China Telecom Corp Ltd Annual Report 2021

Plain-text annual report

ABOUT CHINA TELECOM China Telecom Corporation Limited (“China Telecom” or the “Company” , a joint stock limited company incorporated in the People’s Republic of China with limited liability, together with its subsidiaries, collectively the “Group” ) is a large-scale and leading integrated intelligent information services operator in the world whose principal business is the provision of fundamental telecommunications businesses including comprehensive wireline communications services, mobile communications services, value- added telecommunications services such as Internet access services, information services and other related services. As at the end of 2021, the Company had mobile subscribers of about 372 million, wireline broadband subscribers of about 170 million and access lines in service of about 107 million. The Company’s A Shares and H Shares are listed on the Shanghai Stock Exchange and the Main Board of The Stock Exchange of Hong Kong Limited, respectively. 002 China Telecom Corporation Limited Annual Report 2021 CONTENTS 4 8 14 20 74 76 Important Notice Section I Defi nitions Section II Company Profi le Section III Management’s Discussion and Analysis (Report of the Directors) Recognition and Awards Section IV Corporate Governance Report 85 Biographical Details of Current Directors, Senior Management and Supervisors 132 Section V Environmental and Social Responsibilities 136 Section VI Signifi cant Events 160 Section VII Changes in Shares and Information on Shareholders 172 Section VIII Relevant Information on Bonds 180 Section IX Financial Reports 180 Independent Auditor’s Report 186 Consolidated Statement of Financial Position 188 Consolidated Statement of Comprehensive Income 190 Consolidated Statement of Changes in Equity 191 Consolidated Statement of Cash Flows 194 Notes to the Consolidated Financial Statements 287 Differences between Chinese Accounting Standard and IFRSs 288 Financial Summary 291 Shareholder Information Corporate Culture China Telecom Corporation Limited Annual Report 2021 003 IMPORTANT NOTICE 1. The financial statements of the Company for seventh session of the Board of the Company proposed the year of 2021 prepared in accordance to distribute dividends in the aggregate amount of with the International Financial Reporting RMB15,568,915,025 to all shareholders based on Standards (“IFRSs”) have been audited by 60% of the profit attributable to equity holders of the PricewaterhouseCoopers, who has issued a Company in the amount of RMB25,948,191,708 for the standard unqualified audit report. year. Based on the total share capital registered on the record date for the dividend distribution, and based on 2. The profit distribution proposal or proposal for the Company’s total share capital of 91,507,138,699 conversion of capital reserve into share capital for shares as at the end of 2021, a dividend of RMB0.170 the Reporting Period approved by the Board per share pre-tax will be declared and paid to all According to Article 190 of the Articles of Association, of issued share capital of the Company before the record the Company shall distribute its after-tax profits for date for the implementation of the dividend distribution, 2021 at the lower of the amounts in the financial the total distribution amount will remain unchanged, statements prepared in accordance with the Chinese and the distribution amount per share will be adjusted shareholders. In case of any change in the total number and international accounting standards, where accordingly. RMB25,948,191,708 shall be used for profit distribution. After fully considering the returns to shareholders, the The profit distribution plan shall be submitted to the Company’s profitability, cash flow level and capital 2021 Annual General Meeting of the Company for needs for future development, the 16th meeting of the consideration. 004 004 China Telecom Corporation Limited Annual Report 2021 China Telecom Corporation Limited Annual Report 2021 IMPORTANT NOTICE 3. Risk Statement of Forward-Looking Statements Forward-looking statements, such as development strategies, future business plans and prospects, contained in the 2021 annual report of the Company do not constitute a commitment of the Company to investors. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause the Company’s actual performance, financial condition or results of operations to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. In addition, the Company will not update these forward-looking statements. Investors should be aware of the investment risks. Certain statements contained in this report 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 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. 4. Significant Risk Warning The Company has described in detail the economic and policy environment adaptation risks, business operation risks, network and information security risks and international operation risks in this report. Please refer to the “Management’s Discussion and Analysis (Report of the Directors)” in this report. Grasping opportunities Diversifying financing Accelerating reform Enhancing governance Increasing value OUR NEW OPPORTUNITY FOR REFORM AND DEVELOPMENT 006 China Telecom Corporation Limited Annual Report 2021 On 20 August 2021, China Telecom successfully issued A Shares on the Shanghai Stock Exchange, achieving dual listings in Shanghai and Hong Kong while further promoting the closer integration between the capital market and user market. This is not only a new milestone but also a new opportunity for reform and development for the Company. China Telecom Corporation Limited Annual Report 2021 007 SECTION I DEFINITIONS DEFINITIONS In this report, unless the context otherwise requires, the following terms and expressions have the following meanings: 5G 5th generation mobile communication technology A Share(s) Shares of the Company issued in mainland China, listed on domestic stock exchanges and subscribed and traded in RMB ADSs AR ARPU Securities issued by the depository bank and traded on the New York Stock Exchange. Each ADS of the Company represents 100 H Shares of the Company Augmented Reality Monthly average revenue per user Artificial Intelligence/AI Technology science that researches and develops theories, methodologies, technologies and application systems for simulating, extending and expanding human intelligence Big Data Massive, real-time and diversified data information that can be recorded, collected, developed and utilised, and big data-based mining and processing technology Board/Board of Directors The board of directors of the Company CDN Content Delivery Network. By adding a new layer of network architecture to the existing Internet, the content of the website is distributed to the edge of the network closest to the users, so that users can obtain the required content in the vicinity, improving the transmission speed of the network, solving the problem of Internet congestion and slow response China Comservice/CCS China Communications Services Corporation Limited (中國通信服務股份有限公司) China Telecom Finance China Telecom Group Finance Co., Ltd. (中國電信集團財務有限公司) 008 China Telecom Corporation Limited Annual Report 2021 SECTION I DEFINITIONS China Telecommunications China Telecommunications Corporation (中國電信集團有限公司), formerly known as China Telecommunications Corporation (中國電信集團公司), the controlling shareholder of the Company China Telecom Leasing China Telecom Leasing Corporation Limited (天翼融資租賃有限公司) China Telecom/Issuer/the Company China Telecom Corporation Limited (中國電信股份有限公司), or where the context so requires, refers to China Telecom Corporation Limited and its subsidiaries China Tower China Tower Corporation Limited (中國鐵塔股份有限公司), formerly known as China Communications Facilities Services Corporation Limited (中國通信設施服務股份有限公司) Chinese Accounting Standard/ The Basic Standard of the Accounting Standards for Business Enterprises China Accounting Standards for issued by the Ministry of Finance, and the specific accounting standards, Business Enterprises application guidelines, interpretations and other relevant regulations subsequently revised Cloud Computing An Internet technology that provides flexible and on-demand services to external users through the Internet with pooled cluster computing capabilities CN2 China Telecom’s next generation of carrying network, focusing on cloud- network services for government and enterprise customers, high-quality Internet services and China Telecom’s proprietary key businesses Company Law The Company Law of the PRC Computing Network According to the national approval document on the construction plan of CSRC DCI eight hub nodes of the national integrated Big Data center, its meaning includes datacentre infrastructure, computing power, network, cloud, and the green and safe attributes among these features China Securities Regulatory Commission Datacentre Interconnect, a proprietary network carrying interconnection business between datacentres China Telecom Corporation Limited Annual Report 2021 009 SECTION I DEFINITIONS Distributed cloud A public cloud computing service that lets a user operate public cloud infrastructure in multiple different locations, and manage from a single control plane Domestic Share(s) Shares of the Company issued in mainland China, denominated in RMB and subscribed in RMB DOU Monthly Internet traffic per user East-to-West Computing Resource The national project orderly directing computing power demand in Eastern Transfer part of PRC to Western part of PRC by building a new computing power network system consisting of datacentre, Cloud Computing and Big Data, with an aim to optimise the construction layout of datacentres and facilitate east-west coordination Edge Node(s) The service platform built at the edge of network near the user, providing storage, computing, network and other resources; such “sinking” of key services and applications to the edge of access network can reduce the bandwidth and latency loss from network transmission and multi-level forwarding E-surfing Pay E-surfing Pay Co., Ltd (天翼電子商務有限公司) EFLOPS FLOPS, Floating-Point Operations Per Second, which is commonly used to estimate computer performance; “E” stands for “Exa” and means 1018; therefore EFLOPS implies 1018 times of floating-point operations per second Fujian Investment Group Fujian Investment & Development Group Co., Ltd. (福建省投資開發集團有限責任公司) Guangdong Rising Guangdong Rising Holdings Group Co., Ltd., (廣東省廣晟控股集團有限公司), formerly known as Guangdong Rising Assets Management Co., Ltd. (廣東省廣晟資產經營有限公司) H Share(s) Shares of the Company that are issued outside mainland China, listed on the Stock Exchange and subscribed and traded in Hong Kong dollars 010 China Telecom Corporation Limited Annual Report 2021 SECTION I DEFINITIONS IDC Internet Datacentre IFRSs/International Financial The International Financial Reporting Standards, amendments and Reporting Standards interpretations issued from time to time by the International Accounting Standards Board Internet of Things/IoT Various sensory devices that are based on computer and communication technology, using cellular mobile network, wired network, wireless network, etc. to complete the transmission, coordination and processing of information, so as to realise the network of communication between objects and things, and communication between objects and people Jiangsu Guoxin Jiangsu Guoxin Group Limited (江蘇省國信集團有限公司), formerly known as Jiangsu Guoxin Investment Group Co.,Ltd. (江蘇省國信資產管理集團有限公司) Listing Rules The Rules Governing the Listing of Securities on The Stock Exchange of Mbps MIIT OTN Hong Kong Limited Megabits per second Ministry of Industry and Information Technology Optical Transport Network, a transmission network that enables the transmission, reuse, routing selection, monitoring of business signals within the optical domain and ensures their performance indicators and viability Over-allotment Option An option granted by the Issuer to the lead underwriter whereby the lead underwriter is authorised to over-offer up to 15% of the underwritten amount at the same issue price, i.e. the lead underwriter offers up to 115% of the underwritten amount to investors PCT Patent Cooperation Treaty, an international treat that assists applicants in seeking patent protection internationally for their inventions, helps patent offices with their patent granting decisions, and facilitates public access to a wealth of technical information relating to those inventions China Telecom Corporation Limited Annual Report 2021 011 SECTION I DEFINITIONS POP Point-of-presence, an artificial demarcation point or network interface point between communicating entities Prospectus The prospectus in connection with the initial public offering of A Shares of China Telecom Corporation Limited Quantum-encrypted Calls The communication technology that is closely integrated with quantum information technology to achieve end-to-end voice calls and other encryption protection, and provide users with stable and reliable quantum protection secure communication services RDO Research, Development, Operation Reporting Period Period from 1 January 2021 to 31 December 2021 ROADM Reconfigurable Optical Add-Drop Multiplexer. Its function is to realise the configuration and adjustment of the wave length along the way through remote reconfiguration SASAC State-owned Assets Supervision and Administration Commission of the State Council Securities Law The Securities Law of the PRC 012 China Telecom Corporation Limited Annual Report 2021 SECTION I DEFINITIONS SSE Shanghai Stock Exchange SSE Listing Rules The Rules Governing the Listing of Stocks on the Shanghai Stock Exchange Stock Exchange/Hong Kong Stock The Stock Exchange of Hong Kong Limited Exchange/HKSE Tbps Terabit per second The Offering/A Share Offering The public offering of RMB ordinary shares (A Shares) by the Company Tiantong IoT Tiantong Satellite IoT Service, the in-depth convergence of Tiantong satellite communications network and ground IoT technology, along with China Telecom's ground IoT service, forming an integrated communications solution to customers Two Listing Rules The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and The Rules Governing the Listing of Stocks on the Shanghai Stock Exchange VR Virtual Reality Zhejiang Financial Development Zhejiang Provincial Financial Development Co., Ltd. (浙江省財務開發有限責任公司), formerly known as Zhejiang Financial Development Company (浙江省財務開發公司) China Telecom Corporation Limited Annual Report 2021 013 SECTION II COMPANY PROFILE 1. CORPORATE INFORMATION Company name in Chinese Short name in Chinese Company name in English Short name in English Legal representative of the Company 中國電信股份有限公司中國電信 China Telecom Corporation Limited China Telecom Ke Ruiwen 2. CONTACT PERSONS AND CONTACT INFORMATION Name Address Secretary of the Board Securities Affairs Representative Company Secretary Ke Ruiwen (Acting) Xu Fei Wong Yuk Har 31 Jinrong Street, 31 Jinrong Street, 28th Floor, Everbright Centre, Xicheng District, Xicheng District, 108 Gloucester Road, Beijing, China Beijing, China Wanchai, Hong Kong Telephone 8610-58501800 8610-58501508 852-28779777 Fax E-mail 8610-58501531 8610-58501531 852-28770988 ir@chinatelecom-h.com ir@chinatelecom-h.com ir@chinatelecom-h.com 014 China Telecom Corporation Limited Annual Report 2021 SECTION II COMPANY PROFILE 3. GENERAL INFORMATION Registered address and office address of the Company 31 Jinrong Street, Xicheng District, Beijing, China Postal code of the office address of 100033 the Company Principal place of business in Hong Kong 28th Floor, Everbright Centre, 108 Gloucester Road, Company website E-mail 4. STOCK INFORMATION Wanchai, Hong Kong www.chinatelecom-h.com ir@chinatelecom-h.com Stock Information Class of shares Stock exchange for listing Stock Short Name Stock Code A Shares H Shares Shanghai Stock Exchange China Telecom 601728 Hong Kong Stock Exchange China Telecom 00728 China Telecom Corporation Limited Annual Report 2021 015 SECTION II COMPANY PROFILE 5. OTHER RELEVANT INFORMATION Name PricewaterhouseCoopers Zhong Tian LLP Office Address 11/F, PricewaterhouseCoopers Center, Accountant engaged by the Company (mainland China) 2 Corporate Avenue, 202 Hu Bin Road, Huangpu District, Shanghai Name of signing Song Shuang, Liu Yuanbo accountants Accountant engaged by Name PricewaterhouseCoopers the Company (overseas) Office Address 24/F, Prince’s Building, Central, Hong Kong Sponsor performing ongoing supervision duties during the Reporting Period Name China International Capital Corporation Limited Office Address 27th and 28th Floor, China World Office 2, No. 1 Jianguomenwai Avenue, Chaoyang District, Beijing Names of signing sponsor Xu Shiyan, Long Liang representatives Period of ongoing 20 August 2021 to 31 December 2023 supervision Name CSC Financial Co., Ltd. Office Address Building 4, No. 66 Anli Road, Chaoyang District, Sponsor performing ongoing Beijing supervision duties during Names of signing sponsor Wang Chenning, Dong Junfeng the Reporting Period representatives Period of ongoing 20 August 2021 to 31 December 2023 supervision 016 China Telecom Corporation Limited Annual Report 2021 SECTION II COMPANY PROFILE The Company completed the A Share Offering during the Reporting Period and the A Shares of the Company were listed and commenced trading on the SSE on 20 August 2021. For certain material information in relation to the A Share Offering, please refer to the announcement of the Company dated 19 August 2021. The delisting of the Company’s ADSs became effective on 18 May 2021 and the Company’s ADS program was terminated on 8 December 2021 (US eastern standard time). The Company filed a Form 15F with the SEC on 25 February 2022 to deregister the ADSs and terminate its reporting obligations under the U.S. Securities Exchange Act of 1934 (as amended), details of which can be found in the Company’s announcements dated 10 September 2021 and 25 February 2022, respectively. China Telecom Corporation Limited Annual Report 2021 017 2021 Highlights “Cloudification and Digital Transformation” strategy achieved prominent results while A Share listing injected new impetus Integrated intelligent information services upgraded with revenue and net profit double-digit growths Strengthened leading edge in cloud-network integration and constructed green and secure infrastructure Increased dividend to reward shareholders and committed to create more corporate values Proactively completed new planning for sci-tech innovation to forge core competitiveness for future Full implementation of “Cloudification and Digital Transformation” strategy and deepen reform to foster high-quality development INNOVATION SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) FULLY IMPLEMENT “CLOUDIFICATION AND DIGITAL TRANSFORTMATION” STRATEGY Strive to become a service-oriented, technology-oriented, secured enterprise 2C 2H 2B 2O .... Integrated Intelligent Information Service I n n o v a t i o n Team Digital Platform Team Cloud Cloud-Network Integration Network Secure, Green O p e n C o o p e r a t i o n 020 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Mobile Communications Service Revenue In which: Handset Internet Access Revenue 4.9% 7.4% Wireline and Smart Family Service Revenue In which: Smart Family Revenue 4.1% 25.1% Industrial Digitalisation Revenue In which: e-Surfing Cloud Revenue 19.4%1 102% 1 Industrial Digitalisation revenue growth in 2021 is calculated by excluding the revenue impact from the disposal of subsidiaries from Industrial Digitalisation revenues in both 2020 and 2021 China Telecom Corporation Limited Annual Report 2021 021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Ke Ruiwen Ke Ruiwen Chairman and Chief Executive Officer Chairman and Chief Executive Officer 1. DISCUSSION AND ANALYSIS OF OPERATIONS I n 2 0 2 1 , t h e n e w g e n e r a t i o n i n f o r m a t i o n a n d communications technologies saw accelerated innovation and had been increasingly permeated into all parts and the whole process of the economy and society, ushering the society towards an intelligent and digital age. With the accelerated development of digital economy, the Company proactively seized the strategic opportunities brought by the new round of technological revolution and industrial transformation, implemented its “Cloudification and Digital Transformation” strategy, deepened cloud-network integration and promoted its system and mechanism reforms. Propelled by the dual drivers of fundamental services and Industrial the Company successfully issued A Shares on the SSE, achieving dual listings in Shanghai and Hong Kong while further promoting the closer integration between the capital market and user market. The Company also preliminarily completed its strategic deployments in the fields of sci-tech innovation and ecological cooperation, among others. While supporting the construction of Cyberpower and Digital China, the Company has also proactively undertaken its social responsibilities in areas of network and information security, rural revitalisation, green development, and etc. The Company continued to create value for shareholders, customers and the society, and achieved a promising start under the “14th Five-Year Digitalisation services, the operation and development Plan” with high-quality development. of the Company sped up significantly. During the year, 022 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 1. OVERALL RESULTS increase to 70% or above of the profit attributable In 2021, operating revenues of the Company amounted to equity holders of the Company for that year. The to RMB439.6 billion, representing an increase of 11.7% Company will share the results of its development with all over last year. Service revenues2 amounted to RMB402.8 of its shareholders and continue to create more value. billion, representing an increase of 7.8% over last year. Excluding the revenue impact from the disposals of its subsidiaries3, the year-on-year growth rate reached 8.1%, surpassing the industry’s average growth rate for five 2. SUCCESSFUL A SHARE OFFERING BRINGS NEW MOMENTUM TO THE COMPANY’S DEVELOPMENT consecutive years4. EBITDA5 amounted to RMB123.9 O n 2 0 A u g u s t 2 0 2 1 , t h e C o m p a n y ’ s A S h a r e s billion, representing an increase of 4.2% over last year. were officially listed on the SSE, with the Company Net profit6 amounted to RMB25,948 million, representing making great strides in entering a new development an increase of 24.5% year-on-year. Excluding the one- stage. Taking A Share Offering as an opportunity, off after-tax gain from the disposals of its subsidiaries7, the Company will leverage its broader financing the year-on-year growth rate reached 17.7%. The basic channels, further expand its ecological cooperation earnings per share were RMB0.318. Capital expenditure and implement more flexible incentive measures. The was RMB86.7 billion and free cash flow 9 reached Company will also fully implement its “Cloudification RMB15.1 billion. and Digital Transformation” strategy, further boost sci- tech innovations and expedite the construction of the The Company attaches great importance to shareholder intelligent integrated digital information infrastructure. returns and strives to enhance its profitability and cash The Company will also continue to deepen its corporate flow generation capability while effectively controlling reforms, enhance its employees’ motivation, initiative and capital expenditure. Taking the Company’s profitability creativity, and stimulate its corporate vitality and intrinsic into full consideration, alongside cash flow levels and motivation. Through broader and deeper ecological capital needs for its future development, the Board of cooperation, the Company will proactively develop Directors has decided to recommend at the Annual industrial ecologies in the fields of 5G, Cloud Computing, General Meeting that the profit to be distributed in cash network and information security, AI, and industrial for the year 2021 shall be 60% of the profit attributable smart manufacturing, among others. The Company will to equity holders of the Company for the year, i.e., constantly strengthen its integrated intelligent information RMB0.170 per share. Meanwhile, an interim dividend service capabilities, forge ahead towards becoming will be declared and paid starting from year 2022. Within a service-oriented, technology-oriented and secured three years after A Share Offering and listing, the profit enterprise, and strive to promote the high-quality to be distributed in cash for each year will gradually development of the Company. 2 3 4 5 6 7 8 9 Service revenues are calculated based on operating revenues minus sales of mobile terminals, sales of wireline equipment and other non- service revenues. Of which, mobile service revenues amounted to RMB195.2 billion, representing an increase of 7.5% year-on-year; wireline service revenues amounted to RMB207.6 billion, representing an increase of 8.1% year-on-year. The Company completed the disposals of E-surfing Pay and China Telecom Leasing in April 2021. MIIT’s statistical communique of the communications industry in 2021: telecommunications revenue grew by 8.0% year-on-year in 2021. EBITDA is calculated based on operating revenues minus operating expenses plus depreciation and amortisation. Net profit represents profit attributable to equity holders of the Company. The one-off after-tax gain from the disposals of E-surfing Pay and China Telecom Leasing was approximately RMB1,416 million. The basic earnings per share in 2021 are calculated based on 84.4 billion shares, which is the weighted average of the number of issued shares of the Company. Free cash flow is calculated based on EBITDA minus capital expenditure, income tax and depreciation charge for right-of-use assets other than land-use-rights. China Telecom Corporation Limited Annual Report 2021 023 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Subscriber value continuously enhancing 2.0% Mobile ARPU 3.4% Broadband Blended ARPU 3. IMPLEMENTING “CLOUDIFICATION AND DIGITAL TRANSFORMATION” STRATEGY, ACHIEVING NEW RESULTS IN HIGH-QUALITY DEVELOPMENT 3.1 Expansion and upgrade of integrated intelligent information services Industry-leading growth of mobile subscriber scale with continuously rising subscriber value In 2021, the Company implemented its “Cloudification The Company continued to enhance its 5G coverage and Digital Transformation” strategy, developed and network quality, innovated e-Surfing Cloud handset integrated intelligent information services with a device ecology, enriched the 5G application and customer-oriented approach, and built core sci- privilege portfolio and launched 5G cloud packages. The tech innovation capabilities and the new information Company optimised the service experience for users infrastructure. The Company also established industrial through ultimate convergence, facilitated the upgrade and capital ecologies featuring strong alliances and of individuals’ demands for emerging information open cooperation, while carrying out system and consumption, continued to unleash the new round mechanism reforms, achieving new results in high-quality of data traffic benefits and propelled the scale and development. value enhancement of its mobile subscribers. In 2021, mobile communications service revenues amounted to 024 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) RMB184.2 billion, representing an increase of 4.9% over Concurrent increase in scale and value of Smart last year. The total number of mobile subscribers reached Family subscribers, while digital life services 372 million, with subscribers’ net addition maintaining continued to expand the industry-leading position for four consecutive years. Leveraging its edges in cloud-network integration Featured applications such as e-Surfing Cloud VR, cloud capabilities, the Company converged “Gigabit broadband games, ultra HD, e-Surfing Cloud Drive and 5G Colour + Whole-home WiFi + e-Surfing HD + Smart Family Ringback Tone with Video saw rapid development, with applications” while aggregating content and applications their value contribution becoming prominent. Mobile as well as industrial ecology of ubiquitous smart ARPU10 was RMB45.0, representing an increase of terminals through Smart Family platform. The Company 2.0% over last year. The penetration rate of 5G package promoted the inter-connection and inter-communication subscribers reached 50.4%, maintaining the industry- among smart household products, continued to enrich leading position. the service content of digital life, offered whole-home intelligent integrated solutions and facilitated the quality upgrade of living and consumption. The Company sped up the expansion from Smart Family scenes to Smart China Telecom’s Smart Family services extending to communities and villages to grasp broader opportunities e-Surfing HD, Whole-home WiFi, e-Surfing Webcam... Launch whole-home intelligent integrated solutions Develop Smart Communities Develop Digital Villages 10 Mobile ARPU = monthly average revenues from mobile services/the average number of mobile subscribers. China Telecom Corporation Limited Annual Report 2021 025 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Communities and Digital Villages. Utilising technologies Industrial Digitalisation development accelerated such as IoT, Big Data, and AI, the Company rolled with revenue size approaching RMB100 billion out products and applications such as Community The Company deeply integrated the key elements of Security and Protection, Community Management and digital economy with the real economy by leveraging the Resident Services to advance the construction of smart “integration of cloud, security, 5G, data and intelligence”, communities. The Company also launched products and to develop scene-based integrated intelligent solutions applications such as Village Governance, Agricultural and proactively empowered the transformation and Production and Rural Life to promote the construction upgrades of traditional industries. The Company’s of digital villages and achieve integration and mutual 5G customised networks widely serve various vertical promotion as well as connected development. In 2021, industries, while adopting a wide range of innovative wireline and Smart Family service revenues of the business models. e-Surfing Cloud was fully upgraded Company amounted to RMB113.5 billion, representing into a distributed cloud. Digitalised platform accelerated an increase of 4.1% year-on-year. The total number its module-based transition and the core capabilities of wireline broadband subscribers reached nearly 170 of integration service strengthened significantly. The million. The penetration rate of subscribers of Smart Company achieved 100% cloudification of its new Family services such as Whole-home WiFi and e-Surfing IT systems and 99% cloudification transformation of Webcam increased rapidly. Smart Family revenue its existing IT systems, which were all hosted on the increased 25.1% year-on-year, while broadband blended e-Surfing distributed cloud. The cloudification of IT ARPU11 was RMB45.9, representing an increase of 3.4% achieved significant results in quality enhancement, year-on-year. Industry Cloud Revenue RMB21.3 Bil IDC Revenue RMB31.6 Bil Network Dedicated Line Revenue RMB20.1 Bil China (cid:3)(cid:55)(cid:72)(cid:79)(cid:72)(cid:70)(cid:82)(cid:80)(cid:183)(cid:86) (cid:44)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3) (cid:39)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:76)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) IoT Revenue RMB2.9 Bil Digitalised Platform & Big Data Revenue RMB22.4 Bil 11 Broadband blended ARPU = monthly average revenues from broadband access, e-Surfing HD and Smart Family applications and services/the average number of broadband subscribers. 026 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) cost reduction and efficiency improvement. All of these smart city, smart mining, Internet of Vehicles (IoV), propelled “the cloud migration, the use of data and smart healthcare, and smart ports. Leveraging various intelligence injection” for customers. In 2021, revenue customised virtual networks, the Company satisfied from the Company’s Industrial Digitalisation reached the demands for digital transformation and upgrades RMB98.9 billion, representing a year-on-year growth of from a variety of companies of the society, dramatically 19.4% on a comparable basis12, and this growth rate enhanced their product quality and production efficiency, was significantly higher than that of 2020. and effectively resolved challenges faced by certain industries such as complicated network construction, The commercial projects of the Company’s 5G harsh operating environments and high security risks, customised networks have covered all 15 key industries supporting the digitalisation as well as intelligent under the “Raising the Sail” Action Plan13, with over 1,200 transformation and upgrade of vertical industries. projects being implemented in the year. The three modes Meanwhile, the in-depth coverage of 5G networks of the Company’s 5G customised networks, namely propelled informatisation transformation in areas such as “Wide-area”, “Adjacent”, and “Wingspan”, fully exerted city governance, healthcare, education and information the features of 5G including massive connectivity, high consumption, supporting the construction of Digital speed, low latency and data security to empower such China. industries as Industrial Internet, convergent media, Breakthroughs in 5G customised network projects Rapid replication of 5G smart manufacturing projects Covering 15 key industries in “Raising the Sail” Action Plan Launched >1,200 projects in 2021 12 13 The growth rate of Industrial Digitalisation revenue in 2021 is calculated based on Industrial Digitalisation revenue in 2020 and 2021 that both excluded the revenue impact from the disposals of its subsidiaries. On 5 July 2021, ten central government departments including the MIIT published the “Raising the Sail” Action Plan for 5G Applications (2021– 2023). China Telecom Corporation Limited Annual Report 2021 027 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) e-Surfing Cloud revenue RMB27.9 Bil Solid front rank position in industry Industry No. 1 in gov’t admin (public cloud) market Fully upgraded to a distributed cloud infrastructure, operating system and product capabilities Products and solutions of edge clouds were enriched Meeting the emerging use case demands Strengthening market competitiveness e-Surfing Cloud’s competitiveness continued to win several cloud and CDN service orders worth over grow with revenue doubled RMB100 million in fields of government administration, As the digital economy thrives, industrial transformation public utility, Internet and industrial manufacturing. The and upgrades, as well as digital life of individuals and Company developed secure and reliable cloud storage households triggered booming demand for cloud service of e-Surfing Cloud Drive and introduced a number migration. e-Surfing Cloud achieved significant results in of leading application and content service providers as market expansion thanks to its overall edges in cloud- partners to meet the increasingly diversified demands network integration, as well as independence and for digital life from individuals and households. In 2021, controllability, local service and security and reliability. In revenue from e-Surfing Cloud doubled to RMB27.9 2021, e-Surfing Cloud achieved breakthroughs in core billion, securing a solid position in the front rank within technologies and was fully upgraded to a distributed the industry while maintaining its leading position in the cloud infrastructure, operating system and product public cloud market of government administration. The capabilities. Products and solutions of edge clouds were Company strengthened the development of datacentres enriched, while computing power was extended to Edge at scale in an efficiently-centralised manner. IDC revenue Nodes to meet the emerging use case demands such reached RMB31.6 billion, maintaining an industry-leading as data residency and ultra-low latency. These further market share. strengthened its market competitiveness, allowing it to 028 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Network and information security capabilities The Company’s cyber security protection platform constantly strengthened with continuous expansion and services of “Cloud Dam” series were widely of security products and services adopted by nearly 10,000 customers across over ten The Company continued to enhance cloud-network industries, including finance, education, media, energy, security protection capabilities, with a number of and Internet. At the same time, the Company also provincial branches being selected by MIIT as the proactively expanded its product and service series, demonstrative centre of security innovation for 5G such as e-Surfing Security Brain, Graded Protection applications. The Company plans to build a security Assistant, Quantum-encrypted Calls, and Internet Fraud capabilities pool covering cloud, network, edge and Prevention. These enabled the Company to create end- terminal in 31 provinces and gradually achieve on- to-end composite security delivery capabilities and demand selection and flexible deployment of security provide integrated security protection solutions covering capabilities. The Company plans to build a security all scenarios for government and enterprise customers. core with architectural and logical unity, and gradually Leveraging capabilities in network traffic channeling achieve efficient centralisation of data, capabilities and and optimisation, the Company offered products such management. The Company continued to expand as e-Surfing Anti-harassment and Security Butler for security products and services, and built a network individual and household markets to create a green and security protection platform by aggregating the edges secure communications and online environment. of cloud-network, security and data resources to provide industry-leading customised security services. China Telecom Corporation Limited Annual Report 2021 029 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) China Telecom’s rapid sci-tech innovation development 33 sci-tech achievements fully transformed and implemented >80 small and micro innovations achieved sharing and replication Domestic invention patents and PCT applications two times and eight times respectively 3.2 Completed the deployment for sci- tech innovations fully deploying its proprietary platform of 5G Colour Ringback Tone with Video. The Company also expedited Powering development by sci-tech innovation, the the commercialisation of technological research Company, continued to strengthen sci-tech innovation achievements, with 33 projects being fully transformed capabilities and took substantial steps towards becoming and implemented, and more than 80 small/micro a sci-tech company. The Company fully completed innovations achieved sharing and replication through deployment of sci-tech innovation and research and the shared platform model. The Company led or jointly development (R&D) system of RDO and is facilitating the led the completion of 46 international standards in the penetration of key core technologies such as network, year. The numbers of domestic invention patents and AI, security and quantum into fundamental research PCT applications increased by two times and eight of applications, technological R&D of applications times respectively, further enhancing the Company’s and operation-based development. The Company sci-tech influence. The Company extensively carried out pushed forward the independence and self-control cooperative innovation with industry, academia, R&D of core technologies, achieving breakthroughs in the institutes and customers such as that of key technologies innovation of technologies such as e-Surfing Cloud with universities, scientific research institutes and other 4.0, 5G edge network, new generation cloud-network institutions. The Company further strengthened building operating system, VoLTE Quantum-encrypted Calls, of sci-tech team by cultivating and recruiting talents AI energy saving for base stations and sites, while across all fronts. 030 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 3.3 Accelerating the construction of new information infrastructure based on cloud-network integration The Company firmly seized opportunities arising from the development of the digital economy, propelled precise cloud-network construction based on user experience and business scenes, and strived to build the new information infrastructure that is high-speed and ubiquitous, aerial-ground in one, cloud-network integrated, intelligent and agile, green and low-carbon as well as secure and controllable. Grasping the trend of cloud-network integration while steadily promoting “network adaptive to cloud, cloud and network as one” The Company deepened network co-building and co- sharing with China Unicom, with the number of 5G base stations in use reaching approximately 690,000, and 5G network coverage extended to all cities and counties across the country as well as some developed towns. The Company also stepped up 4G network consolidation and resource sharing and further enhanced network quality and resource utilisation efficiency. Aggregate savings of network investment exceeded RMB210 billion while that of network operating costs reached RMB20 billion per year. The Company sped up the construction of fibre network, strengthened gigabit’s leading role and the popularity of 300Mbps, and continued to enhance fibre network capabilities. The Company promoted IoT at high, medium and low speeds collaboratively and launched Tiantong IoT, offering customers with intelligent integrated information services featuring “space and ground unification, satellites and network integration, and Internet of Everything”. Integrating capabilities in cloud, network, AI and others, the Company built an e-Surfing Internet of Video Things platform with a “1+31+X” framework, creating standardised video capabilities that cover 31 provinces. The Company also launched standardised products and services such as e-Surfing Webcam for individual and household customers, as well as customised solutions combining standardised products with industry informatisation applications for government and enterprise customers to meet the demand for smart security and protection for vertical industries. Chairman Ke Ruiwen presented at World Internet Conference China Telecom Corporation Limited Annual Report 2021 031 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Adhering to the principles of allocating network resources system, elevated the level of intelligence of networks, and configuring network as required by cloud, as well and achieved “where cloud is located, where network as integrating deployment of network and cloud, the is deployed” as well as one-stop processing, one-click Company optimised the structure of its carrying network, activation and flexible customisation for its services. The completed the construction of an all-fibre transmission Company also built the capabilities system for security ROADM network with nationwide coverage and world’s situation awareness covering cloud, network, edge and largest capacity, and expanded the scale deployment terminal, to fortify the security foundation for its digital of the new metropolitan network to support business information infrastructure. development. The Company accelerated the migration of core nodes to large-scale parks, with key parks being Striving to promote the effective implementation of able to reach the backbone quickly. The Company the “East-to-West Computing Resource Transfer” built the cloud-network POP in accordance with cloud project by fully leveraging its cloud-network edges and achieved synchronised launch and activation Pivoting on the nation’s “East-to-West Computing of standardised and module-based cloud-network Resource Transfer” project and the deployment of an capabilities. The Company accelerated the control shift integrated Big Data centre, the Company deployed and separation of traditional networks as well as the datacentres, DCI network, computing power and cloudification of its capabilities, promoted the cloud e-Surfing Cloud on all fronts and carried out advanced migration of IT and strengthened the centralised service deployment of computing power network. The Company management and efficiency enhancement. The Company had more than 700 IDC sites with 470,000 cabinets built the new generation cloud-network operating serving customers, nearly 80% of which were deployed China Telecom well positioned to seize “East-to-West Computing Resource Transfer” opportunity with abundant resources RMB31.6 Bil IDC revenue PRC No. 1 >700 IDC sites 470k Cabinets serving customers, 80% deployed in four key regions >300Tbps Backbone network bandwidth 320k km Artery of multi-channel optical cable network 2.1 EFLOPS Total computing power Security capability Network security Data security Terminal security Inner Mongolia Hub Ningxia Hub Gansu Hub Chengdu- Chongqing Hub Hub node Datacentre DCI network Network CN2-DCI Guizhou Hub OTN Optical cable Datacentre e-Surfing Cloud Server Cabinet Beijing-Tianjin- Hebei Hub Yangtze River Delta Hub Guangdong- Hong Kong- Macau Hub 032 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) in the four key regions, namely Beijing-Tianjin-Hebei, launched an independent and self-controlled e-Surfing Yangtze River Delta, Guangdong-Hong Kong-Macau Cloud operating system, namely CtyunOS, as well as Greater Bay Area and Chengdu-Chongqing, forming a distributed database TeleDB. The Company teamed a resource layout of “2+4+31+X+O” which is highly up with ecological cooperation partners in technology, consistent with the layout of the integrated national Big application, service and channel to create full-stack Data centre. The Company built an industry-leading products and services. high-speed Internet network connecting datacentres. Its CN2-DCI and the OTN network for government and 3.4 All-out ecological cooperation enterprise customers cover all eight hub nodes and The Company proactively built mutually beneficial datacentres in major cities nationwide. The bandwidth ecosphere and transformed its development model and of its backbone network exceeded 300Tbps. The growth approach. The Company also strengthened Company built a 320,000km “artery” of multi-channel strategic synergies and leveraged A Share Offering to optical cable network covering four regions, six axles introduce 20 strategic investors, thereby teaming up with and eight hubs. The Company grasped the explosive upstream players with core capabilities and downstream growth momentum of computing power demands, deployed layer-based computing power nationwide, continuously uplifted the scale of its computing power in “2+4 hub nodes” and 31 provinces. The Company continued to strengthen near-field edge computing power as well as computing power at customer sites, with total computing power reaching 2.1 EFLOPS. e-Surfing Cloud was upgraded to a distributed cloud with breakthroughs in key core technologies. The Company launched a series of edge cloud products such as ACS, ECX and iStack, accelerated proprietary research of full-stack technologies, and rolled out an independent and self-controlled new generation cloud platform for e-Surfing Cloud, namely CloudOS4.0. The Company also Continuous enhancement of 5G network coverage and quality China Telecom Corporation Limited Annual Report 2021 033 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) industry application companies at the country’s most economically affluent urban areas to carry out in-depth 3.5 Deepened reforms with innovation of systems and mechanisms cooperation in terms of R&D, solutions, service and The Company fully implemented the three-year action capital in areas such as 5G industry applications, digital plan for SOE reforms, while continuing to enhance life, regional collaboration, cloud-network integration, the modernisation level of its governance system and network and information security. The Company and capabilities for its subsidiaries and optimising its deepened network co-building and co-sharing, promoted modern corporate system. The Company deepened joint procurement within the industry and proactively the promotion of three system reforms so that leading safeguarded the value of the industry, with an aim to cadres can be promoted or demoted, compensation create favourable environment for development. The can be raised or reduced, as well as employees can Company also strengthened ecological cooperation in be hired or let go. The Company motivated employees’ key business areas and promoted innovative R&D in pursuit for innovation and development, established a 5G-related technologies, industries and terminals through market-oriented incentive mechanism and offered higher the 5G Innovation Alliance, joint innovation centres and compensation to sci-tech and Industrial Digitalisation open laboratories. China Telecom Cloud Technology areas. The Company stepped up recruiting talents and Co., Ltd. conducted shareholding diversification reforms granted share appreciation rights to nearly 8,000 key by entering into a framework agreement to increase personnel. The Company continued to deepen reforms registered capital and shares with four large-scale state- of professional companies, established China Telecom owned enterprises (SOE), resulting in consolidation of Cloud Technology Co., Ltd., restructured digital life ecological resources of Cloud Computing and further company, set up the security company and pushed enhancement of market expansion capabilities in areas forward “sci-tech reform” of its system integration of Industrial Digitalisation such as digital society, digital company on all fronts. The Company carried out pilot government and vertical industries. reform of authority delegation within its Shenzhen branch 034 034 China Telecom Corporation Limited Annual Report 2021 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 1 strategic focus Green and low-carbon development is an important element of “Cloudification and Digital Transformation” Strategy 2 directions to work on External Internal Forge green new operation High-quality development Construct green new cloud and network Build green new ecology 3 basic strategies Coordinated development 6 green actions Sustainable development Cultivate green technology Solidify green new support Endow green new development and pushed forward the establishment of regional injection and endowment for the sustainable development professional company in Chengdu. The Company of the economy and society. The Company insisted on deepened government and enterprise reforms, optimised development powered by sci-tech innovation, accelerated its industry Business Group (BG) operation model, the construction of intelligent integrated digital information introduced an “open competition mechanism” for human infrastructure, and has completed the construction of the resources and innovated system and mechanisms to world’s largest 5G SA co-built and co-shared network fully mobilise the vitality of its government and enterprise as well the world’s largest telco-operated cloud. The team. The Company created industrial research institutes, Company successfully completed the communications conducted proprietary R&D of digitalised platform, assurance tasks for key events and major emergencies aggregated and exported its fundamental capabilities, and natural disasters. The Company proactively carried enhanced solution and localised integration delivery out network security governance, continuously enhanced capabilities. As a result, the Company’s operating the level of corporate network security capabilities, and vitality and informatisation expansion capabilities in ensured the security of customer services. Adhering to the government and enterprise market significantly the customer-oriented approach, the Company expanded strengthened. 3.6 Undertaking social responsibilities while optimising corporate governance scene-based integrated intelligent information services, vigorously pushed forward the construction of digital entertainment and digital households, spared no efforts to build smart communities and digital villages, and continued Adhering to the original aspiration and founding mission, to enrich the content of digital life services. The Company the Company proactively implemented social responsibility strengthened the innovation and application of digital practices based on the promotion of the high-quality information technologies to empower numerous walks development of the Company, while promoting intelligence of life. The Company spared no efforts to consolidate China Telecom Corporation Limited Annual Report 2021 035 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) and expand the effective connection between the dioxide peaking and carbon neutrality. The Company achievements of poverty alleviation and rural revitalisation reduced its carbon dioxide emissions by more than six and continued to promote universal service, receiving million tons in a year through network co-building and co- national commendations including the National Poverty sharing. The Company proactively established a green Alleviation Summary and Commendation Advanced supply chain to support low-carbon production and green Groups. The Company comprehensively forged a “China life. Telecom is trustworthy” reputation and image, maintaining the industry-leading position in terms of overall satisfaction Adhering to excellent, prudent, and effective corporate with industry’s lowest valid complaint rate. Insisting governance principles, the Company continued to on people-oriented approach, the Company deeply strengthen internal control system, enhance the level cared for its employees and strived to achieve mutual of governance, standardise corporate operation to growth of employees and the Company. The Company ensure that the Company’s operation is in line with the enthusiastically participated in community services long-term interests of all shareholders. Meanwhile, the and established more than 6,000 “Caring Stations” Company coordinated and promoted the development to provide warm public welfare services. Leveraging of the governance system of its subsidiaries and built a emerging information and communications technologies, corporate governance mechanism with effective checks the Company supported sci-tech-based anti-epidemic and balances. In 2021, the Company’s continuous efforts measures as well as the normalised Epidemic prevention in corporate governance was widely recognised by the and control. Insisting on the green development principles, capital market and received a number of honours. The the Company launched the “1236” action plan for carbon Company was voted as the “Most Honoured Companies Ensured smooth running of network to support Covid-19 Epidemic prevention and control 036 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) in Asia” for the 11th consecutive year in the “The All- 4. OUTLOOK Asia-Executive-Team Poll” organised by Institutional At present, the society is entering into an intelligent digital Investor. The Company also received several awards in age in an accelerated pace, driven by the new generation the same poll, including “Best Overall ESG” and “Best IR information and communications technologies. The Program”. The Company was awarded the “Gold Award prospects of the digital economy are boundless. AI has – Excellence in Environmental, Social and Governance” entered into an accelerated development stage while in the poll of “ESG Corporate Awards 2021” by The the development of the communications industry is Asset. In addition, the Company was awarded “The seeing historic new opportunities. In the process of the Best of Asia – Icon on Corporate Governance” for the new round of technological revolution and industrial 14th time by Corporate Governance Asia. Furthermore, transformation, the industry’s growth drivers will shift the Company was named “Most Outstanding Company from fundamental connections to digitalised service in Hong Kong – Telecommunication Service Sector” innovation. Sci-tech innovation will become the core in Asiamoney’s “Asia’s Outstanding Companies Poll driver of high-quality corporate development, while green 2021”. The Company was also accredited the “ESG and low-carbon development is the inevitable path for Leading Enterprise Award” in the “ESG Leading high-quality corporate development. The Company Enterprise Awards 2021” poll organised by Bloomberg made a promising start under the “14th Five-Year Plan” Businessweek/Chinese Edition. in 2021. In 2022, the Company will seize the valuable opportunities arising from the development of the digital economy, put all efforts into promoting high-quality development and jointly create a new pattern for the information and communications industry. China Telecom Corporation Limited Annual Report 2021 037 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) L o o k i n g a h e a d , e n t e r i n g t h e n e w s t a g e o f i t s will spare no efforts to promote the national project of development, the Company will implement the new “East-to-West Computing Resource Transfer”, speed up development principles completely, accurately and the construction of Computing Network, build intelligent comprehensively, while proactively serving and integrating integrated digital information infrastructure, and empower into the new development pattern. The Company will the transformation and upgrade of traditional industries. firmly seize the current vital strategic opportunities, The Company will also adopt its green and low-carbon implement the “Cloudification and Digital Transformation” principles throughout its whole production process and strategy on all fronts, strengthen its R&D and problem- workflow to enhance the green operation capability and tackling efforts in key core areas. The Company will also empower the green development of the economy and optimise its R&D mechanism, strengthen its R&D talent society. The Company will also establish a highly efficient team and increase its investment in sci-tech research and secure operating system and reinforce the digital resources. The Company will also create a customer- security barrier. The Company will deepen its system oriented operating system, proactively explore and and mechanism reforms, stimulate employee’s vitality to plan for the metaverse and strive to create an intelligent pursue innovation, and push forward the enhancement of and shared new digital life. The Company will deepen quality and efficiency as well as innovative development network co-building and co-sharing, reinforce its edges of the Company. The Company will also deepen the in holistic network connectivity covering land, sea, air deployment of capital market ecology, expedite the shift and space, and fully realise its leading advantages of of development and growth approach and share the forward-looking resource deployment. The Company results of its high-quality development with shareholders! Ke Ruiwen Chairman and Chief Executive Officer Beijing, China 17 March 2022 038 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 2. OVERVIEW OF THE COMPANY’S INDUSTRY DURING THE REPORTING PERIOD as well as secure and controllable” as their responsibility and mission to break through the information “artery” for economic and social development. 