk
Foreign currency exchange rate risk arises on financial instruments that are denominated in a currency other
than the functional currency in which they are measured. The Group’s foreign currency risk exposure relates to
bank deposits and borrowings denominated primarily in US dollars, Euros, Japanese Yen and Hong Kong
dollars.

Management does not expect the appreciation or depreciation of the Renminbi against foreign currencies will
materially affect the Group’s financial position and result of operations because 94.2% (2007: 93.0%) of the
Group’s cash and cash equivalents and 97.2% (2007: 96.4%) of the Group’s short-term and long-term debt as
at 31 December 2008 are denominated in Renminbi. Details of bank loans denominated in other currencies are
set out in Note 15.

Notes to the
Financial Statements

For the year ended 31 December 2008

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34. CAPITAL MANAGEMENT

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern,
so that it can continue to provide investment returns for shareholders and benefits for other stakeholders, by pricing
products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

Management regularly reviews and manages its capital structure to maintain a balance between the higher shareholder
returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital
position, and makes adjustments to the capital structure in light of changes in economic conditions.

Management monitors its capital structure on the basis of total debt-to-total assets ratio. For this purpose the Group defines
total debt as the sum of short-term debt, long-term debt and finance lease obligations. As at 31 December 2008, the
Group’s total debt-to-total assets ratio was 28.0% (2007: 25.6%), which is within the range of management’s expectation.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

35. RELATED PARTY TRANSACTIONS

Companies are considered to be related if one company has the ability, directly or indirectly, to control or jointly control the
other company or have significant influence over the other company in making financial and operating decisions. Companies
are also considered to be related if they are subject to common control.

(a)

Transactions with China Telecom Group

The Group is a part of companies under China Telecom, a company owned by the PRC government, and has
significant transactions and relationships with members of China Telecom. Because of these relationships, it is
possible that the terms of these transactions are not the same as those that would result from transactions among
unrelated parties.

The principal transactions with China Telecom Group which were carried out in the ordinary course of business are as
follows:

Note

2008
RMB millions

2007
RMB millions

Purchases of telecommunications equipment and materials
Construction, engineering and information technology services
Provision of community services
Provision of ancillary services
Provision of comprehensive services
Operating lease expenses
Centralised service expenses
Interconnection revenues
Interconnection charges
Interest on amounts due to and loans from China Telecom

Group

CDMA network capacity lease fee
Capacity maintenance related costs of CDMA network

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(viii)

(ix)
(x)
(xi)

145
8,334
2,297
4,536
1,190
378
250
78
677

3,537
1,504
107

120
8,179
2,266
3,574
1,361
373
250
82
670

2,501
—
—

35. RELATED PARTY TRANSACTIONS (CONTINUED)

(a)

Transactions with China Telecom Group (continued)

Notes to the
Financial Statements

For the year ended 31 December 2008

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Note:

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

Represent commission paid and payable for procurement services provided by China Telecom Group.

Represent network construction, engineering and information technology services provided by China Telecom Group.

Represent amounts paid and payable to China Telecom Group in respect of cultural, educational, hygiene and other community
services.

145

Represent amounts paid and payable to China Telecom Group in respect of ancillary services such as repairs and maintenance of
telecommunications equipment and facilities and certain customer services.

Represent amounts paid and payable to entities of China Telecom Group which were not within the scope of other related party service
agreements in respect of services for procurement of telecommunications equipment, network design, software upgrade, system
integration and manufacturing of calling cards.

Represent amounts paid and payable to China Telecom Group for leases of business premises and inter-provincial transmission optic
fibres.

Represent net amount shared between the Company and China Telecom Group for costs associated with common corporate services
and international telecommunications facilities.

(viii)

Represent amounts charged from/to China Telecom Group for interconnection of local and domestic long distance calls.

(ix)

(x)

(xi)

Represent interest paid and payable to China Telecom Group with respect to the amounts due to China Telecom and loans from China
Telecom Group (Note 15).

Represent amounts paid and payable to China Telecom Group for lease of CDMA mobile communications network capacity (‘‘CDMA
network’’) (see note below).

Represent amounts shared between the Company and China Telecom Group for the capacity maintenance related costs in connection
with the CDMA network capacity used by the Company (see note below).

Amounts due from/to China Telecom Group included in the following balances are summarised as follows:

Accounts receivable
Prepayments and other current assets

Total amounts due from China Telecom Group

Accounts payable
Accrued expenses and other payables
Short-term debt
Long-term debt

2008
RMB millions

2007
RMB millions

372
700

1,072

6,387
1,448
63,776
15,150

248
435

683

5,514
947
38,441
30,150

Total amounts due to China Telecom Group

86,761

75,052

Notes to the
Financial Statements

For the year ended 31 December 2008

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35. RELATED PARTY TRANSACTIONS (CONTINUED)

(a)

Transactions with China Telecom Group (continued)

Amounts due from/to China Telecom Group, other than short-term debt and long-term debt, bear no interest, are
unsecured and are repayable in accordance with contractual terms which are similar to those terms offered by third
parties. The term and conditions associated with short-term debt and long-term debt payable to China Telecom
Group are set out in Note 15.

146

As at 31 December 2008 and 2007, no material allowance for impairment of doubtful debts was recognised in
respect of amounts due from China Telecom Group.

On 30 August 2006, the Company entered into a strategic agreement (‘‘the Agreement’’) with China Communication
Services Corporation Limited (‘‘CCS’’), a company under the common control of China Telecom. The Agreement was
approved by the Company’s independent shareholders at an Extraordinary General Meeting held on 25 October
2006. The Agreement is effective from 1 January 2007 to 31 December 2009, pursuant to which the Company’s
subsidiaries (and their successors) in the Shanghai, Guangdong, Zhejiang, Fujian, Hubei and Hainan regions procure
design, construction and engineering services provided by CCS for at least 12.5% of these subsidiaries’ annual
capital expenditure. In return, CCS agreed to provide an additional price discount of at least 5% for the above
services. In addition, the above subsidiaries will also procure facilities management services provided by CCS of not
less than RMB1,330 million during the effective period of the Agreement.

As a result of the expansion of services areas of CCS, an amendment to the strategic agreement (‘‘the Supplemental
Agreement’’) was approved by the Company’s independent shareholders at an Extraordinary General Meeting held
on 7 August 2007. The Supplemental Agreement extends the scope of the Agreement to the Company’s subsidiaries
(and their successors)
in the Jiangsu, Anhui, Jiangxi, Hunan, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan,
Shaanxi, Gansu, Qinghai and Xinjiang regions, amends that the Company’s subsidiaries will on an annual basis,
procure design, construction and engineering services provided by CCS for at least 10.6% of these subsidiaries’
annual capital expenditure, and increases the commitment for facilities management services provided by CCS by
RMB450 million. The Supplemental Agreement is effective from 1 January 2007 to 31 December 2009.

On 16 September 2008, the Company’s independent shareholders approved at an Extraordinary General Meeting the
CDMA network capacity lease agreement (‘‘the CDMA Network Lease’’) with China Telecom. The lease is effective
from 1 October 2008 to 31 December 2010 and can be renewed at the option of the Company, pursuant to which the
Company agreed to lease the capacity on the constructed CDMA network from China Telecom Group to provide
CDMA mobile communication services. The lease fee for the capacity on the constructed CDMA network shall be
28% of the CDMA service revenue (which is calculated by the total revenue from the CDMA business minus any
upfront non-refundable revenue arising out of the CDMA business and any revenue from sale of telecommunication
products) for the period from 1 October 2008 to 31 December 2008 and for each of the years ending 31 December
2009 and 2010. There shall be no minimum annual lease fee for the period ended 31 December 2008 and the year
ending 31 December 2009. For the year ending 31 December 2010, the minimum lease fee shall be 90% of the total
amount of the lease fee paid by the Company to China Telecom Group in the year ending 31 December 2009. The
Group accounts for the CDMA Network Lease as operating lease.

Under the CDMA Network Lease, China Telecom has granted to the Company an option to purchase the CDMA
network. The option may be exercised, at the discretion of the Company, at any time during the term of the CDMA
Network Lease or within one year after the expiry of the CDMA Network Lease. The purchase price will be determined
with reference to the appraised value of the CDMA network in accordance with applicable PRC laws and regulations
and taking into account prevailing market conditions and other factors, provided that the purchase price would
enable China Telecom to recover its investment in the CDMA network plus an internal rate of return on the investment
of not exceeding 8%.