1. INDUSTRY OVERVIEW At present, global technological innovation has entered a period of unprecedented intensity and activity, with the world picking up its pace towards the intelligent era of digitalisation and connectivity for all. As a fundamental, strategic and pioneering industry of the national economy, the information communications industry has played an important supporting role in promoting economic restructuring and economic and social development. Accelerated construction of new infrastructure. Continuously enhanced endowment capability for transformation. To promote the deep integration of digital technology and the real economy, empower the transformation and upgrades of traditional industries, encourage the emergence of new industries, new business types and models, and continuously strengthen, optimise and expand PRC’s digital economy. By fully leveraging technological capabilities in 5G, AI and cloud, telecommunications operators will promote the scale development of industry applications and provide solid support for digital transformation, intelligent upgrades, and integrated innovation in various fields of the economy Entering the era of digital economy, telecommunications and society. operators proactively grasp the development trend of the global information and communications industry and take “the construction of the intelligent integrated digital information infrastructure that is high-speed and ubiquitous, aerial-ground in one, cloud-network integrated, intelligent and agile, green and low-carbon Constant breakthroughs in sci-tech innovation capabilities. The new generation of network information technologies led by 5G are the technological innovation fields with the most intensive R&D investment, the most active innovations, the most extensive application, Chairman Ke Ruiwen introduced China Telecom’s “Cloudification and Digital Transformation” strategy China Telecom Corporation Limited Annual Report 2021 039 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) and the largest radiating effect in the world, attracting Ongoing green and low-carbon development. To build competition from global technological innovations. an economic system for green and low-carbon development Telecommunications operators will continue to promote and promote comprehensive green transformation of sci-tech innovation, shoulder the glorious historical economic and social development to achieve sustainable mission to accelerate the high-level sci-tech self-reliance development. Telecommunications operators expedite the and self-improvement, with a focus on global sci- energy-saving and green modification of 5G base stations tech frontier, major economic battlefield, key national and datacentres, proactively promote network co-building demands and people’s wellbeing. and co-sharing, thoroughly explore the potential of green development, strengthen green empowerment and support Increasing importance of cybersecurity. With the the society in energy saving and carbon emission reduction. extensive development of new technologies and new applications, cybersecurity threats such as data leakage, Internet fraud, ransomware and security breaches are becoming increasingly prominent, posing new risks and challenges on cybersecurity work. Telecommunications 2. SIGNIFICANT IMPACT OF NEW LAWS, ADMINISTRATIVE REGULATIONS, DEPARTMENTAL RULES AND INDUSTRY POLICIES ON THE INDUSTRY operators will go all-out to strengthen the network During the Reporting Period, a number of laws, security protection system and capability building, to administrative regulations, departmental rules and maintain the stability of the economy and society and industry policies were promulgated and implemented, protect the interests of the general public. introducing new requirements for the development and compliance operation of the industry. 040 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) On 10 June 2021, the Standing Committee of the National People’s Congress considered and approved the Data Security Law of the People’s Republic of China (the “Data Security Law”), which came into effect on 1 September 2021. The Data Security Law requires that risk monitoring shall be strengthened when conducting data processing activities, and remedial measures shall be taken immediately when risks such as data security defects and loopholes are found. In the event of a data security incident, immediate measures shall be taken, users shall be notified immediately and reported to the relevant competent authorities in a timely manner in Management presented at Tianyi Intelligent Ecological Expo accordance with the regulations. On 11 March 2021, the Outline of the 14th Five-Year Plan for National Economic and Social Development of the People’s Republic of China and the Long-Range Objectives Through the Year 2035 was approved at the 4th meeting of the 13th National People’s Congress, which proposed to accelerate the digital development and construction of Digital China, embrace the digital era, activate the potential of data elements, promote the construction of Cyberpower, accelerate the construction of a digital economy, digital society and digital government, and drive the overall reform of production methods, lifestyle and governance methods through digital transformation. On 30 July 2021, the State Council promulgated the Regulations on the Security Protection of Key Information Infrastructure, which came into effect on 1 September 2021. The Regulations on the Security Protection of Key Information Infrastructure requires operators to take technical protection measures and other necessary measures to respond to network security incidents, prevent cyber-attacks and illegal and criminal activities, ensure the safe and stable operation of key information infrastructure, and maintain the integrity, confidentiality and availability of data in accordance with the provisions of these regulations, relevant laws, administrative regulations and mandatory requirements of national standards on the basis of network security level protection. China Telecom Corporation Limited Annual Report 2021 041 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) On 20 August 2021, the Standing Committee of the On 1 November 2021, the Ministry of Industry and National People’s Congress considered and approved Information Technology issued the 14th Five-Year Plan the Personal Information Protection Law of the People’s for Development of Information and Communications Republic of China (the “Personal Information Protection Industry, which requires to unswervingly promote the Law”), which came into effect on 1 November 2021. The construction of manufacturing power, Cyberpower Personal Information Protection Law stipulates that the and Digital China, expedite the digital development processing of personal information shall have a clear and of the economy and society, systematically deploy reasonable purpose, and shall be directly related to the new digital infrastructure, effectively promote the processing purpose, with minimal impact on personal speed-up and quality improvement of the network, interests. The collection of personal information shall be focus on strengthening the R&D and application and limited to the minimum scope for processing purposes promotion of new technologies, establish and improve and shall not be excessive. The processing of personal new industry management system, continuously information shall follow the principle of openness improve the service quality and security assurance and transparency, with processing rules of personal ability of the industry, effectively enhance the ability information disclosed and the purpose, methods and of the industry’s risk resistance, achieve high-quality scope of processing specified. The personal information development of the industry, serve the people’s living processor is required to obtain individual consent in quality, comprehensively empower the transformation the process of handling sensitive personal information, and upgrades of the economy and society, promote providing or disclosing personal information to others, the formation of a new development pattern as soon and cross-border transfer of personal information. as possible, realise the modernisation of the national governance system and governance ability as soon as possible, and mark a good start for the comprehensive construction of a modern socialist country. 042 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) On 28 December 2021, the Cyberspace Administration of China, the National Development and Reform Commission, the Ministry of Industry and Information Technology and other departments jointly promulgated the revised Cyber Security Review Measures, which came into effect on 15 February 2022. The Cyber Security Review Measures clarify that network security review shall be conducted when critical information infrastructure operators purchase network products and services and network platform operators conduct data processing activities that affect or may affect national security. The Company will conscientiously implement the newly issued and revised relevant laws, administrative regulations, departmental rules and industry policies, and actively follow up and study the upcoming relevant laws, administrative regulations, departmental rules and industry policies to ensure that the relevant business operations are in compliance with laws and regulations to ensure that the Company operates in compliance with laws and regulations. 3. BUSINESS OF THE COMPANY DURING THE REPORTING PERIOD In 2021, the Company seized the development opportunities of the digital economy and implemented the “Cloudification and Digital Transformation” strategy. Adhering to the proactive and progressive market development tactics, the Company insisted on the individual informatisation upgrade led by 5G and continued to enhance 5G operation capabilities. Through the convergence of “Gigabit Broadband + Whole-home WiFi + e-Surfing HD + Smart Home Application”, the Company accelerated the upgrade of family services to digital life and services. Leveraging “integration of cloud, security, 5G, data, and intelligence”, the Company developed scene-based integrated intelligent solutions to accelerate the development of Industrial Digitalisation. In 2021, The total number of the Company’s mobile subscribers reached 372 million, with subscribers’ net addition maintaining the industry-leading position for four consecutive years. The penetration rate of 5G package subscribers reached 50.4%. The number of wireline broadband subscribers reached nearly 170 million. The Management introduced the Company’s vision of propelling digitalisation through deepened collaboration China Telecom Corporation Limited Annual Report 2021 043 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) penetration rate of subscribers of Smart Family services such as Whole-home WiFi and e-Surfing Webcam 1. INDUSTRY-LEADING CLOUD- NETWORK SERVICING CAPABILITIES increased rapidly. Revenue from Industrial Digitalisation The Company pioneered in the industry to put forward reached RMB98.9 billion, representing a year-on-year the idea of cloud-network integration, built a leading growth of 19.4% on a comparable basis, with its growth new information infrastructure based on cloud-network rate being significantly higher than that of 2020. integration, and continued to consolidate the edges of 4. ANALYSIS OF CORE COMPETITIVENESS DURING THE REPORTING PERIOD holistic network connectivity covering land, sea, air and space. The Company deepened co-building and co- sharing with its 5G network coverage being extended to all cities and counties across the country as well as some developed towns. The Company has built In 2021, in the face of new opportunities and challenges, the world’s largest 5G SA co-building and co-sharing China Telecom implemented the “Cloudification and network. The Company sped up the construction of its Digital Transformation” strategy, coordinated the fibre network, strengthened gigabit’s leading role and promotion of Epidemic prevention and control and the popularity of 300Mbps, and continued to enhance production and operation, achieving significant progress the capabilities in fibre network. The Company launched and remarkable results in corporate reform and the Tiantong IoT to provide customers with intelligent development. integrated information services featuring aerial-ground in one, satellite-network integration as well as Internet of Everything. The Company has built a nationwide ROADM all-fibre transmission network with the world’s largest 044 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) capacity and expanded the deployment scale of new metropolitan network based on business development. 2. SIGNIFICANT ENHANCEMENT OF SCI- TECH INNOVATION CAPABILITY The Company stepped up its efforts in the Cloud The Company fully achieved the integrated the tri- Computing field. China Telecom Cloud Technology segment R&D system comprised three modules Co., Ltd. was officially established, with four large-scale including fundamental research of applications, central state-owned enterprises (SOEs) being introduced technological R&D of applications and operation- to sign a framework agreement of shareholding based development. Continuous breakthroughs have diversification. The Company strived to build a national been seen in core capabilities and proprietary key Cloud Computing team and e-Surfing Cloud brand, technologies, such as e-Surfing Cloud 4.0 and 5G edge continuously enhancing its market influence. Adhering network. The Company has taken the initiative to assume to the “customer-oriented” principle, the Company the origin of original Cloud Computing technology and continued to build a “trustworthy” corporate image, major national problem-tackling projects by carrying provide high-quality informatised products and out extensive external cooperation and comprehensive services, and enhance customer experience. The cooperation with the four major national laboratories. The Company carried out special improvement programs for establishment of China Telecom Science and Technology satisfaction services, maintaining the industry-leading Association serves as a bridge for technical exchange position in terms of overall satisfaction with the lowest and sharing and a home for sci-tech practitioners. The valid complaint rate in the industry. Company gathered top experts in the industry and set up an expert committee for sci-tech innovation to form a high-end “external brain”. China Telecom Corporation Limited Annual Report 2021 045 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Management introduced the Company’s network and information security products 3. CONTINUOUS REINFORCEMENT OF NETWORK AND INFORMATION SECURITY CAPABILITY I n t e r n a l l y , t h e C o m p a n y c o n t i n u e d t o i m p r o v e the network and information security system and established efficiently-centralised security and network channeling capabilities. The Company increased the procurement scale of domestic independent products, fully safeguarded the safety of the supply chain and continuously increased the procurement proportion of domestic systems, software and network equipment. The protection of personal information has been strengthened with full use of informatisation measures to ensure the security of user data and applications. The Company continued to carry out anti-fraud, fraud prevention and anti-telephone harassment, with its anti- fraud work achieving industry-leading position on all fronts. Externally, the Company continuously developed security products and services, empowered social and economic security and strengthened core security products. The Company also proactively expanded its product and service series, such as e-Surfing Security Brain, Graded Protection Assistant, Quantum-encrypted Calls, and Internet Fraud Prevention, among others, and offered products such as e-Surfing Anti-harassment and Security Butler for individual and household markets. The Company has built great security service system, strengthened the collaboration of security company, Beijing Global Safety Technology and QuantumCTek, forming the development synergy and jointly expanding and strengthening security services. 046 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 5. MAJOR OPERATION DURING THE REPORTING PERIOD VR/AR, Cloud Games and cloud handsets becoming considerable while DOU continuing to rise. The Company continuously optimised its privilege operating system In 2021, the Company proactively explored the market, and provided customers with “more convenient, more upgraded its products, enhanced its services and preferential, more intelligent and more secure” digitalised continued to meet individual and household customers’ privilege products and services. The Company offered demands emerging from consumption upgrade in better quality 5G network services to customers by digital life as well as enterprise customers’ demands optimising network configuration leveraging digital emerging from transformation in Industrial Digitalisation. means and enhancing network coverage. In 2021, the The Company spared no efforts to promote high-quality Company’s mobile subscriber number reached 372 development. The Company’s operating revenues million, representing a net addition of 21.41 million and amounted to RMB439.6 billion, representing an increase continuous increase in its market share. Mobile ARPU of 11.7% year-on-year. Of which, service revenues amounted to RMB402.8 billion, representing an increase of 7.8% over last year. Excluding the revenue impact from the disposals of its subsidiaries the year-on- year growth rate reached 8.1%, remaining above the industry’s average growth rate for five consecutive years. was RMB45.0, representing an increase of 2.0% year- on-year. The number of 5G package subscribers reached 188 million, with the penetration rate reaching 50.4% which maintained the industry-leading position. DOU of 5G network customers in December 2021 reached 24.1GB. 1. CONTINUING TO STRENGTHEN THE LEADING ROLE OF 5G SERVICES, WITH THE SCALE AND VALUE OF MOBILE SUBSCRIBERS MAINTAINING FAVOURABLE GROWTH The Company proactively seized the window of 5G service development and insisted on developing individual market led by 5G. The Company continued to enrich the content of 5G packages and took the lead in launching the 5G Cloud Package within the industry by leveraging its “cloud-network integration” edges, offering secure and reliable cloud services for 5G customers through “connectivity + cloud drive”. The Company also continuously optimised its content, applications and experience, stepped up the scale expansion of 5G applications, with the scale of applications such Customers shopping for Smart Family products as Colour Ring back Tone with Video, Ultra HD, Cloud China Telecom Corporation Limited Annual Report 2021 047 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 2. CONTINUING TO ACCELERATE THE UPGRADE OF HOUSEHOLD SERVICES, WHILE STEADILY ENHANCING BROADBAND SERVICING CAPABILITIES AND BLENDED ARPU The Company proactively grasped the development 3. EXPEDITING CLOUD-NETWORK INTEGRATION TO EMPOWER NUMEROUS WALKS OF LIFE, WITH THE REVENUE OF INDUSTRIAL DIGITALISATION ACHIEVING RAPID GROWTH trend of the digital economy, gave full play to its own Fully leveraging its edges in cloud-network integration, resource endowment, continued to upgrade household and the “integration of cloud, security, 5G, data, and business and services to continuously meet the intelligence”, the Company proactively empowered the integrated informatisation needs of household customers. transformation and upgrades of traditional industries. The Company accelerated the comprehensive upgrade The Company also accelerated the enhancement of broadband speed for household customers, with the of cloud product capabilities, with e-Surfing Cloud penetration rate of gigabit users continuing to increase. being upgraded to a distributed cloud. The Company The Company continued to leverage its first-mover created differentiated edges such as cloud-network advantage in Smart Family services, while continuing to integration, independence and controllability, localised optimise its services, enhance its product capabilities service, security and reliability, so as to maintain a good and accelerate the scale development of Smart Family market brand recognition and a leading position in the products. The number of subscribers of e-Surfing public cloud market for government administration. Webcam and Whole-home WiFi maintained leading The Company accelerated the development of cloud- position in the industry. The Company proactively seized network integration products, launched a series of vantage point in digital life, accelerated the upgrade of leading and pioneering products such as premium OTN Smart Family to whole-home intelligence, and provided dedicated lines, FIRST dedicated lines, and promoted family customers with customised services such as the rapid growth of multi-cloud access, multi-cloud whole-home intelligent network and intelligent home. The interconnection and DCI. The Company accelerated Company accelerated the connected digital upgrade the enhancement of industry solution capabilities of household and public services, took the lead in the and delivery capabilities, continued to deepen the industry to publish a digital village white paper and implementation of the government and enterprise continued to upgrade the functions of smart communities system reform, further subdivided the industry BG and and digital village platforms to provide communities and conducted in-depth research on demands of industry rural customers with abundant digital services such customers. The Company built nearly 30 group-level as intelligent management, intelligent monitoring and digital platforms for key industries, provided scene- intelligent security. In 2021, the number of broadband based integrated intelligent solutions, and strengthened subscribers for the Company reached nearly 170 the integration and delivery team and capabilities at local million, representing a net addition of 11.18 million, with level. Leveraging industry platforms, 5G customised broadband access ARPU recording a positive year-on- networks and IoT, the Company extensively serves key year growth. Revenues from Smart Family increased areas and vertical industries such as smart cities, digital by 25.1%. Driven by Smart Family services, broadband blended ARPU amounted to RMB45.9, representing a year-on-year increase of 3.4%. 048 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) government and industrial Internet. In 2021, revenue from the Company’s Industrial Digitalisation reached RMB98.9 billion, representing an increase of 19.4% year- on-year on a comparable basis, a substantial growth acceleration compared to 2020. Revenue from e-Surfing 5. CONTINUING TO ACCELERATE THE CONSTRUCTION OF NEW INFORMATION INFRASTRUCTURE AND FURTHER ENHANCE CLOUD-NETWORK INTEGRATION CAPABILITIES Cloud continued to grow at a rapid pace, amounting to Adhering to “Cloud Central, Network Around, Network RMB27.9 billion, doubled year-on-year. 4. ACCELERATING DIGITAL TRANSFORMATION AND UPGRADES, SIGNIFICANTLY ENHANCING DIGITAL SALES AND SERVICING CAPABILITIES Adaptive to Cloud, Cloud and Network as One”, the Company accelerated the construction of digital information infrastructure that is cloud-network integrated, green and low-carbon. The Company continued to strengthen 5G construction and deepened co-building and co-sharing. The number of 5G base stations in The Company proactively promoted digital transformation use reached approximately 690,000, while 5G network and upgrades and continuously enhanced the digital coverage extended to cover all cities and counties and management level such as digital R&D and design, certain developed towns nationwide. The Company intelligent production and operation, integrated operation built 5G customised networks through front- and back- and management, agile customer service, and ecological ends linage and set the best practices for industry product coordination. The Company continued to applications. The Company also deepened the promotion accelerate the construction of digital sales core to achieve of fibre network construction and continued to enhance rapid product loading, autonomous consumption, cross- fibre network capabilities. The Company completed the region acceptance and processing and empower various construction of an all-fibre transmission ROADM network online and offline touchpoints. The Company continued with nationwide coverage and the largest capacity in the to promote the enhancement of data-based intelligent world and expanded the scale deployment of the new sales and marketing servicing capabilities, strengthened metropolitan network to support business development. the application of data tags, and enhanced AI-driven and The Company strengthened the construction of cloud- data-based intelligent sales and marketing capabilities network fundamental capabilities. Pivoting on the nation’s to build accurate user profiles. As a result, the sales “East-to-West Computing Resource Transfer” project conversion rates, sales and marketing resource utilisation and the deployment of an integrated Big Data centre, efficiency and customer perception were significantly the Company deployed datacentres, DCI network, enhanced. The Company sped up the upgrade of data- computing power and e-Surfing Cloud on all fronts. The based intelligent servicing capabilities and built intelligent Company realised a “2+4+31+X+O” layout for its cloud and online based customer servicing capabilities, resources and became the first cloud service provider achieving dual enhancement of service efficiency and in the country to achieve “one pool for each province”. customer perception. In 2021, the Company maintained The Company coordinated and deployed the largest the industry-leading position in overall satisfaction rate. cloud-based security capabilities pool within the industry and built the capabilities system for security situation awareness covering cloud, network, edge and terminal, to fortify the security foundation for its digital information infrastructure. China Telecom Corporation Limited Annual Report 2021 049 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 6. FINANCIAL OVERVIEW In 2021, the Company proactively seized the strategic opportunities brought by the new round of technological revolution and industrial transformation and implemented its “Cloudification and Digital Transformation” strategy. The Company also deepened reforms and innovation and strengthened operation and management, with significant acceleration of operation and development. T h e C o m p a n y o p t i m i s e d r e s o u r c e a l l o c a t i o n , appropriately increased investment in Industrial Digitalisation and R&D, which effectively supported its business development. At the same time, the Company continued to implement refined cost management and continued to promote efficiency enhancement. In 2021, both the revenues and profit of the Company achieved double-digit growth, with the full year results achieving a new high. In 2021, operating revenues were RMB439,552 million, representing an increase of 11.7% from year 2020. Service revenues14 were RMB402,827 million, representing an increase of 7.8% from year 2020. Excluding the revenue impact from the disposals of its year, remaining above the industry’s average growth rate for five consecutive years. Operating expenses were RMB408,605 million, representing an increase of 12.0% from year 2020. The Company’s profitability continued to enhance. Profit attributable to equity holders of the Company was RMB25,948 million, representing an increase of 24.5% from year 2020. Excluding the one- off after-tax gain from the disposals of its subsidiaries16, the year-on-year growth was 17.7%. Basic earnings per share were RMB0.31. EBITDA17 was RMB123,912 million, representing an increase of 4.2% from year 2020 and the EBITDA margin18 was 30.8%. OPERATING REVENUES I n 2 0 2 1 , t h e C o m p a n y l e v e r a g e d i t s e d g e s i n cloud-network service capabilities, accelerated the development of Industrial Digitalisation service, with its revenues continuing to maintain favourable growth while its revenue structure continuing to optimise. Operating revenues in 2021 were RMB439,552 million, representing an increase of 11.7% from year 2020. Service revenues were RMB402,827 million, representing an increase of subsidiaries15, the growth rate reached 8.1% year-on- 7.8% from year 2020. 14 15 16 17 18 Service revenues are calculated based on operating revenues minus sales of mobile terminals (2021: RMB24,001 million; 2020: RMB10,711 million), sales of wireline equipment (2021: RMB7,330 million; 2020: RMB5,430 million), and other non-service revenues (2021: RMB5,394 million; 2020: RMB3,622 million). The Company completed the disposals of E-surfing Pay and China Telecom Leasing in April 2021. The one-off after-tax gain from the disposals of E-surfing Pay and China Telecom Leasing was approximately RMB1,416 million. EBITDA is calculated based on operating revenues minus operating expenses plus depreciation and amortisation. As the telecommunications business is a capital intensive industry, capital expenditure, the level of gearing and finance costs may have a significant impact on the net profit of companies with similar operating results. Therefore, we believe EBITDA may be helpful in analysing the operating results of a telecommunications service provider such as the Company. Although EBITDA has been widely applied in the global telecommunications industry as a benchmark to reflect operating performance, debt raising ability and liquidity, it is not regarded as a measure of operating performance and liquidity under the International Financial Reporting Standards. 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. EBITDA margin is calculated based on EBITDA divided by service revenues. 050 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) The following table sets forth a breakdown of the operating revenues for year 2021 and 2020, together with their respective rates of change: For the year ended 31 December (RMB million, except percentage data) Service revenues Of which: Mobile communications 2021 402,827 2020 Rates of change 373,798 service revenues Wireline and Smart Family service revenues Industrial Digitalisation service revenues Other service revenues Revenue from sales of goods and others 184,157 175,564 113,522 109,018 98,945 6,203 36,725 83,968 5,248 19,763 Total operating revenues 439,552 393,561 7.8% 4.9% 4.1% 17.8% 18.2% 85.8% 11.7% Mobile communications service revenues Wireline and Smart Family service revenues In 2021, revenues from mobile communications services In 2021, the Company’s wireline and Smart Family were RMB184,157 million, representing an increase of service revenues were RMB113,522 million, representing 4.9% over the same period of last year, accounting for an increase of 4.1% over the same period of last year 41.9% of operating revenues. The increase was mainly and accounting for 25.8% of operating revenues. The due to the increase in handset Internet access revenue. increase was mainly due to the increase in revenues In 2021, the Company deeply integrated its edges in 5G from wireline broadband access and Smart Family. The and e-Surfing Cloud, continued to enhance 5G network Company gave full play to its edge in cloud-network quality, enriched 5G application and privilege portfolio, integration with a focus on digital life under all scenes. In and propelled the dual enhancement of the scale and 2021, broadband access ARPU achieved positive year- value of its mobile subscribers, with its subscriber net on-year growth. In addition, leveraging its cloud-network addition maintaining the industry-leading position for fundamental capabilities, the Company converged four consecutive years. In 2021, handset Internet access “Gigabit broadband + Whole-home WiFi + e-Surfing HD revenue was RMB140,270 million, representing a year- + Smart Family applications” while constantly enriching on-year increase of 7.4%. content of Smart Family services, with its subscriber scale achieving the industry-leading position. In 2021, wireline broadband access revenue amounted to RMB76,548 million, up by 6.5% over last year. Revenue from Smart Family reached RMB13,885 million, representing an increase of 25.1% over last year. China Telecom Corporation Limited Annual Report 2021 051 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Industrial Digitalisation service revenues million, representing an increase of 90.9% over last In 2021, the Company’s Industrial Digitalisation service year, while revenue from IDC reached RMB31,600 maintained rapid growth, with revenue reaching million, representing an increase of 13.0% over last year, RMB98,945 million, representing an increase of 17.8% continuing to rank No.1 in the industry in terms of scale. over last year and a year-on-year increase of 19.4% on a comparable basis19, and accounting for 22.5% Other service revenues of operating revenues. The increase was mainly due In 2021, revenues from other services amounted to to the increase in revenues from IDC and Industry RMB6,203 million, representing an increase of 18.2% Cloud. In 2021, the Company deeply integrated the from year 2020, mainly due to the increase in revenues key elements of digital economy with the real economy, from property rental. proactively empowered the transformation and upgrades of traditional industries, and adopted a wide range Revenue from sales of goods and others of innovative business models. Digitalised platform In 2021, revenue from sales of goods and others accelerated its module-based transition, while the growth amounted to RMB36,725 million, representing an rate was significantly higher compared to that of 2020. increase of 85.8% from year 2020, mainly due to Revenue from Industry Cloud reached RMB21,328 the significant increase in the sales volume of mobile terminals, such as 5G mobile phones. OPERATING EXPENSES The Company firmly seized the opportunity of 5G scale development, accelerated digital transformation and development, and continued to increase investment in government and enterprise service and R&D system. At the same time, the Company strengthened the internal deployment of the digitalised platform, took various measures to continue to strengthen precision cost control, and improved the efficiency of resource utilisation. In 2021, operating expenses were RMB408,605 million, representing an increase of 12.0% from year 2020. Operating expenses accounted for 93.0% of operating revenues, representing an increase of 0.3 percentage point from year 2020. Management presented at a co-building of digital life event 19 Revenues from Industrial Digitalisation in 2020 and 2021 are both calculated on the basis of excluding the revenue impact from disposals of subsidiaries. 052 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) The following table sets forth a breakdown of the operating expenses in 2021 and 2020 and their respective rates of change: For the year ended 31 December 2020 Rates of change (RMB million, except percentage data) Depreciation and amortisation Network operations and support Selling, general and administrative Personnel expenses Other operating expenses Impairment loss on property, plant and equipment 2021 92,965 133,342 61,155 76,055 45,088 – 90,240 119,517 55,059 65,989 29,074 5,042 Total operating expenses 408,605 364,921 3.0% 11.6% 11.1% 15.3% 55.1% N/A 12.0% Depreciation and amortisation Network operations and support In 2021, the Company further promoted 5G co-building In 2021, the Company continued to optimise its network and co-sharing as well as 4G network co-sharing. At the quality and enhance customer experience. The Company same time, the Company maintained necessary capital appropriately increased investment in capabilities build- expenditure to support the construction of 5G network up to support the development of 5G and Industrial at scale. Depreciation and amortisation amounted to Digitalisation service. Network operations and support RMB92,965 million, representing an increase of 3.0% expenses amounted to RMB133,342 million, representing from year 2020 and accounting for 21.1% of operating an increase of 11.6% from year 2020 and accounting for revenues. 30.3% of operating revenues. Network operations and support 32.6% 15.0% Selling, general and administrative Personnel expenses 18.6% Depreciation and amortisation 22.8% Breakdown of the operating expenses 11.0% Other operating expenses China Telecom Corporation Limited Annual Report 2021 053 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Selling, general and administrative In 2021, selling, general and administrative expenses Other operating expenses In 2021, other operating expenses amounted to amounted to RMB61,155 million, representing an RMB45,088 million, representing an increase of 55.1% increase of 11.1% from year 2020 and accounting for from year 2020 and accounting for 10.3% of operating 13.9% of operating revenues. Selling expenses were revenues. The increase was mainly due to the significant RMB48,597 million, representing an increase of 6.9% increase in the scale of mobile terminals sold. from year 2020. The increase was mainly due to the Company seizing the development opportunities of 5G and maintaining the necessary investment in marketing Net finance costs In 2021, net finance costs amounted to RMB1,293 resources, and at the same time, strengthening online million, representing a decrease of 57.1% from year and offline coordination, stepping up precision marketing 2020, mainly because the Company maintained sound and improving the efficiency of selling expenses operating cash flows, while A Share Offering effectively utilisation. General and administrative expenses covered the capital needs of key investment projects, amounted to RMB12,558 million, representing an and the scale of interest-bearing debt was effectively increase of 30.6% from year 2020, which was mainly reduced. due to the increase in R&D as the Company proactively promoted sci-tech innovation and strived to build a sci- tech company. PROFITABILITY LEVEL Income tax The Company’s statutory income tax rate is 25%. In Personnel expenses In 2021, personnel expenses amounted to RMB76,055 2021, income tax expenses were RMB7,716 million while the effective tax rate was 22.8%, representing a million, representing an increase of 15.3% from year 2020 decrease of 0.2 percentage point from last year. The and accounting for 17.3% of operating revenues. The reason for the effective tax rate to be lower than the Company firmly seized the opportunities arising from the statutory tax rate was because income from investment development of the digital economy, strengthened the in the associate company, China Tower, was not subject recruitment of high-tech talents and increased incentives to tax during the period of the investment held, and some for frontline employees and high-performance team, and subsidiaries and some branches located in the western implemented a new phase of share appreciation rights region of China enjoyed low tax rates. to enhance employees’ vitality. Investments in personnel expenses were in line with the transformation of the Company towards a sci-tech company in the future. For details regarding the number of employees, remuneration Profit attributable to equity holders of the Company The Company firmly seized the strategic opportunities policy and training programs, please refer to 2021 arising from the booming digital economy, deepened Corporate Social Responsibility Report. reform and innovation and strived to improve quality and efficiency, resulting in a significant increase in profit attributable to equity holders. In 2021, the profit attributable to equity holders of the Company was RMB25,948 million, representing an increase of 24.5% from year 2020, and a year-on-year increase of 17.7% excluding the one-off after-tax gain of disposals of its subsidiaries20. 20 The one-off after-tax gain from the disposals of E-surfing Pay and China Telecom Leasing was approximately RMB1,416 million. 054 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) CAPITAL EXPENDITURE AND CASH FLOWS Capital expenditure Cash flows The net increase in cash and cash equivalents for year 2021 was RMB49,724 million and net increase in cash In 2021, the Company maintained the necessary and cash equivalents for year 2020 was RMB3,076 i n v e s t m e n t s c a l e i n 5 G n e t w o r k c o n s t r u c t i o n , million. c o n t i n u o u s l y e n h a n c e d 5 G n e t w o r k c o v e r a g e capabilities, and expanded the construction of e-Surfing Cloud and IDC. At the same time, the Company strictly controlled capital expenditure and continually promoted the 5G network co-building and co-sharing as well as 4G network co-sharing with China Unicom. Capital expenditure for the year was RMB86,723 million, representing an increase of 2.3% from year 2020. Broadband & Internet 4G network investment 18.6% 2.1% Industrial Digitalisation 19.9% 43.8% 5G network investment Operating systems & business platforms Infrastructure & others 5.3% 10.3% Capital Expenditure RMB86,723 million CAPEX as a % of service revenues 1.2p.p. The following table sets forth the cash flow position in 2021 and 2020: (RMB million) Net cash from operating activities Net cash used in investing activities Net cash used in financing activities Net increase in cash and cash equivalents For the year ended 31 December 2021 137,533 (80,287) (7,522) 49,724 2020 132,260 (87,077) (42,107) 3,076 China Telecom Corporation Limited Annual Report 2021 055 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) In 2021, the net cash inflow from operating activities was WORKING CAPITAL RMB137,533 million, representing an increase of 4.0% The Company consistently upheld stable and prudent from year 2020, mainly due to the increase in cash inflow financial principles and stringent fund management resulting from the increase in operating revenues. policies. At the end of 2021, the working capital (total In 2021, the net cash outflow used in investing activities RMB137,712 million, representing a decrease in deficit was RMB80,287 million, representing a decrease of 7.8% of RMB49,414 million compared to the end of 2020. from year 2020, mainly due to the increase in net cash The liquidity of the Company continuously improved. current assets minus total current liabilities) deficit was inflow from the disposal of E-surfing Pay. As at 31 December 2021, the unutilised credit facilities were RMB276,483 million (2020: RMB244,326 million). In 2021, the net cash outflow used in financing activities Given the stable net cash inflow from operating activities was RMB7,522 million, representing a decrease of and sound credit record, the Company has sufficient 82.1% from year 2020, mainly due to the impact of the working capital to satisfy operational needs. As at the proceeds from the Company’s A Share Offering. end of 2021, cash and cash equivalents amounted to RMB73,281 million, among which cash and cash equivalents denominated in Renminbi accounted for 89.6% (2020: 73.0%). Free Cash Flow RMB Mil 14,276 15,139 6.0% 2020 2021 056 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) ASSETS AND LIABILITIES In 2021, the Company continued to maintain a solid financial position. At the end of 2021, the total assets increased by 6.6% from RMB715,096 million as at the end of 2020 to RMB762,234 million. Total indebtedness21 decreased to RMB16,496 million from RMB53,342 million at the end of 2020. Gearing ratio22 decreased to 3.7% from 12.8% at the end of 2020. Indebtedness The indebtedness analysis as at the end of 2021 and 2020 is as follows: (RMB million) Short-term debts Long-term debts maturing within one year Long-term debts Total indebtedness For the year ended 31 December 2021 2,821 6,280 7,395 16,496 2020 27,994 1,126 24,222 53,342 As at the end of 2021, the total indebtedness was As at 31 December 2021, neither the Company nor any RMB16,496 million, representing a decrease of of its subsidiaries pledged any assets as collateral for RMB36,846 million from the end of 2020, which was debt (2020: Nil). mainly because the proceeds from A Share Offering satisfied the capital requirements of key projects, Most of the revenues received and expenses paid in the leading to decreased external financing needs. Of the course of the Company’s business were denominated total indebtedness, loans denominated in Renminbi, US in Renminbi, therefore there were no significant risk Dollars and Euro accounted for 98.2% (2020: 99.3%), exposures arising from foreign exchange fluctuations. 1.1% (2020: 0.4%) and 0.7% (2020: 0.3%), respectively. 95.9% (2020: 90.1%) of the indebtedness are loans with fixed interest rates while the remaining portion of the indebtedness represented loans with floating interest rates. 21 22 Total indebtedness refers to interest-bearing debts excluding lease liabilities. Gearing ratio is calculated based on total indebtedness divided by total capital, while total capital is calculated based on total equity attributable to equity holders of the Company plus total indebtedness. China Telecom Corporation Limited Annual Report 2021 057 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Significant investment As at 31 December 2021, the Company’s external investments mainly included interests in associates and joint ventures and equity instruments at fair value through other comprehensive income, with carrying amounts of RMB41,166 million and RMB1,216 million, respectively. The Company’s investment in China Tower, an associate of the Company, constituted its significant investment. Details of such investment are set out below: Company name Stock Code Principal businesses Place of incorporation Investment cost (RMB million) Number of shares held Percentage of shares held Carrying amount (RMB million) Fair value (RMB million) As at 31 December 2021 Size of fair value relative to total assets of the Group China Tower 0788.HK Include the tower business and indoor China 36,087 36,087,147,592 20.5% 38,250 25,374 3.3% Distributed Antenna System (DAS) business for telecommunications industry, and the Trans- sector Site Application and Information (TSSAI) business and energy operation business for customers from various industries across wider society As at 31 December 2021, the carrying amount of the Group’s interests in China Tower, an associate of the Company, was RMB38,250 million, accounting for 5.0% of the Group’s total assets. In 2021, share of unrealised profits of China Tower recognised by the Company amounted to RMB1,651 million, and dividends received amounted to RMB807 million. In the future, the Company can enjoy more fundamental network resources through China Tower. As one of the shareholders of China Tower, it is expected that the Company can benefit from the long-term enhancement of profits and values from China Tower. Contractual obligations Contractual obligations as at 31 December 2021 are as follows: (RMB million) Short-term debts Long-term debts Lease liabilities Capital commitments Total contractual obligations Total Within 1 year 1 to 2 years 2 to 5 years Thereafter Between Between 2,870 15,038 46,068 20,773 84,749 2,870 6,415 15,193 20,773 45,251 – 3,218 9,556 – – 3,201 15,560 – 12,774 18,761 – 2,204 5,759 – 7,963 Note: Amounts of short-term debts, long-term debts and lease liabilities include recognised and unrecognised interest payable, and are not discounted. 058 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 7. INDUSTRY OPERATION ANALYSIS In 2021, China’s communications industry proactively promoted the construction of Cyberpower and Digital China, with full acceleration of the construction and application popularity of new information infrastructure, such as 5G and gigabit fibre networks, laying a solid foundation for the development of the 14th Five-Year Plan. In 2021, revenue of China’s telecommunications industry increased steadily, amounting to RMB1.47 trillion, representing an increase of 8.0% and the growth rate increase of 4.1 percentage points over last year. The revenue from fixed data and Internet services amounted to RMB260.1 billion, representing an increase of 9.3% over the previous year, with a proportion of the revenue from telecommunications services increasing to 17.8%. Revenue from mobile data and Internet services amounted to RMB640.9 billion, representing an increase of 3.3% over last year. The number of subscribers continued to expand. As of the end of 2021, China’s mobile phone subscribers reached 1,643 million, representing a net increase of 48.75 million over the previous year. The total number of wireline broadband access subscribers of the three fundamental telecommunications enterprises reached 536 million, representing a net increase of 52.24 million as compared to the previous year, of which the number of subscribers with access speed of 1000Mbps or above recorded a net increase of 28.16 million for the year, reaching 34.56 million, accounting for 6.4% of the total number of users. The mobile Internet traffic grew rapidly. Under the impact of the Covid-19 Epidemic, users’ demand for online office and shopping continued to increase. Combined with the increasingly flourishing application scenarios for large data traffic, the potential for traffic consumption was further released. In 2021, the mobile Internet access traffic reached 221.6 billion GB, representing an increase of 33.9% as compared with last year. DOU reached 13.36 GB/user, representing an increase of 29.2% as compared with last year. The development of emerging businesses accelerated, with technologies accelerated, including the innovation of Big Data, Cloud Computing and Artificial Intelligence, while the integration with various industries also accelerated. In 2021, the wireline value-added service revenue reached RMB222.5 billion, representing a year- on-year increase of 27.8% with growth rate continuing to increase, accounting for 15.2% of the revenue from telecommunications services. Among them, revenue from Cloud Computing increased by 91.5% and revenue from Big Data business increased by 35.5% over last year. The network infrastructure continued to evolve and upgrade and the construction of 5G and gigabit fibre networks was accelerated. As of the end of 2021, the length of optical cable in China reached 54.88 million kilometers, and the number of Internet broadband access ports reached 1,018 million. Among them, the number of fibre access (FTTH/O) ports reached 960 million, representing a net increase of 80.17 million compared with the end of the previous year; The total number of mobile communications base stations in China reached 9.96 million. Over 650,000 new 5G base stations were built throughout the year, and a total of 1.425 million 5G base stations were built and operated. China Telecom Corporation Limited Annual Report 2021 059 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 8. DISCUSSION AND ANALYSIS ON THE FUTURE DEVELOPMENT OF THE COMPANY from identical basic needs such as voice, SMS and traffic to customised needs such as content, applications and solutions, and continues to shift towards the scene- based needs of every individual. 1. INDUSTRY LANDSCAPE AND TREND The unprecedented changes of the world have been evolving in an accelerated speed, seeing a new round of sci-tech revolution and industrial transformation and the wave of digitalisation sweeping the world. The Covid-19 Epidemic has further accelerated the progress of these trends. Although the development of the information and communications industry is subject to risks and challenges, there are broad prospects and opportunities. The new generation of information communications t e c h n o l o g y d r i v e s t h e h u m a n s o c i e t y t o w a r d s The evolution of new technologies and the stimulation of customer needs require the provision of new digital products and services to drive the digital transformation of the whole society. The digital transformation of various industries has brought huge room for industrial digitalisation, causing the boundaries of traditional industries to fade out gradually. Internet companies, software companies, equipment manufacturers and other companies have entered the market. As a result, enhancing industry collaboration and industry chain cooperation became the common choice for global the era of digital intelligence. The information and mainstream enterprises. communications technology has gone through the Internet era represented by All IP and entered the whole cloud era represented by All Cloud, and is gradually moving towards the fully intelligent era represented by All Intelligence. Transforming from connecting personal computers, connecting people and mobile applications to the Internet of Everything, the perception of Everything and the intelligence of Everything. The core of intelligent integrated digital information infrastructure is “high-speed and ubiquitous, ariel-ground in one, cloud-network integrated, intelligent and agile, green and low-carbon, and secured and controllable”. The new generation of information communications technology represented by 5G, fibre network, cloud and Artificial Intelligence, as the basic elements of new information infrastructure, has become the foundation and necessity for economic and social development. In the intelligent and digital era, user needs are becoming more intelligent, diversified and scene-based. The digital- driven demand of users has been continuously upgraded, 2. DEVELOPMENT STRATEGY OF THE COMPANY China Telecom proactively implements the original mission of building a Cyberpower, Digital China and safeguarding network information security, fully implements the “Cloudification and Digital Transformation” strategy and insists on the customer- oriented principle. The Company strengthens the core capability of sci-tech innovation, accelerates the construction of new information infrastructure which is cloud-network integrated, green and secure and consolidates the foundation of green development and network information security. The Company builds a digital platform hub, creates a win-win cooperation ecosystem, deepens the reform of systems and mechanisms, provides customers with flexible, diversified, integrated, convenient, quality experience, green and secure integrated intelligent information services, meets the information needs of people for a better life, and continues to promote the Company to grow stronger, better and bigger, to become a world-class enterprise and create greater value for shareholders. 060 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 3. BUSINESS PLAN growth. The Company will strengthen the analysis In 2022, the Company will firmly seize the strategic and determination of the external environment, opportunities arising from the development of the actively prevent and respond to the risks brought by digital economy, fully implement the “Cloudification and environmental changes, implement the requirements Digital Transformation” strategy, vigorously promote of regulatory policies, comprehensively deepen reform, sci-tech innovation and continue to deepen corporate promote the strategy of “Cloudification and Digital reform. Adhering to the customer-oriented principle, Transformation”, innovate business models, accelerate the Company will continue to accelerate subscribers’ technological innovation, improve the compliance upgrade to 5G and gigabit users, proactively participate management system and solidly promote the high-quality in the digital upgrades of residential and community development of the Company. facilities, provide customers with a new and shared digital life to promote the quality upgrade of living consumption. Business operation risks The Company will accelerate the promotion of smart The Nation requires to give full play to the supporting communities and digital villages while using digital role of sci-tech innovation strategy, which will bring new means to improve the level of urban and rural public opportunities and challenges to the sci-tech innovation services. Leveraging the advantages of cloud-network of enterprises. With the rapid development of the digital integration, the Company will continuously enrich economy, the upgrading and iteration of products and “the cloud migration, the use of data and intelligence services have accelerated towards the more diversified injection” services based on the characteristics of and personalized needs of customer. There is a certain different industries and differentiated needs, with an aim gap between the Company’s products and services to facilitate the digital transformation and upgrades of in terms of varieties, performance and experience and enterprise customers and strive to promote high-quality customer’s needs, as well as between the level of development. 4. POTENTIAL RISKS Risks of adapting to economic and policy environment industrial digitalisation and the requirements of digital economy development. Market competition further intensified, with the growth rate of subscribers in the telecommunications industry under downward pressure and lagging technological and innovation development. The impact of the global Covid-19 Epidemic is far- The Company will further strengthen the research and reaching, while protectionism and unilateralism have development and the transformation of achievements affected the stability of the global landscape, with of sci-tech innovations, increase the dual driving forces increasing sources of turbulence and risk points. The of fundamental business and digital industrialisation Company may be exposed to restrictions, sanctions business and the mutual promotion of dual circulation or other legal or regulatory measures in different of domestic and international markets, make efforts jurisdictions. The domestic economy is facing the “triple in the research and development and promotion of pressure” of shrinking demand, supply shocks and supply-side products, promote the improvement of 5G weakening expectations. The increasingly stringent business model and industry chain, accelerate the scale regulatory environment and policies such as market development of 5G, increase the capital deployment entry, speed upgrade and tariff reduction and mobile intensity, expand the “circle of friends” in the ecology number portability may bring risks and challenges to and continuously improve the market competitiveness of the Company’s business development and revenue product supply to meet the diversified and personalised needs of customers. China Telecom Corporation Limited Annual Report 2021 061 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Network and information security risks T h e a c c e l e r a t e d e v o l u t i o n o f i n f o r m a t i o n a n d 9. OTHER DISCLOSURES communication networks and the growing number of 1. PRINCIPAL BUSINESS cyber-attacks for different purposes have brought new challenges to network security operations. With the promulgation, revision and implementation of relevant laws and regulations including the Data Security Law, the Personal Information Protection Law, the Regulations on the Protecting the Security of Critical Information Infrastructure and the Cyber Security Review Measures, the Nation has further strengthened the supervision over relevant fields. Amid the network illegal and criminal acts widely concerned by the society, the Company put forward higher requirements for the data security and personal information protection, and will further consolidate the security foundation of new information infrastructure, improve the independence and controlling capability of core network technologies, improve the supply chain security management system and improve the emergency response and sourcing capability. At the same time, the Company will further strengthen the protection of key information infrastructure, deepen data security and user personal information protection, accelerate the use of data and intelligence injection in The principal business of the Company and the Group is the provision of fundamental telecommunications b u s i n e s s e s i n c l u d i n g c o m p r e h e n s i v e w i r e l i n e communications services, mobile communications services, value-added telecommunications businesses such as Internet access services, information services and other related services within the service area of the Group. 2. DIVIDEND POLICY The basic principles of the Company’s profit distribution policy are: (1) The Company attaches great importance to reasonable investment returns to investors, and the Company’s profit distribution policy will take into account the overall interests of all shareholders, the Company’s long-term interests and the Company’s sustainable development; the security core, continue to carry out network security (2) Under the premise that the Company’s profit risk investigation, effectively ensure security reliability distribution does not exceed the cumulative of network operation as well as data and personal distributable profit and that the Company takes information security. International operation risks The recurrence of the global Epidemic has brought greater challenges to overseas operations. Factors such as changes in the policy environment in the countries/ regions where the Company operates have brought risks to overseas business expansion. There is still a gap between product and service and demands of customers. The overseas subsidiaries will further strengthen market analysis and study on policies and laws of relevant countries/regions, strengthen overseas compliance management, improve risk response capabilities and continue to improve the overseas Epidemic prevention and control and risk prevention responsibility system. into account the continuous profits, meets regulatory requirements, operates regularly and develops in the long term, the Company will give priority to cash distribution of dividends. The Board is responsible for formulating the dividend distribution plan and will execute the relevant approval procedures in accordance with relevant laws, rules, regulations and articles of association of the Company (the “Articles of Association”) before proceeding with the distribution. In the future, the Company will strive for profitability enhancement and at the same time continue to deliver favourable dividend return for the shareholders. Details of the dividend policy of the Company are set out in the “Corporate Governance Report” of this annual report. 062 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 3. DIVIDENDS T h e B o a r d p r o p o s e s a f i n a l d i v i d e n d i n t h e P u r s u a n t t o t h e “ N o t i c e o f t h e S t a t e T a x a t i o n Administration on Issues Concerning Taxation and amount to RMB0.170 (pre-tax) per share, totaling Administration of Individual Income Tax After the Repeal RMB15,568,915,025 for the year ended 31 December of Guo Shui Fa [1993] No. 045 (Guo Shui Han [2011] 2021. The dividend proposal will be submitted for No. 348)”, if the individual H share shareholders who are consideration at the Annual General Meeting to be held Hong Kong or Macau residents and those whose country on Thursday, 19 May 2022 (the “2021 AGM”). Dividends of domicile is a country which has entered into a tax will be denominated and declared in Renminbi. Details treaty with PRC stipulating a dividend tax rate of 10%, the of the profit distribution of the Company for 2021 are set Company will finally withhold and pay individual income out in the “Corporate Governance Report” of this annual report. Dividends for holders of A Shares and the investors of the Shanghai Stock Exchange and Shenzhen Stock Exchange (including enterprises and individuals) investing in the H shares of the Company listed on the Hong Kong Stock Exchange (the “Southbound Trading Link”) (the “Southbound Investors”) will be paid in Renminbi, whereas dividends for H share shareholders other than Southbound Investors will be paid in Hong Kong dollars. The relevant exchange rate will be the average median rate 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 2021 AGM. The proposed final dividends are expected to be paid on or before 18 July 2022 upon approval at the 2021 AGM. Pursuant to the “Enterprise Income Tax Law of the People’s Republic of China”, the “Implementation tax at the rate of 10% on behalf of the individual H share shareholders. If the individual H share shareholders whose country of domicile is a country which has entered into a tax treaty with PRC stipulating a dividend tax rate of less than 10%, the Company will finally withhold and pay individual income tax at the rate of 10% on behalf of the individual H share shareholders. If the individual H share shareholders whose country of domicile is a country which has entered into a tax treaty with PRC stipulating a dividend tax rate of more than 10% but less than 20%, the Company will withhold and pay individual income tax at the actual tax rate stipulated in the relevant tax treaty. If the individual H share shareholders whose country of domicile is a country which has entered into a tax treaty with PRC stipulating a dividend tax rate of 20%, or a country which has not entered into any tax treaties with PRC, or under any other circumstances, the Company will withhold and pay individual income tax at the rate of 20% on behalf of the individual H share Rules of the Enterprise Income Tax Law of the People’s shareholders. If those shareholders need to request a Republic of China” and the “Circular of the State Taxation refund of tax overpaid from the PRC tax authorities on his Administration on Issues Relating to the Withholding own or through an agent or the Company in accordance of Enterprise Income Tax by PRC Resident Enterprises with the relevant requirements of the “Announcement of on Dividends Paid to Overseas Non-PRC Resident the State Taxation Administration on Promulgating the Enterprise Shareholders of H Shares” (Guo Shui Han Administrative Measures for Non-resident Taxpayers [2008] No. 897), the Company shall be obliged to for Treatments under Tax Treaties” (Announcement withhold and pay 10% enterprise income tax when it [2019] No. 35 of the State Taxation Administration), distributes the proposed 2021 final dividends to non- they shall submit the “Information Report on Non- resident enterprise shareholders of overseas H shares resident Taxpayers for Treatments under Tax Treaties” (including HKSCC Nominees Limited, other corporate nominees or trustees, and other entities or organisations) whose names appear on the Company’s H share register of members on Tuesday, 7 June 2022. (Announcement [2019] No. 35 of the State Taxation Administration), and collect and file such information. China Telecom Corporation Limited Annual Report 2021 063 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) The Company will determine the country of domicile For Southbound Investors (including enterprises and of the individual H share shareholders based on the individuals), the Shanghai branch of China Securities registered address as recorded in the H share register Depository and Clearing Corporation Limited and the of members of the Company on Tuesday, 7 June 2022 Shenzhen branch of China Securities Depository and (the “Registered Address”). If the country of domicile Clearing Corporation Limited, as the nominees of the of an individual H share shareholder is not the same investors of the Southbound Trading Link, will receive as the Registered Address or if the individual H share all dividends distributed by the Company and will shareholder would like to apply for a refund of the distribute the dividends to the relevant investors under additional amount of tax finally withheld and paid, the the Southbound Trading Link through its depositary and individual H share shareholder shall notify and provide clearing system. According to the relevant provisions relevant supporting documents to the Company on or under the “Notice on Taxation Policies for Shanghai- before Wednesday, 1 June 2022. Upon examination of Hong Kong Stock Connect Pilot Programme (Cai Shui the supporting documents by the relevant tax authorities, [2014] No. 81)” and “Notice on Taxation Policies for the Company will follow the guidance given by the tax Shenzhen-Hong Kong Stock Connect Pilot Programme authorities to implement relevant tax withholding and (Cai Shui [2016] No. 127)”, the Company shall withhold payment provisions and arrangements. Individual H share and pay individual income tax at the rate of 20% with shareholders may either personally attend or appoint a respect to dividends received by the Mainland individual representative to attend to the procedures in accordance investors for investing in the H shares of the Company with the requirements under the tax treaties notice if they listed on the Hong Kong Stock Exchange through the do not provide the relevant supporting documents to the Southbound Trading Link. In respect of the dividends Company within the time period stated above. received by Mainland securities investment funds 064 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) investing in the H shares of the Company listed on Hong Kong Stock Exchange through the Southbound Trading Link, the tax levied shall be ascertained by reference to the rules applicable to individual investors. The Company is not required to withhold and pay income tax on dividends derived by the Mainland enterprise investors under the Southbound Trading Link, and such enterprises shall report the income and make tax payment by themselves. The record date for entitlement to the shareholders’ rights and the relevant arrangements of dividend distribution for the Southbound Investors are the same as those for the Company’s H share shareholders. The Company assumes no responsibility and disclaims all liabilities whatsoever in relation to the tax status or tax treatment of the individual H share shareholders and for any claims arising from any delay in or inaccurate determination of the tax status or tax treatment of the individual H share shareholders or any disputes relating to the tax withholding and payment mechanism or arrangements. 4. DIRECTORS AND SENIOR MANAGEMENT OF THE COMPANY The following table sets out certain information of the Directors and senior management of the Company: Name Ke Ruiwen Li Zhengmao Shao Guanglu Liu Guiqing Tang Ke Chen Shengguang Tse Hau Yin, Aloysius Xu Erming Wang Hsuehming 58 59 58 55 47 58 74 72 72 Age Position in the Company Date of Appointment* Executive Director, Chairman and Chief Executive Officer 30 May 2012 Executive Director, President and Chief Operating Officer 26 May 2020 Executive Director 26 May 2020 Executive Director and Executive Vice President 19 August 2019 Executive Director and Executive Vice President 22 March 2022 Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director 23 May 2017 9 September 2005 9 September 2005 29 May 2014 26 October 2018 Yeung Chi Wai, Jason 67 Independent Non-Executive Director * Date of appointment as Director References are made to the announcements in relation to the changes of Directors and senior management published by the Company on the following dates: on 19 January 2021, Mr. Chen Zhongyue resigned from his positions as an Executive Director and Executive Vice President of the Company due to change in work arrangement. On 30 September 2021, Mr. Zhang Zhiyong resigned from his position of Executive Vice President of the Company due to change in work arrangement. On 29 November 2021, Mr. Tang Ke was appointed as an Executive Vice President of the Company. He was subsequently appointed as an Executive Director of the Company at the Extraordinary General Meeting of the Company held on 22 March 2022. The relevant appointment became effective from the date of approval at the Extraordinary General Meeting until the Annual General Meeting of the Company for the year of 2022 to be held in the year of 2023. On 27 December 2021, Madam Zhu Min resigned from her positions as an Executive Director, Executive Vice President, Chief Financial Officer and Secretary of the Board of the Company due to change in work arrangement. China Telecom Corporation Limited Annual Report 2021 065 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 5. SUPERVISORS OF THE COMPANY The following table sets out certain information of the Supervisors of the Company: Name Han Fang Zhang Jianbin Dai Bin Xu Shiguang Wang Yibing Age Position in the Company Date of Appointment* 48 Chairlady of the Supervisory Committee and 22 March 2022 Shareholder Representative Supervisor 56 53 42 55 Employee Representative Supervisor Employee Representative Supervisor Shareholder Representative Supervisor Shareholder Representative Supervisor 16 October 2012 26 May 2020 26 October 2018 22 March 2022 * Date of appointment as Supervisor References are made to the announcements in relation to the changes of Supervisors published by the Company on the following dates: on 17 December 2021, Mr. Sui Yixun and Mr. You Minqiang resigned from their positions as Supervisors due to reason of age and change in work arrangement respectively, and their resignations took effect on the date of election of the new Supervisors at the Extraordinary General Meeting of the Company held on 22 March 2022. Madam Han Fang and Madam Wang Yibing were subsequently appointed as the Shareholder Representative Supervisors of the seventh session of the Supervisory Committee of the Company at the Extraordinary General Meeting of the Company held on 22 March 2022. The relevant appointments became effective from the date of approval at the Extraordinary General Meeting until the Annual General Meeting of the Company for the year of 2022 to be held in year of 2023. Madam Han Fang was elected as the Chairlady of the seventh session of the Supervisory Committee at a meeting of the Supervisory Committee held on 29 March 2022, with a term commencing from 29 March 2022 until the Annual General Meeting of the Company for the year of 2022 to be held in the year of 2023. 6. SHARE CAPITAL, ISSUE OF SHARES AND USE OF PROCEEDS As at 31 December 2021, the total share capital of the Company was approximately RMB91,507 million, divided into 91,507,138,699 shares at a nominal value of RMB1.00 per share (including 77,629,728,699 A Shares and 13,877,410,000 H shares). In order to seize the opportunities of digital development, improve corporate governance, broaden financing channels, accelerate reform and development, promote the implementation of strategies and achieve high-quality development, on 20 August 2021, the Company successfully completed the offering and listing of A Shares on the SSE and initially issued 10,396,135,267 A Shares (with a nominal value of RMB1.00 each) at an issue price of RMB4.53 per share, where the total nominal value of the initial issuance was approximately RMB10,396 million. The subscribers are qualified natural persons and institutional investors (except those prohibited by the laws and regulations and other regulatory requirements applicable to the Company). A total of 67,054,958,321 Domestic Shares held by the existing domestic shareholders of the Company were converted into 67,054,958,321 A Shares. The total proceeds from the issuance amounted to approximately RMB47,094 million before the exercise of the Over-allotment Option. After deducting the issuance expenses, the net proceeds amounted to approximately RMB46,712 million, and the net proceeds (or the net price) per share amounted to approximately RMB4.49 before the exercise of the Over-allotment Option. The exercise period of the Over-allotment Option for the A Share Offering expired on 22 September 2021. On the basis of the initial issuance of 10,396,135,267 A Shares, the Company issued an additional 178,635,111 A Shares (with a nominal value of RMB1.00 each) at an issue price of RMB4.53 per share, where the total nominal value of the additional A Shares issued was approximately RMB179 million. The total increase in gross proceeds amounted to approximately RMB809 million. Together with the proceeds from the initial issuance of A Shares, the final gross proceeds from the issuance amounted to approximately RMB47,904 million, the net proceeds after deducting the issuance expenses amounted to approximately RMB47,516 million, and the net proceeds 066 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) (or the net price) per share amounted to approximately RMB4.49. As disclosed in the Prospectus, the above proceeds will be used on the three investment projects of the Company, namely 5G Industrial Internet Construction Project, the Cloud-network integration new information infrastructure project and the research and development project of sci- tech innovation. During the Reporting Period, the proceeds were used, or are proposed to be used, according to the intentions previously disclosed in the Prospectus, and there was no material change or delay. Details of the A Share Offering are set out in “Changes in Shares and Information on Shareholders” of this annual report. The total amount of proceeds invested as of the end of the Reporting Period was approximately RMB14,895 million. The use of proceeds is as follows: Projects invested with proceeds 5G Industrial Internet Construction Project Cloud-network integration new information infrastructure project Research and development project of sci-tech innovation Total Total committed investment of proceeds (RMB million) Amount invested as of the end of the Reporting Period (RMB million) Amount not utilised as of the end of the Reporting Period (RMB million) Expected timeline for use of proceeds 9,957 23,583 13,976 47,516 2,797 9,437 2,661 7,160 2023 or before 14,146 2023 or before 11,315 2023 or before 14,895 32,621 – 7. MATERIAL INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES OF THE COMPANY As at 31 December 2021, 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 the shareholders’ class meetings of the Company (excluding the Directors and Supervisors) in the shares and underlying shares 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: Name of shareholder China Telecommunications Corporation Guangdong Rising Holdings Group Co., Ltd. GIC Private Limited Number of shares* Class of share 57,783,972,256 (Long Position) 5,614,082,653 (Long Position) 1,945,047,702 (Long Position) A Share A Share H Share Approximate percentage of the respective class of shares in issue Approximate percentage of the total number of shares in issue Capacity 74.43% 63.14% Beneficial owner 7.25% 6.14% Beneficial owner 14.02% 2.12% Investment manager * The information disclosed above is based on the the interests and short position as recorded in the register required to be maintained by the Company under Section 336 of the SFO. Pursuant to the relevant provisions of the SFO, shareholders only have to file a disclosure of interest on the occurrence of certain events — called “relevant events”. Accordingly, the exact numbers of shares held by the above-mentioned shareholders as at 31 December 2021 may be different from those as disclosed above. Save as disclosed above, as at 31 December 2021, 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 and underlying shares of the Company. China Telecom Corporation Limited Annual Report 2021 067 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 8. DIRECTORS’ AND SUPERVISORS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES Save as disclosed below, as at 31 December 2021, none of the Directors and Supervisors of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (as defined in Part XV of the SFO) as recorded in the register required to be maintained under Section 352 of the SFO or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules. Shares held as approximate percentage of Shares held as the total approximate number of percentage of respective class of the total number of Number of Shares Capacity shares in issue shares in issue 1,000 Beneficial owner 0.00% 0.00% Name Position Chen Shengguang Non-Executive Class of share A Share Director (Long Position) 1,000 Interest of spouse 0.00% 0.00% (Long Position) Zhang Jianbin Employee A Share 1 Beneficial owner 0.00% 0.00% Representative Supervisor (Long Position) During the year 2021, the Company has not granted its Directors or Supervisors, or their respective spouses or any of their respective minor child (natural or adopted) or on their behalf 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 to subscribe for the shares or debentures. 9. DIRECTORS’ AND SUPERVISORS’ INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS On 26 March 2021, the Company had entered into agreements with China Telecommunications, pursuant to which the Company had agreed to sell, and China Telecommunications had agreed to purchase all the share capital in E-surfing Pay with an investment amount of RMB500 million held by the Company for a consideration in the amount of RMB3,897 million. On the same date, the Company and its wholly owned subsidiary, China Telecom Global Limited (“China Telecom Global”), had entered into agreements with China Telecommunications and Guang Hua Properties Limited (“Guang Hua Properties”), a wholly-owned subsidiary of China Telecommunications, respectively, pursuant to which, the Company and China Telecom Global had respectively agreed to sell, and China Telecommunications and Guang Hua Properties had agreed to purchase, 75% of the share capital in China Telecom Leasing from the Company and 25% of the share capital in China Telecom Leasing from China Telecom Global for a consideration in the amount 068 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) of RMB131 million and RMB44 million, respectively. Agreement, the New Trademark License Agreement and As Mr. Ke Ruiwen also served as the Chairman of the Intellectual Property License Framework Agreement China Telecommunications and Mr. Li Zhengmao and with a term from 1 January 2022 to 31 December 2024. Mr. Shao Guanglu also served as Directors of China On the same day, the Company and E-surfing Pay Telecommunications, all of them had abstained from had entered into the New Payment and Digital Finance voting on the relevant board resolutions to approve the Related Services Framework Agreement with a term disposals of the subsidiaries. from 1 January 2022 to 31 December 2024. In addition, on 22 October 2021, financial services framework On 29 April 2021, the Company and E-surfing Pay had agreements were entered into between the Company entered into the Payment and Digital Finance Related and China Telecom Finance, China Telecom Finance and Services Framework Agreement, pursuant to which China Telecommunications, China Telecom Finance and E-surfing Pay and its subsidiaries provided payment CCS, China Telecom Finance and New Guomai Digital and digital finance related services to the Group. The Culture Co., Ltd, China Telecom Finance and Beijing term of the agreement continued until 31 December Global Safety Technology Co., Ltd, respectively. The 2021. As Mr. Ke Ruiwen also served as the Chairman respective terms of all these financial services framework of China Telecommunications, Mr. Li Zhengmao and agreements are effective from 1 January 2022 until Mr. Shao Guanglu also served as Directors of China 31 December 2024. As Mr. Ke Ruiwen also served Telecommunications, Mr. Liu Guiqing also served as as the Chairman of China Telecommunications, Mr. Li a Vice President of China Telecommunications, and Zhengmao and Mr. Shao Guanglu served as Directors of Madam Zhu Min also served as the Chief Accountant of China Telecommunication, Mr. Liu Guiqing also served China Telecommunications, all of them had abstained as a Vice President of China Telecommunications and from voting on the relevant board resolutions to approve Madam Zhu Min also served as the Chief Accountant of the Payment and Digital Finance Related Services China Telecommunications and the Chairlady of China Framework Agreement. Telecom Finance, all of them had therefore abstained from voting on the relevant board resolutions in respect On 22 October 2021, the Company and China of the above respective agreements. Telecommunications had entered into the New Engineering Framework Agreement, the New Ancillary Save as disclosed above and the service agreements Telecommunications Services Framework Agreement, entered into between the Company and the Directors the New Interconnection Settlement Agreement, the and Supervisors, for the year ended 31 December New Community Services Framework Agreement, the 2021, the Directors and Supervisors of the Company New Centralised Services Agreement, the New Property or their connected entities did not have any material and Land Use Right Leasing Framework Agreement, interest, whether directly or indirectly, in any transactions, the New IT Services Framework Agreement, the New arrangements or contracts which was significant to the Supplies Procurement Services Framework Agreement, Company’s business and which was entered into by the the New Internet Applications Channel Services Company, its parent company or any of its subsidiaries Framework Agreement, the Lease Financing Framework or fellow subsidiaries. Agreement, the Telecommunications Resources Leasing China Telecom Corporation Limited Annual Report 2021 069 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 10. SERVICE CONTRACTS None of the Directors or Supervisors of the Company 15. MATERIAL ACQUISITIONS AND DISPOSALS has entered into any service contract which is not On 26 March 2021, the Company had entered into determinable by the Company within one year without agreements with China Telecommunications, pursuant payment of compensation (other than statutory to which, the Company had agreed to sell, and China compensation). 11. EMOLUMENTS OF THE DIRECTORS AND SUPERVISORS Telecommunications had agreed to purchase all the share capital in E-surfing Pay with an investment amount of RMB500 million held by the Company for a consideration in the amount of RMB3,897 million. On Please refer to note 34 of the audited consolidated the same date, the Company and its wholly owned financial statements for details of the emoluments of all subsidiary, China Telecom Global, had entered into Directors and Supervisors of the Company in 2021. agreements with China Telecommunications and Guang 12. EMPLOYEES AND EMOLUMENT POLICY Hua Properties, a wholly-owned subsidiary of China Telecommunications, respectively, pursuant to which, the Company and China Telecom Global had respectively The details of the Group’s emolument policy are set out agreed to sell, and China Telecommunications and in the “Corporate Governance Report” in this annual Guang Hua Properties had agreed to purchase, 75% report. The details of share appreciation rights are set of the share capital in China Telecom Leasing from the out in the “Corporate Governance Report” in this annual Company and 25% of the share capital in China Telecom report and note 46 of the audited consolidated financial Leasing from China Telecom Global for a consideration statements. 13. PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY in the amount of RMB131 million and RMB44 million, respectively. The disposals had been completed in April 2021 in accordance with the terms of the agreement. Save as disclosed above, for the year ended 31 In 2021, neither the Company nor any of its subsidiaries December 2021, the Company had no material has purchased, sold or redeemed any of the Company’s acquisitions and disposals. listed securities. 14. ISSUE OF DEBENTURES 16. PUBLIC FLOAT As at the date of this Report of the Directors, based on In 2021, the Company successfully issued three tranches the information that is publicly available to the Company of super short-term commercial papers in an aggregate and within the knowledge of the Directors, the Company amount of RMB8 billion. The proceeds were used to replenish the Company’s working capital in the course has maintained the public float required under the Listing Rules and as agreed with the Hong Kong Stock of business operations. Details are set out in the section Exchange. headed “Relevant Information on Bonds” in this annual report. 070 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 17. SUMMARY OF FINANCIAL INFORMATION Please refer to pages 288 to 290 of this annual report for Please refer to note 26 of the audited consolidated financial statements for details of the movements in the reserves of the Company and the Group for the year a summary of the operating results, assets and liabilities ended 31 December 2021. of the Group for each of the years in the five-year period ended 31 December 2021. 18. BANK LOANS AND OTHER BORROWINGS Please refer to note 20 of the audited consolidated financial statements for details of bank loans and other borrowings of the Group. 23. EQUITY-LINKED AGREEMENTS The Company did not enter into any equity-linked agreement, nor did any equity-linked agreement exist for the year ended 31 December 2021. 24. DONATIONS For the year ended 31 December 2021, the Group made charitable and other donations with a total amount of 19. CHARGE ON ASSETS As at 31 December 2021, no fixed assets was pledged RMB11.93 million. to banks as loan security (31 December 2020: Nil). 25. SUBSIDIARIES AND ASSOCIATES 20. CAPITALISED INTEREST Please refer to note 32 of the audited consolidated consolidated financial statements for details of the Company’s subsidiaries and the Group’s associates as Please refer to note 9 and note 10 of the audited financial statements for details of the Group’s capitalised at 31 December 2021. interest for the year ended 31 December 2021. 26. PERMITTED INDEMNITY For the year ended 31 December 2021 and as at the date of approval of this report, the Company has arranged appropriate insurance coverage in respect of legal actions against the directors of the Group. 27. CHANGES IN EQUITY Please refer to the consolidated statement of changes in equity as contained in the audited consolidated financial statements of the year. 28. RETIREMENT BENEFITS Please refer to note 45 of the audited consolidated financial statements for details of the retirement benefits provided by the Group. 21. FIXED ASSETS Please refer to note 4 of the audited consolidated financial statements for movements in the fixed assets of the Group for the year ended 31 December 2021. 22. RESERVES Pursuant to Article 190 of the Articles of Association, where the financial statements prepared in accordance with the China Accounting Standards for Business Enterprises and regulations materially differ from those prepared in accordance with either the International Financial Reporting Standards or accounting standards at a place outside mainland China where the Company’s shares are listed, the after-tax profit for distribution for the relevant fiscal year shall be deemed to be the lesser of the amounts shown in those respective financial statements. Distributable reserves of the Company as at 31 December 2021, calculated on the above basis and before deducting the proposed final dividends for 2021, amounted to RMB158,723 million. China Telecom Corporation Limited Annual Report 2021 071 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 29. PRE-EMPTIVE RIGHTS continuing connected transactions) have been disclosed There are no provisions for pre-emptive rights in the in “Significant Events” in this annual report. Other Articles of Association requiring the Company to offer Related Party Transactions do not constitute connected new shares to the existing shareholders in proportion to transactions or continuing connected transactions under their shareholdings. Chapter 14A of the Listing Rules. 30. MAJOR CUSTOMERS AND SUPPLIERS 34. BUSINESS REVIEW The details of the material development of the Group For the year ended 31 December 2021, revenue in 2021, a fair review of the business and a discussion generated from the five largest customers of the Group and analysis of the Group’s performance during the accounted for an amount of less than 30% of the total year and the material factors underlying its results and operating revenues of the Group. financial position, description of the principal risks and uncertainties faced by the Group and the outlook of the For the year ended 31 December 2021, purchases from Group’s business can be found throughout this annual the five largest suppliers of the Group accounted for an report, particularly in this section. Particulars of important amount of less than 30% of the total annual purchases of events affecting the Group that have occurred after 31 the Group. 31. COMPETING BUSINESS None of the Directors of the Company had any interest in any business which competes or may compete, either directly or indirectly, with the business of the Group. 32. MANAGEMENT CONTRACTS During the Reporting Period, the Company had not entered into any management contracts with respect to the entire or principal business of the Company. 33. RELATED PARTY TRANSACTIONS December 2021, if any, can also be found in the Notes to the consolidated financial statements. Description of the Group’s key relationships with its employees, customers, suppliers and others that have a significant impact on the Company and on which the Company’s success depends can be found throughout different parts of the annual report (including this section, “Corporate Governance Report”, etc.), and are particularly detailed in the 2021 Corporate Social Responsibility Report (the “CSR Report”) of the Company published on the websites of the Hong Kong Stock Exchange and the Company. In addition, more details regarding the financial key performance indicators and Details of the related party transactions of the Group environmental policies, as well as compliance with (“Related Party Transactions”) are set out in note 43 relevant laws and regulations which have a significant of the consolidated financial statements. Only the impact on the Group, are also disclosed throughout this Related Party Transactions set out in note 43(a) of the annual report (including this section, “Environmental and consolidated financial statements constitute continuing connected transactions under Chapter 14A of the Listing Rules, the details of which (except for fully exempt Social Responsibilities”, “Corporate Governance Report”, etc.) and the CSR Report. Each of the above-mentioned relevant contents form an integral part of this Report of the Directors. 072 China Telecom Corporation Limited Annual Report 2021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 35. COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE Please refer to the “Corporate Governance Report” for details of our compliance with the Corporate Governance Code. 36. DELISTING OF ADSs FROM THE NYSE AND TERMINATION OF THE ADS PROGRAM The NYSE Regulation of The New York Stock Exchange LLC (the “NYSE”) had determined to proceed with the delisting (the “Determination”) of the ADSs of the Company (NYSE stock ticker: CHA) and that a 37. AUDITORS PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP were appointed as the external auditors of the Company for the year ended 31 December 2021. PricewaterhouseCoopers has audited the consolidated financial statements set out in this report, which have been prepared in accordance with the International Financial Reporting Standards. Pursuant to the relevant requirements of the Ministry of Finance of the People’s Republic of China and the SASAC, the service term of Deloitte Touche Tohmatsu Committee of the Board of Directors of the NYSE and Deloitte Touche Tohmatsu Certified Public had affirmed the Determination. The delisting of the Accountants LLP, the international and domestic auditors Company’s ADSs became effective on 18 May 2021. of the Company for the year of 2020 expired on the date In light of the delisting, the Board resolved to terminate of the Annual General Meeting for the year of 2020 (7 the ADS program on 9 September 2021 and the ADS May 2021). The appointment of PricewaterhouseCoopers program was terminated on 8 December 2021 (U.S. eastern time). The Company filed a Form 15F with the Securities and Exchange Commission of the United States on 25 February 2022 to deregister the ADSs and terminate its reporting obligations under the U.S. Securities Exchange Act of 1934, as amended. For details, please refer to the announcements of the Company dated 4 January 2021, 5 January 2021, 7 January 2021, 21 January 2021, 28 January 2021, 7 May 2021, 10 September 2021 and 25 February 2022. and PricewaterhouseCoopers Zhong Tian LLP as the external auditors of the Company for the year of 2021 was approved at the Annual General Meeting for the year of 2020. The Audit Committee and the Board of the Company had agreed on the re-appointment of PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP as the external auditors of the Company for the year of 2022 and would propose the re-appointment of PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP at the Annual General Meeting for the year of 2021 of the Company for consideration. By Order of the Board Ke Ruiwen Chairman and Chief Executive Officer Beijing, China 17 March 2022 China Telecom Corporation Limited Annual Report 2021 073 RECOGNITION AND AWARDS 074 074 China Telecooommm Corporation Limited Annual Report 2021 China Telecom Corporation Limited Annual Report 2021 RECOGNITION AND AWARDDS OUR ACHIEVEMENTS Soar to new height China Teeelecom Corporation Limited Annual Report 20212121 China Telecom Corporation Limited Annual Report 2021 075 075 SECTION IV CORPORATE GOVERNANCE REPORT 1. AN OVERVIEW OF CORPORATE GOVERNANCE The Company strives to maintain high level of corporate governance and has adhered to excellent, prudent and efficient corporate governance principles and continuously improves its corporate governance methodology, regulates its operations, improves its internal control mechanism, implements sound corporate governance and disclosure measures, and ensures that the Company’s operations are in line with the long- term interests of the Company and its shareholders as a whole. In 2021, the shareholders’ meeting, the Board and the Supervisory Committee operated soundly and efficiently. The Company was dedicated to lean management while ensuring stable and healthy operation, and elevated its high-quality development to a new level, while continuously optimising its internal control system and comprehensive risk management in order to effectively ensure steady operation of the Company. The standard of the Company’s corporate governance continued to improve and effectively protected the best long-term interests of shareholders. The Company persists in refining the basic system of its corporate governance and continues to optimise the corporate governance system and operating mechanism to ensure standardised operation in strict compliance with the Company Law, the Securities Law and the requirements of the CSRC, the SSE and the Stock Exchange on corporate governance. In 2021, in order to meet the regulatory requirements from the CSRC and the SSE on corporate governance and standardised operation after the Company’s initial public offering of A Shares, and taking into account the actual situation of the Company, the Company revised the relevant provisions of the Articles of Association, and correspondingly revised or formulated relevant internal governance systems such as the Administrative Measures for Proceeds, the Administrative Measures for Related-party (Connected) Transactions, the Administrative Measures for External Guarantees and System for Internal Reporting of Material Information to continuously improve the level of corporate governance. At the same time, the Company attaches great importance to the construction and improvement of risk management and internal control systems, which mainly include clear organisational structure and management responsibilities, effective authorisation approval and accountability system, clear objectives, policies and procedures, comprehensive risk assessment and management, sound financial accounting system, continuous operation performance analysis and supervision, etc., which play an important role in ensuring the overall operation of the Company. A two-tier structure is adopted as the overall structure for corporate governance: the Board and the Supervisory Committee are established under the shareholders’ meeting, while the Audit Committee, Remuneration Committee and Nomination Committee are established under the Board. The Board is authorised by the Articles of Association of the Company to make major operational decisions of the Company and to oversee the daily management and operations of the senior management. The Supervisory Committee is mainly responsible for the supervision of the performance of duties of the Board and the senior management. Each of the Board and the Supervisory Committee is independently accountable to the shareholders’ meeting. In 2021, the Company convened a total of 5 general meetings, 20 Board meetings and 9 Supervisory Committee meetings. The convening, holding, voting and disclosure procedures of the relevant meetings were in compliance with the requirements of laws and regulations and the Articles of Association. 076 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT For the year ended 31 December 2021, the roles of The Company established an Investor Relations Chairman and Chief Executive Officer of the Company D e p a r t m e n t w h i c h i s r e s p o n s i b l e f o r p r o v i d i n g were performed by the same individual. In the shareholders and investors with the necessary Company’s opinion, through the supervision by the information, data and services in a timely manner. It also Board and the Independent Non-Executive Directors of maintains proactive communications with shareholders, the Company, with effective control of the Company’s investors and other capital market participants. The internal check and balance mechanism, the same Company’s senior management presents the annual individual performing the roles of Chairman and Chief results and interim results every year. Through various Executive Officer can enhance the Company’s efficiency activities such as analyst meetings, press conferences, in decision-making and execution and enable the global investor telephone conferences and investors Company to effectively capture business opportunities. road shows, the senior management provides the Many leading international corporations around the capital market and media with important information world also have similar arrangements. Save as stated and responds to key questions which are of prime above, the Company was in compliance with all the code concerns to the investors. This has helped reinforce provisions under the Corporate Governance Code as set their understanding of the Company’s business and out in Appendix 14 of the Listing Rules (the “Corporate the overall development of the industry. In 2021, due Governance Code”) in the year 2021. to the prolonged impact of the Covid-19 Epidemic, the Company announced the results and communicated with The Company has always attached great importance investors, shareholders and the media through online to information disclosure, strictly complied with the means. In daily operation, the Company participated requirements of the relevant regulatory rules of the places in a number of investor conferences held by major where the Company’s shares are listed, and formulated international investment banks and domestic securities the Rules for the Management of Information Disclosure firms worldwide through on-site and online integrated to standardise the procedures for the Company to collect, means to promote communication with institutional organise, summarise and report important information investors. At the same time, the Company set up a internally and prepare external disclosure documents, dedicated investor relations enquiry line to facilitate clarify the responsibilities and code of conduct of communications between investors and the Company relevant departments and branches, and ensure the and better serve shareholders and investors. truthfulness, accuracy, completeness and timeliness of the Company’s information disclosure. In addition, the In 2021, the Company commenced and successfully Company actively discloses data such as the number of completed its A Share Offering. In order to deepen access lines in service, mobile and wireline broadband domestic and international investors’ knowledge and users on a monthly basis to strengthen communication understanding of the Company’s emerging business, with the capital market and improve the transparency the Company organised a dedicated roadshow of information disclosure. Meanwhile, we attach great for domestic investors to specifically introduce 5G, importance to the handling of inside information and have cloud, IDC and other emerging business which are of formulated the Registration and Management System for interest to most investors. Domestic investors could Insiders to standardise management, ensure the fairness visit relevant exhibition halls in person and have face- and justice of information disclosure, and protect the to-face communications with business department legitimate rights and interests of investors and relevant heads. Meanwhile, the Company set up a webcast parties. platform for international analysts who could not visit in person and facilitated communications between China Telecom Corporation Limited Annual Report 2021 077 SECTION IV CORPORATE GOVERNANCE REPORT investors and management of the Company through means such as video presentation and telephone conference. The roadshow was a great success, which effectively deepened domestic and international investors’ understanding of the Company’s business and operations, and received favorable feedback from both domestic and international investors. After A Share Offering, the Company proactively invited domestic analysts to visit the Company’s annual Tianyi Intelligent Ecological Expo held in Guangzhou and visit the Company’s 5G 2B benchmark project in Shenzhen. The Company arranged major business department heads and technical experts to conduct in-depth communications with investors. In 2021, the Company’s continuous efforts in corporate governance gained wide recognition from the capital market and the Company was accredited with a number of awards. The Company was voted as the “Most Honoured Company in Asia” for eleven consecutive years in the 2021 “All-Asia-Executive-Team” poll organised by Institutional Investor. The Company also received “Best Overall ESG”, “Best IR Program” and other honours. The Company was also accredited with “Gold Award — Excellence in Environmental, Social and Governance” in the poll of “ESG Corporate Awards 2021” by The Asset. In addition, the Company was awarded, for the 14th time, “The Best of Asia —Icon on Corporate Governance” by Corporate Governance Asia. The Company was voted as “Most Outstanding Company in Hong Kong — Telecommunication Services Sector” in Asiamoney’s “Asia’s Outstanding Companies Poll 2021”. The Company was also awarded “ESG Leading 2. SPECIFIC MEASURES TAKEN BY THE CONTROLLING SHAREHOLDER AND THE ULTIMATE CONTROLLER OF THE COMPANY TO ENSURE THE INDEPENDENCE OF THE COMPANY’S ASSETS, PERSONNEL, FINANCE, ORGANISATION AND BUSINESS, AS WELL AS SOLUTIONS, WORK PROGRESS AND FOLLOW-UP WORK PLANS ADOPTED IN LIGHT OF THE IMPACT ON THE INDEPENDENCE OF THE COMPANY The Company is independent from its controlling shareholder in terms of business, assets and finance, etc. The controlling shareholder of the Company undertakes not to act beyond their authority to interfere with the operation and management activities of the Company and not to misappropriate the interests of the Company. The controlling shareholder of the Company exercise its rights as a shareholder through the general meeting in accordance with the law, and have not acted beyond the authority of the general meeting of the Company, directly or indirectly interfered with the Company’s business decisions and operating activities. The Company has independent and complete business and self-operation capabilities. During the Reporting Period, the Company was not aware of any act of controlling shareholder by taking advantage of its special status to encroach on or damage the interests of the Company and other Enterprise Award” in “ESG Leading Enterprise Awards shareholders. 2021” organised by Bloomberg Businessweek/Chinese Edition. 078 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT 3. GENERAL MEETINGS Session Date publishing resolutions Resolutions of the Meeting Designated websites for The First Extraordinary General Meeting in 2021 2021-04-09 www.hkexnews.hk www.chinatelecom-h.com 1. 2. 3. 4. 5. 6. 7. 8. 9. THAT the proposal regarding the plan for the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; THAT the proposal regarding the proposed authorisation to be granted by the General Meeting to the Board and its authorised persons to deal with matters in connection with the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; THAT the proposal regarding the distribution plan of accumulated profits prior to the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; THAT the proposal regarding the use of proceeds from the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; THAT the proposal regarding the amendments to the Articles of Association be considered and approved; THAT the proposal regarding the adoption of the Rules of Procedures of the Shareholders’ General Meeting applicable after the initial public offering and listing of the A Shares be considered and approved; THAT the proposal regarding the amendments to the Rules of Procedures of the Meeting of the Board of Directors be considered and approved; THAT the proposal regarding the amendments to the Rules of Procedures of the Meeting of the Supervisory Committee be considered and approved; THAT the proposal regarding the dilution of immediate returns resulting from the initial public offering of RMB ordinary shares (A Shares) and the remedial measures be considered and approved; 10. THAT the proposal regarding the Price Stabilisation Plan of A Shares within three years following the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; 11. THAT the proposal regarding the plan for shareholders’ return within three years following the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; 12. THAT the proposal regarding the undertakings on the information disclosure in the Prospectus in connection with the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved. Management presented at AGM held in Hong Kong and communicated with shareholders through video conferencing due to the Covid-19 Epidemic China Telecom Corporation Limited Annual Report 2021 079 SECTION IV CORPORATE GOVERNANCE REPORT Session Date publishing resolutions Resolutions of the Meeting Designated websites for Domestic Shareholders’ 2021-04-09 www.hkexnews.hk 1. THAT the proposal regarding the plan for the initial public offering and listing of RMB Class Meeting www.chinatelecom-h.com ordinary shares (A Shares) be considered and approved; 2. THAT the proposal regarding the proposed authorisation to be granted by the General Meeting to the Board and its authorised persons to deal with matters in connection with the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; 3. THAT the proposal regarding the distribution plan of accumulated profits prior to the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; 4. THAT the proposal regarding the use of proceeds from the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; 5. THAT the proposal regarding the dilution of immediate returns resulting from the initial public offering of RMB ordinary shares (A Shares) and the remedial measures be considered and approved; 6. THAT the proposal regarding the Price Stabilisation Plan of A Shares within three years following the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; 7. THAT the proposal regarding the undertakings on the information disclosure in the Prospectus in connection with the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved. H Shareholders’ 2021-04-09 www.hkexnews.hk 1. THAT the proposal regarding the plan for the initial public offering and listing of RMB Class Meeting www.chinatelecom-h.com ordinary shares (A Shares) be considered and approved; 2. THAT the proposal regarding the proposed authorisation to be granted by the General Meeting to the Board and its authorised persons to deal with matters in connection with the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; 3. THAT the proposal regarding the distribution plan of accumulated profits prior to the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; 4. THAT the proposal regarding the use of proceeds from the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; 5. THAT the proposal regarding the dilution of immediate returns resulting from the initial public offering of RMB ordinary shares (A Shares) and the remedial measures be considered and approved; 6. THAT the proposal regarding the Price Stabilisation Plan of A Shares within three years following the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved; 7. THAT the proposal regarding the undertakings on the information disclosure in the Prospectus in connection with the initial public offering and listing of RMB ordinary shares (A Shares) be considered and approved. 080 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT Session Date publishing resolutions Resolutions of the Meeting Designated websites for Annual General Meeting 2021-05-07 www.hkexnews.hk 1. THAT the consolidated financial statements of the Company, the report of the for the year 2020 www.chinatelecom-h.com Board of Directors, the report of the Supervisory Committee and the report of the international auditor for the year ended 31 December 2020 be considered and approved, and the Board be authorised to prepare the budget of the Company for the year 2021; 2. THAT the profit distribution proposal and the declaration and payment of a final dividend for the year ended 31 December 2020 be considered and approved; 3. THAT the appointment of PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP as the external auditors of the Company for the year ended 31 December 2021 be considered and approved, and the Board be authorised to fix the remuneration of the auditors; 4. To consider and approve the issue of debentures by the Company, to authorise the Board to issue debentures and determine the specific terms, conditions and other matters of the debentures and to approve the centralised registration of debentures by the Company; 5. To consider and approve the issue of company bonds in mainland China, and to authorise the Board to issue company bonds and determine the specific terms, conditions and other matters of the company bonds in the People’s Republic of China; 6. To grant a general mandate to the Board to issue, allot and deal with additional shares in the Company not exceeding 20% of each of the existing Domestic Shares and H Shares in issue, to authorise the Board to increase the registered capital of the Company and to correspondingly amend the articles of association of the Company to reflect such increase in the registered capital of the Company under the general mandate. The Second Extraordinary 2021-11-30 www.sse.com.cn 1. THAT the Continuing Connected Transactions together with the proposed Annual General Meeting in 2021 www.hkexnews.hk Caps be and are hereby generally and unconditionally approved and any Director of www.chinatelecom-h.com the Company is hereby authorised to do all such further acts and things and execute such further documents and take all such steps which in their opinion as may be necessary, desirable or expedient to implement and/or give effect to the terms of such Continuing Connected Transactions. 2. THAT the amendments to the Articles of Association of the Company be considered and approved; THAT any Director of the Company be and is hereby authorised to undertake actions in his opinion as necessary or appropriate, so as to complete the approval and/or registration or filing of the amendments to the Articles of Association. China Telecom Corporation Limited Annual Report 2021 081 SECTION IV CORPORATE GOVERNANCE REPORT During the Reporting Period, the Company held 5 general meetings (including shareholders’ class meeting), with all resolutions approved. For details, please refer to the relevant announcements published by the Company on the websites of the Stock Exchange and the Company. The convening, holding, voting and other relevant procedures of the general meetings of the Company were in compliance with the laws and regulations, the Articles of Association of the Company, the Rules of Procedures of the Shareholders’ General Meeting and other relevant requirements to ensure that all shareholders, especially minority shareholders, enjoy equal status and fully exercise their rights. 4. DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT (1) Changes in shareholding and remuneration of Directors, Supervisors and senior management during the Reporting Period Name Position Gender Age Commencement date of term End date of term Number of shares held at the beginning of the year Number of shares held at the end of the year Changes in shares during the year Reason for change Total remuneration before tax received from the Company during the Reporting Period (RMB in ten thousands) Ke Ruiwen Executive Director, Male 58 2012-05-30 Annual General Chairman and Chief Executive Officer Meeting for the year 2022 Li Zhengmao Executive Director, Male 59 2020-05-26 Annual General President and Chief Operating Officer Meeting for the year 2022 Shao Guanglu Executive Director Male 58 2020-05-26 Annual General Meeting for the year 2022 Male 50 2017-05-23 2021-01-19 Chen Zhongyue (resigned) Executive Director and Executive Vice President Zhang Zhiyong (resigned) Executive Vice President Male 56 2018-07-10 2021-09-30 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 / / / / / 70.46 71.18 64.16 5.51 52.13 082 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT Name Position Gender Age Commencement date of term End date of term Male 55 2019-08-19 Annual General Meeting for the year 2022 Female 57 2018-10-26 2021-12-27 Liu Guiqing Executive Director and Executive Vice President Zhu Min (resigned) Executive Director, Executive Vice President, Chief Financial Officer and Secretary to the Board Tang Ke Executive Vice President Male 47 2021-11-29 Annual General Meeting for the year 2022 Chen Shengguang Non-Executive Director Male 58 2017-05-23 Annual General Meeting for the year 2022 Tse Hau Yin, Independent Non- Male 74 2005-09-09 Annual General Aloysius Executive Director Meeting for the year 2022 Xu Erming Independent Non- Male 72 2005-09-09 Annual General Executive Director Meeting for the year 2022 Wang Hsuehming Independent Non- Female 72 2014-05-29 Annual General Executive Director Meeting for the year 2022 Yeung Chi Wai, Independent Non- Male 67 2018-10-26 Annual General Jason Executive Director Meeting for the year 2022 Number of shares held at the beginning of the year Number of shares held at the end of the year Changes in shares during the year Reason for change Total remuneration before tax received from the Company during the Reporting Period (RMB in ten thousands) 0 0 0 0 0 0 0 0 0 0 0 0 0 / / 0 / 1,000 1,000 Obtained from the Company’s online issuance of A Shares 0 0 0 0 0 0 0 0 / / / / 62.39 61.70 5.13 0.00 44.97 25.00 24.53 24.53 China Telecom Corporation Limited Annual Report 2021 083 SECTION IV CORPORATE GOVERNANCE REPORT Name Position Gender Age Commencement date of term End date of term Sui Yixun Chairman of the Male 58 2015-05-27 Annual General (resigned) Supervisory Committee and Shareholder Representative Supervisor Meeting for the year 2022 Zhang Jianbin Employee Male 56 2012-10-16 Annual General Representative Supervisor Meeting for the year 2022 Dai Bin Employee Male 53 2020-05-26 Annual General Representative Supervisor Meeting for the year 2022 Xu Shiguang Shareholder Male 42 2018-10-26 Annual General Representative Supervisor Meeting for the year 2022 You Minqiang Shareholder Male 48 2020-05-26 Annual General (resigned) Representative Supervisor Meeting for the year 2022 Total / / / / / Number of shares held at the beginning of the year Number of shares held at the end of the year Changes in shares during the year Reason for change Total remuneration before tax received from the Company during the Reporting Period (RMB in ten thousands) 0 1 0 0 0 0 0 0 0 0 0 0 / 102.28 1 Obtained from 106.83 the Company’s online issuance of A Shares 0 0 0 / / / / 98.29 52.98 0.00 872.07 1,001 1,001 Note 1: During the Reporting Period, the Company also settled the bonus for the year 2020, including RMB415,500 for Ke Ruiwen, RMB380,900 for Li Zhengmao, RMB342,800 for Shaoguang Lu, RMB368,500 for Chen Zhongyue and RMB364,400 for each of Zhang Zhiyong, Liu Guiqing and Zhu Min. Note 2: On 29 November 2021, Mr. Tang Ke was appointed as an Executive Vice President of the Company. He was subsequently appointed at an Executive Director of the Company at the Extraordinary General Meeting of the Company held on 22 March 2022. Note 3: Tse Hau Yin, Aloysius tendered resignation as an independent non-executive director of China Huarong Asset Management Co., Ltd. on 23 March 2021. Such resignation shall take effect after the commencement of term of office of a new independent non-executive director. Note 4: On 17 December 2021, Mr. Sui Yixun and Mr. You Minqiang resigned from their positions as Supervisors due to the reason of age and change in work arrangement respectively, and their resignations took effect on the date of election of the new Supervisors at the Extraordinary General Meeting of the Company held on 22 March 2022. Madam Han Fang and Madam Wang Yibing were subsequently appointed as the Shareholder Representative Supervisors of the seventh session of the Supervisory Committee of the Company at the Extraordinary General Meeting of the Company held on 22 March 2022. Madam Han Fang was elected as the Chairlady of the seventh session of the Supervisory Committee at a meeting of the Supervisory Committee held on 29 March 2022, with a term commencing from 29 March 2022 until the Annual General Meeting of the Company for the year 2022 to be held in year 2023. 