Notes to the
Financial Statements

For the year ended 31 December 2008

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35. RELATED PARTY TRANSACTIONS (CONTINUED)

(a)

Transactions with China Telecom Group (continued)

In addition, in accordance with the CDMA Network Lease, the Company shall be responsible for the operation,
management and maintenance of the CDMA network. The capacity maintenance related costs, which comprise the
rental fees for the exchange centres and the base stations and other related costs such as water and electricity
charges, heating charges and fuel charges for the relevant equipment as well as the maintenance costs of a non-
capital nature, shall be shared between the Company and China Telecom. The proportion of the constructed capacity
related costs to be borne by the Company shall be calculated on a monthly basis by reference to the followings:

(i)

the actual number of cumulative CDMA subscribers of the Company at the end of the month prior to the
occurrence of the costs divided by 90%, divided by

(ii)

the total capacity available on the CDMA network.

(b) Key management personnel compensation

Key management personnel are those persons having authority and responsibility for planning, directing and
controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group.

Key management personnel compensation of the Group is summarised as follows:

Short-term employee benefits
Post-employment benefits
Equity-based compensation benefits

2008
RMB
thousands

8,397
687
5,696

2007
RMB
thousands

13,876
594
5,375

14,780

19,845

The above remuneration is included in personnel expenses.

(c) Contributions to post-employment benefit plans

The Group participates in various defined contribution post-employment benefit plans organised by municipal and
provincial governments for its employees. Further details of the Group’s post-employment benefit plans are disclosed
in Note 36.

Notes to the
Financial Statements

For the year ended 31 December 2008

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35. RELATED PARTY TRANSACTIONS (CONTINUED)

(d)

Transactions with other state-owned entities in the PRC

The Group is a state-controlled public utilities enterprise and operates in an economic regime currently dominated by
entities directly or indirectly controlled by the State through government authorities, agencies, affiliations and other
organisations (collectively referred to as ‘‘state-controlled entities’’).

Apart from transactions with parent company and its affiliates, the Group has transactions with other state-controlled
entities which include but not limited to the following:

— sales and purchases of goods, properties and other assets

— rendering and receiving services

— lease of assets

— depositing and borrowing money

— use of public utilities

These transactions are conducted in the ordinary course of the Group’s business on terms comparable to the terms
of transactions with other entities that are not state-controlled. The Group prices its telecommunications services and
products based on government-regulated tariff rates, where applicable, or based on commercial negotiations. The
Group has also established its procurement policies and approval processes for purchases of products and services,
which do not depend on whether the counterparties are state-controlled entities or not.

Having considered the transactions potentially affected by related party relationships, the entity’s pricing strategy,
procurement policies and approval processes, and the information that would be necessary for an understanding of
the potential effect of the related party relationship on the financial statements, the directors are of the opinion that the
following related party transactions require disclosure of numeric details:

(i)

Transactions with other state-controlled telecommunications operators in the PRC
The Group’s telecommunications networks interconnect with the networks of other state-controlled
telecommunications operators. The Group also leases telecommunications networks to these operators in the
normal course of business. The interconnection and leased line charges are regulated by the MIIT. The extent
of the Group’s interconnection and leased line transactions with other state-controlled telecommunications
operators in the PRC is summarised as follows:

Interconnection revenues
Interconnection charges
Leased line revenues

2008
RMB millions

2007
RMB millions

11,257
4,912
786

12,264
4,121
867

Notes to the
Financial Statements

For the year ended 31 December 2008

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(d)

Transactions with other state-owned entities in the PRC (continued)

(i)

Transactions with other State-controlled Telecommunications Operators in the PRC (continued)
Amounts due from/to other state-controlled telecommunications operators in the PRC included in the following
balances are summarised as follows:

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Accounts receivable
Prepayments and other current assets

2008
RMB millions

2007
RMB millions

149

1,112
4,523

1,378
261

Total amounts due from other state-controlled telecommunications

operators in the PRC

5,635

1,639

Accounts payable
Accrued expenses and other payables

Total amounts due to other state-controlled telecommunications

operators in the PRC

373
13,242

13,615

135
219

354

Amounts due from/to other state-controlled telecommunications operators in the PRC bear no interest, are
unsecured and are repayable in accordance with normal commercial terms.

As at 31 December 2008 and 2007, there were no material allowance for impairment of doubtful debts in
respect of amounts due from other state-controlled telecommunications operators in the PRC.

(ii)

Transactions with state-controlled banks
The Group deposits its cash balances primarily with several state-controlled banks in the PRC and obtains
short-term and long-term loans from these banks in the ordinary course of business. The interest rates of these
bank deposits and loans are regulated by the People’s Bank of China. The Group’s interest income earned from
deposits with and interest expenses incurred on loans from state-controlled banks in the PRC are as follows:

Interest income
Interest expense

2008
RMB millions

2007
RMB millions

428
2,216

374
2,726

Notes to the
Financial Statements

For the year ended 31 December 2008

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35. RELATED PARTY TRANSACTIONS (CONTINUED)

(d)

Transactions with other state-owned entities in the PRC (continued)

(ii)

Transactions with state-controlled banks (continued)
The amounts of cash deposited with and loans from state-controlled banks in the PRC are summarised as
follows:

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Cash at bank
Time deposits with original maturity within three months
Time deposits with original maturity over three months

2008
RMB millions

2007
RMB millions

21,674
5,950
397

16,893
4,425
172

Total deposits with state-controlled banks in the PRC

28,021

21,490

Short-term loans
Long-term loans

9,693
4,829

29,326
7,803

Total loans with state-controlled banks in the PRC

14,522

37,129

Further details of the interest rates and repayment terms of loans from state-controlled banks are set out in
Note 15.

The directors believe the above information provides meaningful disclosure of related party transactions.

36. POST-EMPLOYMENT BENEFITS PLANS

As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans
organised by municipal and provincial governments for its employees. The Group is required to make contributions to the
retirement plans at rates ranging from 18% to 20% of the salaries, bonuses and certain allowances of the employees. A
member of the plan is entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement
date. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond
the annual contributions described above.

The Group’s contributions for the year ended 31 December 2008 were RMB2,647 million (2007: RMB2,547 million).

The amount payable for contributions to defined contribution retirement plans as at 31 December 2008 was RMB257 million
(2007: RMB561 million).

Notes to the
Financial Statements

For the year ended 31 December 2008

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37. STOCK APPRECIATION RIGHTS

The Group implemented a stock appreciation rights plan for members of its management to provide incentives to these
employees. Under this plan, stock appreciation rights are granted in units with each unit representing one H share. No
shares will be issued under the stock appreciation rights plan. Upon exercise of the stock appreciation rights, a recipient will
receive, subject to any applicable withholding tax, a cash payment in RMB, translated from the Hong Kong dollar amount
equal to the product of the number of stock appreciation rights exercised and the difference between the exercise price and
market price of the Company’s H shares at the date of exercise based on the applicable exchange rate between RMB and
Hong Kong dollar at the date of the exercise. The Company recognises compensation expense of the stock appreciation
rights over the applicable vesting period.

In March 2003, the Company’s compensation committee approved the granting of 276.5 million stock appreciation right
units to eligible employees. Under the terms of this grant, all stock appreciation rights had a contractual life of six years from
date of grant and an exercise price of HK$1.48 per unit. A recipient of stock appreciation rights may not exercise the rights in
the first 18 months after the date of grant. As at each of the third, fourth, fifth and sixth anniversary of the date of grant, the
total number of stock appreciation rights exercisable may not in aggregate exceed 25%, 50%, 75% and 100%, respectively,
of the total stock appreciation rights granted to such person.

In April 2005, the Company’s compensation committee approved the granting of 560.0 million stock appreciation right units
to eligible employees. Under the terms of this grant, all stock appreciation rights had a contractual life of six years from date
of grant and an exercise price of HK$2.78 per unit. A recipient of stock appreciation rights may not exercise the rights in the
first 24 months after the date of grant. As at each of the third, fourth, fifth and six anniversary of the date of grant, the total
number of stock appreciation rights exercisable may not in aggregate exceed 25%, 50%, 75% and 100%, respectively, of
the total stock appreciation rights granted to such person.

In January 2006, the Company’s compensation committee approved the granting of 837.3 million stock appreciation right
units to eligible employees. Under the terms of this grant, all stock appreciation rights had a contractual life of six years from
date of grant and an exercise price of HK$2.85 per unit. A recipient of stock appreciation rights may not exercise the rights in
the first 24 months after the date of grant. As at each of the third, fourth, fifth and six anniversary of the date of grant, the
total number of stock appreciation rights exercisable may not in aggregate exceed 25%, 50%, 75% and 100%, respectively,
of the total stock appreciation rights granted to such person.

During the year ended 31 December 2008, 346 million (2007: 204 million) stock appreciation right units were exercised. For
the year ended 31 December 2008, reversal of compensation expense of RMB148 million was recognised by the Group in
respect of stock appreciation rights as a result of decline in share price of the Company. For the year ended 31 December
2007, compensation expense recognised by the Group in respect of stock appreciation rights was RMB689 million.

As at 31 December 2008, the carrying amount of the relating liability arising from unvested stock appreciation rights was
RMB366 million (2007: RMB998 million). As at 31 December 2008 and 2007, all vested stock appreciation rights were
exercised.