084 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT (2) Biographical Details of Current Directors, Senior Management and Supervisors KE RUIWEN Age 58, is an Executive Director, the Chairman of the Board of Directors and Chief Executive Officer of the Company. He joined the Board of Directors of the Company in May 2012. Mr. Ke is a senior engineer with a doctorate degree in business administration. Mr. Ke served as Deputy Director General of Jiangxi Posts and Telecommunications Administration, Deputy General Manager of Jiangxi Telecom, Managing Director of the Marketing Department of the Company and China Telecommunications Corporation*, General Manager of Jiangxi Telecom, Managing Director of the Human Resources Department of the Company and China Telecommunications Corporation, Executive Vice President, President and Chief Operating Officer of the Company, Vice President and President of China Telecommunications Corporation and the Chairman of Supervisory Committee of China Tower Corporation Limited. Mr. Ke is also the Chairman of China Telecommunications Corporation. Mr. Ke has extensive experience in management and the telecommunications industry. LI ZHENGMAO Age 59, is an Executive Director, the President and Chief Operating Officer of the Company. He joined the Board of Directors of the Company in May 2020. Mr. Li is a professor with a doctorate degree in engineering. Mr. Li served as an Executive Director and Vice President of China Unicom Limited, a Director and Vice President of China United Telecommunications Corporation, a Vice President of China Mobile Limited which is listed on the Main Board of the HKSE, a Vice President and General Counsel of China Mobile Communications Group Co., Ltd. and a Director and Vice President of China Mobile Communication Co., Ltd., a Non-Executive Director of China Communications Services Corporation Limited which is listed on the Main Board of the HKSE and a Vice Chairman of True Corporation Public Company Limited which is listed on the Stock Exchange of Thailand. Mr. Li is also a Director and the President of China Telecommunications Corporation. Mr. Li has extensive experience in management and the telecommunications industry. * Now known as “中國電信集團有限公司”, the controlling shareholder (within the meaning of the Listing Rules) and a substantial shareholder (within the meaning of Part XV of the Securities and Futures Ordinance of Hong Kong) of the Company, which held approximately 63.20% of the issued share capital of the Company at the end of the Reporting Period. China Telecom Corporation Limited Annual Report 2021 085 SECTION IV CORPORATE GOVERNANCE REPORT SHAO GUANGLU Age 58, is an Executive Director of the Company. He joined the Board of Directors of the Company in May 2020. Mr. Shao is a professor level senior engineer with a doctorate degree in management. Mr. Shao served as a Deputy General Manager of China United Network Communications Group Company Limited, an Executive Director and Senior Vice President of China Unicom (Hong Kong) Limited which is listed on the Main Board of the HKSE, a Senior Vice President of China United Network Communications Limited which is listed on the Shanghai Stock Exchange, a Director and Senior Vice President of China United Network Communications Corporation Limited, a Non-Executive Director of China Communications Services Corporation Limited, China Tower Corporation Limited and PCCW Limited, all of which are listed on the Main Board of the HKSE, a member of the board of directors of Open Networking Foundation, a member of the strategy committee of GSM Association and a Vice President of China Information Technology Industry Federation. Mr. Shao is currently a Director of China Telecommunications Corporation and a Deputy Director of Communications Science and Technology Committee of the Ministry of Industry and Information Technology of the People’s Republic of China. Mr. Shao has extensive experience in management and the telecommunications industry. LIU GUIQING Age 55, is an Executive Director and Executive Vice President of the Company. He joined the Board of Directors of the Company in August 2019. Mr. Liu is a professor level senior engineer with a doctorate degree in engineering science. Mr. Liu served as Deputy General Manager and General Manager of China Unicom Hunan branch and General Manager of China Unicom Jiangsu provincial branch. Mr. Liu is currently a Vice President and General Counsel of China Telecommunications Corporation, a Non-Executive Director of China Tower Corporation Limited which is listed on the Main Board of the HKSE, a Deputy Director General of China Institute of Communications and a Director of Global System for Mobile communications Association (GSMA). Mr. Liu has extensive experience in management and the telecommunications industry. 086 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT TANG KE Age 47, is an Executive Director and Executive Vice President of the Company. He joined the Board of Directors of the Company in March 2022. Mr. Tang is a senior accountant with a master’s degree in economics. Mr. Tang previously served as the General Manager of the Finance Department of both China Telecommunications Corporation and the Company, and as the General Manager of China Telecom Anhui branch and Guangdong branch. Mr. Tang is currently a Vice President of China Telecommunications Corporation. Mr. Tang has extensive experience in finance, management and the telecommunications industry. CHEN SHENGGUANG Age 58, is a Non-Executive Director of the Company. He joined the Board of Directors of the Company in May 2017. Mr. Chen graduated from Zhongnan University of Economics with a major in finance and accounting, and obtained a postgraduate degree in economics from Guangdong Academy of Social Sciences and a master degree in business administration (MBA) from Lingnan College of Sun Yat-sen University. Mr. Chen served as the Manager of Finance Department and Deputy General Manager of Guangdong Foreign Trade Import & Export Corporation, Head of Finance Department, Assistant to General Manager and Chief Accountant of Guangdong Guangxin Foreign Trade Group Co., Limited, a Director of FSPG Hi-Tech Co., Ltd. which is listed on the Shenzhen Stock Exchange, a Non-Executive Director of Xingfa Aluminium Holdings Limited which is listed on the Main Board of the HKSE, a Director of Guangdong Silk-Tex Group Co., Ltd., the Chief Accountant and Deputy General Manager of Guangdong Guangxin Holdings Group Ltd.. Mr. Chen is currently the Director and General Manager of Guangdong Rising Holdings Group Co., Ltd.* (one of the shareholders of the Company). Mr. Chen has extensive experience in finance and corporate management. * A substantial shareholder of the Company within the meaning of Part XV of the Securities and Futures Ordinance. China Telecom Corporation Limited Annual Report 2021 087 SECTION IV CORPORATE GOVERNANCE REPORT TSE HAU YIN, ALOYSIUS Age 74, is an Independent Non-Executive Director of the Company. He joined the Board of Directors of the Company in September 2005. Mr. Tse is currently an Independent Non-Executive Director of CNOOC Limited, Sinofert Holdings Limited, SJM Holdings Limited and China Huarong Asset Management Co., Ltd., all of which are listed on the Main Board of the HKSE. From 2004 to 2021, Mr. Tse was an Independent Non- Executive Director of OCBC Wing Hang Bank Limited (formerly known as “Wing Hang Bank Limited”, which was listed on the Main Board of the HKSE until October 2014). From 2004 to 2010, he was an Independent Non-Executive Director of China Construction Bank Corporation, which is listed on the Main Board of the HKSE. From 2005 to 2016, Mr. Tse was also an Independent Non-Executive Director of Daohe Global Group Limited (formerly known as “Linmark Group Limited”), which is listed on the Main Board of the HKSE. Mr. Tse was appointed as an Independent Non-Executive Director of CCB International (Holdings) Limited, a wholly owned subsidiary of China Construction Bank Corporation in March 2013. He is also a member 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 Certified Public Accountants (“HKICPA”). Mr. Tse is a past President and a former member of the Audit Committee 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. XU ERMING Age 72, is an Independent Non-Executive Director of the Company. He joined the Board of Directors of the Company in September 2005. Professor Xu is a Vice Chairman of the Chinese Enterprise Management Research Association. He is entitled to the State Council’s special government allowances. Professor Xu served as a professor, Ph.D. supervisor of the Graduate School and Dean of Business School at the Renmin University of China, a professor and Dean of Business School of Shantou University, and was an Independent Supervisor of Harbin Electric Company Limited and an Independent Non-Executive Director of Comtec Solar Systems Group Limited, both are listed on the Main Board of the HKSE. Over the years, Professor Xu has conducted research in areas related to strategic management, innovation and entrepreneurship 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. He has received many awards such as the Ministry of Education’s Class One Excellent Higher Education Textbook Award, the State-Level Class Two Teaching Award and the National Excellent Course Award. Professor Xu has been awarded the Fulbright Scholar of U.S.A. twice and the visiting scholar of McGill University, Canada. 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, Panyapiwat Institute of Management, Thailand and the Hong Kong Polytechnic University. 088 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT WANG HSUEHMING Age 72, is an Independent Non-Executive Director of the Company. She joined the Board of Directors of the Company in May 2014. Madam Wang received a bachelor of arts degree from the University of Massachusetts and attended Columbia University. She was a Senior Advisor and former Chairman of BlackRock China. She was also the former Chairman of China at Goldman Sachs Asset Management. She joined Goldman Sachs in 1994, became a Partner in 2000 and an Advisory Director from 2010 to 2011. With nearly 30 years of experience in financial services, she participated in pioneering efforts in China’s economic reform and development. She was instrumental in advising Ministry of Posts and Telecommunications and Ministry of Information Industry (now known as Ministry of Industry and Information Technology) in the privatisations and listings of its mobile and fixed line businesses. She also participated in advising appropriate operators in strategic investments by international telecom companies. The early cross-border financings of aircraft and other capital equipment in China’s aviation sector, as well as the separate listings of national airlines, and important provincial and municipal credit restructurings also formed part of Madam Wang’s understanding of China’s economic growth in the past three decades. YEUNG CHI WAI, JASON Age 67, is an Independent Non-Executive Director of the Company. He joined the Board of Directors of the Company in October 2018. Mr. Yeung is currently the Group Chief Compliance and Risk Management Officer of Fung Holdings (1937) Limited and its listed companies in Hong Kong and an Independent Non-Executive Director of Bank of Communications Co., Ltd, which is listed on the Main Board of the HKSE and the Shanghai Stock Exchange. Mr. Yeung has extensive experience in handling legal, compliance and regulatory matters and previously worked in the Securities and Futures Commission of Hong Kong, law firms and enterprises practising corporate, commercial and securities laws. Mr. Yeung served as a Director and the General Counsel of China Everbright Limited, which is listed on the Main Board of the HKSE and was also a partner of Woo, Kwan, Lee, & Lo.. He acted as the Board Secretary of BOC Hong Kong (Holdings) Limited which is listed on the Main Board of the HKSE, from 2001 to 2011 and concurrently acted as the Board Secretary of Bank of China Limited which is listed on the Main Board of the HKSE and the Shanghai Stock Exchange, from 2005 to 2008. He also served as the Deputy Chief Executive (Personal Banking) of Bank of China (Hong Kong) Limited from April 2011 to February 2015. Mr. Yeung received a bachelor degree in social sciences from the University of Hong Kong. He then graduated from The College of Law, United Kingdom and received a bachelor degree in law and a master degree in business administration from the University of Western Ontario, Canada. China Telecom Corporation Limited Annual Report 2021 089 SECTION IV CORPORATE GOVERNANCE REPORT SUPERVISORS HAN FANG Age 48, is a Shareholder Representative Supervisor and the Chairlady of the Supervisory Committee of the Company. She joined the Supervisory Committee of the Company in March 2022. She currently serves as the Managing Director of audit department of both China Telecommunications Corporation and the Company and a Supervisor of China Tower Corporation Limited which is listed on the Main Board of the HKSE. Madam Han graduated from the Beijing University of Posts and Telecommunications with a bachelor’s degree in engineering management and received a master’s degree in business administration at the BI Norwegian School of Management. Madam Han served as a Supervisor of the Company, the Chief Financial Officer of China Telecom Global Limited, the Deputy Managing Director of audit department of both China Telecommunications Corporation and the Company and the Chairperson of the Supervisory Committee of China Communications Services Corporation Limited which is listed on the Main Board of the HKSE. Madam Han is an international internal auditor, a qualified accountant in PRC and a senior accountant. She has extensive experience in operation management and financial management in the telecommunications industry. ZHANG JIANBIN Age 56, is an Employee Representative Supervisor of the Company. He joined the Supervisory Committee of the Company in October 2012. Mr. Zhang is a senior economist with a LLM degree and an EMBA degree. He previously worked at the Department of Policy and Regulation of the Ministry of Posts and Telecommunications (“MPT”) and the Directorate General of Telecommunications of the MPT. Mr. Zhang is currently the Managing Director of the Legal Department (Compliance Management Department) of the Company and the Deputy General Counsel of China Telecommunications Corporation. Mr. Zhang has extensive experience in corporate legal affairs. DAI BIN Age 53, is an Employee Representative Supervisor of the Company. He joined the Supervisory Committee of the Company in May 2020. Mr. Dai is a senior economist with an EMBA degree. He served as a Deputy Managing Director of the Office of the Board of Directors of the Company and the Deputy Managing Director of the General Affairs Office (Office of the board of directors and Security Department) of China Telecommunications Corporation. Mr. Dai serves as the Vice Chairman of the Labour Union of China Telecommunications Corporation. Mr. Dai has extensive experience in operational management in the telecommunications industry. 090 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT XU SHIGUANG Age 42, is a Shareholder Representative Supervisor of the Company. He joined the Supervisory Committee of the Company in October 2018. Mr. Xu is a member of the Chinese Institute of Certified Public Accountants and a Certified Internal Auditor with a master’s degree in management. Mr. Xu served at various positions in internal control and auditing at China Telecommunications Corporation for many years and was the Director of general office of audit department of the Company. Mr. Xu is currently the Deputy General Manager of Inner Mongolia Autonomous Region branch of the Company. Mr. Xu has extensive experience in internal control and auditing. WANG YIBING Age 55, is a Shareholder Representative Supervisor of the Company. She joined the Supervisory Committee of the Company in March 2022. She currently serves as the Deputy General Manager of Zhejiang Provincial Financial Development Co., Ltd. (one of the Shareholders of the Company) and a Supervisor of Zhejiang Provincial Financial Holdings Co., Ltd. Madam Wang is a senior accountant and graduated from the accounting program of Zhejiang Institute of Finance and Economics with a bachelor’s degree in economics. Madam Wang served as the Vice General Manager of Zhejiang Province Xingcai Real Estate Development Company, the General Manager of financial management department and investment management department of Zhejiang Provincial Financial Holdings Co., Ltd., a Director of China Zheshang Bank Co., Ltd. which is listed on the HKSE and the Shanghai Stock Exchange, Caitong Securities Co., Ltd, Yongan Futures Co., Ltd., Wuchan Zhongda Group Co., Ltd. and Zhejiang China Commodities City Group Co., Ltd., all of which are listed on the Shanghai Stock Exchange, etc.. Madam Wang has extensive experience in operation management of state-owned enterprises. China Telecom Corporation Limited Annual Report 2021 091 SECTION IV CORPORATE GOVERNANCE REPORT (3) Positions of Directors, Supervisors and senior management as of the end of Reporting Period 1. Positions held in shareholder entities Name Name of shareholders in shareholders date of term of term Ke Ruiwen China Telecommunications Chairman 2019-04-15 Present Positions held Commencement End date Corporation Li Zhengmao China Telecommunications Director Corporation President Shao Guanglu China Telecommunications Director Corporation 2020-01-27 2020-02-17 2020-01-27 Present Present Present Chen Zhongyue China Telecommunications Vice President 2014-10-20 2021-02-26 (resigned) Corporation Zhang Zhiyong China Telecommunications Vice President 2017-12-26 2021-11-05 (resigned) Corporation General Counsel 2021-04-21 2021-11-26 Liu Guiqing China Telecommunications Vice President Corporation General Counsel 2017-12-26 2021-11-26 Present Present Zhu Min (resigned) China Telecommunications Chief Accountant 2018-06-15 2022-01-21 Corporation Tang Ke China Telecommunications Vice President 2021-06-23 Present Corporation Chen Shengguang Guangdong Rising Holdings Director and 2016-12 Present Group Co., Ltd. General Manager Zhang Jianbin China Telecommunications Deputy General Counsel 2015-02-06 Present Corporation Dai Bin China Telecommunications Vice Chairman of the 2017-11-27 Present Corporation Labour Union You Minqiang Zhejiang Provincial Financial Deputy Director of the 2019-12-13 Present (resigned) Development Co., Ltd. Organisation Department (Human Resources Department) 092 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT 2. Positions held in other entities Name Name of other entities in other entities date of term Shao Guanglu Communications Science and Deputy Director 2017-12 of term Present Positions held Commencement End date Technology Committee of the Ministry of Industry and Information Technology Zhang Zhiyong China Comservice Chairman of the board of 2018-03-16 2021-09-30 (resigned) directors and Executive Director China Tower Non-Executive Director 2017-08-07 2021-09-30 China Chamber of International Vice President 2021-03 Present Commerce Liu Guiqing China Institute of Deputy Director General 2018-06 Present Communications Global System for Mobile Director 2018-09 Present communications Association Chen Shengguang Guangdong Rising Director and General Manager 2016-12 Present Holdings Co., Ltd. Tse Hau Yin, Aloysius CNOOC Limited Independent Non-Executive 2005-06-08 Present Director Sinofert Holdings Limited Independent Non-Executive 2007-06-28 Present Director SJM Holdings Limited Independent Non-Executive 2007-10-15 Present Director SJM Resorts, Limited Chairman of the Supervisory 2014-12 Present Committee Grand Lisboa Property Chairman of the Supervisory 2014-12 Present Investment Company Committee Limited Sociedade de Desenvolvimento Chairman of the Supervisory 2014-12 Present Unido de Macau S.A.R.L. Committee Pier 16 Property Development Chairman of the Supervisory 2014-12 Present Limited. Committee China Telecom Corporation Limited Annual Report 2021 093 SECTION IV CORPORATE GOVERNANCE REPORT Positions held Commencement End date Name Name of other entities in other entities date of term Cotai Magnific View Property Chairman of the Supervisory 2014-12 Development Company Committee Limited of term Present China Huarong Asset Independent Non-Executive 2015-03-23 Present Management Co., Ltd. Director CCB International (Holdings) Independent Non-Executive 2013-03-14 Present Limited Director OCBC Wing Hang Bank (China) Independent Non-Executive 2016-08-09 2021-09-08 Limited Director OCBC Wing Hang Bank Limited Independent Non-Executive 2004-11-26 2021-06-03 Director OCBC Wing Hang Bank Limited Chairman of the Supervisory 2018-03-15 2021-09-21 (Macau) Committee Bacchus Fine Wines (Hubei) Chairman 2010-11-16 Present Company Limited Xu Erming China Enterprise Management Vice Chairman 2004-09 Present Research Association Yeung Chi Wai, Fung Holdings (1937) Limited Group Chief Compliance and 2015-07-01 Present Jason and its listed companies Risk Management Officer in Hong Kong Bank of Communications Independent Non-Executive 2016-10-17 Present Co., Ltd. Director Enchated Hills Limited Director 1997-05-14 Present Sui Yixun (resigned) China Tower Supervisor 2018-05-03 2022-01-14 Explanation on Tse Hau Yin, Aloysius tendered resignation as an independent non-executive director of China positions held in Huarong Asset Management Co., Ltd. on 23 March 2021. Such resignation shall take effect after the other entities commencement of term of office of a new independent non-executive director. 094 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT (4) Remuneration of Directors, Supervisors and senior management Decision-making procedures for remuneration of Directors, Supervisors and senior management Basis for determining the remuneration of Directors, Supervisors and senior management Decision-making procedures for remuneration of Directors and senior management: The Remuneration Committee makes recommendations to the Board in respect of the overall remuneration policy and structure for the Company’s Directors and senior management and the establishment of a formal and transparent procedure for developing remuneration policy; After election and appointment of each session of the Board of Directors and senior management, the Board of Directors reviews the remuneration plan for that session of Directors and senior management. Decision-making procedures for remuneration of Supervisors: Supervisors of the Company do not receive remuneration as Supervisors. In accordance with the administrative requirements of the SASAC, the remuneration is determined based on the Remuneration Plan for Senior Management of the Company and factors such as the duties, responsibilities, experience of the Directors, Supervisors and senior management and the prevailing market conditions. Actual payment of remuneration of Directors, Supervisors and senior management For details, please refer to “(1) Changes in shareholding and remuneration of Directors, Supervisors and senior management during the Reporting Period” in this section. Total remuneration actually received by all Directors, Supervisors and senior management as at the end of the Reporting Period For details, please refer to “(1) Changes in shareholding and remuneration of Directors, Supervisors and senior management during the Reporting Period” in this section. (5) Changes in Directors, Supervisors and Senior Management of the Company during the Reporting Period Name Position held Type of changes Reason for change Chen Zhongyue Executive Director and Executive Resigned Change in work arrangement Vice President Zhang Zhiyong Executive Vice President Zhu Min Executive Director, Executive Resigned Resigned Change in work arrangement Change in work arrangement Vice President, Chief Financial Officer and Secretary of the Board Tang Ke Executive Vice President Appointed Work needs China Telecom Corporation Limited Annual Report 2021 095 SECTION IV CORPORATE GOVERNANCE REPORT (6) Composition of Board of Directors and Board Diversity Policy As at 31 December 2021, the Board consisted of 9 Directors with 4 Executive Directors, 1 Non-Executive Director and 4 Independent Non-Executive Directors. There is no relationship (including financial, business, family or other material or relevant relationship) among the Board members. The Audit Committee, Remuneration Committee and Nomination Committee under the Board consist solely of Independent Non- Executive Directors, which ensures that the Committees are able to provide sufficient checks and balances and make independent judgements to protect the interests of the shareholders and the Company as a whole. The number of Independent Non-Executive Directors exceeds one-third of the members of the Board. Mr. Tse Hau Yin, Aloysius, the Chairman of the Audit Committee, is an internationally renowned financial expert with extensive expertise in accounting and financial management. The Board currently comprises 10 Directors, including 5 Executive Directors, 1 Non-Executive Director and 4 Independent Non-Executive Directors. The term of office for the seventh session of the Board (including the Non- Executive Directors) lasts for 3 years, starting from 26 May 2020 until the day of the Company’s Annual General Meeting for the year 2022 to be held in 2023, upon which the eighth session of the Board will be elected. In August 2013, the Company implemented the Board Diversity Policy. The Company strongly believes that board diversity will contribute significantly to the enhancement of the overall performance of the Company. The Company views board diversity as the key element for accomplishing its strategic goals and sustainable development. In determining the composition of the Board, the Company takes into account diversity of the Board from a number of perspectives, including but not limited to gender, age, educational background, professional experience, skills, knowledge, duration of service and time commitment, etc. All appointments made or to be made by the Board are merit-based, and candidates are selected based on objective criteria taking full consideration of board diversity. Final decisions are comprehensively made based on each candidate’s attributes and the consideration for his/her valuable contributions that can be made to the Board. The Nomination Committee oversees the implementation of Board Diversity Policy, reviews the existing policy as and when appropriate, and recommends proposals for revisions for the Board’s approval. There is currently one female Director on the Board. The Board currently comprises experts from diversified professions such as telecommunications, accounting, finance, law, banking, regulatory, compliance and management with diversification in terms of gender, age, duration of service, etc., advancing the enhancement of management standard and the further standardisation of corporate governance practices, which results in a more comprehensive and balanced Board structure and decision-making process. Each Director brings to the Board different views and perspectives. Both the Nomination Committee and the Board believe that the gender, age, educational background, professional experience, skills, knowledge and the duration of service of the Board members are in alignment with the Board Diversity Policy. 096 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT The below chart sets out the analysis of the current Board composition: 1 2 Female 9 8 Male 5 5 Executive Directors 44 61-75 Years Old 11 4 4 Non-Executive Directors Independent Non-Executive Directors 65 61 51-60 Years Old 41-50 Years Old 2 2 2 2 10 Years or Above 5 Years to 10 Years 6 6 5 Years or Below Gender Position Age Group Duration of Service (years) The Company strictly complies with the Corporate senior management. The management is responsible for Governance Code to rigorously regulate the operating leading the production, operation and management of procedures of the Board and its Committees, and to the Company, the implementation of Board resolutions ensure that the procedures of the Board meetings are and the annual operation plans and investment in compliance with related rules in terms of organisation, proposals of the Company, formulating the proposal regulations and personnel. The Board responsibly of the Company’s internal administrative organisations and earnestly supervises the preparation of financial and suborganisations, and performing other duties as statements for each financial period, so that such authorised by the Articles of Association and the Board. financial statements truly and fairly reflect the financial In order to maintain highly efficient operations, as well as condition, the operating results and cash flows of the flexibility and swiftness in operational decision-making, the Company for such period. In preparing the financial Board may delegate its management and administrative statements for the year ended 31 December 2021, the powers to the management when necessary, and shall Directors adopted appropriate accounting policies and provide clear guidance regarding such delegation so as made prudent, fair and reasonable judgements and to avoid impeding or undermining the capabilities of the estimates, and prepared the financial statements on a Board when exercising its powers as a whole. going concern basis. The Articles of Association clearly defines the respective duties of the Board and the management. The Board is accountable to the shareholders’ meetings, and its duties mainly include the execution of resolutions, formulation of major operational decisions, financial proposals and policies, formulation of the Company’s basic management system and the appointment of The Board formulates and reviews the Company’s policies and practices on corporate governance; reviews and monitors the training and continuous professional development of Directors and senior management; reviews and monitors the Company’s policies and practices on compliance with legal and regulatory requirements; formulates, reviews and monitors the code of conduct for employees; and reviews the Company’s compliance with the Corporate Governance Code and disclosure in the Corporate Governance Report. China Telecom Corporation Limited Annual Report 2021 097 SECTION IV CORPORATE GOVERNANCE REPORT (7) Directors’ training and continuous professional development The Company provides guidelines including on directors’ duties, continuing obligations, relevant laws and regulations, operation and business of the Company to newly appointed Directors so that they are provided with tailored induction relating to their appointment. To ensure that the Directors are familiar with the Company’s latest operations for decision-making, the Company arranges for key financial data and operational data to be provided to the Directors on a monthly basis. Meanwhile, through regular Board meetings and reports from management, the Directors are able to have clearer understanding of the operations, business strategy, and the latest development of the Company and the industry. In addition, the Company reminds the Directors of their functions and duties by continuously providing them with information regarding the latest development of the Two Listing Rules and other applicable regulations, and arranging internal training on topics related to the latest development of the industry and operational focus of the Company for mutual exchange of ideas and discussion. The Directors actively participate in training and continuous professional development to develop and refresh their knowledge and skills in order to contribute to the Company. During the year, the Directors have participated in training and continuous professional development activities, and the summary is as follows: Directors Executive Directors Ke Ruiwen Li Zhengmao Shao Guanglu Liu Guiqing Chen Zhongyue * Zhu Min * Non-Executive Director Chen Shengguang Independent Non-Executive Directors Tse Hau Yin, Aloysius Xu Erming Wang Hsuehming Yeung Chi Wai, Jason Types of training A, B A, B A, B A, B A, B A, B A, B A, B A, B A, B A, B A: B: * attending relevant seminars and/or conferences and/or forums; or delivering speeches at relevant seminars and/or conferences and/or forums reading or writing relevant newspapers, journals and articles relating to economy, general business, telecommunications, corporate governance or directors’ duties On 19 January 2021, Mr. Chen Zhongyue resigned from his positions as an Executive Director and Executive Vice President of the Company due to change in work arrangement. On 27 December 2021, Madam Zhu Min resigned from her positions as an Executive Director, an Executive Vice President, the Chief Financial Officer and the Secretary to the Board of the Company due to change in work arrangement. 098 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT (8) Compliance with the Model Code for Securities Transactions by Directors and Supervisors and confirmation of independence by the Independent Non-Executive Directors The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules to govern securities transactions by the Directors and Supervisors. Based on the written confirmation from the Directors and Supervisors, the Company’s Directors and Supervisors have strictly complied with the Model Code for Securities Transactions by Directors of Listed Issuers in Appendix 10 of the Listing Rules regarding the requirements in conducting securities transactions for the year 2021. Meanwhile, the Company has received annual independence confirmation from each of the Independent Non-Executive Directors and considered them to be independent. 5. BOARD MEETINGS HELD DURING THE REPORTING PERIOD Session Date Resolutions of the Meeting Written Resolution No. 1 of the seventh session of the Board in 2021 The fourth meeting of the seventh session of the Board 2021-02-09 To approve the resolution in relation to the “2021 Share Appreciation Rights Grant Proposal for Key Personnel of China Telecom Corporation Limited”. 2021-03-09 1. To approve the proposal in relation to the annual results for the year 2020; 2. To approve the proposal regarding the plan for the initial public offering and listing of RMB ordinary shares (A Shares); 3. To approve the risk management and internal control implementation and assessment report for the year 2020, and to consider and approve the external auditor’s attestation report on the internal control of the Company; 4. To consider and approve the evaluation on the performance of the audit work of the external auditors, Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu for the year 2020; To approve the proposed appointment of PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers as the external auditors of the Company for the year 2021; 5. To approve the proposal in relation to the authorisation to issue debentures of the Company; 6. To consider and approve the structure and operation review of the Board; 7. To approve the convening of the 2020 Annual General Meeting; 8. To approve the proposal in relation to liabilities insurance for 2021-2022 for directors, senior management and the Company. China Telecom Corporation Limited Annual Report 2021 099 SECTION IV CORPORATE GOVERNANCE REPORT Session Date Resolutions of the Meeting Written Resolution No. 2 2021-03-10 To approve the grant date and exercise price of the The Phase II of the seventh session of the Board in 2021 Incentive Scheme for Share Appreciation Rights of China Telecom Corporation Limited. The fifth meeting of the 2021-03-19 To approve the proposal in relation to the transfer of equity interests seventh session of the in E-surfing Pay Co., Ltd. and China Telecom Leasing Corporation Board Limited. The sixth meeting of the 2021-04-08 1. To approve the proposal in relation to the prospectus for the seventh session of the initial public offering (A Shares) of the Company; Board 2. To approve the proposal in relation to the Entrusted Operation and Management Contract entered into between the Company and China Telecommunications Corporation; 3. To approve the relevant financial and accounting documents of the Company for the offering and listing of A Shares; 4. To approve the new connected transaction of “Payment and Digital Finance Related Services” and the application for the annual cap for the year 2021; 5. To approve the appointment of Deloitte as the auditor of the Company for the offering and listing of A Shares and the relevant fees; 6. To approve the basic management system documents applicable to the Company after the offering and listing of A Shares. Written Resolution No. 3 2021-04-28 1. To approve the proposal on the 2021 first quarterly results of of the seventh session of the Board in 2021 the Company; 2. To approve the proposal in relation to the Form 20-F for the year 2020; 3. To approve the proposal in relation to the conversion of China Telecom Cloud Technology Co., Ltd into a wholly-owned subsidiary. Written Resolution No. 4 2021-05-17 To approve the proposal in relation to the review report issued by of the seventh session of the Board in 2021 Deloitte Touche Tohmatsu Certified Public Accountants LLP on the financial report of the Company for the first quarter of 2021 prepared in accordance with Chinese Accounting Standard. 100 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT Session Date Resolutions of the Meeting Written Resolution No. 5 2021-05-31 To approve the proposal in relation to the tender of China Telecom of the seventh session of the Board in 2021 Global Limited in bidding for the land parcel in Tseung Kwan O Industrial Park, Hong Kong and the investment and operation plan after securing the tender. Written Resolution No. 6 2021-06-07 To approve the proposal that the Executive Order signed by the of the seventh session of the Board in 2021 President of the United States on 3 June 2021 does not constitute inside information of the Company. Written Resolution No. 7 2021-06-18 To approve the proposal in relation to the order made by the of the seventh session of the Board in 2021 Disciplinary Committee of the Hong Kong Institute of Certified Public Accountants regarding Mr. Tse Hau Yin, Aloysius, an independent non-executive director of the Company and the relevant announcement made by the Company. Written Resolution No. 8 2021-06-20 To approve the proposal on the adjustment of the dividend policy of the seventh session of the Board in 2021 of the Company. Written Resolution No. 9 2021-07-15 To approve the proposal in relation to the updated Prospectus. of the seventh session of the Board in 2021 The seventh meeting of the 2021-08-10 1. To approve the proposal in relation to the 2021 interim results; seventh session of the 2. To consider and approve the report on the progress of the Board 2021 Environmental, Social and Governance Report; 3. To approve the proposal in relation to the appointment of independent financial adviser for continuing connected transactions; 4. To approve the proposal in relation to the increase in registered capital of China Telecom Cloud Technology Co., Ltd; 5. To approve the appointment of the securities affairs representative of the Company. The eighth meeting of the 2021-08-30 To approve the proposal regarding the payment of funds required seventh session of the for investment projects by way of telegraphic transfer by banks, Board bills of exchange, letters of credit, etc. and the replacement of the proceeds in equivalent amount. China Telecom Corporation Limited Annual Report 2021 101 SECTION IV CORPORATE GOVERNANCE REPORT Session Date Resolutions of the Meeting The ninth meeting of the 2021-09-09 To approve the proposal regarding the termination of the American seventh session of the Depositary Shares program of the Company. Board The tenth meeting of the 2021-09-29 To approve the proposal regarding the use of proceeds for capital seventh session of the injection into wholly-owned subsidiaries and provision of loans for Board implementation of investment projects. The eleventh meeting of the 2021-10-22 1. To approve the proposal on the 2021 Third Quarterly Report; seventh session of the 2. To approve the proposal regarding the renewal of continuing Board connected (related-party) transactions and the application for annual caps for 2022-2024; 3. To approve the proposal regarding the amendments to the articles of association; 4. To approve the proposal on convening the second extraordinary general meeting in 2021. The twelfth meeting of the 2021-11-10 1. To approve the proposal regarding the replacement of self- seventh session of the raised funds previously invested in investment projects and paid Board offering expenses with proceeds; 2. To approve the proposal on the use of part of temporarily idle proceeds for cash management; 3. To approve the proposal on the plan for external guarantee. The thirteenth meeting of 2021-11-29 To approve the proposal regarding the appointment of Executive the seventh session of the Vice President and Director of the Company. Board The fourteenth meeting of 2021-12-20 1. To approve the proposal on the fees of external auditors for the the seventh session of the year 2021; Board 2. To consider and approve the work progress report on the 2021 Environmental, Social and Governance Report; 3. To approve the proposal on convening the first extraordinary general meeting in 2022. In 2021, the Company convened 20 Board meetings in total (including various written resolutions); the Chairman held a meeting to independently communicate with the Independent Non-Executive Directors without the presence of any other Directors to ensure their opinions can be fully expressed, which further facilitated the exchange of different views within the Board. 102 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT 6. PERFORMANCE OF DUTIES BY DIRECTORS Attendance of Directors at Board meetings and general meetings Attendance at Board meetings Required Whether as an attendance Attendance Attendance at general meetings Failure to attend two Number of consecutive general Name of Director Director the year in person communication by proxy* Times in person Independent during Attendance by way of Attendance Absent meetings meetings attended Ke Ruiwen Li Zhengmao Shao Guanglu Liu Guiqing Chen Shengguang Tse Hau Yin, Aloysius Xu Erming Wang Hsuehming Yeung Chi Wai, Jason Chen Zhongyue (resigned) Zhu Min (resigned) No No No No No Yes Yes Yes Yes No No 20 20 20 20 20 20 20 20 20 0 20 20 20 20 20 19 20 20 18 20 0 20 Number of Board meetings held during the year Including: Number of on-site meetings Number of meetings held by communication Number of meetings held both on site and by means of communication 15 15 15 15 15 15 15 14 15 0 15 20 5 15 0 0 0 0 0 1 0 0 2 0 0 0 0 No 0 No 0 No 0 No 0 No 0 No 0 No 0 No 0 No 0 No 0 No 5 5 5 2 4 5 4 2 2 0 5 * Certain Directors could not attend some of the Board meetings due to other arrangement. Such Directors have reviewed the relevant Board meeting proposals before the meetings and authorised other Directors in writing to vote on their behalf so as to ensure their views were fully reflected in the meetings. China Telecom Corporation Limited Annual Report 2021 103 SECTION IV CORPORATE GOVERNANCE REPORT 7. SPECIAL COMMITTEES UNDER THE BOARD (1) Members of the special committees under the Board Category of special committees Name of Members Audit Committee Tse Hau Yin, Aloysius, Xu Erming, Wang Hsuehming, Yeung Chi Wai, Remuneration Committee Xu Erming, Tse Hau Yin, Aloysius, Wang Hsuehming Nomination Committee Wang Hsuehming, Tse Hau Yin, Aloysius, Xu Erming Jason (2) Audit Committee of staff fulfilling the accounting, internal control and As at 31 December 2021, the Audit Committee financial reporting functions of the Company together comprised 4 Independent Non-Executive Directors, with the adequacy of the staff’s training programmes and Mr. Tse Hau Yin, Aloysius as the Chairman and Mr. the related budget. The Audit Committee also has the Xu Erming, Madam Wang Hsuehming and Mr. Yeung authority to set up a reporting system on whistleblowing Chi Wai, Jason as the members. The Audit Committee to receive and handle cases of complaints or complaints is responsible to the Board. The Rules of Procedures made on an anonymous basis regarding the Company’s of the Audit Committee clearly defines the status, accounting, internal control and audit matters. structure and qualifications, work procedures, duties and responsibilities, funding and remuneration, etc. of In 2021, pursuant to the requirements of the governing the Audit Committee. The Audit Committee’s principal laws and regulations of the places of listing and the duties include the supervision of the truthfulness and Rules of Procedures of the Audit Committee, the completeness of the Company’s financial statements, Audit Committee fully assumed its responsibilities the effectiveness and completeness of the Company’s within the scope of the clear mandate from the Board internal control and risk management systems as well as and communicated independently with the external the work of the Company’s Internal Audit Department. It auditors twice a year. The Audit Committee proposed a is also responsible for the supervision and review of the number of practical and professional recommendations qualifications, selection and appointment, independence for improvement based on the Company’s actual and services of external independent auditors. The circumstances in order to promote the continuous Audit Committee ensures that the management has improvement and perfection of corporate management. discharged its duty to establish and maintain an effective The Audit Committee has provided important support to risk management and internal control system including the Board and played a significant role in protecting the the adequacy of resources, qualifications and experience interests of the independent shareholders. 104 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT The Audit Committee convened 9 meetings during the Reporting Period Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2021-03-08 1. To approve the 2020 annual results and recommend Nil Nil the same to the Board for approval; 2. To approve the report on the implementation of connected transactions of the Company for the year 2020; 3. To approve the risk management and internal control report for the year 2020 and recommend the same to the Board for consideration and approval; 4. To consider and approve the report on the internal audit of the Company for the year 2020 and the work plan for 2021; 5. To consider and approve the review of the operation and charter of the Audit Committee for the year 2020; 6. To consider and approve the audit performance of Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu for the year 2020 and approve and recommend to the Board the appointment of PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers as the Company’s external auditors for the year 2021. 2021-03-19 To approve the proposal in relation to the transfer of Nil Nil equity interests in E-surfing Pay Co., Ltd. and China Telecom Leasing Corporation Limited and to recommend the same to the Board for approval China Telecom Corporation Limited Annual Report 2021 105 SECTION IV CORPORATE GOVERNANCE REPORT Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2021-04-08 1. To approve the proposal in relation to the prospectus Nil Nil for the initial public offering (A Shares) of the Company and to recommend the same to the Board for approval; 2. T o a p p r o v e t h e p r o p o s a l i n r e l a t i o n t o t h e Entrusted Operation and Management Contract entered into between the Company and China Telecommunications Corporation and to recommend the same to the Board for approval; 3. To approve the relevant financial and accounting documents of the Company for the offering and listing of A Shares, and to recommend the same to the Board for approval; 4. To approve the proposal in relation to the new connected transaction of “Payment and Digital Finance Related Services” and the application for the annual cap for the year 2021, and to recommend the same to the Board for approval; 5. T o a p p r o v e t h e p r o p o s a l i n r e l a t i o n t o t h e appointment of Deloitte as the auditor of the Company for the offering and listing of A Shares and the relevant fees, and to recommend the same to the Board for approval. 2021-04-28 1. To approve the proposal in relation to the results Nil Nil of the Company for the first quarter of 2021 and to recommend the same to the Board for approval; 2. To approve the proposal in relation to the Form 20-F for the year 2020 and to recommend the same to the Board for approval. 106 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2021-05-17 To approve the proposal in relation to the review report Nil Nil issued by Deloitte Touche Tohmatsu Certified Public Accountants LLP on the financial report of the Company for the first quarter of 2021 prepared in accordance with Chinese Accounting Standard and to recommend the same to the Board for approval 2021-06-16 1. T o c o n s i d e r a n d a p p r o v e t h e r e p o r t o n t h e Nil Nil implementation of connected transactions of the Company for the first quarter of 2021; 2. To consider and approve the internal audit report of the Company for the first quarter of 2021; 3. To approve the review plan of PricewaterhouseCoopers on the 2021 interim results of the Company. 2021-08-09 1. To approve the proposal in relation to the 2021 Nil Nil interim results and to recommend the same to the Board for approval; 2. T o c o n s i d e r a n d a p p r o v e t h e r e p o r t o n t h e implementation of connected transactions for the first half of 2021; 3. To consider and approve the internal audit report for the second quarter of 2021; 4. To consider and approve the report on the progress of the 2021 Environmental, Social and Governance Report. 2021-10-22 1. To approve the proposal on the 2021 Third Quarterly Nil Nil Report and to recommend the same to the Board for approval; 2. To approve the proposal on the renewal of continuing connected (related-party) transactions and the application for annual caps for 2022-2024, and to recommend the same to the Board for approval. China Telecom Corporation Limited Annual Report 2021 107 SECTION IV CORPORATE GOVERNANCE REPORT Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2021-12-20 1. To consider and approve the proposal on the report Nil Nil of external auditors on the audit work plan for the year 2021; 2. To consider and approve the proposal regarding the report of preliminary results of internal control assessment by external auditors for the year 2021; 3. To approve the proposal on the fees of external auditors for the year 2021, and to recommend the same to the Board for approval; 4. To consider and approve the proposal regarding the report on the implementation of connected transactions for the first three quarters of 2021; 5. To consider and approve the proposal on the 2021 third quarter internal audit work report and internal audit work plan for the year 2022; 6. To approve the proposal in relation to the report on the progress of the 2021 Environmental, Social and Governance Report and to recommend the same to the Board for approval; 7. To approve the proposal on the meeting plan of the Audit Committee for the year 2022. The attendance of each member is as follows: Name of Members Tse Hau Yin, Aloysius Xu Erming Wang Hsuehming * Yeung Chi Wai, Jason Actual attendance/Required attendance 9/9 9/9 7/9 9/9 * Madam Wang Hsuehming, a member of the Audit Committee, was unable to attend some of the meetings of the Audit Committee due to other arrangements. She reviewed the relevant proposals in advance and authorised another member in writing to vote on her behalf to ensure that her opinions were fully reflected in the meetings. 108 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT (3) Remuneration Committee transparent. The Remuneration Committee’s principal As at 31 December 2021, the Remuneration Committee duties include giving recommendations to the Board in comprised 3 Independent Non-Executive Directors, respect of the overall remuneration policy and structure Mr. Xu Erming as the Chairman and Mr. Tse Hau Yin, for the Company’s Directors and senior management and Aloysius and Madam Wang Hsuehming as the members. the establishment of a formal and transparent procedure The Remuneration Committee is responsible to the Board. for developing remuneration policy, and determining, with The Rules of Procedures of the Remuneration Committee delegated responsibility by the Board, the remuneration clearly defines the status, structure and qualifications, packages of individual Executive Directors and senior work procedures, duties and responsibilities, funding management including benefits in kind, pension and remuneration, etc. of the Remuneration Committee. rights and compensation payments (including any The Remuneration Committee assists the Board to compensation payable for loss or termination of their formulate overall remuneration policy and structure for office or appointment). Its responsibilities comply with the the Company’s Directors and senior management, and requirements of the Corporate Governance Code. to establish related procedures that are standardised and The Remuneration Committee convened 1 meeting during the Reporting Period Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2021-02-09 To approve the proposal in relation to the 2021 Share Nil Nil Appreciation Rights Grant Proposal for Key Personnel of China Telecom Corporation Limited and to recommend the same to the Board for approval. The attendance of each member is as follows: Name of Members Actual attendance/Required attendance Xu Erming Tse Hau Yin, Aloysius Wang Hsuehming 1/1 1/1 1/1 China Telecom Corporation Limited Annual Report 2021 109 SECTION IV CORPORATE GOVERNANCE REPORT (4) Nomination Committee assists the Board to formulate standardised, prudent As at 31 December 2021, the Nomination Committee and transparent procedures for the appointment and comprised 3 Independent Non-Executive Directors, succession plans of Directors, and to further optimise Madam Wang Hsuehming as the Chairlady and Mr. Tse the composition of the Board. The principal duties of the Hau Yin, Aloysius and Mr. Xu Erming as the members. Nomination Committee include regularly reviewing the The Nomination Committee is responsible to the Board. structure, number of members, composition and diversity The Rules of Procedures of the Nomination Committee of the Board; identifying candidates with the appropriate clearly defines the status, structure and qualifications, qualifications for the position of Directors and senior work procedures, duties and responsibilities, funding and management and advising the Board on the same; remuneration, etc. of the Nomination Committee, and reviewing the Board Diversity Policy as appropriate to it specifically requires that the Nomination Committee ensure its effectiveness; evaluating the independence of members shall have no significant connection with the Independent Non-Executive Directors; advising the Board Company, and comply with the regulatory requirements on matters regarding the appointment or re-appointment related to “independence”. The Nomination Committee of Directors and succession plans for the Directors. The Nomination Committee convened 2 meetings during the Reporting Period Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2021-03-08 To consider and approve the structure and operation Nil review of the Board, and to recommend the same to the Board for approval. 2021-11-29 T o c o n s i d e r a n d a p p r o v e t h e p r o p o s a l o n t h e Nil Nil Nil appointment of Executive Vice President and Director of the Company, and agree to submit the proposal to the Board for consideration. The attendance of each member is as follows: Name of Members Wang Hsuehming* Tse Hau Yin, Aloysius Xu Erming Actual attendance/Required attendance 1/2 2/2 2/2 * Madam Wang Hsuehming, the Chairlady of the Nomination Committee, was unable to attend a meeting of the Nomination Committee due to other arrangements. She reviewed the relevant proposal in advance and authorised other member in writing to vote on her behalf to ensure that her opinions were fully reflected in the meeting. 110 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT (5) Independent Board Committee Pursuant to the requirement under the Listing Rules, the Company convened 1 Independent Board Committee meeting in 2021, with all 4 Independent Non-Executive Directors attending the meeting. The meeting reviewed the continuing connected transactions and the applicable annual caps thereto and gave the relevant confirmation as well as submitted the recommendations on these matters to the independent shareholders. The attendance of each member is as follows: Name of Members Tse Hau Yin, Aloysius Xu Erming Wang Hsuehming Yeung Chi Wai, Jason Actual attendance/Required attendance 1/1 1/1 1/1 1/1 8. DESCRIPTION OF RISKS IDENTIFIED BY THE SUPERVISORY COMMITTEE The Supervisory Committee had no objection to the matters under supervision during the Reporting Period. 9. INFORMATION ON EMPLOYEES AT THE END OF THE REPORTING PERIOD In 2021, work on human resources has closely centered around the Company’s “Cloudification and Digital Transformation” strategy. The Company coordinated and promoted the reform of labor, personnel and distribution systems, gave full play to the decisive role of the market in resource allocation, comprehensively implemented the tenure system and contractual management of management members, promoted market-oriented labor deployment, strengthened the construction of cadres, talents and employees, continuously optimised the team layout and structure, established a market-oriented talent selection and employment mechanism, improved the market-oriented operation mechanism and incentive and restraint mechanism and improved the level and efficiency of human resources management, to provide sound organisational assurance and talent support for the Company’s sustainable and healthy development. China Telecom Corporation Limited Annual Report 2021 111 SECTION IV CORPORATE GOVERNANCE REPORT (1) Employees Total number of employees Composition of professions Categories of professions Sales and Marketing Operations and Maintenance Sci-tech Research and Product Development Management, Finance and Administration Total Education level Categories of education level Doctoral degree Master’s degree Bachelor’s degree Vocational school High school and below Total 278,922 Number of professionals 132,407 82,825 15,376 48,314 278,922 Number (person) 373 26,690 153,871 74,117 23,871 278,922 (2) Emolument policy (3) Training program In accordance with the income distribution principle The Company attaches great importance to talent reflecting efficiency and promoting fairness, while training. Through the online and offline integrated improving the market-oriented remuneration distribution digital training model, the Company carried out training mechanism with efficiency as the priority, the Company for leading cadres at different levels and categories focuses on protecting the basic salary income of and provided high-level professional talent training by grassroots employees and sharing the benefits of the promoting top-notch driving scale and tackling key Company’s growth. The Company actively implemented scenarios. Focusing on the implementation of the medium and long-term incentives such as equity “Cloudification and Digital Transformation” strategy, with incentives for listed companies and equity and dividend the help of the online platform, the Company carried incentives for state-owned technology enterprises to out large-scale, targeted skill talent training integrating further stimulate the enthusiasm and creativity of core training, practices and competition as a whole. talents at all levels. 112 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT 10. PROPOSAL FOR PROFIT DISTRIBUTION OR CONVERSION OF CAPITAL RESERVE (1) Formulation, implementation or adjustment of cash dividend policy Pursuant to the Articles of Association, under the premise that the Company’s profit distribution does not exceed the cumulative distributable profit and that the Company takes into account the continuous profits, meeting regulatory requirements, operating normally and development in the long term, the Company will give priority to cash distribution of dividends. If the Company has no events such as major investment plans or significant cash expenditures, and the Company’s risk control indicators can meet regulatory requirements and the normal operating capital requirements of the Company can be satisfied after the distribution of cash dividends, within any three consecutive years, the cumulative profit distributed by the Company in cash shall be no less than 30% of the annual average distributable profit realised in such three years. According to Article 190 of the Articles of Association, the Company shall distribute its after-tax profits for the year 2021 at the lower of the amounts in the financial statements prepared in accordance with the Chinese Accounting Standard and IFRSs. As a result, RMB25,948,191,708 applies for profit distribution. After fully considering the return to shareholders, the Company’s profitability, cash flow level and capital needs for future development, the Board proposed at the 16th meeting of the seventh session of the Board a dividend in an aggregate amount of RMB15,568,915,025 to all shareholders which represents 60% of the profit attributable to equity holders of the Company in the amount of RMB25,948,191,708 for the year 2021. Calculated based on 91,507,138,699 shares, being the total number of issued share capital of the Company as at 31 December 2021, a dividend of RMB0.170 per share (pre-tax) will be declared and paid to all shareholders. In case of any change in the total number of issued share capital of the Company before the record date for the implementation of the dividend distribution, the total distribution amount will remain unchanged and the distribution amount per share will be adjusted The Board approved the resolution to adjust the dividend accordingly. policy of the Company on 20 June 2021, agreeing that the profit to be distributed by the Company in cash for year 2021 shall be no less than 60% of the profit The profit distribution plan will be submitted to the Annual General Meeting of the Company for the year 2021 for attributable to equity holders of the Company for that consideration and approval. year, and that within three years after the A Share Offering and Listing, the profit to be distributed by the Company in cash for each year will gradually increase to 70% or above of the profit attributable to equity holders of the Company for that year. Meanwhile, the dividend arrangement will be adjusted to provide for the declaration and payment of interim dividends from year 2022. China Telecom Corporation Limited Annual Report 2021 113 SECTION IV CORPORATE GOVERNANCE REPORT (2) Specific description of cash dividend policy Compliance with the Articles of Association or the resolutions of the general meeting Clear and definite standards and proportion of dividend distribution Complete relevant decision-making procedures and mechanisms Independent Directors fulfilled their duties and played their role Minority shareholders have the opportunity to fully express their opinions and appeals, and their legitimate rights and interests have been fully protected ✓ Yes □ No ✓ Yes □ No ✓ Yes □ No ✓ Yes □ No ✓ Yes □ No 11. EQUITY INCENTIVE PLAN, EMPLOYEE STOCK OWNERSHIP PLAN OR OTHER EMPLOYEE INCENTIVE MEASURES OF THE COMPANY AND THEIR IMPLICATIONS “Cloudification and Digital Transformation” and high-end and high-quality talents. Thirdly, share appreciation rights are granted based on performances. The Company adheres to the performance-oriented principle and closely links the number of rights exercised with the Company’s performance and employees’ individual performance, and imposes penalties for failure to achieve (1) Share appreciation rights performance targets. The Company implemented two phases of share appreciation rights scheme in 2018 and 2021, respectively, to provide mid- to long-term incentives for key personnel (excluding the Executive Directors, Non- Executive Directors, Independent Directors, Supervisors and senior management of the Company). As approved by the Board, according to the 2021 Share Appreciation Rights Proposal, the Company granted a total of approximately 2,402 million H share appreciation rights to 7,908 key personnel of the Company with an exercise price of HK$2.686. Firstly, share appreciation rights are distributed based on contribution, adhering to the value-oriented principle and tilting towards units with remarkable high-quality The scheme does not involve the grant of options over new shares or other new securities that may be issued by the Company (or any of its subsidiaries) and therefore, it does not fall within the scope of, and is not subject to, the requirements under Chapter 17 of the Listing Rules. (2) Establishment and implementation of the appraisal mechanism and incentive mechanism for senior management during the Reporting Period During the Reporting Period, the incentives of senior management were closely linked to the overall operating results of the Company. The senior management are evaluated for work performance within their scope of duties, focusing on the financial performance, customer development. Secondly, share appreciation rights are and market performance, compliance and risk control, distributed based on potential, which adheres to the completion of annual key tasks and cadre training in their development orientation and tilts to the key areas of areas of responsibilities. 114 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT 12. ESTABLISHMENT AND IMPLEMENTATION OF RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM DURING THE REPORTING PERIOD T h e B o a r d a t t a c h e s g r e a t i m p o r t a n c e t o t h e establishment and perfection of the risk management and internal control systems. The Board is responsible for evaluating and determining the nature and extent of the risks it is willing to take in achieving the Company’s strategic objectives, and ensuring that the Company establishes and maintains appropriate and effective risk management and internal control systems, and the Board acknowledges that it is responsible for the risk management and internal control systems and for reviewing their effectiveness. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable but not absolute assurance against material misstatements or losses. The Board oversees management in the design, implementation reporting system, which encourages anonymous reporting of situations where employees, especially Directors and senior management, breach the rules. The internal control management system of the Company mainly includes internal control manual, implementation guidance, list of authority and relevant systems and measures. The Company continuously revises and improves the internal control system according to the changes in the internal control environment and the needs of business development. In accordance with the internal control management system of the Company and based on the management needs of the Company, each subsidiary has refined and improved its internal control manual, forming a complete, comprehensive and effective internal control system. The Company views comprehensive risk management as an important task within the Company’s daily operation. Pursuant to regulatory requirements in capital markets where the shares of the Company are listed, the Company has achieved closed-loop management and monitoring of the risk management and internal of risk identification, risk assessment, key risk analysis, control systems. The Board takes effective approaches risk response and tracking and monitoring of risk to supervise the implementation of related control management based on risk management theory. In measures, whilst enhancing operation efficiency and continuously strengthening the risk process control and effectiveness, and optimising corporate governance, risk assessment, risk management and internal control so that the Company can achieve long-term development goals. The risk management and internal control systems of the Company is built on clear organisational structure and management duties, an effective delegation and accountability system, definite targets, policies and procedures, comprehensive risk assessment and management, a sound financial accounting system, management and focusing on significant risk which may be encountered, the Company follows and reports the status of risk management and control regularly to ensure risks are manageable and controllable. Following the efforts made over the years, the Company has established a structured and highly effective comprehensive risk management system and has gradually perfected its comprehensive risk monitoring and prevention mechanism. and continuing analysis and supervision of operational In 2021, pursuant to the requirement of code provision performance, etc. which plays a pivotal role in the D2 of the Corporate Governance Code promulgated Company’s overall operation. The Company has by the Stock Exchange, the Company concentrated formulated a code of conduct for the senior management resources on the prevention of significant potential risks, and employees which ensures their ethical value and competency. The Company attaches great importance to the prevention of fraud and has formulated its internal and strived to reduce negative effect from significant risks. The Company was not confronted by any major risk event throughout the whole year. China Telecom Corporation Limited Annual Report 2021 115 SECTION IV CORPORATE GOVERNANCE REPORT The Company has identified, assessed and analysed ensure the effective implementation of the above potential major risks faced by the Company in 2022, systems. The Company has all along continuously including areas of economic and policy environment revised and improved the manuals and implementation adaptation, business operation, network and information rules in view of the ever changing internal and external security and international operation etc., determined operation environment as well as the requirements of major risk points and put forward detailed response business development over the years. While continuing plans. For details of the major risks that the Company to improve the internal control related policies, the may face and the response measures thereof, please Company has also been strengthening its IT internal refer to the section headed “Management’s Discussion control capabilities, which has improved the efficiency and Analysis (Report of the Directors)” in this annual and effectiveness of internal control and enhanced the report. Through strict and appropriate risk management safety of the Company’s information system so that the procedures, the Company will ensure the potential integrity, timeliness and reliability of data and information impact from the above risks on the Company is limited are maintained. At the same time, the Company attaches and within an expected range. great importance to the control and monitoring of network information safety. The Company persistently The Company highly values the compliance with the laws optimises the relevant rules and guidances, further and regulations of the PRC as well as the places of listing defines the responsible entities and regularly commences of the Company and where the Company’s business the inspection of network safety and information safety operations are located, strictly complies with all laws in order to promote the enhancement of the awareness and regulations and timely and proactively incorporates of network information safety and relevant skills and the laws and regulations into the Company’s rules and knowledge. regulations to protect the Company’s legitimate business management, maintain the Company’s legitimate rights In 2021, the Company conducted annual revision and interests and support the Company to achieve long- of internal control manuals, list of authority and term healthy development target. Please refer to the implementation guidance based on external regulatory section headed “Management’s Discussion and Analysis supervision, changes in policy environment and (Report of the Directors)” of this annual report for the requirements for prevention and control of the newly published policies, laws and regulations relating to Company’s key risks, while taking into account the industry in which the Company operated during the measures for deepened reform and changes in business Reporting Period. development and focusing on responding quickly to market demands and supporting business innovation Since 2003, based on the requirements of the U.S. and operational innovation for enterprises. The Company securities regulatory authorities and the COSO Internal optimised and adjusted systems and regulations Control Framework, and with the assistance of other such as the Internet of Things business, single-point advisory institutions including external auditors, the settlement business, risk management and capital Company has formulated manuals, implementation rules internal control supervision, supplemented and improved and related rules in relation to internal control, and has the management of proceeds, management of related- developed the Policies on Internal Control Management party (connected) transactions, guarantee management, and Internal Control Accountability Management to information disclosure management, research and development and other processes. 116 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT The Internal Audit Department plays a vital role in adopts the following 4 major steps of assessment: (1) supporting the Board, the management and the risk analyse and identify areas which require assessment, (2) management and internal control systems. The functions assess the effectiveness of the design of internal control, of the Internal Audit Department are independent of (3) assess the operating effectiveness of internal control, the Company’s business operations, complementary (4) analyse the impact of deficiencies in internal control, with the functions of the external auditors and plays judge the nature of deficiencies in internal control and an important role in the monitoring of the Company’s conclude on the effectiveness of the internal control internal management. The Internal Audit Department system. At the same time, the Company rectifies any is responsible for internal control assessment of the deficiencies found during the assessment. By formulating Company, and provides an objective assurance to the amended “Measures for the Internal Control the Audit Committee and the Board that the risk Assessment”, the “Manual for the Self-Assessment management and internal control systems are maintained of Internal Control”, the “Manual for the Independent and operated by the management in compliance with Assessment of Internal Control” and other regulations, agreed processes and standards. The Internal Audit the Company has ensured the assessment procedures Department regularly reports the internal audit results to are in compliance. In accordance with the requirements the Audit Committee on a quarterly basis, and reports of the Basic Standards for Enterprise Internal Control and the internal audit results to the Board through the Audit its ancillary application guidelines and other relevant laws, Committee. regulations and regulatory rules, the Company conducts internal control assessment. In 2021, the Company’s Annual evaluation of risk management and internal control systems Internal Audit Department initiated and coordinated the assessment of internal control all over the Company, The Company has been continuously improving the and reported the results to the Audit Committee and risk management and internal control systems to meet the Board. In response to the problems identified in the the regulatory requirements of the places where the audit and evaluation, the Company implemented the Company’s shares are listed and strengthening its rectification responsibility one by one, fully completed internal control while guarding against operational risk. the rectification tasks, and effectively controlled and The Company has adopted the COSO Internal Control internal control implementation continued to improve, Framework (2013) as the standard for the internal which provided a strong guarantee for the healthy prevented risks. During the year, the effectiveness of control assessment. With the management’s internal development of the Company. control testing guidelines and the Auditing Standard No. 2201 that were issued by The Public Company In terms of internal control self-assessment, the Accounting Oversight Board (PCAOB) as its directives, Company continued to insist on 100% coverage of all the Company’s internal control assessment system is units (including the newly incorporated professional composed of the self-assessment conducted by the companies). Through the self-assessment for the persons responsible for internal control together with the year 2021, management responsibilities were further independent assessment conducted by the Internal Audit strengthened, to promote the closed-loop management Department. In order to evaluate the nature of internal of internal control design, implementation, evaluation, control deficiencies and reach a conclusion as to the and rewards and penalties, further create a good internal effectiveness of the internal control system, the Company control atmosphere, and promote the continuous improvement of internal control management. The China Telecom Corporation Limited Annual Report 2021 117 SECTION IV CORPORATE GOVERNANCE REPORT Company deepened horizontal coordination and vertical independent assessment and self-assessment to integration, adhered to the risk joint prevention work promote the improvement of self-assessment ability model, increased the evaluation of cross-level, cross- and the implementation of problem rectification. department, cross-system and cross-professional Secondly, key points were highlighted to ensure the processes, and prevented the occurrence of systematic breadth and depth of projects and improve the overall risks and major risks. Various departments were evaluation efficiency. Thirdly, the Company conducted coordinated to jointly carry out special self-assessment independent assessment on emerging businesses, and solve key and difficult problems in operation and quasi-financial businesses and professional companies management. Based on the changes in internal and in the transformation period, timely alerted potential external environment and the focus of risk prevention and risks and promoted the rectification of problems. control, the Company focused on the risk management Through the combination of independent assessment and control in the fields of authenticity and reliability and self-assessment, the Company conducted multi- of financial reports, legal compliance of operation and perspective inspection and evaluation on the risk areas management, security of overseas state-owned assets, that affect the development of the Company, supervised network information security, emerging business and comprehensive rectification, to promote the improvement quasi-financial business in accordance with the national of self-recovery ability of the Company and support high- major decision-making and deployment, corporate quality development. strategic transformation and high-quality development. The Company assessed the comprehensiveness F u r t h e r m o r e , t h e C o m p a n y o r g a n i s e d t h e r i s k and effectiveness of the design and implementation management and internal control assessment team of risks, compliance and internal control. Causes of and other relevant departments to closely coordinate the problems found would be analysed with strict with the external auditors’ audit of internal control over rectification measures formulated and implementation. At financial reporting. The internal control audit performed the same time, it strengthened the assessment, rewards by the external auditor covered the Company and all of and penalties, and implemented the application of the its subsidiaries as well as the key processes and control evaluation results. points in relation to material financial statements items. The external auditors regularly communicated with the In 2021, in accordance with the three-year full coverage management in respect of the audit results. requirements of its affiliated units and the annual internal control audit work plan, the independent internal control The Company attaches great importance to rectifying assessment was conducted on 4 provincial branches, 4 internal control deficiencies. In response to the defects professional companies and the financial sharing service and problems found in the audit, the Company centre of the headquarters, and special assessment was implemented account management, strengthened the conducted on channel management and user personal effect of rectification, carried out special rectification of information protection. During the year, the independent key issues, promoted the effectiveness of rectification assessment of internal control continued to strengthen through various means and strengthened closed-loop the tracking, analysis and judgment of changes in the management. The internal control deficiencies and issues internal and external environment of the enterprise identified by the Company during the year have been development, and focused on the selection of evaluation basically rectified and passed the year-end attestation units and contents. Firstly, the Company conducted undertaken by the external auditors. 118 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT The Board oversees the Company’s risk management with the Articles of Association in decision-making, and internal control systems on an on-going basis and implementation, supervision and other aspects, leading the Board, through the Audit Committee, conducted to the better transformation and integration of system an annual review of the risk management and internal construction and governance efficiency. Secondly, the control systems of the Company and its subsidiaries for Company strengthened the establishment of the board the year ended 31 December 2021, which covered all of directors of subsidiaries with terms of reference to material areas including financial controls, operational promote the fulfillment of the requirements to strengthen controls and compliance controls, as well as its risk the construction of the board of directors, standardise management functions. After receiving the reports from the operation of the board of directors, reasonably the Internal Audit Department and the confirmation from determine the size of the board of directors, scientifically the management to the Board on the effectiveness of allocate directors, achieve the majority of external the Company’s risk management and internal control directors and implement the terms of reference of the systems (including Environmental, Social and Governance board of directors. Thirdly, the Company strengthened risk management and internal control systems), the the delegation of authority, streamlined decision-making Board is of the view that these systems are solid, well procedures and improved the quality of decision- established, effective and sufficient. The annual review making. The Company encouraged the subsidiaries to also confirms the adequacy of resources relating to the improve the working system of each governance body, Company’s accounting, internal control and financial established a management system authorised by the reporting functions, the sufficiency of the qualifications board of directors to the management in accordance and experience of staff, together with the adequacy of with practices and strengthened the management the staff’s training programmes and the relevant budget. before, during and after the events, so as to promote 13. MANAGEMENT CONTROL OVER SUBSIDIARIES DURING THE REPORTING PERIOD each subsidiary to become a more independent market operation entity. In order to further establish and improve the legal entity management system that is more suitable for strategic In order to make every effort to build a more mature development, the Company continuously improves its and established modern enterprise system with Chinese governance level and efficiency. In 2021, the Company characteristics and promote the modernisation of invested in 5 new subsidiaries, including China Telecom governance system and capability, China Telecom Digital City Technology Co., Ltd., Lingang Computing issued a series of documents related to the promotion Power (Shanghai) Technology Co., Ltd., E-surfing and improvement of modern enterprise system with Digital Life Technology Co., Ltd., China Telecom Cloud Chinese characteristics for its subsidiaries at all levels Technology Co., Ltd and E-Surfing Security Technology to guide them to standardise and strengthen corporate Co., Ltd.. The Company manages and controls its governance. Firstly, the Company strengthened the subsidiaries in accordance with the requirements of construction of the corporate fundamental system the Company Law and relevant laws and regulations, of the Articles of Association, improved the basic and fully mobilises the vitality and enthusiasm of its internal regulations, enhanced the internal system of subsidiaries and their employees in accordance with the Company, and promoted all governance bodies the requirements of modern corporate governance and of the Company to perform their duties in accordance market-oriented operation. China Telecom Corporation Limited Annual Report 2021 119 SECTION IV CORPORATE GOVERNANCE REPORT 14. EXPLANATION ON THE AUDIT REPORT ON INTERNAL CONTROL PricewaterhouseCoopers Zhong Tian LLP engaged by the Company has issued an audit opinion on the effectiveness of the Company’s internal control over financial reporting and issued the Internal Control Audit Report, and is of the view that the Company has maintained effective internal control over financial reporting in all material aspects in accordance with the Basic Standards for Enterprise Internal Control and relevant regulations as at 31 December 2021. There was no disagreement between the 2021 Internal Control Assessment Report of China Telecom Corporation Limited disclosed by the Company and the Internal Control Audit Report. For details of the above reports, please refer to the relevant documents disclosed on the websites of the SSE (www.sse.com.cn) and the Company (www.chinatelecom-h.com). 15. DIRECTOR NOMINATION POLICY AND PROCEDURES The Company will identify suitable Director candidates through multiple channels such as internal recruitment and recruiting from the labour market. The criteria of identifying candidates include but not limited to their gender, age, educational background, professional experience, skills, knowledge and length of service and capability to commit to the affairs of the Company and, in the case of Independent Non-Executive Director, the candidates should fulfill the independence requirements set out in the Two Listing Rules from time to time. After the Nomination Committee and the Board have reviewed and resolved to appoint the appropriate candidate, the relevant proposal will be put forward in writing to the shareholders’ meeting for approval. Directors shall be elected at shareholders’ general meeting for a term of three years. At the expiry of a director’s term, the director may stand for re-election and reappointment for a further term. However, independent directors shall not serve for more than six consecutive years. Pursuant to the Articles of Association, before the Company convenes a shareholders’ general meeting, the board of directors, the supervisory committee or shareholders, individually or jointly, holding 3% or more of the total voting shares of the Company shall have the right to propose new motions (such as election of directors) in writing, and the Company shall place such proposed motions on the agenda for such general meeting if they are matters falling within the functions and powers of shareholders in general meetings. Pursuant to the Articles of Association, shareholders can also request to convene an extraordinary general meeting. Shareholder(s) individually or collectively holding 10% or more of the Company’s issued and outstanding voting shares may sign a written proposal requesting the board of directors to convene an extraordinary general meeting. If the board of directors decides to convene an extraordinary general meeting, a notice to convene such meeting shall be issued within five days after the resolution to convene an extraordinary general meeting is adopted by the board of directors. The Company shall convene an extraordinary general meeting for election of directors within two months. The minimum period during which written notice given to the Company of the intention to propose a person for election as a director, and during which written notice to the Company by such person of his/her willingness to be elected may be given, will be at least 7 days. Such period will commence no earlier than the day after the despatch of the notice of the meeting for the purpose of considering such election and shall end no later than 7 days prior to the date of such meeting. An ordinary resolution for election of directors must be passed by votes representing half or more of the voting rights represented by the shareholders (including proxies) present at the meeting. 120 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT 16. SUPERVISORY COMMITTEE As at 31 December 2021, the Company’s Supervisory Committee comprised 5 Supervisors, including 2 Employee Representative Supervisors. The principal duties of the Supervisory Committee include supervising, in accordance with the law, the Company’s financials and performance of its Directors, managers and other senior management 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 convened 9 meetings in 2021. The term of office for the seventh session of the Supervisory Committee lasts for 3 years, starting from 26 May 2020 until the day of the annual general meeting for the year 2022 to be held in year 2023, upon which the eighth session of the Supervisory Committee will be elected. Number of Supervisory Committee Meetings Attended/Held in 2021 Supervisors Sui Yixun (Chairman of the Supervisory Committee and Shareholder Representative Supervisor) Zhang Jianbin (Employee Representative Supervisor) Dai Bin (Employee Representative Supervisor) Xu Shiguang (Shareholder Representative Supervisor)* You Minqiang (Shareholder Representative Supervisor) Number of Meetings Attended/Held 9/9 9/9 9/9 8/9 9/9 * Mr. Xu Shiguang, a Supervisor of the Company, was unable to attend a meeting of the Supervisory Committee due to other arrangements. 17. EXTERNAL AUDITORS The Company’s external auditors are PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP. The non-audit services provided by the external auditors did not contravene the requirements of the US Sarbanes-Oxley Act and therefore enabling them to maintain the independence. 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 2021 is as follows: Service item Audit services Non-audit services (mainly tax and other advisory services) Total Fee (excluding value-added tax) (RMB million) 57 7 64 China Telecom Corporation Limited Annual Report 2021 121 SECTION IV CORPORATE GOVERNANCE REPORT The Directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with the International Financial Reporting Standards as issued by 18. INVESTOR RELATIONS AND TRANSPARENT INFORMATION DISCLOSURE MECHANISM the International Accounting Standards Board and the The Company established an Investor Relations disclosure requirements of the Hong Kong Companies D e p a r t m e n t w h i c h i s r e s p o n s i b l e f o r p r o v i d i n g Ordinance, and for such internal control as the Directors shareholders and investors with the necessary determine is necessary to enable the preparation of information, data and services in a timely manner. It also consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Directors were not aware of any material uncertainties relating to any events or conditions which may cast a serious impact upon the Group’s ability to continue as a going concern. The statements by the external auditors of the Company, PricewaterhouseCoopers, regarding their reporting responsibilities on the consolidated financial statements of the Company is set out in the Independent Auditor’s Report on pages 180 to 185 of this annual report. maintains proactive communications with shareholders, investors and other capital market participants so as to allow them to fully and timely understand the operation and development of the Company. The Company’s senior management presents the annual results and interim results every year. Through various activities such as analyst meetings, press conferences, global investor telephone conferences and investors road shows, senior management provides the capital market and media with important information and responds to key questions which are of prime concerns to the investors. This has helped reinforce the understanding of the Company’s business and the overall development of the The term of appointment of Deloitte Touche Tohmatsu telecommunications industry in China. Since 2004, the and Deloitte Touche Tohmatsu Certified Public Company has been holding the annual general meeting Accountants LLP, the international and domestic auditors for the year 2020, expired on the date of the annual general meeting for the year 2020 (7 May 2021). PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP were appointed as the external auditors of the Company for the year 2021 at the annual general meeting for the year 2020. The Audit Committee and the Board of the Company have agreed on the re-appointment of PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP as the external in Hong Kong to provide convenience and encourage its shareholders, especially the public shareholders, to actively participate in the Company’s annual general meeting and to promote direct and two-way communications between the Board and shareholders. Due to the Covid-19 Epidemic in 2021, the management was unable to attend the results announcement briefings and the annual general meeting in person in Hong Kong. Therefore, the management announced the results and communicated with investors, shareholders and the media through online and video conferencing. auditors of the Company for the year 2022 and will Meanwhile, the Company set up a dedicated investor propose to the annual general meeting for the year 2021 relations enquiry line, for the purpose of providing a of the Company for consideration and approval. direct channel to address enquiries from the investment community. This allows the Company to better serve its shareholders and investors. 122 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT In 2021, the Company commenced and successfully With an aim of strengthening communications with the completed its A Share Offering. The Company therefore capital market and enhancing transparency of information organised a dedicated roadshow for domestic investors, disclosure, the Company has provided quarterly with an aim to further strengthen communications disclosure of revenue, operating expenses, EBITDA, with domestic capital market and effectively enhance net profit figures and other key operational data, and domestic investors’ knowledge and understanding of monthly announcements of the number of access lines the Company’s business and operation. The Company in service, mobile and wireline broadband subscribers. also proactively invited domestic analysts to visit the The Company attaches great importance to maintaining Company’s annual Tianyi Intelligent Ecological Expo daily communication with shareholders, investors and held in Guangzhou and hosted a Q&A session to analysts. In 2021, facing travel restriction brought communicate with investors. In addition, in order to by the Covid-19 Epidemic, the Company proactively deepen domestic and international investors’ knowledge participated in a number of investor conferences held and understanding of the Company’s emerging by a number of major international investment banks business, the Company also organised a dedicated and domestic securities firms around the globe both in non-deal roadshow to specifically introduce 5G, cloud, person and through online meetings, which facilitated IDC and other new services which are of interest to communications with institutional investors. most investors in the year. Domestic investors could visit relevant exhibition halls in person and have face- to-face communications with business department heads. Meanwhile, the Company set up a webcast platform for international investors who could not visit in person due to travel restriction and facilitated two- way communications through means such as video presentation and telephone conference. The roadshow was a great success and received favorable feedback from both domestic and international investors. Management held results announcement meetings and communicated with investors and media through conference call in Beijing due to the Covid-19 Epidemic China Telecom Corporation Limited Annual Report 2021 123 SECTION IV CORPORATE GOVERNANCE REPORT In 2021, the Company attended the following investor conferences held by major international investment banks and domestic securities firms: Date January 2021 January 2021 January 2021 March 2021 March 2021 March 2021 April 2021 April 2021 June 2021 June 2021 June 2021 July 2021 August 2021 August 2021 Name of Conference Citi 2021 Global TMT West Virtual Conference Morgan Stanley Virtual China New Economy Summit 2021 UBS Greater China Conference 2021 BofA 2021 APAC TMT Conference 24th Credit Suisse Asian Investment Conference Morgan Stanley Virtual Hong Kong Summit 2021 Daiwa ESG Virtual Conference 2021 Industrial Securities 2021 Taiwan & South Korea H-Share Online Corporate Day CITIC Securities Mid-year Strategy Conference 2021 Huatai Securities Mid-year Investor Conference 2021 Citi Pan-Asia Regional Investor Conference 2021 Huatai Securities TMT Summit 2021 UBS China TMI Virtual Conference 2021 Nomura Virtual China Investor Forum 2021 September 2021 Jefferies Asia Forum 2021 September 2021 CLSA 28th Investors’ Forum November 2021 Jefferies 5G, Software & Data Centers Access Days 2021 November 2021 Goldman Sachs China Conference 2021 November 2021 12th Credit Suisse China Investment Conference November 2021 Citi China Investor Conference 2021 November 2021 Hua Chuang Securities Investment Strategy Conference 2022 November 2021 CITIC Securities Investment Strategy Conference 2022 November 2021 Guotai Junan Investment Strategy Conference 2022 November 2021 Huatai Securities Investor Conference 2022 November 2021 CICC Investment Conference 2021 December 2021 BOCI TMT Corporate Day December 2021 Zheshang Securities Investment Strategy Conference 2022 December 2021 Essence Securities Investment Strategy Conference 2022 December 2021 BOC International (China) Investment Strategy Conference 2022 124 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT T h e C o m p a n y ’ s i n v e s t o r r e l a t i o n s w e b s i t e as other relevant regulatory requirements of its places of (www.chinatelecom-h.com) not only serves as an listing, to report the Company’s achievements and key important channel for the Company to disseminate press performance indicators on environmental protection. For releases and corporate information to investors, media details, please refer to the Corporate Social Responsibility and the capital market, but also plays a significant role Report 2021 which is published on HKEx website in the Company’s valuation and its compliance with (www.hkexnews.hk) and the Company’s website regulatory requirements for information disclosure. The (www.chinatelecom-h.com). Relevant indicators and data Company launched a responsive website with the latest were analysed and assessed by independent third party technology, which allows automatic adjustment to fit for to ensure compliance with relevant requirements. different screen resolution and user interface, assuring the best browsing experience of website content with The Company also actively seeks recommendations desktop computers, tablets or mobile devices. This on how to improve the Company’s annual report allows investors, shareholders, reporters and the general from shareholders through survey, and prepared and public to browse the latest information on the Company’s distributed the annual report in a more environmentally- website with any device more easily and promptly friendly and cost-saving manner according to the anytime anywhere. The Company’s website is equipped recommendations received. Shareholders can ascertain with a number of useful functions including interactive their choice of receiving the annual reports and stock quote, interactive KPI, interactive FAQs, auto communications by electronic means, or receiving printed email alerts of investors activities, downloading to excel, version in English and/or Chinese. The Company clearly RSS Feeds, self-selected items in investors briefcase, and precisely delivered the messages about its strategies html version annual report, financial highlights, investor and goals in its 2020 Annual Report “Digitalising the toolbar, historical stock quote, adding investor events Future”, so that shareholders and investors can easily to calendars, content sharing to social media, etc. The understand the Company’s development directions Company’s website has recently introduced the push and focus. The printed and online versions of our 2020 notification function, which pushes important content Annual Report won a number of top accolades in update to terminals including desktop computers, tablets international competitions, including earning 11 gold and mobile devices through browsers, timely informing awards in total in “2021 International ARC Awards”, while website users of the Company’s latest news. In addition further winning two grand awards in categories of “Best to setting up a dedicated investor relations enquiry line, a of Hong Kong” and “Interactive Annual Reports”. They specialised appointment function to schedule a meeting received in total four platinum and six gold awards, and with investor relations professionals was also launched ranked No.10 of “Top 100 Reports Worldwide” in “LACP on the Company’s website, to promote direct and close 2020 Vision Awards”. They have also won in aggregate communication between the Company and investors, as three gold awards in this year’s “Galaxy Awards” and well as to increase transparency. “W3 Awards”. These prestigious honours reflect the unanimous worldwide recognition towards China The Company also strives to enhance the disclosure Telecom’s tireless pursuit of excellence and globally quality and format of annual report. The Company leading performance on corporate governance and further enhanced the transparency of disclosure in disclosure, on both conventional and digital channels. environmental, social and governance areas, by following the guidelines of Environmental, Social and Governance Reporting Guide, Appendix 27 of the Listing Rules as well China Telecom Corporation Limited Annual Report 2021 125 SECTION IV CORPORATE GOVERNANCE REPORT The Company has always maintained a sound and effective information disclosure mechanism while keeping highly transparent communications with media, analysts and investors. Meanwhile, we attach great importance to the handling of inside information and have formulated rules on information disclosures and guidelines on inside information which encompass (including but not limited to) disclosure of sensitive information and rules on confidential information, identifying the scope of inside information, procedure and management guidelines on handling inside information. In general, the authorised speakers only clarify and explain on information that is available on the market, and avoid providing or divulging any unpublished inside information either as an individual or as a team. Before conducting any external interview, if the authorised speaker has any doubt about the information to be disclosed, he/she would seek verification from the relevant person or the person-in-charge of the relevant department, so as to determine if such information is accurate. In addition, discussions on the Company’s key financial data or other financial indicators are avoided during the blackout periods. 126 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT 19. SHAREHOLDERS’ RIGHTS (4) If the Supervisory Committee agrees to convene Procedures for convening of an extraordinary general meeting or a class meeting According to the Articles of Association, shareholders who request for the convening of an extraordinary general meeting or a class meeting shall comply with the following procedures: (1) Shareholders who individually or jointly hold more than 10% of the Company’s issued and outstanding shares with voting rights (the “Requesting Shareholders”) may sign a written proposal requesting the board of directors to convene an extraordinary general meeting or a class meeting. The board of directors shall reply in writing agreeing or disagreeing to convene an extraordinary general meeting or a class meeting within ten days upon receipt of such proposal in accordance with laws, regulations and the Articles of Association. (2) If the board of directors decides to convene an extraordinary general meeting or a class meeting, a notice to convene such meeting shall be issued within five days after the resolution is adopted by the board of directors. Any changes to the original proposal in the notice require the consent of the Requesting Shareholders. (3) If the board of directors decides not to convene an extraordinary general meeting or a class meeting or does not reply within ten days upon receipt of such request, the Requesting Shareholders have the right to propose to an extraordinary general meeting or a class meeting, a notice to convene such meeting shall be issued within five days upon receipt of such request. Any changes to the original proposal in the notice require the consent of the Requesting Shareholders. (5) If the Supervisory Committee does not issue the notice of the shareholders’ general meeting within the required period, it will be deemed as having failed to convene and preside over the shareholders’ general meeting, and shareholders individually or jointly holding 10% or more of the shares of the Company for 90 consecutive days or more (the “Convening Shareholders”) have the right to convene and preside over the meeting on their own. (6) In the event where shareholders convene a shareholders’ general meeting on their own initiative, the Convening Shareholders must hold no lower than 10% of shares in the Company immediately before the resolution of such meeting is announced. Procedures for proposing resolutions at the annual general meeting When the Company convenes an annual general meeting, shareholders who individually or jointly hold 3% or more of the total voting shares of the Company shall have the right to propose new motions in writing, and the Company shall place such proposed motions on the agenda for such annual general meeting if they are matters falling within the functions and powers of the Supervisory Committee to convene an shareholders’ meetings. extraordinary general meeting or a class meeting by way of written request(s). China Telecom Corporation Limited Annual Report 2021 127 SECTION IV CORPORATE GOVERNANCE REPORT Process of forwarding shareholders’ enquiries to the Board or requesting for convening of an extraordinary general meeting or a class meeting or proposing new motions Shareholders may at any time send their enquiries, requests, proposals and concerns to the Board in writing through the Company Secretary and the Investor Relations Department. The Company Secretary China Telecom Corporation Limited 28th Floor, Everbright Centre, 108 Gloucester Road, Wanchai, Hong Kong Email: Tel No.: IR Enquiry: Fax No.: ir@chinatelecom-h.com (852) 2877 9777 (852) 2582 0388 (852) 2877 0988 The contact details of the Company Secretary are as A dedicated “Investor” section is available on the follows: Company’s website (www.chinatelecom-h.com). There is a FAQ function in the “Investor” section designated to enable timely, effective and interactive communication between the Company, shareholders and investors. 128 China Telecom Corporation Limited Annual Report 2021 SECTION IV CORPORATE GOVERNANCE REPORT Company Secretary and the Investor Relations corresponding provisions of the Articles of Association Department of the Company handle both telephone and were considered and approved at the extraordinary written enquiries from shareholders of the Company from general meeting held on 9 April 2021. For details of the time to time. Shareholders’ enquiries and concerns will amendments, please refer to the circular of the Company be forwarded to the Board and/or the relevant Board dated 17 March 2021. Such amendments have become Committees of the Company, where appropriate, which effective on 20 August 2021, i.e. the date of the A Share will answer the shareholders’ questions. Information on Offering and Listing. the Company’s website is updated regularly. 20. AMENDMENTS TO ARTICLES OF ASSOCIATION In light of the status of A Share Listing and the actual operational needs of the Company, the amendments to the Articles of Association regarding the number of issued share capital and the scope of business were considered In 2021, the Company amended the Articles of and approved at the extraordinary general meeting held Association twice in total: on 30 November 2021. For details of the amendments, To satisfy relevant needs for corporate governance dated 22 October 2021 in relation to the proposed and normative operations after the A Share Offering amendments to Articles of Association and the circular of and Listing of the Company, the amendments to the the Company dated 9 November 2021. please refer to the announcement of the Company China Telecom Corporation Limited Annual Report 2021 129 GOVERNANCE 130 China Telecom Corporation Limited Annual Report 2021 China Telecom Corporation Limited Annual Report 2021 131 SECTION V ENVIRONMENTAL AND SOCIAL RESPONSIBILITIES 1. ENVIRONMENTAL INFORMATION T h e C o m p a n y a n d i t s s u b s i d i a r i e s a r e n o t t h e (1) Description of environmental protection of the Company other than key pollutant discharging units During the Reporting Period, the subsidiaries of the Company had two incidents of penalties by the relevant authorities for the failure of filing in the place where the solid waste was to be moved out for transfer of solid waste out of the province, with a total fine of RMB33,000. The relevant subsidiaries had paid the fines in full and conducted timely rectification and examination. The above-mentioned violations did not result in serious environmental pollution, major casualties or social impact, and were not major violations of the environmental protection laws and regulations, and the relevant administrative penalties did not have a material adverse impact on the normal operation of the Company. key pollutant discharging units announced by the environmental protection department. The Company and its subsidiaries earnestly implement the Environmental Protection Law of the People’s Republic of China, the Law on the Prevention and Control of Environment Pollution Caused by Solid Wastes of the People’s Republic of China, the Law of the People’s Republic of China on Prevention and Control of Water Pollution, the Law of the People’s Republic of China on the Prevention and Control of Atmospheric Pollution and other environmental protection laws and regulations in their daily production and operation. The production and operation activities are in compliance with the relevant national environmental protection requirements. 132 China Telecom Corporation Limited Annual Report 2021 SECTION V ENVIRONMENTAL AND SOCIAL RESPONSIBILITIES (2) Relevant information on protecting the ecology, preventing and controlling pollution, and fulfilling environmental responsibilities 3. The Company takes proactive environmental p r o t e c t i o n m e a s u r e s r e g a r d i n g i s s u e s i n telecommunications engineering construction in response to concerns of the government 1. The Company actively promotes and advocates and the public, such as farmland protection, water conservation by posting reminders equipment pollution, construction impact and regarding water conservation near water facilities electromagnetic radiation to ensure compliance and appliances. The Company continuously with the government’s regulatory requirements, strengthens the management on water usage, and to actively communicate with the public. carries out sewage discharge management, p r o m o t e s t h e r e c y c l e d u s e o f w a t e r f o r 4. T h e C o m p a n y , f r o m t h e p e r s p e c t i v e s o f production, actively uses reclaimed water as an technology and systems, actively encourages alternative to tap water while the requirements paper saving and reduces paper use. The on use of water are met, popularises the use of Company continuously promotes electronic water-saving appliances and performs regular accounting files management, VAT electronic checks and repairs on each part of the water invoice, e-reimbursement and filing of e-invoice supply system to prevent occurrences of water and paperless operation, and promotes automatic leakage and water wastage. process of tax declaration in order to reduce the use of paper. 2. The Company enhances the recycling, disposal and utilisation of waste and used materials in order to conserve resources as much as possible and reduce environmental pollution. The Company strictly follows the Law on the Prevention and Control of Environment Pollution Caused by Solid Wastes of the People’s Republic of China and other laws and regulations regarding waste disposal and utilisation and carries out waste disposal in accordance with regulatory requirements. China Telecom Corporation Limited Annual Report 2021 133 SECTION V ENVIRONMENTAL AND SOCIAL RESPONSIBILITIES Announced action plan of “carbon dioxide peaking Announced action plan of “carbon dioxide peaking an Ann n pl A of peaking aking Announced action plan of “carbon dioxide peaking and carbon neutrality” and carbon neutrality” d anda lity and carbon neutrality” ou unc d ac ced actio on ca arbon neutral on neu bon neutr carbo “carbon diox n di e p ide (3) Measures taken to reduce carbon emissions during the Reporting Period and their effects The Company applies energy conservation and emission reduction requirements to link through various operational activities such as network planning, procurement, construction, operation and office administration. The Company establishes and improves the energy consumption statistic testing system, organises training and exchanges on energy conservation and emission reduction, constantly improves the professional level of grassroots personnel, and continues to promote innovation in energy conservation and emission reduction management. The Company persists in prioritising the use of energy-saving and environmental-friendly technology and equipment, actively carries out research and application of new technologies for energy conservation and emission reduction and applies energy-saving technologies in the facilities of machine rooms, base stations and datacentres, extends the coverage of the energy-saving technological application and promotes the upgrading and the retirement from the network of old and high energy-consuming equipments. The Company endeavours to reduce all kinds of energy consumptions as well as greenhouse gas emission. Through the co- building of 4/5G base stations with China Unicom, the Company reduced carbon dioxide emissions by 6 million tons per year. 2. SOCIAL RESPONSIBILITIES For details, please refer to the 2021 Corporate Social Responsibility Report of the Company published by the Company on the websites of the Hong Kong Stock Exchange (www.hkexnews.hk) and the Company (www.chinatelecom-h.com). 134 China Telecom Corporation Limited Annual Report 2021 SECTION V ENVIRONMENTAL AND SOCIAL RESPONSIBILITIES 3. CONSOLIDATION AND EXPANSION OF ACHIEVEMENTS IN POVERTY ALLEVIATION AND PROSPERITY OF RURAL VILLAGES After the comprehensive poverty alleviation, China Telecom maintained resource input, assistance efforts and work initiatives, introducing the free assistance funds of RMB17.26 million and providing training of 16,000 cadres and talents in 4 targeted poverty alleviation counties and 2 targeted support counties (hereinafter referred to as “4 + 2” poverty alleviation counties) to actively carry out poverty alleviation through consumption, helping the “4 + 2” poverty alleviation counties and more than 1,400 poverty alleviation sites of enterprises at all levels consolidate and expand the achievements of poverty alleviation, and achieving effective connection with rural revitalisation. The Company fully leveraged its advantages and vigorously promoted the construction of digital villages as an important measure for deepening the industry support and targeted support, and realised the coverage of digital village products and services over 1,600 districts and counties across the country. A total of 10,000 model digital towns and 100,000 model digital villages were built, with 10 group-level digital rural showcase sites built in the “4+2” poverty alleviation counties, creating a telecommunications model for digital empowerment to facilitate “five revitalisations” in rural areas. China Telecom was awarded the highest level for the third consecutive year in the 2020 evaluation of the effectiveness of targeted poverty alleviation, and won national honours such as the National Advanced Group for Summary and Commendation of Poverty Alleviation. Caring children in rural area China Telecom Corporation Limited Annual Report 2021 135 SECTION VI SIGNIFICANT EVENTS 1. PERFORMANCE OF UNDERTAKINGS (1) The ultimate controller, shareholders, related parties, acquirers of the Company, the Company, and other relevant parties of the undertakings during or subsisting to the Reporting Period Specific Further plans reasons for in the event Whether Whether the failure of failing there is a performed to timely to timely Background of Term for term for timely and honor the honor the undertakings Type of undertakings Undertaking party Content of undertakings undertakings performance strictly undertaking undertakings Undertakings related to the initial public offering Undertakings related to the initial public offering Undertakings related to the initial public offering Restricted tradable Controlling shareholder Restrictions on the circulation of 36 months from the Yes Yes N/A N/A shares the shares and the shareholders’ date of A Share listing commitment to voluntary lock-up of the Company their shares Restricted tradable Guangdong Rising, Zhejiang Restrictions on the circulation of 12 months from the Yes Yes N/A N/A shares Financial Development, the shares and the shareholders’ date of A Share listing Fujian Investment Group, commitment to voluntary lock-up of the Company Jiangsu Guoxin their shares Restricted tradable Controlling shareholder, Undertakings on intention to hold Long-term shares Guangdong Rising shares and intention to sell shares Resolving peer Controlling shareholder Non-competition undertaking Long-term Yes Yes Yes Yes N/A N/A N/A N/A competition 136 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS Specific Further plans reasons for in the event Whether Whether the failure of failing there is a performed to timely to timely Background of Term for term for timely and honor the honor the undertakings Type of undertakings Undertaking party Content of undertakings undertakings performance strictly undertaking undertakings Resolving related party Controlling shareholder, Undertakings to regulate and reduce Long-term transactions Guangdong Rising related party transactions Resolution of defects Controlling shareholder Loss-bearing commitment for defects Long-term in property rights of in property rights of land Yes Yes land Others Others Undertakings related to the initial public offering Controlling shareholder Commitment to long-term use of Long-term Yes trademark license Controlling shareholder, the Undertakings to stabilise the share Within three years Yes Company, directors and price senior management other than independent directors and directors who do not receive remuneration from the Company from the date of A Share listing of the Company Yes Yes Yes Yes N/A N/A N/A N/A N/A N/A N/A N/A Others The Company, controlling Undertaking to adopt remedial Long-term Yes Yes N/A N/A shareholder, directors and measures for dilution of the senior management immediate returns by the issuance of share Others The Company, controlling Undertaking that there is no false Long-term Yes Yes N/A N/A shareholder, directors, record, misleading statement, supervisors and senior or material omission in the management Prospectus Undertakings related to the initial public offering Other undertakings Others The Company, controlling Undertaking on binding measures Long-term Yes Yes N/A N/A shareholder, directors, for the failure to perform the supervisors and senior commitment Others management The Company Undertaking on disclosure of Long-term shareholders’ information Dividend The Company Undertaking on the profit distribution Long-term Yes Yes Yes Yes N/A N/A N/A N/A policy and the arrangement in relation to the accumulated profits China Telecom Corporation Limited Annual Report 2021 137 SECTION VI SIGNIFICANT EVENTS 2. APPOINTMENT AND DISMISSAL OF ACCOUNTING FIRMS Unit: 0’000 Currency: RMB Appointed Name of the domestic accounting firm PricewaterhouseCoopers Zhong Tian LLP Remuneration of the domestic and overseas accounting firms 6,080 Duration of audit of the domestic accounting firm 1 year Name of overseas accounting firm PricewaterhouseCoopers Duration of audit of the overseas accounting firm 1 year Accounting firm for internal control PricewaterhouseCoopers Zhong Tian LLP 1,430 Name Remuneration auditing Sponsors China International Capital Corporation Limited 28,962.26 CSC Financial Co., Ltd. Note: The remuneration for internal control auditing is included in the remuneration of domestic and overseas accounting firms. 