38. ACCOUNTING ESTIMATES AND JUDGEMENTS

The Group’s financial position and results of operations are sensitive to accounting methods, assumptions and estimates
that underlie the preparation of the consolidated financial statements. Management bases the assumptions and estimates
on historical experience and on other factors that the management believes to be reasonable and which form the basis for
making judgements about matters that are not readily apparent from other sources. On an on-going basis, management
evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of significant accounting policies, the judgements and other uncertainties affecting application of those
policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when
reviewing the consolidated financial statements. The significant accounting policies are set forth in Note 2. Management
believes the following significant accounting policies involve the most significant judgements and estimates used in the
preparation of the consolidated financial statements.

Notes to the
Financial Statements

For the year ended 31 December 2008

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38. ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

Revenue recognition for upfront connection and installation fees

The Group defers the recognition of upfront fees for activation of wireline services and wireline installation fees and amortises
such fees over the expected customer relationship period of ten years. The related direct incremental customer acquisition
costs (including direct costs of installation) are also deferred and amortised over the same expected customer relationship
period. Management estimates the expected customer relationship period based on the historical customer retention
experience with consideration of
functional
obsolescence of its services, technological innovation, and the expected changes in the regulatory and social environment.
If management’s estimate of the expected customer relationship period changes as a result of increased competition,
changes in telecommunications technology or other factors, the amount and timing of recognition of deferred revenue and
deferred customer acquisition costs would change for future periods. There have been no changes to the estimated
customer relationship period for the years presented.

the expected level of

future competition,

technological or

the risk of

Allowance for impairment of doubtful debts

Management estimates allowance for impairment of doubtful debts resulting from the inability of the customers to make the
required payments. Management bases its estimates on the ageing of the accounts receivable balance, customer credit-
worthiness, and historical write-off experience. If the financial condition of the customers were to deteriorate, actual write-
offs might be higher than expected and could significantly affect the results of future periods.

Impairment of long-lived assets

If circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, the asset may be
considered ‘‘impaired’’, and an impairment loss would be recognised in accordance with accounting policy for impairment of
long-lived assets as described in Note 2(o). The carrying amounts of the Group’s long-lived assets, including property, plant
and equipment, intangible assets, construction in progress, investments in subsidiaries and investments, are reviewed
periodically to determine whether there is any indication of impairment. These assets are tested for impairment whenever
events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. For goodwill, the
impairment testing is performed annually at the end of each year balance sheet date. The recoverable amount of an asset or
cash-generating unit is the greater of its value in use and the net selling price. When an asset does not generate cash flows
largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that
generates cash inflows independently (i.e. a cash-generating unit). In determining the value in use, expected future cash
flows generated by the assets are discounted to their present value. An impairment loss is recognised if the carrying amount
of an asset or its cash-generating unit exceeds its estimated recoverable amount. It is difficult to precisely estimate selling
price of the Group’s long-lived assets because quoted market prices for such assets may not be readily available. In
determining the value in use, expected future cash flows generated by the asset are discounted to their present value, which
requires significant judgement relating to level of revenue, amount of operating costs and applicable discount rate.
Management uses all readily available information in determining an amount that is a reasonable approximation of
recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue
and amount of operating costs.

Notes to the
Financial Statements

For the year ended 31 December 2008

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38. ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

Impairment of Long-lived Assets (continued)

For the year ended 31 December 2007, no provision for impairment loss was made on property, plant and equipment. For
the year ended 31 December 2008, a provision for impairment loss of RMB24,167 million was made against the carrying
value of property, plant and equipment (see Note 3). In determining the recoverable amount of these equipment, significant
judgement was required in estimating future cash flows, level of revenue, amount of operating costs and applicable discount
rate.

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Changes in these estimates could have a significant impact on the carrying value of the assets and could result in additional
impairment charge or reversal of impairment in future periods.

153

Depreciation and amortisation

Property, plant and equipment is depreciated on a straight-line basis over the estimated useful
lives of the assets, after
taking into account their estimated residual value. Management reviews the estimated useful lives and residual values of the
assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The
useful lives and residual values are based on the Group’s historical experience with similar assets and taking into account
anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes
from previous estimates.

Amortisation of customer relationships is recognised on a straight-line basis over the expected customer relationship period
of five years. Management reviews the expected customer relationship period annually in order to estimate the amount of
amortisation expense to be recorded during any reporting period. The expected customer relationship period is based on
the estimate period over which future economic benefits will be received by the Group and taking into account the level of
future competition, the risk of technological or functional obsolescence of its services, and the expected changes in the
regulatory and social environment. The amortisation expense for future periods is adjusted if there are significant changes
from previous estimates.

Notes to the
Financial Statements

For the year ended 31 December 2008

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154

39. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND
INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE
ANNUAL ACCOUNTING PERIOD ENDED 31 DECEMBER 2008

Up to the date of issue of these financial statements, the IASB has issued the following amendments, new standards and
interpretations which are not yet effective for the annual accounting period ended 31 December 2008:

IAS 1 (September 2007), ‘‘Presentation of financial statements’’
IAS 23 (March 2007), ‘‘Borrowing costs’’
IAS 32 (February 2008), ‘‘Financial instruments: Presentation’’ and IAS 1, ‘‘Presentation

1 January 2009 of financial statements — Puttable financial instruments and obligations
arising on liquidation’’

IFRS 1 (May 2008), ‘‘First-time adoption of International Financial Reporting Standards’’
IFRS 2 (January 2008), ‘‘Share-based payment — Vesting conditions and cancellations’’
IFRIC 13, ‘‘Customer loyalty programmes’’
IFRIC 15, ‘‘Agreements for the construction of real estate’’
IFRIC 16, ‘‘Hedges of a net investment in a foreign operation’’
IFRIC 17, ‘‘Distributions of non-cash assets to owners’’
IFRIC 18, ‘‘Transfer of assets from customers’’
IFRS 3 (January 2008), ‘‘Business combinations’’
IAS 27 (January 2008), ‘‘Consolidated and separate financial statements’’
IAS 39 (July 2008), ‘‘Financial instruments: Recognition and measurement — Eligible hedged items’’

Effective for
accounting
period beginning
on or after

1 January 2009
1 January 2009

1 January 2009
1 January 2009
1 January 2009
1 July 2008
1 January 2009
1 October 2008
1 July 2009
1 July 2009
1 July 2009
1 July 2009
1 July 2009

The Group has not early adopted the above amendments, new standards and new interpretations. Management is in the
process of making an assessment of what the impact of these amendments, new standards and new interpretations is
expected to be in the period of initial application. So far management believes that amendments to IFRS 1, IAS 32 and IAS
39, and IFRIC 15 and IFRIC 16 are not applicable to the Group’s operations and the rest of the above amendments, new
standards and new interpretations are unlikely to have a significant impact on the Group’s results of operations and financial
position.

40. PARENT AND ULTIMATE HOLDING COMPANY

The parent and ultimate holding company of the Group as at 31 December 2008 is China Telecommunications Corporation,
a state-owned enterprise established in the PRC. This entity does not produce financial statements available for public use.

Financial
Summary

(Amounts in millions, except per share data)

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155

2008

RMB

96,331
3,972
40,786
10,231
2,022

33,459

186,801
53,880
36,096
27,935
28,946
10,632

Year ended 31 December

2007

RMB
(Note)

111,625
—

31,817
9,183
3,294

2006

RMB
(Note)

121,689
—

24,348
7,920
4,971

2005

RMB
(Note)

123,897
—

18,347
7,741
6,781

2004

RMB
(Note)

121,564
—

14,480
7,245
8,458

24,963

18,557

14,450

10,526

180,882
52,607
29,856
24,294
27,419
8,965

177,485
51,690
29,487
22,710
26,390
8,208

171,216
49,980
29,553
20,241
25,232
7,068

162,273
47,362
26,716
19,512
23,432
5,437

24,167

—

—

—

—

Results of operation

Wireline voice
Mobile voice
Internet
Managed data and leased line
Upfront connection fees
Value-added services, integrated information

application services and others

Operating revenues

Depreciation and amortisation
Network operations and support
Selling, general and administrative
Personnel expenses
Other operating expenses
Impairment loss on property, plant

and equipment

Operating expenses

181,656

143,141

138,485

132,074

122,459

Operating profit

Deficit on revaluation of property, plant

and equipment
Net finance costs
Investment income/(loss)
Share of profits of associates

Profit before taxation

Income tax

Profit for the year

Attributable to:

Equity holders of the Company
Minority interests

Profit for the year

Basic earnings per share

5,145

—
(5,076)
5
112

186
793

979

884
95

979

0.01

37,741

39,000

39,142

39,814

(2,755)
(4,288)
83
215

—

(4,472)
(25)
61

—

(4,872)
(7)
62

(1,262)
(5,318)
7
29

30,996
(6,704)