3. MATERIAL CONNECTED TRANSACTIONS (1) CONNECTED TRANSACTIONS Disposals of E-surfing Pay and China Telecom Leasing The Company has entered into agreements with China Telecommunications on 26 March 2021, pursuant to which the Company has agreed to sell, and China Telecommunications has agreed to purchase all the share capital in E-surfing Pay with an investment amount of RMB500,000,000 held by the Company for a consideration in the amount of RMB3,897 million (equivalent to approximately HK$4,695 million). The Company and its wholly owned subsidiary, China Telecom Global Limited (“China Telecom Global”), have entered into agreements with China Telecommunications and its subsidiary, Guang Hua Properties Limited ( “ G u a n g H u a P r o p e r t i e s ” ) , o n 2 6 M a r c h 2 0 2 1 , pursuant to which, the Company and China Telecom Global have respectively agreed to sell, and China Telecommunications and Guang Hua Properties have agreed to purchase, 75% of the share capital in China Telecom Leasing from the Company and 25% of the share capital in China Telecom Leasing from China Telecom Global for a consideration in the amount of RMB131 million (equivalent to approximately HK$158 million) and RMB44 million (equivalent to approximately HK$53 million), respectively. 138 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS Pursuant to Chapter 14A of the Listing Rules, as China As the highest applicable percentage ratio of the Telecommunications is the Company’s controlling disposals in aggregate is more than 0.1% but less than shareholder, China Telecommunications is a connected 5%, the Company is only subject to the reporting and person of the Company and the disposals under the announcement requirements, but is exempt from the equity transfer agreements entered into between the independent shareholders’ approval requirement under Company and China Telecommunications constitute Chapter 14A of the Listing Rules. connected transactions of the Company for the purpose of Chapter 14A of the Listing Rules. In addition, as Guang The above disposals were completed in April 2021 in Hua Properties is a wholly-owned subsidiary of China accordance with the terms of the agreements. The one- Telecommunications and therefore a connected person off after-tax gain from the disposals of E-surfing Pay and of the Company, the disposal under the equity transfer China Telecom Leasing was approximately RMB1.416 agreement entered into between China Telecom Global billion. and Guang Hua Properties constitutes a connected transaction of the Company for the purpose of Chapter (2) CONTINUING CONNECTED TRANSACTIONS 14A of the Listing Rules. The following table sets out the amounts of the Group’s continuing connected transactions for the year ended 31 December 2021: TRANSACTIONS (1) CONTINUING CONNECTED TRANSACTIONS ENTERED INTO BETWEEN THE GROUP AND CHINA TELECOMMUNICATIONS1 AND/OR ITS ASSOCIATES (EXCLUDING THE GROUP) Net transaction amount of centralised services Net expenses for interconnection settlement Mutual leasing of properties Provision of IT services by China Telecommunications and/or its associates Provision of IT services by the Group Provision of community services by China Telecommunications and/or its associates Annual monetary cap for continuing connected Transaction amounts transactions (RMB million) (RMB million) 962 79 943 3,548 1,186 3,899 1,500 400 1,500 5,000 2,100 4,800 China Telecom Corporation Limited Annual Report 2021 139 SECTION VI SIGNIFICANT EVENTS TRANSACTIONS Annual monetary cap for continuing connected Transaction amounts transactions (RMB million) (RMB million) Provision of supplies procurement services by China 4,105 6,400 Telecommunications and/or its associates Provision of supplies procurement services by the Group Provision of engineering services by China Telecommunications 3,901 15,869 7,200 32,000 and/or its associates Provision of ancillary telecommunications services by China 22,613 26,500 Telecommunications and/or its associates Provision of Internet applications channel services by the Group 60 3,000 (2) CONTINUING CONNECTED TRANSACTIONS ENTERED INTO BETWEEN CHINA TELECOM FINANCE AND THE GROUP, THE PARENT GROUP2 AND THE CCS GROUP3 RESPECTIVELY Provision of deposit services by China Telecom Finance to the 25,544 60,000 Group (maximum daily balance of deposits, including accrued interest) Provision of loan services by China Telecom Finance to the Parent 2,002 10,000 Group (maximum daily loan balance, including accrued interest) Provision of loan services by China Telecom Finance to the CCS – 1,000 Group (maximum daily loan balance, including accrued interest) (3) CONTINUING CONNECTED TRANSACTIONS ENTERED INTO BETWEEN THE GROUP AND E-SURFING PAY AND ITS SUBSIDIARIES Payment and digital finance related services 802 1,400 Notes: 1. 2. 3. China Telecommunications refers to China Telecommunications Corporation, the Company’s controlling shareholder which held approximately 63.20% of the issued share capital of the Company as at 31 December 2021. The Parent Group refers to China Telecommunications Corporation, its associates and its commonly held entity held with the Group, excluding the Group or the CCS Group. The CCS Group refers to China Communications Services Corporation Limited and its subsidiaries. 140 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS Continuing Connected Transactions entered into among the Group and China Telecommunications and/or its associates (excluding the Group) caps for the transactions contemplated under other continuing connected transactions agreements for each of the years ended 31 December 2019, 2020 and 2021 exceeds 0.1% but is less than 5%, such continuing O n 2 0 A u g u s t 2 0 1 8 , t h e C o m p a n y a n d C h i n a connected transactions are only subject to the reporting, Telecommunications entered into supplemental announcement and annual review requirements and are agreements and renewed the Engineering Framework exempt from the independent shareholders’ approval Agreement, the Ancillary Telecommunications Services requirement under Chapter 14A of the Listing Rules. Framework Agreement, the Interconnection Settlement Details of the respective agreements are shown below: Agreement, the Community Services Framework Agreement, the Centralised Services Agreement, the Centralised Services Agreement Property Leasing Framework Agreement, the IT Services Pursuant to the centralised services agreement signed Framework Agreement, the Supplies Procurement between the Company and China Telecommunications Services Framework Agreement and the Internet on 10 September 2002 and the related supplemental Applications Channel Services Framework Agreement for agreements subsequently entered into between the a further term of 3 years expiring on 31 December 2021. two parties (collectively, the “Centralised Services China Telecommunications is the controlling shareholder Agreement”), centralised services include centralised of the Company. Accordingly, pursuant to Chapter 14A business management and operational services provided of the Listing Rules, China Telecommunications is a by the Group to China Telecommunications in relation connected person of the Company and the transactions to key corporate customers, its network management contemplated under each of the agreements constitute centre and business support centre. Centralised services continuing connected transactions of the Company. also include the provision of certain premises by China Telecommunications to the Group and the common use As certain applicable percentage ratios (excluding of international telecommunications facilities by both t h e p r o f i t s r a t i o ) o f t h e r e n e w e d a n n u a l c a p s parties. The aggregate costs incurred by the Group f o r t h e t r a n s a c t i o n s c o n t e m p l a t e d u n d e r t h e and China Telecommunications for the provision of Engineering Framework Agreement and the Ancillary management and operational services will be apportioned Telecommunications Services Framework Agreement between the Group and China Telecommunications on for each of the years ended 31 December 2019, 2020 a pro rata basis according to the revenues generated by and 2021 exceeds 5%, such continuing connected each party. Where the Group uses the premises provided transactions are subject to the reporting, announcement, by China Telecommunications, the Group will pay a n n u a l r e v i e w a n d i n d e p e n d e n t s h a r e h o l d e r s ’ premises usage fees to China Telecommunications on a approval requirements under Chapter 14A of the pro rata basis according to the apportioned actual area Listing Rules. The independent shareholders of the allocated to the Group. The premises usage fees shall be Company considered and approved the renewal of the determined through negotiation between the two parties Engineering Framework Agreement and the Ancillary based on comparable market rates. When both parties Telecommunications Services Framework Agreement use international telecommunications facilities provided and the renewed annual caps applicable thereto at the by third parties and accept services by such third parties extraordinary general meeting of the Company held on (for example, restoration maintenance costs, the annual 26 October 2018. As each of the applicable percentage utilisation fee and related service costs) and when both ratios (excluding the profits ratio) of the renewed annual parties use the international telecommunications facilities China Telecom Corporation Limited Annual Report 2021 141 SECTION VI SIGNIFICANT EVENTS of China Telecommunications, the associated costs Interconnection Settlement Agreement shall be shared on a pro rata basis according to volume P u r s u a n t t o t h e i n t e r c o n n e c t i o n s e t t l e m e n t of the inbound and outbound voice calls to and from agreement signed between the Company and China international regions, Hong Kong, Macau and Taiwan Telecommunications on 10 September 2002 and originating from each party divided by the proportion the related supplemental agreements subsequently of the aggregate volume of the inbound and outbound entered into between the two parties (collectively, voice calls to and from international regions, Hong Kong, the “Interconnection Settlement Agreement”), the Macau and Taiwan originating from both parties. When telephone operator connecting a telephone call made the two parties use international telecommunications to its local access network shall be entitled to receive facilities provided by a third party and accept services from the operator from which the telephone call from third parties, the restoration maintenance fees shall originated a fee prescribed by the Ministry of Industry be determined according to the actual utilisation fee each and Information Technology of the PRC (the “Ministry year. The utilisation fee associated with the shared use of Industry and Information Technology”) from time to of the international telecommunications facilities provided time. Interconnection charges are currently RMB0.06 by China Telecommunications shall be determined per minute for local calls originated from the Group through negotiation between the two parties based to China Telecommunications. The interconnection on market rates. Market rates shall mean the rates at settlement charges will be calculated according to which the same or similar type of products or services the “Notice Concerning the Issue of the Measures are provided by independent third parties in the ordinary o n I n t e r c o n n e c t i o n S e t t l e m e n t b e t w e e n P u b l i c course of business and under normal commercial terms. Telecommunications Networks and Sharing of Relaying When determining whether the transaction price for any Fees (Xin Bu Dian [2003] No. 454)” promulgated by the transaction under the agreement represents market Ministry of Information Industry. The Ministry of Industry rates, to the extent practicable, management of the and Information Technology may, from time to time, take Company shall take into account the rates of at least two into account the relevant regulatory rules and market similar and comparable transactions entered into with or conditions, amend or promulgate new rules or regulations carried out by independent third parties in the ordinary in respect of interconnection settlement which will be course of business in the corresponding period for announced on its official website at www.miit.gov.cn. reference. If the Ministry of Industry and Information Technology amends the existing, or promulgates new rules or The Company and China Telecommunications have regulations in respect of interconnection settlement, entered into a supplemental agreement on 20 August the parties shall apply such amended or new rules 2018 and renewed the Centralised Services Agreement and regulations as acknowledged by both parties. The in accordance with its provisions for a further term of settlement regions include Beijing Municipality, Tianjin 3 years expiring on 31 December 2021. No later than Municipality, Hebei Province, Heilongjiang Province, 30 days prior to the expiry of the Centralised Services Jilin Province, Liaoning Province, Shanxi Province, Agreement, the Company is entitled to serve a written Henan Province, Shandong Province, Inner Mongolia notice to China Telecommunications to renew the Autonomous Region and Xizang Autonomous Region. Centralised Services Agreement, and the parties shall consult and decide on matters relating to such renewal. 142 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS The Company and China Telecommunications have The Company and China Telecommunications have entered into a supplemental agreement on 20 August entered into a supplemental agreement on 20 August 2018 and renewed the Interconnection Settlement 2018 and renewed the Property Leasing Framework Agreement in accordance with its provisions for a further Agreement in accordance with its provisions for a further term of 3 years expiring on 31 December 2021. No later term of 3 years expiring on 31 December 2021. No later than 30 days prior to the expiry of the Interconnection than 30 days prior to the expiry of the Property Leasing Settlement Agreement, the Company is entitled to serve Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications to renew a written notice to China Telecommunications to renew the Interconnection Settlement Agreement, and the the Property Leasing Framework Agreement, and the parties shall consult and decide on matters relating to parties shall consult and decide on matters relating to such renewal. such renewal. Property Leasing Framework Agreement IT Services Framework Agreement P u r s u a n t t o t h e p r o p e r t y l e a s i n g f r a m e w o r k Pursuant to the IT services framework agreement signed agreement signed between the Company and China between the Company and China Telecommunications Telecommunications on 30 August 2006 and the related on 30 August 2006 and the related supplemental supplemental agreement subsequently entered into agreements subsequently entered into between the between the two parties (collectively, the “Property two parties (collectively, the “IT Services Framework Leasing Framework Agreement”), the Group and China Agreement”), the Group and China Telecommunications Telecommunications and/or its associates can lease and/or its associates can provide the other party properties from the other party for use as business with information technology services, including office premises, offices, equipment storage facilities and sites automation and software testing. Each of the Group for network equipment installation. The rental charges and China Telecommunications and/or its associates under the Property Leasing Framework Agreement shall is entitled to participate in bidding for the right to be determined according to comparable market rates. provide information technology services to the other Market rates shall mean the rental charges at which the party in accordance with the IT Services Framework same or similar type of properties or adjacent properties Agreement. The charges payable for such services shall are leased by independent third parties in the ordinary be determined by reference to the market rates. Market course of business and on normal commercial terms. rates shall mean the rates at which the same or similar When determining whether the rental charges for any type of products or services are provided by independent property under the agreement represents market rates, third parties in the ordinary course of business and on to the extent practicable, management of the Company normal commercial terms. When determining whether the shall take into account the rental charges of at least two transaction price for any transaction under the agreement similar and comparable transactions entered into with or represents market rates, to the extent practicable, carried out by independent third parties in the ordinary management of the Company shall take into account the course of business in the corresponding period for rates of at least two similar and comparable transactions reference. The rental charges are subject to review every entered into with or carried out by independent third 3 years. parties in the ordinary course of business in the corresponding period for reference. China Telecom Corporation Limited Annual Report 2021 143 SECTION VI SIGNIFICANT EVENTS In the circumstances where the relevant laws or health and medical care, hotel and conference service, regulations in the PRC specify that the prices and/or community and sanitary service. The community services the fee standards for particular services to be provided under the Community Services Framework Agreement pursuant to such agreement are to be determined by a are provided in accordance with the following pricing tender process, the charges payable for such services terms: shall be finally determined in accordance with the “Bidding Law of the PRC” and the “Regulations on the (1) market prices, which shall mean the prices at Implementation of the Bidding Law of the PRC” or the which the same or similar type of products or relevant tender procedures. The Group shall solicit at services are provided by independent third parties least three tenderers for the tender process. If the terms in the ordinary course of business and on normal offered by the Group or China Telecommunications commercial terms. When determining whether and/or its associates are no less favourable than those the transaction price for any transaction under offered by an independent third party provider, the Group the agreement represents market prices, to the or China Telecommunications and/or its associates may extent practicable, management of the Company award the tender to the other party. shall take into account the prices of at least two similar and comparable transactions entered into The Company and China Telecommunications have with or carried out by independent third parties entered into a supplemental agreement on 20 August in the ordinary course of business over the 2 0 1 8 a n d r e n e w e d t h e I T S e r v i c e s F r a m e w o r k corresponding period for reference; Agreement in accordance with its provisions for a further term of 3 years expiring on 31 December 2021. No (2) where there is no or it is not possible to determine later than 30 days prior to the expiry of the IT Services the market prices, the prices are to be agreed Framework Agreement, the Company is entitled to serve between the parties based on negotiated price. a written notice to China Telecommunications to renew “Negotiated price” shall mean the reasonable the IT Services Framework Agreement, and the parties costs incurred in providing the services plus the shall consult and decide on matters relating to such amount of the relevant taxes and reasonable renewal. profit margin. For this purpose, “reasonable profit margin” is to be fairly determined by negotiations Community Services Framework Agreement between the parties in accordance with the Pursuant to the community services framework internal policies of the Group. When determining agreement signed between the Company and China the “reasonable profit margin” for any transaction Telecommunications on 30 August 2006 and the under the agreement, to the extent practicable, related supplemental agreements subsequently management of the Company shall take into entered into between the two parties (collectively, the account the profit margin of at least two similar “Community Services Framework Agreement”), China and comparable transactions entered into with Telecommunications and/or its associates provide independent third parties in the corresponding the Group with community services such as culture, period or the relevant industry profit margin for education, property management, vehicle service, reference. 144 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS The Company and China Telecommunications have T h e p r i c i n g b a s i s o f t h e s e r v i c e s f o r s u p p l i e s entered into a supplemental agreement on 20 August procurement other than on an agency basis under the 2018 and renewed the Community Services Framework Supplies Procurement Services Framework Agreement Agreement in accordance with its provisions for a further is the same as those set out in the Community Services term of 3 years expiring on 31 December 2021. No Framework Agreement. later than 30 days prior to the expiry of the Community Services Framework Agreement, the Company is entitled The Company and China Telecommunications have to serve a written notice to China Telecommunications to entered into a supplemental agreement on 20 August renew the Community Services Framework Agreement, 2018 and renewed the Supplies Procurement Services and the parties shall consult and decide on matters Framework Agreement in accordance with its provisions relating to such renewal. for a further term of 3 years expiring on 31 December 2021. No later than 30 days prior to the expiry of the Supplies Procurement Services Framework Supplies Procurement Services Framework Agreement, Agreement the Company is entitled to serve a written notice to China Pursuant to the supplies procurement services Telecommunications to renew the Supplies Procurement framework agreement signed between the Company and Services Framework Agreement, and the parties shall China Telecommunications on 30 August 2006 and the consult and decide on matters relating to such renewal. related supplemental agreements subsequently entered into between the two parties (collectively, the “Supplies Engineering Framework Agreement Procurement Services Framework Agreement”), China Pursuant to the engineering framework agreement signed Telecommunications and/or its associates and the between the Company and China Telecommunications Group can provide each other with supplies procurement on 30 August 2006 and the related supplemental services, including comprehensive procurement services, agreements subsequently entered into between the the sale of proprietary telecommunications equipment, two parties (collectively, the “Engineering Framework resale of third-party equipment, management of Agreement”), China Telecommunications and/or its tenders, verification of technical specifications, storage, associates through bids provides to the Group services transportation and installation services. such as construction, design, equipment installation and Where the procurement services are provided on an The charges payable for such engineering services shall agency basis, the maximum commission for such be determined by reference to market rates. Market rates procurement services shall be calculated at: shall mean the rates at which the same or similar type testing and/or engineering project supervision services. of products or services are provided by independent (1) not more than 1% of the contract value for third parties in the ordinary course of business and procurement of imported telecommunications on normal commercial terms. When determining supplies; or whether the transaction price for any transaction under the agreement represents market rates, to the (2) not more than 3% of the contract value for the extent practicable, management of the Company shall procurement of domestic telecommunications take into account the rates of at least two similar and supplies and domestic non-telecommunications comparable transactions entered into with or carried supplies. China Telecom Corporation Limited Annual Report 2021 145 SECTION VI SIGNIFICANT EVENTS out by independent third parties in the ordinary course Ancillary Telecommunications Services Framework of business in the corresponding period for reference. Agreement The charges payable for the design or supervision of Pursuant to the ancillary telecommunications services engineering projects with a value of over RMB1 million framework agreement signed between the Company and or engineering construction projects with a value of China Telecommunications on 30 August 2006 and the over RMB4 million shall be determined by the tender related supplemental agreements subsequently entered award price, which is determined in accordance with the into between the two parties (collectively, the “Ancillary “Bidding Law of the PRC” and the “Regulations on the Telecommunications Services Framework Agreement”), Implementation of the Bidding Law of the PRC” or the China Telecommunications and/or its associates provide final confirmed price in the relevant tender process. The the Group with certain repair and maintenance services, Group shall solicit at least three tenderers for the tender including repair of telecommunications equipment, process. In the circumstances there are amended rules maintenance of fire equipment and telephone booths, or regulations in respect of tender scope and scale of the as well as other customer services. The pricing terms engineering construction projects promulgated by PRC for such services are the same as those set out in the laws and regulations during the term of the agreement, Community Services Framework Agreement. both parties agreed to apply such amended rules and regulations and no amendment to the supplemental The Company and China Telecommunications have agreement is required. entered into a supplemental agreement on 20 August 2018 and renewed the Ancillary Telecommunications The Group does not accord any priority to China Services Framework Agreement in accordance with Telecommunications and/or its associates to provide its provisions for a further term of 3 years expiring on such services, and the tender may be awarded to an 31 December 2021. No later than 30 days prior to the independent third party. However, if the terms of an offer expiry of the Ancillary Telecommunications Services from China Telecommunications and/or its associates Framework Agreement, the Company is entitled to serve are at least as favourable as those offered by other a written notice to China Telecommunications to renew tenderers, the Group may award the tender to China the Ancillary Telecommunications Services Framework Telecommunications and/or its associates. Agreement, and the parties shall consult and decide on matters relating to such renewal. The Company and China Telecommunications have entered into a supplemental agreement on 20 August Internet Applications Channel Services Framework 2018 and renewed the Engineering Framework Agreement Agreement on the same terms (except the pricing Pursuant to the Internet applications channel services terms) for a further term of 3 years expiring on 31 framework agreement signed between the Company December 2021. No later than 30 days prior to the and China Telecommunications on 16 December 2013 expiry of the Engineering Framework Agreement, and the related supplemental agreement subsequently the Company is entitled to serve a written notice to entered into between the two parties (collectively, the China Telecommunications to renew the Engineering “Internet Applications Channel Services Framework Framework Agreement, and the parties shall consult and Agreement”), the Company provides Internet applications decide on matters relating to such renewal. channel services to China Telecommunications and/ or its associates. The channel services mainly include the provision of telecommunications channel and 146 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS applications support platform, provision of billing and to Chapter 14A of the Listing Rules, China Telecom deduction services, coordination of sales promotion and Finance is a connected subsidiary of the Company and development of customers services, etc. The pricing an associate of China Telecommunications and CCS, terms for such services are the same as those set out in which is also a connected person of the Company. the Community Services Framework Agreement. Accordingly, the transactions under the China Telecom Financial Services Framework Agreement entered into The Company and China Telecommunications have between the Company and China Telecom Finance, entered into a supplemental agreement on 20 August the China Telecommunications Corporation Financial 2018 and renewed the Internet Applications Channel Services Framework Agreement entered into between Services Framework Agreement in accordance with China Telecom Finance and China Telecommunications its provisions for a further term of 3 years expiring on and the CCS Financial Services Framework Agreement 31 December 2021. No later than 30 days prior to the entered into between China Telecom Finance and CCS expiry of the Internet Applications Channel Services constitute continuing connected transactions of the Framework Agreement, the Company is entitled to serve Company pursuant to Chapter 14A of the Listing Rules. a written notice to China Telecommunications to renew the Internet Applications Channel Services Framework China Telecom Financial Services Framework Agreement, and the parties shall consult and decide on Agreement entered into between the Company and matters relating to such renewal. China Telecom Finance Continuing Connected Transactions entered into between China Telecom Finance and the Group, the Parent Group and the CCS Group respectively Pursuant to the financial services framework agreement entered into between the Company and China Telecom Finance on 1 February 2019 (“China Telecom Financial Services Framework Agreement”), China Telecom Finance agreed to provide financial services, including On 1 February 2019, China Telecom Finance entered deposit services, loan services and other financial into the financial services framework agreement with services to the Group. As each of the applicable each of the Company, China Telecommunications percentage ratios of the annual caps for the deposit (together with its associates and its commonly held entity services provided by China Telecom Finance to the held with the Group, excluding the Group and the CCS Group under the China Telecom Financial Services Group, the “Parent Group”) and CCS (together with its Framework Agreement for each of the years ended 31 subsidiaries, “CCS Group”). As CCS is a subsidiary of December 2019, 2020 and 2021 exceeds 5% but is China Telecommunications, the Company’s controlling less than 25%, such continuing connected transaction is shareholder, pursuant to Chapter 14A of the Listing Rules, subject to the reporting, announcement, annual review China Telecommunications and CCS and their associates and independent shareholders’ approval requirements are connected persons of the Company. As the u n d e r C h a p t e r s 1 4 A o f t h e L i s t i n g R u l e s . T h e Company holds 70% of the issued share capital of China independent shareholders of the Company considered Telecom Finance, China Telecom Finance is a subsidiary and approved the deposit services and the applicable of the Company. Meanwhile, China Telecommunications annual caps under the China Telecom Financial Services and CCS each respectively holds 15% of the issued Framework Agreement at the extraordinary general share capital of China Telecom Finance. Pursuant meeting of the Company held on 18 April 2019. China Telecom Corporation Limited Annual Report 2021 147 SECTION VI SIGNIFICANT EVENTS As the loan services provided by China Telecom Finance (2) Loan Services to the Group under the China Telecom Financial Services Framework Agreement are conducted on normal The loan interest rates offered by China Telecom Finance commercial terms or better and the relevant loan services to the Group shall comply with the relevant requirements will not be secured by the assets of the Group, such loan of the People’s Bank of China and be with reference to services are exempt from all reporting, announcement, the loan benchmark interest rates promulgated by the annual review and independent shareholders’ approval People’s Bank of China from time to time (if any) and requirements pursuant to Rule 14A.90 of the Listing the loan interest rates of the same type of loan services Rules. for the same period offered by the major cooperative commercial banks of the Group and are conducted on As each of the applicable percentage ratios of the normal commercial terms or better. The loan interest annual caps for the service fees of other financial rates offered shall be equivalent to or lower than those services provided by China Telecom Finance to the offered by the major cooperative commercial banks of Group under the China Telecom Financial Services the Group. Under the same conditions, the interest rates Framework Agreement for each of the years ended 31 and terms for the loan services offered by China Telecom December 2019, 2020 and 2021 is less than 0.1%, such Finance to the Group shall be the same as those interest other financial services are exempt from all reporting, rates and terms of the same type of loan services for announcement, annual review and independent the same period offered by China Telecom Finance to shareholders’ approval requirements under Chapter 14A other member units. The above loan services provided of the Listing Rules. Pricing Policy: by China Telecom Finance to the Group do not require the Group to pledge any security over its assets or make other arrangements for the loan services as guarantee. (1) Deposit Services (3) Other Financial Services The deposit interest rates offered by China Telecom China Telecom Finance provides other financial services Finance to the Group shall comply with the relevant (other than deposit and loan services) including financial requirements of the People’s Bank of China and be and financing advice, credit authentication, guarantees, with reference to the deposit benchmark interest rates acceptance of bills and discounted bills, internal promulgated by the People’s Bank of China from time fund transfer and settlement and designs of relevant to time (if any) and the deposit interest rates of the same settlement and clearance arrangement proposals to type of deposit services for the same period offered the Group under the China Telecom Financial Services by the major cooperative commercial banks of the Framework Agreement. The fees charged for other Group and are conducted on normal commercial terms financial services provided by China Telecom Finance or better. The deposit interest rates offered shall be to the Group mentioned above shall comply with the equivalent to or higher than those offered by the major fees standard promulgated by regulatory departments cooperative commercial banks of the Group. Under including the People’s Bank of China or China Banking the same conditions, the interest rates and terms for and Insurance Regulatory Commission (including its the deposit services offered by China Telecom Finance designated institution) (“CBIRC”) (if applicable), and be to the Group shall be the same as those interest rates with reference to the handling fees standard for the same and terms of the same type of deposit services for the type of other financial services charged by the major same period offered by China Telecom Finance to other cooperative commercial banks of the Group and are member units. conducted on normal commercial terms or better. The handling fees standard shall be equivalent to or lower 148 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS than those charged by the major cooperative commercial As each of the applicable percentage ratios of the banks of the Group. Under the same conditions, the annual caps for the loan services provided by China fees standard charged to the Group by China Telecom Telecom Finance to the Parent Group under the China Finance shall be the same as those fees standard for the same type of other financial services charged by China Telecom Finance to other member units. For the respective specific transactions under the China Telecom Financial Services Framework Agreement, under the same conditions, the Group should, in principle, choose the services provided by China Telecom Finance. If the Group considers it appropriate and beneficial to the Group, the Group has the discretion to engage one or Telecommunications Corporation Financial Services Framework Agreement for each of the years ended 31 December 2019, 2020 and 2021 exceeds 0.1% but is less than 5%, such loan services are only subject to the reporting, announcement and annual review requirements but are exempt from the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules. more major cooperative commercial banks of the Group As each of the applicable percentage ratios of the annual as its financial services providers. caps for the service fees of other financial services provided by China Telecom Finance to the Parent Group The China Telecom Financial Services Framework under the China Telecommunications Corporation Agreement became effective from 1 February 2019 Financial Services Framework Agreement for each of and expired on 31 December 2021. Subject to the compliance of relevant laws and regulations and relevant regulatory requirements, both parties would negotiate and agree on the renewal arrangement. China Telecommunications Corporation Financial Services Framework Agreement entered into between China Telecom Finance and China Telecommunications the years ended 31 December 2019, 2020 and 2021 is less than 0.1%, such other financial services are exempt from all reporting, announcement, annual review and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. Pricing Policy: Pursuant to the financial services framework agreement (1) Deposit Services entered into between China Telecom Finance and China Telecommunications on 1 February 2019 (“China The deposit interest rates offered by China Telecom Telecommunications Corporation Financial Services Finance to the Parent Group shall comply with the Framework Agreement”), China Telecom Finance agreed relevant requirements of the People’s Bank of China and to provide financial services, including deposit services, be with reference to the deposit benchmark interest rates loan services and other financial services to the Parent Group. As the deposit services provided by China Telecom Finance to the Parent Group under the China Telecommunications Corporation Financial Services Framework Agreement are conducted on normal commercial terms or better and the relevant deposit services will not be secured by the assets of the Group, such deposit services are exempt from all reporting, announcement, annual review and independent shareholders’ approval requirements pursuant to Rule 14A.90 of the Listing Rules. promulgated by the People’s Bank of China from time to time (if any) and the deposit interest rates of the same type of deposit services for the same period offered by the major cooperative commercial banks of the Parent Group and are conducted on normal commercial terms or better. The deposit interest rates offered shall be equivalent to or higher than those offered by the major cooperative commercial banks of the Parent Group. Under the same conditions, the interest rates and terms for the deposit services offered by China Telecom China Telecom Corporation Limited Annual Report 2021 149 SECTION VI SIGNIFICANT EVENTS Finance to the Parent Group shall be the same as those The fees charged for other financial services provided by interest rates and terms of the same type of deposit China Telecom Finance to the Parent Group mentioned services for the same period offered by China Telecom above shall comply with the fees standard promulgated Finance to other member units. by regulatory departments including the People’s (2) Loan Services Bank of China or the CBIRC (if applicable), and be with reference to the handling fees standard for the same type of other financial services charged by the major The loan interest rates offered by China Telecom Finance cooperative commercial banks of the Parent Group and to the Parent Group shall comply with the relevant are conducted on normal commercial terms or better. requirements of the People’s Bank of China and be The handling fees standard shall be equivalent to or with reference to the loan benchmark interest rates lower than those charged by the major cooperative promulgated by the People’s Bank of China from time commercial banks of the Parent Group. Under the same to time (if any) and the loan interest rates of the same conditions, the fees standard charged to the Parent type of loan services for the same period offered by Group by China Telecom Finance shall be the same as the major cooperative commercial banks of the Parent those fees standard for the same type of other financial Group and are conducted on normal commercial services charged by China Telecom Finance to other terms or better. The loan interest rates offered shall be member units. equivalent to or lower than those offered by the major cooperative commercial banks of the Parent Group. For the respective specific transactions under the China Under the same conditions, the interest rates and terms Telecommunications Corporation Financial Services for the loan services offered by China Telecom Finance Framework Agreement, under the same conditions, the to the Parent Group shall be the same as those interest Parent Group should, in principle, choose the services rates and terms of the same type of loan services for the provided by China Telecom Finance. If the Parent Group same period offered by China Telecom Finance to other considers it appropriate and beneficial to the Parent member units. Group, the Parent Group has the discretion to engage one or more major cooperative commercial banks of the The above loan services provided by China Telecom Parent Group as its financial services providers. Finance to the Parent Group do not require the Parent Group to pledge any security over its assets or make The China Telecommunications Corporation Financial other arrangements for the loan services as guarantee. Services Framework Agreement became effective (3) Other Financial Services 2021. Subject to the compliance of relevant laws and China Telecom Finance provides other financial services parties would negotiate and agree on the renewal regulations and relevant regulatory requirements, both from 1 February 2019 and expired on 31 December (other than deposit and loan services) including financial arrangement. and financing advice, credit authentication, guarantees, acceptance of bills and discounted bills, internal CCS Financial Services Framework Agreement fund transfer and settlement and designs of relevant entered into between China Telecom Finance and settlement and clearance arrangement proposals to CCS the Parent Group under the China Telecommunications Pursuant to the financial services framework agreement Corporation Financial Services Framework Agreement. entered into between China Telecom Finance and CCS 150 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS on 1 February 2019 (“CCS Financial Services Framework requirements of the People’s Bank of China and be Agreement”), China Telecom Finance agreed to provide with reference to the deposit benchmark interest rates financial services, including deposit services, loan promulgated by the People’s Bank of China from time services and other financial services to the CCS Group. As to time (if any) and the deposit interest rates of the same the deposit services provided by China Telecom Finance type of deposit services for the same period offered by to the CCS Group under the CCS Financial Services the major cooperative commercial banks of the CCS Framework Agreement are conducted on normal Group and are conducted on normal commercial terms commercial terms or better and the relevant deposit or better. The deposit interest rates offered shall be services will not be secured by the assets of the Group, equivalent to or higher than those offered by the major such deposit services are exempt from all reporting, cooperative commercial banks of the CCS Group. Under announcement, annual review and independent the same conditions, the interest rates and terms for the shareholders’ approval requirements pursuant to Rule deposit services offered by China Telecom Finance to 14A.90 of the Listing Rules. the CCS Group shall be the same as those interest rates As each of the applicable percentage ratios of the annual same period offered by China Telecom Finance to other and terms of the same type of deposit services for the caps for loan services provided by China Telecom member units. Finance to CCS Group under the CCS Financial Services Framework Agreement for each of the years ended 31 (2) Loan Services December 2019, 2020 and 2021 exceeds 0.1% but is less than 5%, such loan services are only subject The loan interest rates offered by China Telecom to the reporting, announcement and annual review Finance to the CCS Group shall comply with the relevant requirements but are exempt from the independent requirements of the People’s Bank of China and be shareholders’ approval requirement under Chapter 14A with reference to the loan benchmark interest rates of the Listing Rules. promulgated by the People’s Bank of China from time to time (if any) and the loan interest rates of the same type As each of the applicable percentage ratios of the annual of loan services for the same period offered by the major caps for the service fees of other financial services cooperative commercial banks of the CCS Group and are provided by China Telecom Finance to the CCS Group conducted on normal commercial terms or better. The under the CCS Financial Services Framework Agreement loan interest rates offered shall be equivalent to or lower for each of the years ended 31 December 2019, than those offered by the major cooperative commercial 2020 and 2021 is less than 0.1%, such other financial banks of the CCS Group. Under the same conditions, services are exempt from all reporting, announcement, the interest rates and terms for the loan services offered annual review and independent shareholders’ approval by China Telecom Finance to the CCS Group shall be the requirements under Chapter 14A of the Listing Rules. same as those interest rates and terms of the same type Pricing Policy: (1) Deposit Services of loan services for the same period offered by China Telecom Finance to other member units. The above loan services provided by China Telecom Finance to the CCS Group do not require the CCS Group to pledge any security over its assets or make other arrangements for The deposit interest rates offered by China Telecom the loan services as guarantee. Finance to the CCS Group shall comply with the relevant China Telecom Corporation Limited Annual Report 2021 151 SECTION VI SIGNIFICANT EVENTS (3) Other Financial Services services for the same period or fees charged and other relevant transaction terms for the same type of financial China Telecom Finance provides other financial services services offered by the major cooperative commercial (other than deposit and loan services) including financial banks of the CCS Group. Only when the interest rates and financing advice, credit authentication, guarantees, and terms or fees charged or other relevant transactions acceptance of bills and discounted bills, internal terms offered by China Telecom Finance are equivalent fund transfer and settlement and designs of relevant to or better than those interest rates and terms offered settlement and clearance arrangement proposals to or fees charged or other relevant transactions terms (e.g. the CCS Group under the CCS Financial Services transaction approval terms, procedures or time limit, Framework Agreement. The fees charged for other etc.) offered by the major cooperative commercial banks financial services provided by China Telecom Finance to of the CCS Group, the CCS Group has the discretion the CCS Group mentioned above shall comply with the to enter into the transactions with China Telecom fees standard promulgated by regulatory departments Finance. Under the circumstances which the CCS Group including the People’s Bank of China or the CBIRC (if considers appropriate, the CCS Group may engage applicable), and be with reference to the handling fees additional or other financial institutions other than China standard for the same type of other financial services Telecom Finance to provide financial services. charged by the major cooperative commercial banks of the CCS Group and are conducted on normal The CCS Financial Services Framework Agreement commercial terms or better. The handling fees standard became effective from 1 February 2019 and expired shall be equivalent to or lower than those charged by the on 31 December 2021. Subject to the compliance of major cooperative commercial banks of the CCS Group. relevant laws and regulations and relevant regulatory Under the same conditions, the fees standard charged to requirements, both parties would negotiate and agree on the CCS Group by China Telecom Finance shall be the the renewal arrangement. same as those fees standard for the same type of other financial services charged by China Telecom Finance to other member units. Payment and Digital Finance Related Services Framework Agreement On 29 April 2021, the Company and E-surfing Pay have For the respective specific transactions under the CCS entered into the Payment and Digital Finance Related Financial Services Framework Agreement, provided that Services Framework Agreement for a term ended on 31 it is in compliance with the terms and conditions of the December 2021, pursuant to which E-surfing Pay and its CCS Financial Services Framework Agreement, China subsidiaries provides payment and digital finance related Telecom Finance was appointed as one of the financial services to the Group, including providing the Group’s institutions providing financial services to the CCS Group. subscribers with the recharged payment services as well Prior to the signing of any specific agreement with China as the issuance and operation and settlement services Telecom Finance in respect of respective transactions for rechargeable payment cards such as 11888 card; under the CCS Financial Services Framework Agreement, internet payment services and mobile phone payment the CCS Group will compare the interest rates and terms services; bank card payment and barcode payment or fees charged and other relevant transactions terms services; issuance and handling services for prepaid offered by China Telecom Finance with those interest cards; bill payment and other integrated payment rates and terms of the same type of deposit or loan enabled services; establishment and maintenance 152 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS services of the payment system of the Group’s provided by independent third parties in the subscribers; other related payment and digital finance ordinary course of business and on normal services within the scope of businesses permitted by or commercial terms. When determining whether as filed with the relevant regulatory authorities; and the the transaction price for any transaction under establishment, operation, expansion and maintenance the agreement represents market prices, to the services for fundamental capabilities and systems in extent practicable, management of the Company fulfilment of the aforesaid services. shall take into account the prices of at least two similar and comparable transactions entered into Pursuant to Chapter 14A of the Listing Rules, as China with or carried out by independent third parties Telecommunications is the Company’s controlling in the ordinary course of business over the shareholder, holding approximately 64.53% of the issued corresponding period for reference; share capital of E-surfing Pay as of the date on which the Payment and Digital Finance Related Services Framework (2) where there is no or it is not possible to determine Agreement was entered into, China Telecommunications the market prices, the prices are to be agreed and E-surfing Pay are connected persons of the between the parties based on negotiated price. Company and the transactions contemplated under “Negotiated price” shall mean the reasonable the Payment and Digital Finance Related Services costs incurred in providing the services plus the Framework Agreement constitute continuing connected amount of the relevant taxes and reasonable transactions of the Company. profit margin. For this purpose, “reasonable profit margin” is to be fairly determined by negotiations As each of the applicable percentage ratios (except for between the parties in accordance with the the profit ratio) of the annual cap for the year ended internal policies of the Group. When determining 31 December 2021 for the transactions contemplated the “reasonable profit margin” for any transaction under the Payment and Digital Finance Related Services under the agreement, to the extent practicable, Framework Agreement is expected to exceed 0.1% but management of the Company shall take into is less than 5%, the continuing connected transactions account the profit margin of at least two similar of the payment and digital finance related services and comparable transactions entered into with are only subject to the reporting, announcement and independent third parties in the corresponding annual review requirements but are exempt from the period or the relevant industry profit margin for independent shareholders’ approval requirement under reference; Chapter 14A of the Listing Rules. The services fees under the Payment and Digital Finance the prices and/or pricing standards shall be Related Services Framework Agreement shall be determined in accordance with the government- (3) where there are government-prescribed prices, calculated on the following basis: prescribed prices; where there are government- guided prices, the prices and/or pricing standards (1) market price, which shall mean the prices to shall be determined with reference to the be determined on normal commercial terms government-guided prices. and by the following mechanism: the same or similar type of products or services are China Telecom Corporation Limited Annual Report 2021 153 SECTION VI SIGNIFICANT EVENTS (3) ARRANGEMENTS IN CONNECTION W I T H C O N T I N U I N G C O N N E C T E D TRANSACTIONS On 22 October 2021, the Company and China under each of the above framework agreements for the period from 1 January 2022 to 31 December 2024, was considered and approved. For details of each agreement, please refer to the announcements published Telecommunications Corporation have entered into by the Company on the website of the Hong Kong Stock the New Engineering Framework Agreement, the New Exchange on 22 October 2021 and the circular dated 9 Ancillary Telecommunications Services Framework November 2021. Agreement, the New Interconnection Settlement Agreement, the New Community Services Framework Agreement, the New Centralised Services Agreement, the New Property and Land Use Right Leasing Framework (4) REVIEW OF CONTINUING CONNECTED TRANSACTIONS The Company confirms that it has complied with the Agreement, the New IT Services Framework Agreement, disclosure requirements in accordance with Chapter the New Supplies Procurement Services Framework 14A of the Listing Rules in respect of the connected Agreement, the New Internet Applications Channel transactions the Company conducted in the year 2021. Services Framework Agreement, the Lease Financing Framework Agreement, the Telecommunications The Company’s external auditor was engaged to report Resources Leasing Agreement, the New Trademark on the Group’s continuing connected transactions for the License Agreement and the Intellectual Property License year ended 31 December 2021 in accordance with the Framework Agreement with a term from 1 January 2022 Hong Kong Standard on Assurance Engagements 3000 to 31 December 2024. “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference On 22 October 2021, the Company and E-surfing Pay to Practice Note 740 “Auditor’s Letter on Continuing have entered into the New Payment and Digital Finance Connected Transactions under the Hong Kong Listing Related Services Framework Agreement with a term from Rules” issued by the Hong Kong Institute of Certified 1 January 2022 to 31 December 2024. Public Accountants. On 22 October 2021, financial services framework agreements were entered into between the Company (5) CONFIRMATION FROM THE AUDITORS The auditors of the Group have reviewed the continuing and China Telecom Finance, China Telecom Finance and connected transactions of the Group for the year ended China Telecommunications, China Telecom Finance and 31 December 2021 and have confirmed to the Board CCS, China Telecom Finance and New Guomai Digital that nothing has come to their attention that causes Culture Co., Ltd, China Telecom Finance and Beijing them to believe that the relevant continuing connected Global Safety Technology Co., Ltd, respectively. The transactions: respective terms of all these financial services framework agreements are effective from 1 January 2022 until 31 (1) have not been approved by the Board; December 2024. At the second extraordinary general meeting of the Company in 2021 held on 30 November 2021, the or services by the Group) were not entered into, in all material respects, in accordance with the resolution in relation to the continuing connected/related pricing policies of the Group; (2) (for transactions involving the provision of goods transactions of the Company, including the applicable annual caps for the connected/related transactions 154 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS (3) were not entered into, in all material respects, in (2) had been entered into either: accordance with the terms of the agreements governing such transactions; and (i) on normal commercial terms or better; or (4) have exceeded the annual caps as set by the (ii) if there are not sufficient comparable Company. transactions to judge whether they are on normal commercial terms, on terms A copy of the auditors’ letter in relation to the continuing no less favourable to the Company than connected transactions has been provided by the those available to or (if applicable) from Company to the Hong Kong Stock Exchange. independent third parties; and (6) CONFIRMATION FROM INDEPENDENT NON-EXECUTIVE DIRECTORS (3) had been entered into in accordance with the relevant agreements governing those transactions The Independent Non-Executive Directors of the on terms that are fair and reasonable and in the Company have confirmed that all continuing connected interests of the shareholders of the Company as a transactions for the year ended 31 December 2021 to whole. which the Group was a party: (1) had been entered into, and the agreements confirmed that: the continuing connected transactions for governing those transactions were entered into, the year ended 31 December 2021 entered into between by the Group in the ordinary and usual course of the Group and its connected persons which are subject business; to annual caps have not exceeded their respective The Independent Non-Executive Directors have further annual caps. 4. MATERIAL CONTRACTS AND PERFORMANCE (1) Guarantees External guarantees provided by the Company (excluding guarantees provided for its subsidiaries) Unit: yuan Currency: Renminbi Total amount of guarantees incurred during the Reporting Period (excluding those provided to subsidiaries) Total balance of guarantees as at the end of the Reporting Period (A) (excluding those provided to 0 0 subsidiaries) China Telecom Corporation Limited Annual Report 2021 155 SECTION VI SIGNIFICANT EVENTS Guarantees provided by the Company and its subsidiaries to its subsidiaries Total amount of guarantees provided to subsidiaries 39,504,864.24 incurred during the Reporting Period Total balance of guarantees provided to subsidiaries 15,231,391.58 as at the end of the Reporting Period (B) Aggregate guarantees of the Company (including those guarantees provided to its subsidiaries) Aggregate amount of guarantees (A + B) 15,231,391.58 Percentage of total aggregate amount of guarantee 0.0035 to net assets of the Company (%) Representing: Amount of guarantees provided for shareholders, 0 ultimate controller and their related parties (C) Amount of debt guarantees directly or indirectly 12,361,841.58 provided to guaranteed parties with gearing ratio over 70% (D) Amount of total guarantee exceeding 50% of net 0 assets (E) Aggregate amount of the above three guarantees 12,361,841.58 (C + D + E) Explanation on the potential joint and several Nil liability for outstanding guarantees Clarification of guarantee During the Reporting Period, there was no additional guarantee provided by the Company. The external guarantees provided by the Company were non-financing guarantees provided by China Telecom Finance, China Telecom Global and China Telecom (Europe) Limited, all being subsidiaries of the Company, to wholly-owned subsidiaries of the Company. If the amount of the above-mentioned external guarantees involves foreign currency, it would be converted at the median rate for the exchange rate of RMB announced by the People’s Bank of China on 31 December 2021. 156 China Telecom Corporation Limited Annual Report 2021 SECTION VI SIGNIFICANT EVENTS 5. OTHER SIGNIFICANT EVENTS THAT HAVE A SIGNIFICANT IMPACT ON INVESTORS IN MAKING VALUE JUDGMENTS AND INVESTMENT DECISIONS 1. O n 2 1 S e p t e m b e r 2 0 2 1 , t h e C o m p a n y published the “Announcement on the Plan to Increase Shareholding by the Controlling S h a r e h o l d e r ” , p u r s u a n t t o w h i c h , C h i n a Telecommunications proposed to increase its shareholding in the Company by an amount of not less than RMB4 billion, as and when appropriate, during the twelve-month period from 22 September 2021. There is no price range for the increase in shareholding. In view of the fair judgement on the Company’s share price, China Telecommunications would gradually implement the plan on shareholding increase taking into account of the fluctuations in the Company’s share price and the overall trend of the capital market. The shareholding increase plan is a voluntary shareholding increase plan of China Telecommunications and is implemented separately from the plan for share price stabilisation within three years after the A Share listing of the Company. On 7 March 2022, the Company published the “Announcement on the Progress of Shareholding Increase by the Controlling Shareholder of China Telecom Corporation Limited”. From 22 September 2021 to 7 March 2022, China Telecommunications increased its shareholding in the Company by 466,948,944 A Shares in aggregate through the trading system of the SSE, representing 0.51% of the total issued shares of the Company. The cumulative amount of the shareholding increase was RMB2,009,939,616.73, which has exceeded 50% of the lower limit of the amount of the shareholding increase plan. After the implementation of the above-mentioned shareholding increase, China Telecommunications holds 57,844,002,261 A Shares of the Company, representing 63.21% of the total issued shares of the Company. 2. On 27 January 2022, the Company published the “Announcement on Measures of the Share Price Stabilisation of China Telecom Corporation Limited”. According to the “Proposal regarding the Price Stabilisation Plan of A Shares within Three Years Following the Initial Public Offering and Listing of RMB ordinary shares (A Shares) o f C h i n a T e l e c o m C o r p o r a t i o n L i m i t e d ” , China Telecommunications, the controlling shareholder of the Company, intended to take measures to stabilise share price by increasing its A Shares holding of the Company. China Telecommunications proposed to increase its holding in A Shares of the Company by the amount of not less than RMB500 million, as and when appropriate, during the twelve-month period from 28 January 2022. There is no price range for the shareholding increase. The source of funding for the increase will be self-owned capital fund. In view of the fair judgement on the Company’s share price, China Telecommunications would gradually implement the plan on shareholding increase taking into account of the fluctuations in the Company’s share price and the overall trend of the capital market. China Telecom Corporation Limited Annual Report 2021 157 COOPERATION 158 China Telecom Corporation Limited Annual Report 2021 China Telecom Corporation Limited Annual Report 2021 159 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS 1. CHANGES IN SHARE CAPITAL (1) Table of changes in shares 1. Table of changes in shares Unit: shares Before the change Changes (+, –) After the change Transferred Issue of Bonus from Quantity Percentage new shares issue reserves Others Subtotal Quantity Percentage (1) Shares with lock-up restrictions 67,054,958,321 82.85 6,169,442,087 6,169,442,087 73,224,400,408 1. State-owned shares (%) (%) 80.02 2. Shares held by state-owned 67,054,958,321 82.85 67,054,958,321 73.28 legal persons 3. Shares held by other domestic shareholders 6,169,442,087 6,169,442,087 6,169,442,087 6.74 (2) Shares without lock-up 13,877,410,000 17.15 4,405,328,291 4,405,328,291 18,282,738,291 19.98 restrictions 1. RMB ordinary shares 2. Domestic-Listed Foreign-Invested Shares 4,405,328,291 4,405,328,291 4,405,328,291 4.81 3. Overseas-Listed Foreign-Invested 13,877,410,000 17.15 13,877,410,000 15.17 Shares 4. Others (3) Total number of shares 80,932,368,321 100.00 10,574,770,378 10,574,770,378 91,507,138,699 100.00 160 China Telecom Corporation Limited Annual Report 2021 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS 2. Explanation on changes in shares As approved by the Approval Regarding the Initial Public Offering of Shares by China Telecom Corporation Limited (Zheng Jian Xu Ke No. (2021) 2541) issued by the CSRC and as approved by the SSE, the Company issued 10,396,135,267 RMB ordinary shares (A Shares) to the public for the initial public offering (before the exercise of the Over-allotment Option), which were listed on the SSE on 20 August 2021. On 22 September 2021, the exercise period of the Over-allotment Option expired. On the basis of the initial issuance of 10,396,135,267 shares, the Company issued an additional 178,635,111 shares, representing approximately 1.7% of the initial number of shares issued. After the initial public offering and partial exercise of the Over-allotment Option, the final number of shares issued was 10,574,770,378 shares, and the total share capital of the Company was 91,507,138,699 shares. 3. Impact of changes in shares on financial indicators including earnings per share and net assets per share for the year and the latest period (if any) During the Reporting Period, the total number of shares of the Company before the public offering of A Shares was 80,932,368,321 shares, and the total number of shares after the offering was 91,507,138,699 shares. Item Basic earnings per share (RMB/share) Diluted earnings per share (RMB/share) Net assets per share attributable to shareholders of the Company (RMB/share) 2021 2021 year-on-year 0.31 0.31 5.08 0.32 0.32 5.30 Note: The basic earnings per share, diluted earnings per share and net assets per share attributable to shareholders of the Company for 2021 year- on-year are calculated on the basis that no shares would be issued in 2021. China Telecom Corporation Limited Annual Report 2021 161 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS (2) Changes in shares with lock-up restrictions Unit: shares Number of Number of lock-up shares Number of Increase in lock-up shares Name of shareholder of the year during the year during the year of the year lock-up restrictions unlocking at the beginning shares released lock-up shares at the end Reason for Date of China Telecommunications 57,377,053,317 Corporation Guangdong Rising Holdings 5,614,082,653 Group Co., Ltd. Zhejiang Provincial Financial 2,137,473,626 Development Co., Ltd. Fujian Investment & Development 969,317,182 Group Co., Ltd. Jiangsu Guoxin Group Limited 957,031,543 Strategic allotment Strategic allotment Offline allotment with restrictions 0 0 0 Total 67,054,958,321 0 0 0 0 0 0 0 0 0 0 0 0 0 0 57,377,053,317 Initial public offering 2024–08–20 5,614,082,653 Initial public offering 2022–08–22 2,137,473,626 Initial public offering 2022–08–22 969,317,182 Initial public offering 2022–08–22 957,031,543 Initial public offering 2022–08–22 662,250,000 662,250,000 Lock-up for strategic 2024–08–20 allotment of the initial public offering 4,520,964,000 4,520,964,000 Lock-up for strategic 2022–08–22 allotment of the initial public offering 986,228,087 986,228,087 Lock-up for offline 2022-02-21 allotment of the initial public offering 6,169,442,087 73,224,400,408 / / 162 China Telecom Corporation Limited Annual Report 2021 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS 2. ISSUANCE AND LISTING OF SECURITIES (1) Issuance of securities during the Reporting Period Type of shares and derivative securities Ordinary shares A Shares Unit: shares Currency: RMB Number of shares approved Number of for listing and Date of Issue price (or interest Date of issue rate) shares issued Date of listing trading termination 2021–08–09 RMB4.53 10,574,770,378 2021–08–20 10,574,770,378 N/A per share Debentures (including corporate bonds, company bonds and non-financial corporate debt financing instruments) 2021 super short-term commercial papers 2021-01-19 2.30% 3,000,000,000 2021-01-21 3,000,000,000 2021-03-22 (first tranche) publicly issued by China Telecom Corporation Limited 2021 super short-term commercial papers 2021-01-22 2.30% 2,000,000,000 2021-01-26 2,000,000,000 2021-02-25 (second tranche) publicly issued by China Telecom Corporation Limited 2021 super short-term commercial papers 2021-02-24 2.30% 3,000,000,000 2021-02-26 3,000,000,000 2021-04-08 (third tranche) publicly issued by China Telecom Corporation Limited Notes: 1. 2. The date of the A Share Offering as disclosed is the subscription date of the Offering; The A Share Offering and Listing carried the Over-allotment Option mechanism. The Company issued an additional 178,635,111 shares on the basis of the initial issuance of 10,396,135,267 shares. The exercise period of the Over-allotment Option for the issuance expired on 22 September 2021. The total number of shares issued was 10,574,770,378 shares. For details of the Company’s issuance of company bonds during the Reporting Period, please refer to “Relevant Information on Bonds” in this report. (2) Changes in total number of shares and shareholding structure of the Company and changes in assets and liabilities structure of the Company For changes in the total number of ordinary shares and shareholding structure of the Company, please refer to the relevant information in this section of this report. For details of changes in the structure of assets and liabilities of the Company, please refer to “Management’s Discussion and Analysis (Report of the Directors)” of this report. China Telecom Corporation Limited Annual Report 2021 163 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS 3. INFORMATION ON SHAREHOLDERS AND ULTIMATE CONTROLLER (1) Total number of shareholders Total number of ordinary shareholders as at the end of the Reporting Period Total number of ordinary shareholders as at the end of February 2022 827,118 782,898 (2) Shareholdings of the top ten shareholders and the top ten shareholders of tradable shares (or shareholders of unrestricted shares) as at the end of the Reporting Period Unit: shares Shareholdings of the top ten shareholders Number of shares held Number of shares held Pledge, marking or freezing conditions Changes during the at the end Percentage with lock-up Status of Nature of Name of shareholder (Full name) Reporting Period of the period China Telecommunications Corporation 459,642,444 57,836,695,761 (%) 63.20 57,377,053,317 restrictions shares Quantity shareholder HKSCC Nominees Limited (953,351) 13,848,136,623 15.13 0 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil – State-owned legal person – Foreign legal person – State-owned legal person – State-owned legal person – State-owned legal person – Unknown – Unknown – Unknown – Unknown – Unknown 5,614,082,653 6.14 5,614,082,653 2,137,473,626 2.34 2,137,473,626 1.06 1.05 0.72 0.72 0.60 0.48 969,317,182 957,031,543 662,251,000 662,251,000 551,876,000 441,501,000 Guangdong Rising Holdings Group Co., Ltd. Zhejiang Provincial Financial Development Co., Ltd. Fujian Investment & Development Group Co., Ltd. Jiangsu Guoxin Group Limited Suzhou High Speed Rail New Town Economic Development Co., Ltd 0 0 0 0 662,251,000 969,317,182 957,031,543 662,251,000 Chengdu Vanguard Capital Management Limited – 662,251,000 662,251,000 Chengdu Major Industrialisation Project Phase I Equity Investment Fund Limited China State-owned Enterprises Structural 551,876,000 551,876,000 Adjustment Fund Co., Ltd State Grid Yingda International Holdings Group Co., Ltd. 441,501,000 441,501,000 164 China Telecom Corporation Limited Annual Report 2021 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS Shareholdings of the top ten shareholders without lock-up restriction Name of shareholder HKSCC Nominees Limited Number of tradable shares held without lock-up restriction Class Class and number of shares 13,848,136,623 Overseas-listed foreign-invested shares China Telecommunications Corporation 459,642,444 RMB ordinary shares Industrial and Commercial Bank of China – SSE 50 39,220,089 RMB ordinary shares Trading Open-ended ETF National Social Security Fund 006 Portfolio 22,745,700 RMB ordinary shares Kong Fanxing Gu Liming Gu Jiawei Wang Xiaoke 17,000,000 RMB ordinary shares 15,224,700 RMB ordinary shares 13,340,000 RMB ordinary shares 12,000,000 RMB ordinary shares Industrial and Commercial Bank of China Limited 11,641,200 RMB ordinary shares – Huatai-PineBridge CSI 300 Trading Open-ended ETF Quantity 13,848,136,623 459,642,444 39,220,089 22,745,700 17,000,000 15,224,700 13,340,000 12,000,000 11,641,200 Zheng Shenggui 11,096,825 RMB ordinary shares 11,096,825 Explanation on the securities account designated for share repurchase N/A of the top ten shareholders Explanation on the voting rights entrusted by or waived by the above shareholders N/A Description of connected relationship or acting in concert The Company is not aware of any connected relationship among the aforementioned shareholders among the aforementioned shareholders or whether they act in concert. Description of the holders of preference shares with restored N/A voting rights and their shareholding China Telecom Corporation Limited Annual Report 2021 165 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS Shareholdings of the top ten shareholders with lock-up restrictions Unit: shares Listing and trading of shares with lock-up restrictions Number of new shares available Number of No. Name of shareholders with lock-up restrictions lock-up restrictions and trading and trading restrictions shares held with Date of listing for listing Lock-up 1. 2. 3. 4. 5. 6. 7. 8. 9. China Telecommunications Corporation 57,377,053,317 2024–08–20 Guangdong Rising Holdings Group Co., Ltd. 5,614,082,653 2022–08–22 Zhejiang Provincial Financial Development Co., Ltd. 2,137,473,626 2022–08–22 Fujian Investment & Development Group Co., Ltd. 969,317,182 2022–08–22 Jiangsu Guoxin Group Limited 957,031,543 2022–08–22 Suzhou High Speed Rail New Town Economic Development 662,251,000 2022–08–22 Co., Ltd Chengdu Vanguard Capital Management Limited – Chengdu 662,251,000 2022–08–22 Major Industrialisation Project Phase I Equity Investment Fund Limited China State-owned Enterprises Structural Adjustment Fund 551,876,000 2022–08–22 Co., Ltd State Grid Yingda International Holdings Group Co., Ltd. 441,501,000 2022–08–22 10. China Publishing Group Corp. 220,750,000 2022–08–22 0 0 0 0 0 0 0 0 0 0 Lock-up for 36 months from the date of listing Lock-up for 12 months from the date of listing Lock-up for 12 months from the date of listing Lock-up for 12 months from the date of listing Lock-up for 12 months from the date of listing Lock-up for 12 months from the date of listing Lock-up for 12 months from the date of listing Lock-up for 12 months from the date of listing Lock-up for 12 months from the date of listing Lock-up for 12 months from the date of listing 166 China Telecom Corporation Limited Annual Report 2021 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS Listing and trading of shares with lock-up restrictions Number of new shares available Number of Name of shareholders with lock-up restrictions lock-up restrictions and trading and trading restrictions shares held with Date of listing for listing Lock-up Zhongdianke Investment Holding Co., Ltd. 220,750,000 2022-08-22 0 Lock-up for 12 months from No. 11. the date of listing 12. State Development & Investment Corporation 220,750,000 2022-08-22 0 Lock-up for 12 months from the date of listing 13. China Energy Capital Holdings Co., Ltd 220,750,000 2022-08-22 0 Lock-up for 12 months from the date of listing 14. China-Africa Development Fund 220,750,000 2022-08-22 0 Lock-up for 12 months from the date of listing 15. Guoxin Investment Co., Ltd 220,750,000 2022-08-22 0 Lock-up for 12 months from the date of listing 16. Huawei Technologies Co., Ltd 220,750,000 2024-08-20 0 Lock-up for 36 months from the date of listing 17. FAW Share Capital Investment (Tianjin) Co., Ltd 220,750,000 2022-08-22 0 Lock-up for 12 months from the date of listing Description of connected relationship or acting in concert among The Company is not aware of any connected relationship among the aforementioned shareholders the aforementioned shareholders or whether they act in concert. (3) Strategic investors or general legal persons becoming top ten shareholders due to placing of new shares Name of strategic investors or general legal persons Start date of the End date of the agreed shareholding agreed shareholding Suzhou High Speed Rail New Town Economic Development Co., Ltd 20 August 2021 Chengdu Vanguard Capital Management Limited – Chengdu Major 20 August 2021 Industrialisation Project Phase I Equity Investment Fund Limited China State-owned Enterprises Structural Adjustment Fund Co., Ltd 20 August 2021 State Grid Yingda International Holdings Group Co., Ltd. 20 August 2021 – – – – Description of agreed term of shareholding in respect of strategic investors Lock-up for 12 months and general legal persons’ participation in placing of new shares from the date of listing China Telecom Corporation Limited Annual Report 2021 167 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS 4. INFORMATION ON CONTROLLING SHAREHOLDER AND ULTIMATE CONTROLLER (1) Information on controlling shareholder 1. Legal person Name China Telecommunications Corporation Person in charge Ke Ruiwen or legal representative Date of incorporation 27 April 1995 Principal business Basic telecommunications services (see license for specific business scope); value-added telecommunications services (see license for specific business scope); chain operation of national internet service premises; operating its group companies and all state-owned assets and state-owned equity interests formed by state investment in the invested enterprises; contracting overseas telecommunications projects and domestic international bidding projects; operation of system integration, technology development, technical services, design and construction, equipment production and sales, advertising and information consultation related to communication and information business; import and export business; hosting exhibitions. (Market entities shall independently select business projects and carry out business activities in accordance with the law; for projects subject to approval in accordance with the law, business activities shall be carried out in accordance with the approved scope after approval by relevant authorities; business activities prohibited and restricted by the industrial policies of the State and the city shall not be carried out.) Shareholdings in other domestic China Telecommunications holds 69.39% equity interest in New Guomai Digital and overseas listed companies Culture Co., Ltd., 48.99% equity interest in CCS, 22.50% equity interest in controlled or invested during the China Broadcasting and Television Guangzhou Network Co., Ltd., and holds Reporting Period shares in Postal Savings Bank of China Co., Ltd., Western Securities Co., Ltd., Southwest Securities Co., Ltd., People.cn Co., Ltd., Xinhuanet Co., Ltd. and China Publishing & Media Corporation Limited. Other information N/A 168 China Telecom Corporation Limited Annual Report 2021 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS 2. Ownership and controlling relationship between the Company and the controlling shareholder Guangdong Rising Holdings Group Co., Ltd. Zhejiang Provincial Financial Development Co., Ltd. China Telecommunications Corporation Fujian Investment & Development Group Co., Ltd Jiangsu Guoxin Group Limited Others 6.14% 2.34% 63.20% 1.06% 1.05% 11.04% A Shares 84.83% H Shares 15.17% China Telecom Corporation Limited Note: Data as at 31 December 2021. (2) Ultimate controller 1. Legal person Name State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”) 2. Ownership and controlling relationship between the Company and the ultimate controller SASAC National Council for Social Security Fund 90.00% 10.00% Guangdong Rising Holdings Group Co., Ltd. Zhejiang Provincial Financial Development Co., Ltd. China Telecommunications Corporation Fujian Investment & Development Group Co., Ltd Jiangsu Guoxin Group Limited Others 6.14% 2.34% 63.20% 1.06% 1.05% 11.04% A Shares 84.83% H Shares 15.17% China Telecom Corporation Limited Note: Data as at 31 December 2021. China Telecom Corporation Limited Annual Report 2021 169 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS 5. MATTERS REGARDING THE RESTRICTION OF REDUCING SHARES (1) Restrictions on the circulation of shares and undertakings by shareholders to voluntarily lock-up their shares The Company’s controlling shareholder, China Telecommunications, undertakes that: days within 6 months after the listing of the Company, or the closing price at the end of 6 months after the listing of the Company (if such date is not a trading day, the first trading day thereafter) is lower than the issue price, the shareholding period of China Telecommunications shall be automatically extended for at least 6 months. Each of Guangdong Rising, Zhejiang Financial Development, Fujian Investment Group and Jiangsu Guoxin, being the shareholders of the Company, undertakes that: Within 36 months from the date on which the A Shares of the Company are listed and traded on the SSE, Within 12 months from the date on which the A Shares of it shall not transfer or entrust others to manage the the Company are listed and traded on a stock exchange, shares held by China Telecommunications prior to the it shall not transfer or entrust others to manage the initial public offering of A Shares of the Company, nor shares it held before the initial public offering of A Shares shall the Company repurchase such shares. China of the Company, nor shall the Company repurchase Telecommunications undertakes to strictly comply such shares; The lock-up period will be determined in with the Company Law, the Securities Law, the SSE strict compliance with the Company Law, the Securities Listing Rules and other laws and regulations, policy Law, the SSE Listing Rules and other laws, regulations requirements and the relevant requirements of the CSRC and policies as well as the relevant requirements of the for prudent supervision, and to determine the lock-up CSRC for prudent supervision, and to determine the period by adopting a longer applicable period; In the lock-up period by adopting a longer applicable period; event of future changes in the above laws and regulations and policies, China Telecommunications undertakes to determine the lock-up period in strict accordance with the requirements after the changes. If the shares held by China Telecommunications are reduced within two years after the expiration of the above-mentioned shareholding period, the price of such reduction shall not be lower than the issue price of the Company’s initial public offering of A Shares; if the closing price of the Company’s shares is lower than the issue price for 20 consecutive trading In the event of future changes in the above laws and regulations and policies, the lock-up period will be determined in strict accordance with the requirements after the changes; In the event of failure to perform the above undertakings, it shall take the relevant liabilities in accordance with the relevant laws and regulations, regulatory documents and the provisions of the stock exchange’s business rules and the requirements of the regulatory authorities. 170 China Telecom Corporation Limited Annual Report 2021 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS (2) Undertaking on the intention of s h a r e h o l d i n g a n d t h e i n t e n t i o n o f shareholding reduction by shareholders holding more than 5% of the shares before the Offering 3. If it intends to reduce its shareholding, it shall notify the Company in writing in advance on the information such as the number of shares to be reduced and the reasons for such reduction, and the Company shall perform the information Each of China Telecommunications, being the controlling disclosure obligations in accordance with the shareholder of the Company, and Guangdong Rising, the relevant laws and regulations and regulatory rules. shareholder holding more than 5% of the shares of the It may implement the reduction after three trading Company, undertakes that: days from the date on which the Company discloses its intention to reduce its shareholding. 1. After the initial public offering and listing of A Shares of the Company, it will strictly comply 4. Reduction of shareholding in the Company will be with its undertakings on the lock-up period of implemented in accordance with the requirements its shares. After the expiration of the committed of laws, administrative regulations, the Several lock-up period, in compliance with the relevant Provisions on Reduction of Shareholding by laws and regulations, regulatory documents and Shareholders, Directors, Supervisors and the business rules of the stock exchange, it will Senior Management of Listed Companies determine whether to reduce its shareholding and the Implementation Rules for Reduction in the Company based on factors such as the of Shareholding by Shareholders, Directors, overall conditions of the securities market, the Supervisors and Senior Management of Listed Company’s operating results and stock trends, Companies of the Shanghai Stock Exchange. and its business development needs. If there are changes in the relevant laws and regulations, regulatory documents and the 2. After the initial public offering and listing of A business rules of the stock exchange, the then Shares of the Company and the expiration of effective provisions shall prevail. the committed lock-up period, if it decides to reduce its shareholding in the Company, it will 5. Reduction of shares of the Company acquired be processed through the block trading system through the secondary market after the initial of the stock exchange, the centralised bidding public offering and listing of A Shares of the trading system or by agreement as permitted by Company shall not be subject to the above laws and regulations. undertakings. In the event of failure to perform the above undertakings, it shall take the relevant liabilities in accordance with the relevant laws and regulations, regulatory documents, business rules of stock exchanges and requirements of regulatory authorities. China Telecom Corporation Limited Annual Report 2021 171 SECTION VIII RELEVANT INFORMATION ON BONDS 1. CORPORATE BONDS, COMPANY BONDS AND DEBT FINANCING INSTRUMENTS OF NON-FINANCIAL ENTERPRISES (1) Company bonds 1. Basic information of company bonds Unit: Yuan Currency: RMB Trading venues SSE Suitability arrangement for investors (if any) Debt securities traded to qualified investors Whether there is risk of termination of listing and trading No Trading mechanism Bidding trading system and comprehensive electronic trading platform for fixed income securities Name of bond Abbreviation Code Issue date Value date Maturity date Interest rate (%) Repayment method Balance of bonds 20 Telecom 01 163253 2020-03-09 (first issue date) 2020–03–10 2023–03–10 2,000,000,000 2.90 2020 company bonds (first tranche) publicly issued by China Telecom Corporation Limited The interest of the bond is calculated annually without compound interest. Interest shall be paid once a year, and the principal shall be repaid in a lump sum upon maturity, and the last interest shall be paid together with the principal. Interest payment of bonds during the Reporting Period Name of bond Description of interest payment 2020 company bonds (first tranche) publicly issued by Interest has been paid on time China Telecom Corporation Limited and in full. 172 China Telecom Corporation Limited Annual Report 2021 SECTION VIII RELEVANT INFORMATION ON BONDS 2. Intermediaries providing services for bond issuance and duration business Name of intermediary Office Address Name of signing accountants CITIC Securities Company Limited CITIC Securities Tower, Nil No.48 Liangmaqiao Road, Chaoyang District, Beijing, PRC Contact person Telephone Zhu Ge, Dong Yuanpeng, Yang Quan 010-60833504 China Securities Depository and Clearing Corporation Limited Shanghai Branch No.188 South Yanggao Road, Nil Xu Ying 021-38874880 Pudong New Area, Shanghai, PRC 3. Use of proceeds at the end of the Reporting Period Name of bond Total amount of proceeds Amount utilised Unutilised amount Unit: Yuan Currency: RMB Operation of special account for proceeds (if any) Rectification of non-compliant use of proceeds (if any) Whether it is consistent with the intended use, use plan and other agreements in the bond prospectus 2020 company 2,000,000,000 2,000,000,000 0 Since the issuance of Nil Yes bonds (first tranche) publicly issued by China Telecom Corporation Limited the company bonds, the special account for the use of proceeds has been set up by the regulatory authorities and has been in normal operation. The Company has arranged the use of proceeds in strict accordance with the investment direction and investment amount committed in the bond prospectus, and the proceeds have been used for specific purposes. The custodian bank is responsible for supervising the Company’s use of proceeds strictly in accordance with the use of proceeds. China Telecom Corporation Limited Annual Report 2021 173 SECTION VIII RELEVANT INFORMATION ON BONDS (2) Debt financing instruments of non-financial enterprises in the inter-bank bond market 1. Basic information of debt financing instruments of non-financial enterprises Unit: Yuan Currency: RMB Name of bond Abbreviation Code Issue date Value date Maturity date Interest rate (%) Repayment method Balance of bonds 19 China 101900121 Telecom MTN001 22 January 2019 23 January 2019 23 January 2022 19 China 101900376 Telecom MTN002 19 March 2019 20 March 2019 20 March 2022 21 China 012100280 Telecom SCP001 19 January 2021 20 January 2021 23 March 2021 2019 medium-term note (first tranche) publicly issued by China Telecom Corporation Limited 2019 medium-term note (second tranche) publicly issued by China Telecom Corporation Limited 2021 super short- term commercial papers (first tranche) publicly issued by China Telecom Corporation Limited 3,000,000,000 3.42 The interest of the bond is calculated annually without compound interest. Interest shall be paid once a year, and the principal shall be repaid in a lump sum upon maturity, and the last interest shall be paid together with the principal. 2,000,000,000 3.41 The interest of the bond is calculated annually without compound interest. Interest shall be paid once a year, and the principal shall be repaid in a lump sum upon maturity, and the last interest shall be paid together with the principal. 3,000,000,000 2.30 The interest of the bond is calculated annually without compound interest. Interest shall be paid once a year, and the principal shall be repaid in a lump sum upon maturity, and the last interest shall be paid together with the principal. Trading venues Inter-bank bond market Inter-bank bond market Inter-bank bond market Whether there is risk of termination of listing and trading Suitability arrangement for investors (if any) Trading mechanism Institutional Inquiry No investors in the national inter-bank bond market except where a purchaser is prohibited by national laws and regulations Institutional Inquiry No investors in the national inter-bank bond market except where a purchaser is prohibited by national laws and regulations Institutional Inquiry No investors in the national inter-bank bond market except where a purchaser is prohibited by national laws and regulations 174 China Telecom Corporation Limited Annual Report 2021 SECTION VIII RELEVANT INFORMATION ON BONDS Name of bond Abbreviation Code Issue date Value date Maturity date Interest rate (%) Repayment method Balance of bonds 2021 super short- term commercial papers (second tranche) publicly issued by China Telecom Corporation Limited 2021 super short- term commercial papers (third tranche) publicly issued by China Telecom Corporation Limited 21 China 012100359 Telecom SCP002 22 January 2021 25 January 2021 26 February 2021 2,000,000,000 2.30 The interest of the bond is calculated annually without compound interest. Interest shall be paid once a year, and the principal shall be repaid in a lump sum upon maturity, and the last interest shall be paid together with the principal. 21 China 012100693 Telecom SCP003 24 February 2021 25 February 2021 9 April 2021 3,000,000,000 2.30 The interest of the bond is calculated annually without compound interest. Interest shall be paid once a year, and the principal shall be repaid in a lump sum upon maturity, and the last interest shall be paid together with the principal. Trading venues Inter-bank bond market Inter-bank bond market Whether there is risk of termination of listing and trading Suitability arrangement for investors (if any) Trading mechanism Institutional Inquiry No investors in the national inter-bank bond market except where a purchaser is prohibited by national laws and regulations Institutional Inquiry No investors in the national inter-bank bond market except where a purchaser is prohibited by national laws and regulations Interest payment of bonds during the Reporting Period Name of bond Description of interest payment 2019 medium-term note (first tranche) publicly issued Interest has been paid on time and in full. by China Telecom Corporation Limited 2019 medium-term note (second tranche) publicly issued Interest has been paid on time and in full. by China Telecom Corporation Limited 2021 super short-term commercial papers (first tranche) publicly issued Interest has been paid on time and in full. by China Telecom Corporation Limited 2021 super short-term commercial papers (second tranche) publicly Interest has been paid on time and in full. issued by China Telecom Corporation Limited 2021 super short-term commercial papers (third tranche) publicly issued Interest has been paid on time and in full. by China Telecom Corporation Limited China Telecom Corporation Limited Annual Report 2021 175 SECTION VIII RELEVANT INFORMATION ON BONDS 2. Intermediaries providing services for bond issuance and duration business Name of signing Name of intermediary Office Address accountants Contact person Telephone China Minsheng Banking Corp., Ltd. No. 2 FuXingMenNei Street, Nil Shi Dai 8610-58560088-9169 Xicheng District, Beijing China CITIC Bank Corporation Limited Building 1, 10 Guanghua Lu, Li Fuchun Liu Zhengye 010-66635919 Chaoyang District, Beijing Industrial and Commercial Bank of No.55 FuXingMenNei Street, Li Fuchun Qu Jialu 010-66107361 China Limited Xicheng District, Beijing Shanghai Pudong Development Bank No. 12 Zhongshan East Li Fuchun Zhang Ying 010-57395455 Co., Ltd. No. 1 Road, Shanghai China Everbright Bank Company China Everbright Center, Li Fuchun Deng Ruobing 010-63639770 Limited No. 25 Taipingqiao Avenue, Xicheng District, Beijing Interbank Market Clearing House No. 2, Beijing East Road, Li Fuchun Issuing position 021-23198888 Co., Ltd. Huangpu District, Shanghai 176 China Telecom Corporation Limited Annual Report 2021 SECTION VIII RELEVANT INFORMATION ON BONDS 3. Use of Proceeds at the End of the Reporting Period Unit: Yuan Currency: RMB Total amount of proceeds Amount utilised Unutilised amount Operation of special account for proceeds (if any) Rectification of non-compliant use of proceeds (if any) Whether it is consistent with the intended use, use plan and other agreements in the debenture prospectus 3,000,000,000 3,000,000,000 0 Nil Nil Yes 2,000,000,000 2,000,000,000 0 Nil Nil Yes Name of bond 2019 medium-term note (first tranche) publicly issued by China Telecom Corporation Limited 2019 medium-term note (second tranche) publicly issued by China Telecom Corporation Limited 2021 super short- 3,000,000,000 3,000,000,000 0 Nil Nil Yes term commercial papers (first tranche) publicly issued by China Telecom Corporation Limited 2021 super short- 2,000,000,000 2,000,000,000 0 Nil Nil Yes term commercial papers (second tranche) publicly issued by China Telecom Corporation Limited 2021 super short- 3,000,000,000 3,000,000,000 0 Nil Nil Yes term commercial papers (third tranche) publicly issued by China Telecom Corporation Limited China Telecom Corporation Limited Annual Report 2021 177 INFRASTRUCTURE 178 China Telecom Corporation Limited Annual Report 2021 China Telecom Corporation Limited Annual Report 2021 179 SECTION IX FINANCIAL REPORTS INDEPENDENT AUDITOR’S REPORT To the Shareholders of China Telecom Corporation Limited (incorporated in the People’s Republic of China with limited liability) OPINION What we have audited The consolidated financial statements of China Telecom Corporation Limited (the “Company”) and its subsidiaries (the “Group”), which are set out on pages 186 to 286, comprise: • • • • • the consolidated statement of financial position as at 31 December 2021; the consolidated statement of comprehensive income for the year then ended; the consolidated statement of changes in equity for the year then ended; the consolidated statement of cash flows for the year then ended; and the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information. Our opinion In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2021, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. 180 China Telecom Corporation Limited Annual Report 2021 INDEPENDENT AUDITOR’S REPORT SECTION IX FINANCIAL REPORTS KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters identified in our audit are summarised as follows: • • Revenue recognition Impairment assessment of goodwill Key Audit Matter Revenue recognition How our audit addressed the Key Audit Matter Refer to Note 3 – Significant accounting policies (m) and Note 27 – Operating revenues to the consolidated financial statements. In response to this key audit matter, we performed the following procedures: The Group’s operating revenues are mainly generated from the provision of mobile communications, wireline and Smart Family, Industrial Digitalisation services and from sales of goods. We focused on this area as significant efforts were spent on auditing revenue recognition due to the significant volume of the transactions, the complexity of the related information technology systems, the variety of tariff and package structures relating to the services and the complexity of multiple-element arrangements. This also involved a number of judgements and estimates on the identification of distinct performance obligations and the determination of the stand-alone selling price for each single performance obligation in the allocation of transaction prices among various performance obligations. • • • • Obtained an understanding of, evaluated and tested the design and operating effectiveness of internal controls over the capture and measurement of revenue transactions, including the key internal controls over in-scope IT systems such as billing system; Evaluated the appropriateness of management’s identification and evaluation of the terms and conditions by examining contracts with customers and evaluating management’s determination of the impact of those terms and conditions on revenue recognition; Evaluated the appropriateness of management’s identification of distinct performance obligations and the determination of the stand-alone selling price for each performance obligation; and Performed substantive testing on revenue by examining supporting documents such as end- user contracts, customer bills and billing reports using sampling techniques and by examining the reconciliation between the billing system and financial records by using computer assisted audit techniques. Based on our work, we found that the revenue recognized was supported by the evidence we obtained. China Telecom Corporation Limited Annual Report 2021 181 SECTION IX FINANCIAL REPORTS INDEPENDENT AUDITOR’S REPORT KEY AUDIT MATTERS (continued) Key Audit Matter How our audit addressed the Key Audit Matter Impairment assessment of goodwill Refer to Note 3 – Significant accounting policies (h), Note 7 – Goodwill and Note 47 – Accounting estimates and judgments to the consolidated financial statements. The Group had recorded goodwill arising from acquisition of its mobile communications business. In accordance with International Accounting Standards (“IAS”) 36 “Impairment of Assets”, the Group is required to perform goodwill impairment assessment both annually and whenever there is an indication that a cash-generating unit (“CGU”) to which goodwill has been allocated may be impaired. When performing the impairment assessment, management has determined the recoverable amounts of the CGU based on value in use calculations using discounted cash flow model. We focused on auditing the impairment assessment of goodwill due to the magnitude of the carrying amount of goodwill and the estimation of recoverable amount was subject to a high degree of estimation uncertainty. The inherent risk in relation to the impairment assessment of goodwill is considered significant due to the complexity of the impairment model deployed, subjectivity of significant assumptions used, and significant judgements involved in selecting the underlying data, such as revenue growth rate, terminal growth rate and pre-tax discount rate. In response to this key audit matter, we performed the following procedures: • • • • • • Obtained an understanding of the management’s internal controls and assessment process of the recoverable amounts of goodwill; and assessed the inherent risks of material misstatements by considering the degree of estimation uncertainty and level of other inherent risk factors such as complexity, subjectivity, changes and susceptibility to management bias or fraud; Evaluated and tested the key internal controls over the impairment assessment of goodwill including controls over the development of the model and significant assumptions used in the impairment test; Assessed the reasonableness of management’s allocation of goodwill to CGUs or groups of CGUs based on our understanding of the Group’s business; Involved our valuation specialists to evaluate the appropriateness of the model and certain significant assumptions such as the pre-tax discount rate and terminal growth rate; Evaluated the reasonableness of other key assumptions adopted in the model such as revenue growth rate with consideration paid to external evidence and the degree of historical accuracy of the management’s assumptions and projections in achieving the forecasts; and Tested the completeness, accuracy and relevancy of the underlying data used and the mathematical accuracy of the calculations in the models. Based on our work, we found that the result of management’s impairment assessment of goodwill was supported by the evidence we obtained. 182 China Telecom Corporation Limited Annual Report 2021 INDEPENDENT AUDITOR’S REPORT SECTION IX FINANCIAL REPORTS OTHER INFORMATION The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. China Telecom Corporation Limited Annual Report 2021 183 SECTION IX FINANCIAL REPORTS INDEPENDENT AUDITOR’S REPORT AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. We report our opinion 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 this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. 184 China Telecom Corporation Limited Annual Report 2021 INDEPENDENT AUDITOR’S REPORT SECTION IX FINANCIAL REPORTS AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued) • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Wilson W.Y. Chow. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 17 March 2022 China Telecom Corporation Limited Annual Report 2021 185 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION at 31 December 2021 (Amounts in million) ASSETS Non-current assets Property, plant and equipment, net Construction in progress Right-of-use assets Goodwill Intangible assets Interests in associates and joint ventures Financial assets at fair value through profit or loss Equity instruments at fair value through other comprehensive income Deferred tax assets Other assets Total non-current assets Current assets Inventories Income tax recoverable Accounts receivable, net Contract assets Prepayments and other current assets Short-term bank deposits and restricted cash Cash and cash equivalents Total current assets Total assets 31 December 31 December 2021 RMB 2020 RMB Notes 4 5 6 7 8 10 11 12 13 15 16 17 18 19 415,981 418,605 51,456 61,186 29,919 19,753 41,166 248 1,216 6,688 7,261 48,425 59,457 29,920 18,508 40,303 73 1,073 8,164 6,552 634,874 631,080 3,827 437 22,389 912 24,585 1,929 73,281 127,360 762,234 3,317 334 21,502 604 25,167 9,408 23,684 84,016 715,096 The notes on pages 194 to 286 form part of these consolidated financial statements. 186 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION at 31 December 2021 (Amounts in million) LIABILITIES AND EQUITY Current liabilities Short-term debts Current portion of long-term debts Accounts payable Accrued expenses and other payables Contract liabilities Income tax payable Current portion of lease liabilities Total current liabilities Net current liabilities Total assets less current liabilities Non-current liabilities Long-term debts Lease liabilities Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities Equity Share capital Reserves Total equity attributable to equity holders of the Company Non-controlling interests Total equity Total liabilities and equity Notes 20 20 21 22 23 24 20 24 12 25 26 31 December 31 December 2021 RMB 2,821 6,280 2020 RMB 27,994 1,126 114,895 107,578 55,765 70,914 588 13,809 265,072 57,053 63,849 350 13,192 271,142 (137,712) (187,126) 497,162 443,954 7,395 28,593 26,677 3,329 65,994 24,222 27,455 24,208 1,894 77,779 331,066 348,921 91,507 337,167 80,932 282,524 428,674 363,456 2,494 431,168 762,234 2,719 366,175 715,096 Approved and authorised for issue by the Board of Directors on 17 March 2022 and are signed on its behalf by: Ke Ruiwen Executive Director, Chairman and Chief Executive Officer Li Zhengmao Executive Director, President and Chief Operating Officer The notes on pages 194 to 286 form part of these consolidated financial statements. China Telecom Corporation Limited Annual Report 2021 187 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2021 (Amounts in million except for per share data) 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 Net finance costs Investment income and others Share of profits of associates and joint ventures Profit before taxation Income tax Profit for the year Other comprehensive income for the year Items that will not be reclassified subsequently to profit or loss: Change in fair value of investments in equity instruments Notes 27 2021 RMB 2020 RMB 439,552 393,561 28 29 30 4 31 32 33 (92,965) (90,240) (133,342) (119,517) (61,155) (76,055) (45,088) – (55,059) (65,989) (29,074) (5,042) (408,605) (364,921) 30,947 (1,293) 2,244 1,966 33,864 (7,716) 26,148 28,640 (3,014) 60 1,701 27,387 (6,307) 21,080 at fair value through other comprehensive income 20 (385) Deferred tax on change in fair value of investments in equity instruments at fair value through other comprehensive income Items that may be reclassified subsequently to profit or loss: Exchange difference on translation of financial statements of subsidiaries outside mainland China Share of other comprehensive income of associates and joint ventures Other comprehensive income for the year, net of tax (15) 5 (233) – (233) (228) 97 (288) (312) (4) (316) (604) Total comprehensive income for the year 25,920 20,476 The notes on pages 194 to 286 form part of these consolidated financial statements. 188 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2021 (Amounts in million except for per share data) Profit attributable to Equity holders of the Company Non-controlling interests Profit for the year Total comprehensive income attributable to Equity holders of the Company Non-controlling interests Total comprehensive income for the year Basic earnings per share (RMB) Diluted earnings per share (RMB) Number of shares (in million) Notes 38 38 25 2021 RMB 25,948 200 26,148 25,720 200 25,920 0.31 0.31 2020 RMB 20,850 230 21,080 20,244 232 20,476 0.26 0.26 91,507 80,932 The notes on pages 194 to 286 form part of these consolidated financial statements. China Telecom Corporation Limited Annual Report 2021 189 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2021 (Amounts in million) Attributable to equity holders of the Company Capital reserve RMB Share premium RMB Surplus reserves RMB General risk reserve RMB Other reserves RMB Exchange reserve RMB Retained earnings RMB Non- controlling interests RMB Total RMB Total equity RMB 17,504 10,746 78,043 23 Notes Share capital RMB 80,932 Balance as at 1 January 2020 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Acquisition of non-controlling interests Distribution to non-controlling interests Share of associates and joint ventures’ other changes in reserves Dividends Appropriations to statutory surplus reserve Appropriations to general risk reserve – – – – – – – – – – – – – – (36) – – – – – – – – – – – – – – – – – – – 1,811 – 37 26 26 Balance as at 31 December 2020 80,932 17,468 10,746 79,854 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Issuance of shares upon A Shares Offering, net of issuing expenses Contribution from non-controlling interests Distribution to non-controlling interests Disposal of subsidiaries Share of associates and joint ventures’ other changes in reserves Dividends Appropriations to statutory surplus reserve Appropriations to general risk reserve – – – 25 10,575 – – – – – – – 1 37 26 26 – – – – 463 – – (42) – – – – – – 36,941 – – – – – – – – – – – – – – – – 2,423 – Balance as at 31 December 2021 91,507 17,889 47,687 82,277 615 – (294) (294) – – – – – – (625) 165,272 352,510 2,530 355,040 – 20,850 20,850 (312) (312) – (606) 20,850 20,244 – – – – – – – – – (9,262) (1,811) (33) – – (36) (9,262) – – 230 2 232 (1) (42) – – – – 21,080 (604) 20,476 (1) (42) (36) (9,262) – – 321 (937) 175,016 363,456 2,719 366,175 – 5 5 – – – – – – – – 25,948 25,948 (233) (233) – (228) 25,948 25,720 200 – 200 26,148 (228) 25,920 – – – – – – – – – – – 31 – (8,439) (2,423) (44) 47,516 463 – – (42) (8,439) – – – 47,516 613 (116) (922) – – – – 1,076 (116) (922) (42) (8,439) – – 298 (1,170) 190,089 428,674 2,494 431,168 – – – – – – – – 33 56 – – – – – – – – – 44 97 (3) (28) The notes on pages 194 to 286 form part of these consolidated financial statements. 190 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2021 (Amounts in million) Notes (a) 2021 RMB 2020 RMB 137,533 132,260 (84,847) (88,748) Net cash from operating activities Cash flows used in investing activities Capital expenditure Purchase of investments Payments for right-of-use assets Proceeds from disposal of property, plant and equipment Proceeds from disposal of right-of-use assets Proceeds from disposal of investments Net cash inflow from disposal of subsidiaries Payments for equity instruments at fair value through other comprehensive income Purchase of short-term bank deposits Maturity of short-term bank deposits Short-term loans granted to China Telecommunications Corporation by Finance Company (b) Net cash used in investing activities Cash flows used in financing activities Proceeds from A Shares Offering, net of issuing expenses Repayments of principal of lease liabilities Proceeds from bank and other loans Repayments of bank and other loans Payment of dividends Distribution to non-controlling interests Payment for the acquisition of non-controlling interests Contribution from non-controlling interests Advanced payment received in respect of contribution from non-controlling interest Net deposits with Finance Company Increase in statutory deposit reserves placed by Finance Company Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents as at 1 January Effect of changes in foreign exchange rate Cash and cash equivalents as at 31 December (b) (b) (206) (327) 1,637 82 52 3,764 (211) (9,251) 11,020 (2,000) (80,287) 47,516 (14,035) 38,922 (74) (220) 863 24 47 – – (4,664) 5,695 – (87,077) – (12,738) 81,049 (74,486) (106,982) (8,439) (112) – 99 – 3,190 (177) (7,522) 49,724 23,684 (127) 73,281 (9,262) (42) (1) – 978 5,728 (837) (42,107) 3,076 20,791 (183) 23,684 The notes on pages 194 to 286 form part of these consolidated financial statements. China Telecom Corporation Limited Annual Report 2021 191 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2021 (Amounts in million) (a) RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH FROM OPERATING ACTIVITIES Profit before taxation Adjustment for: Depreciation and amortisation Impairment loss on property, plant and equipment Impairment losses for financial assets and other items, net of reversal Write down of inventories, net of reversal Investment income and others Share of profits of associates and joint ventures Interest income Interest expense Net foreign exchange (gain)/loss Net loss on retirement and disposal of long-lived assets Increase in accounts receivable Increase in contract assets Increase in inventories Increase in prepayments and other current assets Increase in restricted cash Increase in other assets Increase in accounts payable Increase in accrued expenses and other payables Increase in contract liabilities Cash generated from operations Interest received Interest paid Investment income received Income tax paid 2021 RMB 33,864 92,965 – 1,985 69 (2,244) (1,966) (1,104) 2,404 (7) 5,929 2020 RMB 27,387 90,240 5,042 1,512 35 (60) (1,701) (582) 3,433 163 3,827 131,895 129,296 (3,327) (1,771) (318) (595) (2,031) (85) (2,047) 4,227 7,009 7,140 (132) (474) (116) (6,097) (2,971) 5,689 1,879 9,516 141,868 134,819 1,045 (2,522) 860 (3,718) 594 (3,524) 603 (232) Net cash from operating activities 137,533 132,260 The notes on pages 194 to 286 form part of these consolidated financial statements. 192 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2021 (Amounts in million) (b) “Finance Company” refers to China Telecom Group Finance Co., Ltd., a subsidiary of the Company established on 8 January 2019, which provides capital and financial management services to the member units of China Telecommunications Corporation. (c) SIGNIFICANT NON-CASH TRANSACTIONS For the year ended 31 December 2021 and 2020, the Group did not have significant non-cash investing and financing activities, except the additions of right-of-use assets and lease liabilities. The notes on pages 194 to 286 form part of these consolidated financial statements. China Telecom Corporation Limited Annual Report 2021 193 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 1. PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PRESENTATION China Telecom Corporation Limited (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) on 10 September 2002. The Company and its subsidiaries (hereinafter, collectively referred to as the “Group”) is a leading and large-scale full-service and integrated intelligent information services provider, providing its individual, household, government and enterprise customers with integrated intelligent information services. In March 2021, the Company entered into agreements with China Telecommunications Corporation, the ultimate holding company of the Company, pursuant to which the Company agreed to sell, and China Telecommunications Corporation agreed to purchase all the share capital in E-surfing Pay held by the Company for a consideration in the amount of RMB3,897 million (equivalent to approximately HK$4,695 million). The Company and its wholly owned subsidiary, China Telecom Global Limited, entered into agreements with China Telecommunications Corporation and its subsidiary, Guang Hua Properties Limited, in March 2021, pursuant to which, the Company and China Telecom Global Limited respectively agreed to sell, and China Telecommunications Corporation and Guang Hua Properties Limited agreed to purchase, 75% of the share capital in China Telecom Leasing Corporation Limited from the Company and 25% of the share capital in China Telecom Leasing Corporation Limited from China Telecom Global Limited for a consideration in the amount of RMB131 million (equivalent to approximately HK$158 million) and RMB44 million (equivalent to approximately HK$53 million), respectively. The disposals of the two subsidiaries were completed in April 2021, upon which E-surfing Pay and China Telecom Leasing Corporation Limited ceased to be the subsidiaries of the Company. The Group recorded gains from disposal of these two subsidiaries of RMB2,218 million in investment income and others in the consolidated statement of comprehensive income. In August 2021, the Company made an initial public offering of 10,396,135,267 A shares (excluding over- allotment) on the Shanghai Stock Exchange, and an over-allotment of 178,635,111 shares in September 2021. After the completion of the A-share offering, the total share capital of the Company comprises of 91,507,138,699 shares, of which 13,877,410,000 shares are H shares. On 20 August 2021, the Company became listed on the Shanghai Stock Exchange. On the same day, all 67,054,958,321 domestic shares of the Company, which were held by the domestic shareholders including China Telecommunications Corporation, were also converted into the same number of A shares. 