34,564
(6,919)

34,325
(6,222)

33,270
(5,175)

24,292

27,645

28,103

28,095

24,195
97

27,562
83

28,061
42

28,042
53

24,292

27,645

28,103

28,095

0.30

0.34

0.35

0.35

Financial
Summary

(Amounts in millions)

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Financial condition

156

Property, plant and equipment, net
Construction in progress
Other non-current assets
Cash and bank deposits
Other current assets

Total assets

Current liabilities
Non-current liabilities

Total liabilities

Total equity attributable to equity holders

of the Company

Minority interests

Total equity

2008

RMB

299,159
13,615
72,064
28,263
27,236

440,337

176,790
48,999

225,789

213,036
1,512

214,548

As at 31 December

2007

RMB
(Note)

2006

RMB
(Note)

2005

RMB
(Note)

2004

RMB
(Note)

329,292
13,626
26,303
21,649
22,461

330,436
19,563
28,187
23,492
22,179

330,300
24,923
28,774
19,898
21,949

321,519
30,654
29,542
15,984
20,016

413,331

423,857

425,844

417,715

140,245
47,114

159,451
53,609

159,437
77,205

153,694
100,007

187,359

213,060

236,642

253,701

224,521
1,451

209,349
1,448

187,758
1,444

162,601
1,413

225,972

210,797

189,202

164,014

Total liabilities and equity

440,337

413,331

423,857

425,844

417,715

Note: On 31 March 2008, we acquired the entire equity interests in China Telecom Group Beijing Corporation (the ‘‘Fourth Acquired Company’’) from China
Telecommunications Corporation. As we and the Fourth Acquired Company were under the common control of China Telecommunications
Corporation, our acquisition of the Fourth Acquired Company has been treated as a ‘‘combination of entities under common control’’, and was
accounted for in a manner similar to a pooling-of-interests. Accordingly, the assets and liabilities of the Fourth Acquired Company have been
accounted for at historical amounts and our financial statements for periods prior to the acquisition have been restated to include the financial position
and results of operations of the Fourth Acquired Company on a combined basis.

Shareholder
Information

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SHARE INFORMATION

Share Listing

China Telecom Corporation Limited’s H shares were listed on The Stock Exchange of Hong Kong Limited on 15 November 2002
and New York Stock Exchange as American Depositary Shares (ADSs) on 14 November 2002. ADSs are issued by The Bank of
New York Mellon. Each ADS traded in the United States represents 100 ordinary H shares.

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728
CHA

157

Stock Code

The Stock Exchange of Hong Kong Limited
New York Stock Exchange

Share Price Performance

2008 share price

High

7.00

HK$ per H share
Low

Close

High

US$ per ADS
Low

2.00

2.89

90.85

26.17

Close

38.05

–51%

Share price change in 2008

–53%

Number of issued shares: (as at 31 December 2008)

Market capitalisation: (as at 31 December 2008)

80,932,368,321

HK$233.9 billion

Share price performance of China Telecom on The Stock Exchange of Hong Kong Limited versus Hang Seng Index (HSI) and
MSCI World Telecom Service Sector Index (MSCI) from IPO on 15 November 2002 to 31 December 2008.

Shareholder
Information

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Distribution of shares and shareholdings

The share capital of the Company as at 31 December 2008 was RMB80,932,368,321, divided into 80,932,368,321 shares of
RMB1.00 each. As at 31 December 2008, the share capital of the Company comprised:

158

Total number of Domestic shares:
Domestic shares held by:

China Telecommunications Corporation
Guangdong Rising Assets Management Co., Ltd.
Zhejiang Financial Development Company
Fujian State-owned Assets Investment Holdings Co., Ltd.
Jiangsu Guoxin Investment Group Co., Ltd.

Number of
shares

% of the total
number of
shares

67,054,958,321

57,377,053,317
5,614,082,653
2,137,473,626
969,317,182
957,031,543

82.85

70.89
6.94
2.64
1.20
1.18

Total number of H shares (including ADSs):

13,877,410,000

17.15

Total

80,932,368,321

100.00

Major shareholders of H shares

The following table shows the major shareholders that exercised or controlled the exercise of 5% or above of H shares as at 31
December 2008:

Name of shareholder

RFS Holdings B.V.

JPMorgan Chase & Co.

Barclays PLC

% of the total
number of
H shares
in issue

6.54

6.03

5.97

Number of
shares

907,191,530

836,933,193

828,576,318

Shareholder
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159

Dividend History

Financial Year

Ex-Dividend Date

Shareholder
Approval Date

Payment Date

2002 Final
2003 Final
2004 Final
2005 Final
2006 Final
2007 Final
2008 Final

16 May 2003
1 April 2004
21 April 2005
20 April 2006
26 April 2007
28 April 2008
23 April 2009

20 June 2003
3 May 2004
25 May 2005
23 May 2006
29 May 2007
30 May 2008
26 May 2009

10 July 2003
20 May 2004
23 June 2005
15 June 2006
15 June 2007
16 June 2008
30 June 2009

Dividend per
Share
(HK$)

0.00837*
0.065
0.065
0.075
0.085
0.085
0.085**

*

**

On the basis of HK$0.065 per share, pro-rated based on the number of days the Company’s shares have been listed during the year of 2002.

The dividend proposal is subject to shareholders’ approval at the annual general meeting to be held on 26 May 2009.

Annual Reports

Our annual reports in both English and Chinese are now available through the Internet at http://www.chinatelecom-h.com.

The Company will file an annual report in Form 20-F for the year 2008 with the United States Securities & Exchange Commission by
30 June 2009.

2008 Annual Report Survey

Annual Report is a key communication channel between shareholders and the Company. Last year, we received over 100
questionnaires of ‘‘Your Views on 2007 Annual Report’’. Each of these responses benefited us in enhancing and further improving
our annual reports. We are deeply indebted to the respondents for their constructive responses.
In accordance with our
commitment, we have to donate HK$50 for each questionnaire received. In this regard, we have donated a sum of HK$10,000 to
In addition, we have already implemented the suggestion of allowing
the charitable organization,
shareholders to choose means of receipt and language of corporate communication to enhance environmental protection and
cost savings.

‘‘Oxfam Hong Kong’’.

We value and are eager to keep hearing your comments on our annual reports for our further improvement in the future. It is highly
appreciated if you could spare your precious time to complete the questionnaire of ‘‘Your Views on 2008 Annual Report’’, as
attached in this annual report, and return it by post or fax to us at +852 2877 0988. You can also fill in the electronic form at our
website, www.chinatelecom-h.com.

Shareholder
Information

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160

Tel:
Fax:

Registered office

Address:

Annual General Meeting

To be held at 11 a.m. on 26 May 2009 in JW Marriott Hotel Hong Kong

31 Jinrong Street
Xicheng District
Beijing
PRC 100140
86 10 6642 8166
86 10 6601 0728

H share registrar

Computershare Hong Kong Investor Services Limited
Room 1712–1716, 17th Floor
Address:
Hopewell Centre
183 Queen’s Road East, Wanchai
Hong Kong
852 2862 8555
852 2865 0990
hkinfo@computershare.com.hk

Tel:
Fax:
Email:

Investor Relations

ADS depositary

Investor Relations Department
Tel:
Fax:
Email:

852 2877 9777
852 2877 0988
ir@chinatelecom-h.com

Office of the Board of Directors
Tel:
Fax:
Email:

86 10 6642 8166
86 10 6601 0728
ir@chinatelecom.com.cn

The Bank of New York Mellon
Address:

Investor Services
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
1-888-269-2377 (toll free in USA)
1-212-815-3700 (international)
shareowners@bankofny.com

Tel:

Email:

Forward-Looking Statements
Certain statements contained in this document may be viewed as ‘‘forward-looking statements’’ within the meaning of Section 27A of the U.S. Securities Act of
1933 (as amended) and Section 21E of the U.S. Securities Exchange Act of 1934 (as amended). Such forward-looking statements are subject to known and
unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of China Telecom
Corporation Limited (the ‘‘Company’’) to be materially different from any future performance, financial condition or results of operations implied by such
forward-looking statements. In addition, we do not intend to update these forward-looking statements. Further information regarding these risks, uncertainties
and other factors is included in the Company’s most recent Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission (the ‘‘SEC’’)
and in the Company’s other filings with the SEC.

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Let's Start

We are

now a

full

services

China Telecom Corporation Limited
31 Jinrong Street, Xicheng District, Beijing, PRC, 100140
www.chinatelecom-h.com

 This report is printed on environmentally friendly paper 

Design and produced by: iOne (Regional) Financial Press Limited    website: www.ioneregional.com

China Telecom Corporation Limited

HKEx Stock Code: 728

NYSE Stock Code: CHA

Annual Report 2008