194 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 2. APPLICATION OF AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) In the current year, the Group has applied, for the first time, the following amendments to IFRSs issued by the International Accounting Standards Board (the “IASB”) that are mandatorily effective for the current year: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 “Interest Rate Benchmark Reform – Phase 2” In addition, the Group has early applied the Amendment to IFRS 16, “Covid-19-Related Rent Concessions beyond 30 June 2021”. The application of the above amendments to IFRSs in the current year has had no material effect on the Group’s consolidated financial statements. 3. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The consolidated financial statements have been prepared in accordance with IFRSs as issued by the IASB. For the purpose of the preparation of the consolidated financial statements, information is considered material if such information is reasonably expected to influence decisions made by primary users. The consolidated 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 (“Listing Rules”). As at 31 December 2021, the total current liabilities of the Group had exceeded the total current assets by RMB137,712 million (31 December 2020: RMB187,126 million). Management of the Company have assessed the Group’s available sources of funds as follows: 1) the Group’s continuous net cash inflow to be generated from its operating activities; 2) the unutilised credit facilities amounting to RMB276,483 million (31 December 2020: RMB244,326 million); and 3) the Group’s other available sources of financing from domestic banks in mainland China and other financial institutions in view of the Group’s good credit history. Based on the above considerations, the Board of Directors is of the opinion that the Group has sufficient funds to meet its working capital commitments, expected capital expenditure and debt obligations. As a result, the consolidated financial statements of the Group for the year ended 31 December 2021 has been prepared on a going concern basis. The consolidated financial statements are prepared on the historical cost basis as modified by the revaluation of certain financial instruments measured at fair value (Note 3(k)). China Telecom Corporation Limited Annual Report 2021 195 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Basis of preparation (continued) The preparation of consolidated financial statements in conformity with IFRSs requires management to make judgments, 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 consolidated 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 management believes are 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 may 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. Judgments made by management in the application of IFRSs that have significant effect on the consolidated financial statements and major sources of estimation uncertainty are discussed in Note 47. (b) Basis of consolidation and equity accounting The consolidated financial statements comprise the Company and its subsidiaries and the Group’s interests in associates and joint ventures. A subsidiary is an entity controlled by the Company. When fulfilling the following conditions, the Company has control over an entity: (a) has power over the investee, (b) has exposure, or rights, to variable returns from its involvement with the investee, and (c) has the ability to use its power over the investee to affect the amount of the investor’s returns. When assessing whether the Company has power over that entity, only substantive rights (held by the Company and other parties) are considered. 196 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Basis of consolidation and equity accounting (continued) 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 non-controlling interests is separately presented on the face of the consolidated statement of comprehensive income as an allocation of the profit or loss for the year between the non-controlling interests and the equity holders of the Company. Non-controlling interests represent the equity in subsidiaries not attributable directly or indirectly to the Company. For each business combination, other than business combination under common control, the Group measures the non-controlling interests at the proportionate share, of the acquisition date, of fair value of the subsidiary’s net identifiable assets. Non-controlling interests at the end of the reporting period are presented in the consolidated statement of financial position within equity and consolidated statement of changes in equity, separately from the equity of the Company’s equity holders. Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised. When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate or a joint venture. 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 or joint control over those policies. An investment in an associate is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition- date fair values of the investee’s net identifiable assets over the cost of the investment (if any) after reassessment. Thereafter, the investment is adjusted for the Group’s equity share of the post-acquisition changes in the associate’s net assets and any impairment loss relating to the investment. When the Group ceases to have significant influence over an associate, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset. China Telecom Corporation Limited Annual Report 2021 197 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Basis of consolidation and equity accounting (continued) All significant intercompany balances and transactions and 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) Foreign currencies translation The accompanying consolidated financial statements are presented in Renminbi (“RMB”). The functional currency of the Company and its subsidiaries in mainland China is RMB. The functional currency of the Group’s foreign operations is the currency of the primary economic environment in which the foreign operations operate. 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 end of the reporting period. The resulting exchange differences, other than those capitalised as construction in progress (Note 3(e)), are recognised as income or expense in profit or loss. For the years presented, no exchange differences were capitalised. When preparing the Group’s consolidated financial statements, the results of operations of the Group’s foreign operations are translated into RMB at average rate prevailing during the year. Assets and liabilities of the Group’s foreign operations are translated into RMB at the foreign exchange rates ruling at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve. 198 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Property, plant and equipment Property, plant and equipment are initially recorded at cost, less subsequent accumulated depreciation and impairment losses (Note 3(h)). The cost of an asset comprises its purchase price, any costs directly attributable to 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 is expensed as it is incurred. 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 respective asset and are recognised as income or expense in the profit or loss on the date of retirement or disposal. Depreciation is provided to write off the cost of each asset over its estimated useful life on a straight-line basis, after taking into account its estimated residual value, as follows: Buildings and improvements Communications network plant and equipment Furniture, fixture, motor vehicles and other equipment Depreciable lives primarily Residual range from 8 to 30 years 5 to 10 years 5 to 10 years rate 3% 0%-3% 0%-3% Where parts of an item of property, plant and equipment have different useful lives, the cost 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. China Telecom Corporation Limited Annual Report 2021 199 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Construction in progress Construction in progress represents buildings, communications network plant and equipment and other equipment and intangible assets under construction and pending installation, and is stated at cost less impairment losses (Note 3(h)). The cost of an item comprises direct costs of construction, capitalisation of interest charge, 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. (f) Goodwill Goodwill represents the excess of the investment cost over the Group’s interest in the fair value of the net assets acquired in the mobile communications business (as defined in Note 7) acquisition. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash- generating units and is tested annually for impairment (Note 3(h)). 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. (g) Intangible assets The Group’s intangible assets are primarily software. Software that is not an integral part of any tangible assets, is recorded at cost less subsequent accumulated amortisation and impairment losses (Note 3(h)). Amortisation of software is mainly calculated on a straight-line basis over the estimated useful lives, which mainly range from 3 to 5 years. (h) Impairment of goodwill and long-lived assets The carrying amounts of the Group’s long-lived assets, including property, plant and equipment, right- of-use assets, intangible assets with finite useful lives, construction in progress and contract costs included in other assets 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 each year end, or more frequently if events or changes in circumstances indicate that they might be impaired. 200 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (h) Impairment of goodwill and long-lived assets (continued) Before the Group recognises an impairment loss for assets capitalised as contract costs under IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), the Group assesses and recognises any impairment loss on other assets related to the relevant contracts in accordance with applicable standards. Then, impairment loss, if any, for assets capitalised as contract costs is recognised to the extent the carrying amounts exceeds the remaining amount of consideration that the Group expects to receive in exchange for related goods or services less the costs which relate directly to providing those goods or services that have not been recognised as expenses. The assets capitalised as contract costs are then included in the carrying amount of the cash-generating unit to which they belong for the purpose of evaluating impairment of that cash-generating unit. The recoverable amount of an asset or cash-generating unit is the greater of its fair value less costs of disposal and value in use. The recoverable amount of a tangible and an intangible asset is estimated individually. 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 for which the estimates of future cash flows have not been adjusted. 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 profit or loss. 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. The Group assesses at the end of each reporting period 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 cease to exist, is recognised as an income in profit or loss. The reversal is reduced by the amount that would have been recognised as depreciation and amortisation had the write-down not occurred. An impairment loss in respect of goodwill is not reversed. For the years presented, no reversal of impairment loss was recognised in profit or loss. China Telecom Corporation Limited Annual Report 2021 201 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Interests in joint operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have the rights to the assets, and obligation for the liabilities, relating to the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with IFRSs applicable to the particular assets, liabilities, revenues and expenses. When a group entity transacts with a joint operation in which a group entity is a joint operator (such as a sale or contribution of assets), the Group is considered to be conducting the transaction with the other parties to the joint operation, and gains and losses resulting from the transactions are recognised in the consolidated financial statements only to the extent of other parties’ interests in the joint operation. When a group entity transacts with a joint operation in which a group entity is a joint operator (such as a purchase of assets), the Group does not recognise its share of the gains and losses until it resells those assets to a third party. (j) Inventories Inventories consist of materials and supplies used in maintaining the telecommunications network and goods for resale. Inventories are valued at cost using the specific identification method or the weighted average cost method, less a provision for obsolescence. Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, the estimated costs to make the sale and the related tax expenses. (k) Financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. All regular-way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular-way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place. 202 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Financial instruments (continued) Financial assets and financial liabilities are initially measured at fair value except for accounts receivable arising from contracts with customers which are initially measured in accordance with IFRS 15. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss (“FVTPL”)) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in profit or loss. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Financial assets Classification and subsequent measurement of financial assets (i) Financial assets measured subsequently at amortised cost Financial assets that meet the following conditions are subsequently measured at amortised cost: • the financial asset is held within a business model whose objective is to collect contractual cash flows; and • the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Interest income is recognised using the effective interest method for financial assets measured subsequently at amortised cost. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired (see below). For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit- impaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit-impaired. China Telecom Corporation Limited Annual Report 2021 203 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Financial instruments (continued) Financial assets (continued) Classification and subsequent measurement of financial assets (continued) (ii) Equity instruments designated as at fair value through other comprehensive income (“FVTOCI”) At initial recognition of a financial asset, the Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income, and accumulate in other reserves, if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which IFRS 3, “Business Combinations” applies. These equity instruments are not subject to impairment assessment. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, and will be transferred to retained earnings. Dividend from these investments in equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment. Dividends are included in the “investment income and others” line item in profit or loss. (iii) Financial assets at FVTPL Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI or designated as FVTOCI are measured at FVTPL. Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial asset and is included in the “investment income and others” line item. 204 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Financial instruments (continued) Financial assets (continued) Impairment of financial assets and other items subject to impairment assessment under IFRS 9 The Group performs impairment assessment under expected credit loss (“ECL”) model on financial assets (including accounts receivable, financial assets included in prepayments and other current assets, short- term bank deposits and restricted cash, cash and cash equivalents) and other item (contract assets) which are subject to impairment assessment under IFRS 9. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition. Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL (“12m ECL”) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. Assessments are done based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions. The Group always recognises lifetime ECL for accounts receivable and contract assets. The ECL on these assets are assessed individually for debtors with significant balances or credit-impaired debtors, and collectively using a provision matrix with appropriate groupings based on shared credit risk characteristics, nature of services provided as well as type of customers, such as receivable from telephone and Internet subscribers and from enterprise customers. For all other instruments, the Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, the Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition. China Telecom Corporation Limited Annual Report 2021 205 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Financial instruments (continued) Financial assets (continued) Impairment of financial assets and other items subject to impairment assessment under IFRS 9 (continued) (i) Significant increase in credit risk In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. In particular, the following information is taken into account when assessing whether credit risk has increased significantly: • • • • failure to make payments of principal or interest on their contractually due dates; an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available); an actual or expected significant deterioration in the operating results of the debtor; and existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Group. (ii) Definition of default For internal credit risk management, the Group considers an event of default occurs when information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collaterals held by the Group). 206 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Financial instruments (continued) Financial assets (continued) Impairment of financial assets and other items subject to impairment assessment under IFRS 9 (continued) (iii) Credit-impaired financial assets A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events: • • • significant financial difficulty of the issuer or the borrower; a breach of contract, such as a default or past due event; the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; • it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or • the disappearance of an active market for that financial asset because of financial difficulties. (iv) Write-off policy The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, for example, when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss. China Telecom Corporation Limited Annual Report 2021 207 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Financial instruments (continued) Financial assets (continued) Impairment of financial assets and other items subject to impairment assessment under IFRS 9 (continued) (v) Measurement and recognition of ECL The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on the historical data and forward-looking information. The Group uses a practical expedient in estimating ECL on accounts receivable using a provision matrix taking into consideration historical credit loss experience, adjusted for forward- looking information that is available without undue cost or effort. Generally, the ECL is the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the effective interest rate determined at initial recognition. Lifetime ECL for accounts receivable (excluding long-term receivables arising from instalment sale) and contract assets are considered on a collective basis taking into consideration past due information and relevant credit information such as forward-looking macroeconomic information. For collective assessment, the Group takes into consideration the following characteristics when formulating the grouping: • • • Past-due status; Nature, size and industry of debtors; and External credit ratings where available. The grouping is regularly reviewed by management to ensure the constituents of each group continue to share similar credit risk characteristics. The Group recognises an impairment gain or loss in profit or loss for all financial instruments measured at amortised cost by adjusting their carrying amount, with the exception of accounts receivable and other receivables where the corresponding adjustment is recognised through a loss allowance account. 208 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Financial instruments (continued) Financial assets (continued) Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. On derecognition of an investment in equity instrument which the Group has elected on initial recognition to measure at FVTOCI, the cumulative gain or loss previously accumulated in other reserves is not reclassified to profit or loss, but is transferred to retained earnings. Financial liabilities and equity Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs. Financial liabilities All financial liabilities are subsequently measured at amortised cost using the effective interest method. Financial liabilities including short-term and long-term debts, accounts payable and financial liabilities included in accrued expenses and other payables are subsequently measured at amortised cost, using the effective interest method. Offsetting a financial asset and a financial liability A financial asset and a financial liability are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the recognised amounts; and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. China Telecom Corporation Limited Annual Report 2021 209 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (l) 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. (m) Revenue from contract with customers The Group recognises revenue when (or as) a performance obligation is satisfied. i.e. when “control” of the goods or services underlying the particular performance obligation is transferred to the customer. A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same. Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met: • the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs; • the Group’s performance creates or enhances an asset that the customer controls as the Groups performs; or • the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. As such, revenues from contracts with customers of telecommunications services are generally recognised over time during which the services are provided to customers. Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service. As such, revenues from sales of equipment are recognised at a point in time when the equipment is delivered to the customers and when the control over the equipment have been transferred to the customers. 210 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Revenue from contract with customers (continued) A contract asset represents the Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer but the right is conditioned on the Group’s future performance. A contract asset is transferred to accounts receivable when the right becomes unconditional. A contract asset is assessed for impairment in accordance with IFRS 9. In contrast, a receivable represents the Group’s unconditional right to consideration, i.e. only the passage of time is required before payment of that consideration is due. A contract liability represents the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. When the Group receives an advance payment before the performance obligation is satisfied, this will give rise to a contract liability, until the operating revenues recognised on the relevant contract exceed the amount of the advance payment. The Group provides subscriber points reward program, which rewards customers based on their consumption amounts and loyalty. Under the reward program, the Group allocates part of the transaction price to subscriber points according to the stand-alone selling prices of subscriber points and relevant goods or services. The standalone selling price of each point in the customer point rewards is based on its fair value. The allocated portion of transaction price for the subscriber points reward is recorded as contract liability when the rewards are granted and recognised as revenue when the points are redeemed or expired. A contract asset and a contract liability relating to the same contract are accounted for and presented on a net basis. Contracts with multiple performance obligations (including allocation of transaction price) For contracts that contain more than one performance obligation, the Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling price of the distinct good or service underlying each performance obligation is determined at contract inception. It represents the price at which the Group would sell a promised good or service separately to a customer. If a stand-alone selling price is not directly observable, the Group estimates it using appropriate techniques such that the transaction price ultimately allocated to any performance obligation reflects the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised goods or services to the customer. China Telecom Corporation Limited Annual Report 2021 211 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Revenue from contract with customers (continued) Over time revenue recognition: measurement of progress towards complete satisfaction of a performance obligation The progress towards complete satisfaction of a performance obligation is generally measured based on output method, which is to recognise revenue on the basis of direct measurements of the value of the goods or services transferred to the customer to date relative to the remaining goods or services promised under the contract. Principal versus agent When another party is involved in providing goods or services to a customer, the Group determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group is a principal) or to arrange for those goods or services to be provided by the other party (i.e. the Group is an agent). The Group is a principal if it controls the specified good or service before that good or service is transferred to a customer. The Group is an agent if its performance obligation is to arrange for the provision of the specified good or service by another party. In this case, the Group does not control the specified good or service provided by another party before that good or service is transferred to the customer. When the Group acts as an agent, it recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party. Consideration payable to a customer Consideration payable to a customer includes cash amounts that the Group pays, or expects to pay, to the customer, and also includes credit or other items that can be applied against amounts owed to the Group. The Group accounted for such consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service that the customer transfers to the Group and the fair value of the good or service received from the customer can be reasonably estimated. Accordingly, if consideration payable to a customer is accounted for as a reduction of the transaction price, the Group recognises the reduction of revenue when (or as) the later of either of the following events occurs: (i) the Group recognises revenue for the transfer of the related goods or services to the customer; and (ii) the Group pays or promises to pay the consideration (even if the payment is conditional on a future event). Certain subsidies payable to third party agent incurred by the Group in respect of customer contracts, which will be ultimately enjoyed by end customers, and other subsidies incurred by the Group directly payable to its customers, are qualified as consideration payable to a customer and accounted for as a reduction of operating revenues. 212 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Revenue from contract with customers (continued) Incremental costs of obtaining a contract Incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. Certain commissions incurred by the Group paid or payable to third party agents, whose selling activities resulted in customers entering into telecommunications service agreements with the Group, are qualified as incremental costs. The Group recognises such costs as an asset, included in other assets, if it expects to recover these costs. The asset so recognised is subsequently amortised to profit or loss on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate. The asset is subject to impairment review. The Group applies the practical expedient of expensing all incremental costs to obtain a contract if these costs would otherwise have been fully amortised to profit or loss within one year. Costs to fulfil a contract When the Group incurs costs to fulfil a contract, it first assesses whether these costs qualify for recognition as an asset in terms of other relevant standards, failing which it recognises an asset for these costs only if they meet all of the following criteria: • the costs relate directly to a contract or to an anticipated contract that the Group can specifically identify; • the costs generate or enhance resources of the Group that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and • the costs are expected to be recovered. The asset so recognised is subsequently amortised to profit or loss on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate. The asset is subject to impairment review. China Telecom Corporation Limited Annual Report 2021 213 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Leases Definition of a lease A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group assesses whether a contract is or contains a lease based on the definition under IFRS 16 at inception or modification date. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed. The Group as a lessee As a practical expedient, leases with similar characteristics are accounted on a portfolio basis when the Group reasonably expects that the effects on the consolidated financial statements would not differ materially from individual leases within the portfolio. Allocation of consideration to components of a contract For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies the recognition exemption for lease of low-value assets. Lease payments on short-term leases and leases of low-value assets are recognised as expenses on a straight-line basis over the lease term. 214 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Leases (continued) The Group as a lessee (continued) Right-of-use assets The cost of right-of-use asset includes: • • • • the amount of the initial measurement of the lease liability; any lease payments made at or before the commencement date, less any lease incentives received; any initial direct costs incurred by the lessee; and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying assets, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities other than adjustments to lease liabilities resulting from Covid-19-related rent concessions in which the Group applied the practical expedient. Right-of-use assets in which the Group is reasonably certain to obtain ownership of the underlying leased assets at the end of the lease term is depreciated from commencement date to the end of the useful life. Otherwise, right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. The Group presents right-of-use assets as a separate line item in the consolidated statement of financial position. China Telecom Corporation Limited Annual Report 2021 215 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Leases (continued) The Group as a lessee (continued) Lease liabilities At the commencement date of a lease, the Group recognises and measures the lease liability at the present value of lease payments that are unpaid at that date. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. The lease payments include: • • • • fixed payments (including in-substance fixed payments) less any lease incentives receivable; variable lease payments that depend on an index or a rate; the exercise price of a purchase option reasonably certain to be exercised by the Group; and payments of penalties for terminating a lease, if the lease term reflects the Group exercising an option to terminate the lease. Variable lease payments that depend on an index or a rate are initially measured using the index or rate as at the commencement date. Variable lease payments that do not depend on an index or a rate are not included in the measurement of lease liabilities and right-of-use assets, and are recognised as expense in the period on which the event or condition that triggers the payment occurs. After the commencement date, lease liabilities are adjusted by interest accretion and lease payments. The Group remeasures lease liabilities (and makes a corresponding adjustment to the related right-of- use assets) whenever: • the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the related lease liability is remeasured by discounting the revised lease payments using a revised discount rate at the date of assessment. • the lease payments change due to changes in market rental rates following a market rent review, in which cases the related lease liability is remeasured by discounting the revised lease payments using the initial discount rate. 216 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Leases (continued) The Group as a lessee (continued) Lease modifications Except for Covid-19-related rent concessions in which the Group applied the practical expedient, the Group accounts for a lease modification as a separate lease if: • the modification increases the scope of the lease by adding the right to use one or more underlying assets; and • the consideration for the leases increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract. For a lease modification that is not accounted for as a separate lease, the Group remeasures the lease liability based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. The Group accounts for the remeasurement of lease liabilities by making corresponding adjustments to the relevant right-of-use asset. When the modified contract contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the modified contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. Covid-19-related rent concessions Since 2020, in relation to rent concessions that occurred as a direct consequence of the Covid-19 pandemic, the Group had elected to early apply the practical expedient not to assess whether the change is a lease modification if all of the following conditions are met: • the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; • any reduction in lease payments affects only payments originally due on or before 30 June 2021, which has been extended to lease payments due on or before 30 June 2022; and • there is no substantive change to other terms and conditions of the lease. China Telecom Corporation Limited Annual Report 2021 217 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Leases (continued) The Group as a lessee (continued) Lease modifications (continued) Covid-19-related rent concessions (continued) As a result of applying the practical expedient, the Group accounts for changes in lease payments resulting from rent concessions the same way it would account for the changes applying IFRS 16 if the changes were not a lease modification. Forgiveness or waiver of lease payments are accounted for as variable lease payments. The related lease liabilities are adjusted to reflect the amounts forgiven or waived with a corresponding adjustment recognised in the profit or loss in the period in which the event occurs. The Group as a lessor Classification and measurement of leases Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases. Amounts due from lessees under finance leases are recognised as receivables at commencement date at amounts equal to net investments in the leases, measured using the interest rate implicit in the respective leases. Initial direct costs (other than those incurred by manufacturer or dealer lessors) are included in the initial measurement of the net investments in the leases. Interest income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset, and such costs are recognised as an expense on a straight-line basis over the lease term. Variable lease payments for operating leases that depend on an index or a rate are estimated and included in the total lease payments to be recognised on a straight- line basis over the lease term. Variable lease payments that do not depend on an index or a rate are recognised as income when they arise. 218 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Leases (continued) The Group as a lessor (continued) Allocation of consideration to components of a contract When a contract includes both lease and non-lease components, the Group applies IFRS 15 to allocate consideration in a contract to lease and non-lease components. Non-lease components are separated from lease component on the basis of their relative stand-alone selling prices. Refundable rental deposits Refundable rental deposits received are accounted under IFRS 9 and initially measured at fair value. Adjustments to fair value at initial recognition are considered as additional lease payments from lessees. Sublease When the Group is an intermediate lessor, it accounts for the head lease and the sublease as two separate contracts. The sublease is classified as a finance or operating lease by reference to the right- of-use asset arising from the head lease, not with reference to the underlying asset. Lease modifications Changes in considerations of lease contracts that were not part of the original terms and conditions are accounted for as lease modifications, including lease incentives provided through forgiveness or reduction of rentals. The Group accounts for a modification to an operating lease as a new lease from the effective date of the modification, considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease. (o) Net finance costs Net finance costs comprise interest income on bank deposits, interest costs on borrowings, interest expense on lease liabilities and foreign exchange gains and losses. Interest income from bank deposits is recognised as it accrues using the effective interest method. Interest costs incurred in connection with borrowings are calculated using the effective interest method and 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. China Telecom Corporation Limited Annual Report 2021 219 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (p) Research and development expense Research and development expenditure is expensed as incurred if the criteria of recognition as intangible assets were not met. For the year ended 31 December 2021, research and development expense, other than those related personnel expenses and depreciation was RMB3,379 million (2020: RMB2,215 million). Research and development related personnel expenses and depreciation for the year ended 31 December 2021 amounted to RMB3,432 million (2020: RMB2,392 million) and RMB122 million (2020: RMB130 million), respectively. (q) Employee benefits The Group’s contributions to defined contribution retirement plans administered by the PRC government and defined contribution retirement plans administered by independent external parties are recognised in profit or loss as incurred. Further information is set out in Note 45. Compensation expense in respect of the share appreciation rights granted is accrued as a charge to the profit or loss over the applicable vesting period based on the fair value of the share appreciation rights. The liability of the accrued compensation expense is re-measured to fair value at the end of each reporting period with the effect of changes in the fair value of the liability charged or credited to profit or loss. Further details of the Group’s share appreciation rights scheme are set out in Note 46. (r) Government grants Government grants shall only be recognised until there is reasonable assurance that: • • the Group will comply with all the conditions attaching to them; and the grants will be received. Government grants that compensate expenses incurred are recognised in the consolidated statement of comprehensive income in the same periods in which the expenses are incurred. Government grants relating to assets are recognised in accrued expenses and other payables and other non-current liabilities and are credited to the consolidated statement of comprehensive income on a straight-line basis over the expected lives of the related assets. 220 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Provisions and contingent liabilities A provision is recognised in the consolidated statement of financial position when the Group has a legal or constructive present obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. 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. (t) Value-added tax (“VAT”) Output VAT rate for basic telecommunications services (including voice communication, lease or sale of network resources) is 9% since 1 April 2019, while the output VAT rate for value-added telecommunications services (including Internet access services, short and multimedia messaging services, transmission and application service of electronic data and information) is 6%, and the output VAT for sales of telecommunications terminals and equipment is 13% since 1 April 2019. Input VAT rate depends on the type of services received and the assets purchased as well as the VAT rate applicable to a specific industry, and ranges from 3% to 13% since 1 April 2019. Output VAT is excluded from operating revenues while input VAT is excluded from operating expenses or the original cost of equipment purchased and can be netted against the output VAT, arriving at the net amount of VAT recoverable or payable. As the VAT obligations are borne by branches and subsidiaries of the Company, input and output VAT are set off at branches and subsidiaries levels which are not offset at the consolidation level. Such net amount of VAT recoverable or payable is recorded in the financial statement line items of prepayments and other current assets and accrued expenses and other payables, respectively, in the consolidated statement of financial position. China Telecom Corporation Limited Annual Report 2021 221 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (u) Income tax Income tax for the year comprises current tax and movement in deferred tax assets and liabilities. Income tax is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income, or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. 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 their tax bases. The amount of deferred tax is calculated on the basis of the enacted or substantively 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 profit or loss, except for the effect of a change in tax rate on the carrying amount of deferred tax assets and liabilities which were previously recognised in other comprehensive income, in such case the effect of a change in tax rate is also recognised in other comprehensive income. 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. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group considers that assets and liabilities relating to leasing arise from a single transaction. The Group applies IAS 12, “Income Taxes” requirements to the leasing transaction as a whole. Temporary differences relating to right-of-use assets and lease liabilities are assessed on a net basis. Excess of depreciation on right-of-use assets over the lease payments for the principal portion of lease liabilities resulting in net deductible temporary differences. (v) Dividends Dividends are recognised as a liability in the period in which they are declared. 222 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (w) Related parties (a) A person, or a close member of that person’s family, is related to the Group if that person: (i) has control or joint control over the Group; (ii) has significant influence over the Group; or (iii) is a member of the key management personnel of the Group or the Group’s parent. (b) An entity is related to the Group if any of the following conditions applies: (i) (ii) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others); The entity is an associate or joint venture of the Group (or an associate or joint venture of a member of a group of which the Group is a member); or the Group is an associate or joint venture of the entity (or an associate or joint venture of a member of a group of which the entity is a member); (iii) The entity and the Group are joint ventures of the same third party; (iv) The entity is a joint venture of a third entity and the Group is an associate of the third entity; or the Group is a joint venture of a third entity and the entity is an associate of the third entity; (v) The entity is controlled or jointly controlled by a person identified in (a); (vi) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity. (x) Segment reporting An operating segment is a component of an entity that engages in business activities from which revenues are earned and expenses are incurred, and is identified on the basis of the internal financial reports that are regularly reviewed by the chief operating decision maker in order to allocate resources and assess performance of the segment. For the years presented, management has determined that the Group has one operating segment as the Group is only engaged in the integrated telecommunications business. The Group’s assets located outside mainland China and operating revenues derived from activities outside mainland China are less than 10% of the Group’s assets and operating revenues, respectively. No geographical area information has been presented as such amount is immaterial. No single external customer accounts for 10% or more of the Group’s operating revenues. China Telecom Corporation Limited Annual Report 2021 223 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 4. PROPERTY, PLANT AND EQUIPMENT, NET Communications Furniture, fixture, Buildings and network plant motor vehicles and improvements and equipment other equipment Total RMB million RMB million RMB million RMB million 104,365 425 2,249 (1,435) (10) 105,594 284 2,466 (1,146) 107,198 (61,785) (4,196) – 1,324 8 (64,649) (3,997) – 1,022 (67,624) 39,574 40,945 865,717 139 84,567 (53,500) (512) 896,411 175 72,260 (74,532) 894,314 (506,357) (64,208) (5,027) 48,451 401 (526,740) (65,113) (119) 66,735 (525,237) 369,077 369,671 31,635 253 1,791 (3,039) 522 31,162 325 1,625 (2,960) 30,152 (23,567) (2,038) (15) 2,856 (409) (23,173) (2,396) (2) 2,749 (22,822) 7,330 7,989 1,001,717 817 88,607 (57,974) – 1,033,167 784 76,351 (78,638) 1,031,664 (591,709) (70,442) (5,042) 52,631 – (614,562) (71,506) (121) 70,506 (615,683) 415,981 418,605 Cost/Deemed cost: Balance as at 1 January 2020 Additions Transferred from construction in progress Retirement and disposal Reclassification Balance as at 31 December 2020 Additions Transferred from construction in progress Retirement and disposal Balance as at 31 December 2021 Accumulated depreciation and impairment: Balance as at 1 January 2020 Depreciation charge for the year Provision for impairment loss Written back on retirement and disposal Reclassification Balance as at 31 December 2020 Depreciation charge for the year Provision for impairment loss Written back on retirement and disposal Balance as at 31 December 2021 Net book value as at 31 December 2021 Net book value as at 31 December 2020 224 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 4. PROPERTY, PLANT AND EQUIPMENT, NET (continued) As a result of the continuing optimisation of the Group’s 4G mobile network coverage and the scale deployment of the Group’s 5G mobile network, the utilisation of the Group’s 3G mobile network have been decreasing rapidly. For the year ended 31 December 2020, 3G handset data traffic only accounted for a low proportion of the Group’s total handset data traffic. As a result, the Group has identified an impairment indicator on the 3G specific mobile network assets (the “3G Assets”). Given the Group has made a commitment in the year to gradually terminate its use of 3G Assets in the near future, the Group performed an impairment test on the 3G Assets on the basis of each individual asset as at 31 December 2020. The recoverable amount of the 3G Assets was determined based on their fair value less costs of disposal, which was nominal. As a result, for the year ended 31 December 2020, an impairment loss on property, plant and equipment of RMB5,042 million was recognised. No additional impairment was provided for the year ended 31 December 2021. 5. CONSTRUCTION IN PROGRESS Balance as at 1 January 2020 Additions Transferred to property, plant and equipment Transferred to intangible assets Balance as at 31 December 2020 Additions Transferred to property, plant and equipment Transferred to intangible assets Balance as at 31 December 2021 RMB million 59,206 84,145 (88,607) (6,319) 48,425 85,582 (76,351) (6,200) 51,456 China Telecom Corporation Limited Annual Report 2021 225 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 6. RIGHT-OF-USE ASSETS Leasehold Communications towers and land Buildings related assets RMB million RMB million RMB million Equipment RMB million Others Total RMB million RMB million 20,207 16,677 13,034 10,927 20,441 762 745 8,672 3,644 3,626 18,866 11,230 8,078 7,642 2,513 2,151 341 248 99 78 61,186 59,457 15,096 14,242 As at 31 December 2021 Carrying amount As at 31 December 2020 Carrying amount For the year ended 31 December 2021 Depreciation charge For the year ended 31 December 2020 Depreciation charge The Group leases telecommunications towers and related assets, land and buildings, equipment and other assets for its operations. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. In determining the lease term and assessing the length of the non-cancellable period, the Group applies the definition of a contract and determines the period for which the contract is enforceable. The Group regularly entered into short-term leases for buildings and other assets. As at 31 December 2021 and 2020, the portfolio of short-term leases is similar to the portfolio of short-term leases to which the short-term lease expense disclosed in this note. For the year ended 31 December 2021, expenses relating to short-term leases amounting to RMB1,006 million (2020: RMB1,077 million), expenses relating to leases of low value assets (excluding short-term leases of low value assets) amounting to RMB34 million (2020: RMB46 million) and variable lease payments not included in the measurement of lease liabilities amounting to RMB5,151 million (2020: RMB5,151 million), are recognised in profit or loss. For the year ended 31 December 2021, total cash outflow for leases was RMB21,952 million (2020: RMB20,798 million), and additions to right-of-use assets were RMB18,081 million (2020: RMB13,561 million). 226 China Telecom Corporation Limited Annual Report 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2021 7. GOODWILL Cost: Goodwill arising from acquisition of mobile communications business 31 December 2021 2020 RMB million RMB million 29,919 29,920 On 1 October 2008, the Group acquired the mobile communications business and related assets and liabilities, which also included the entire equity interests of China Unicom (Macau) Company Limited (currently known as China Telecom (Macau) Company Limited) and 99.5% equity interests of Unicom Huasheng Telecommunications Technology Company Limited (currently known as Tianyi Telecom Terminals Company Limited) from China Unicom Limited and China Unicom Corporation Limited (collectively “Unicom Group”). The purchase price of the business combination was RMB43,800 million, which was fully settled as at 31 December 2010. In addition, pursuant to the acquisition agreement, the Group acquired the customer-related assets and assumed the customer-related liabilities of mobile communications business for a net settlement amount of RMB3,471 million due from Unicom Group. This amount was subsequently settled by Unicom Group in 2009. The business combination was accounted for using the purchase method. 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 mobile communications business into the Group’s telecommunications business. For the purpose of goodwill impairment testing, the goodwill arising from the acquisition of mobile communications business was allocated to the appropriate cash-generating unit of the Group, which is the Group’s integrated telecommunications business. The recoverable amount of the Group’s integrated telecommunications business is estimated based on the value in use model, which considers the Group’s financial budgets covering a five-year period, revenue growth rate between 3.7% to 4.6% (2020: 3.6% to 4.3%) and a pre-tax discount rate of 9.8% (2020: 9.6%). Cash flows beyond the five-year period are extrapolated using a steady 1.5% growth rate (2020: 1.5%). The Group performed impairment tests for the goodwill at the end of the reporting period and determined that goodwill was not impaired. The Group 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. China Telecom Corporation Limited Annual Report 2021 227 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Software RMB million 43,794 1,489 6,319 (748) 50,854 2,038 6,200 (3,352) 55,740 (27,445) (5,556) 655 (32,346) (6,363) 2,722 (35,987) 19,753 18,508 for the year ended 31 December 2021 8. INTANGIBLE ASSETS Cost: Balance as at 1 January 2020 Additions Transferred from construction in progress Retirement and disposal Balance as at 31 December 2020 Additions Transferred from construction in progress Retirement and disposal Balance as at 31 December 2021 Accumulated amortisation and impairment: Balance as at 1 January 2020 Amortisation charge for the year Written back on retirement and disposal Balance as at 31 December 2020 Amortisation charge for the year Written back on retirement and disposal Balance as at 31 December 2021 Net book value as at 31 December 2021 Net book value as at 31 December 2020 228 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 9. INVESTMENTS IN SUBSIDIARIES Details of the Company’s subsidiaries which principally affected the operating results, assets and liabilities of the Group as at 31 December 2021 are as follows: Place of Registered/issued capital (in RMB Type of Date of incorporation and million unless Principal Name of company legal entity incorporation operation otherwise stated) activity China Telecom System Limited Company 13 September 2001 PRC 542 Provision of system Integration Co., Limited integration and consulting services China Telecom Global Limited Company 25 February 2000 Hong Kong Special HK$168 million Provision of Limited Administrative Region of the PRC China Telecom Best Tone Limited Company 15 August 2007 PRC Information Service Co., Limited telecommunications services 350 Provision of Best Tone information services China Telecom (Macau) Limited Company 15 October 2004 Macau Special MOP60 million Provision of Company Limited Administrative Region of the PRC telecommunications services Tianyi Telecom Terminals Limited Company 1 July 2005 PRC 500 Sales of telecommunications Company Limited terminals China Telecom (Singapore) Limited Company 5 October 2006 Singapore S$1,000,001 Provision of international Pte. Limited value-added network services Shenzhen Shekou Limited Company 5 May 1984 PRC 91 Provision of Telecommunications Company Limited telecommunications services China Telecom (Australia) Limited Company 10 January 2011 Australia AUD1 million Provision of international Pty Limited value-added network services China Telecom Korea Limited Company 16 May 2012 South Korea KRW500 million Provision of international Co., Ltd. value-added network services China Telecom (Malaysia) Limited Company 26 June 2012 Malaysia MYR3,723,500 Provision of international SDN BHD value-added network services China Telecom Corporation Limited Annual Report 2021 229 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 9. INVESTMENTS IN SUBSIDIARIES (continued) Place of Registered/issued capital (in RMB Type of Date of incorporation and million unless Principal Name of company legal entity incorporation operation otherwise stated) activity China Telecom Information Limited Company 9 July 2012 Vietnam VND10,500 million Provision of international Technology (Vietnam) Co., Ltd. value-added network services iMUSIC Culture & Technology Limited Company 9 June 2013 PRC 250 Provision of music production Co., Ltd. and related information services China Telecom (Europe) Limited Company 2 March 2006 The United Kingdom GBP16.15 million Provision of Limited of Great Britain and Northern Ireland Zhejiang Yixin Technology Limited Company 19 August 2013 PRC Co., Ltd. telecommunications services 11 Provision of instant messenger service Tianyi Capital Holding Limited Company 30 November 2017 PRC 5,000 Capital investment and Co., Ltd. provision of consulting services China Telecom Group Limited Company 8 January 2019 PRC 5,000 Provision of capital and Finance Co., Ltd. (“Finance Company”) financial management services China Telecom Cloud Limited Company 1 July 2021 PRC 4,000 Provision of cloud products Technology Co., Ltd. and services E-surfing Digital Life Limited Company 6 July 2021 PRC 900 Provision of comprehensive Technology Co., Ltd. solutions related to the digital life Except for Shenzhen Shekou Telecommunications Company Limited which is 51% owned by the Company, Zhejiang Yixin Technology Co., Ltd. which is 65% owned by the Company and Finance Company, which is 70% owned by the Company, all of the above subsidiaries are directly or indirectly wholly-owned by the Company. No subsidiaries of the Group have material non-controlling interests. None of the subsidiaries had issued any debt securities at the end of the year. 230 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 10. INTERESTS IN ASSOCIATES AND JOINT VENTURES Cost of investment in associates and joint ventures Share of post-acquisition changes in net assets 31 December 2021 2020 RMB million RMB million 36,983 4,183 41,166 37,168 3,135 40,303 The Group’s interests in associates and joint ventures are accounted for under the equity method. Details of the Group’s principal associates are as follows: Name of company equity interest Principal activities Attributable China Tower Corporation Limited 20.5% Construction, maintenance and operation of (Note (i)) communications towers as well as ancillary facilities Shanghai Information Investment 24.0% Provision of information technology consultancy Incorporation (Note (ii)) services Notes: (i) (ii) China Tower Corporation Limited (“China Tower”) is established and operated in the PRC, and listed on the Main Board of The Stock Exchange of Hong Kong Limited on 8 August 2018. Shanghai Information Investment Incorporation (“Shanghai Info-investment”) is established and operated in the PRC and is not traded on any stock exchange. China Telecom Corporation Limited Annual Report 2021 231 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 10. INTERESTS IN ASSOCIATES AND JOINT VENTURES (continued) Summarised financial information of the Group’s principal associates and reconciled to the carrying amounts of interests in associates in the Group’s consolidated financial statements are disclosed below: China Tower Current assets Non-current assets Current liabilities Non-current liabilities Operating revenues Profit for the year Other comprehensive income for the year Total comprehensive income for the year Dividend received from China Tower Reconcile to the Group’s interests in the associate: Net assets of China Tower Non-controlling interests of China Tower The Group’s effective interest in China Tower The Group’s share of net assets of China Tower Adjustment for the remaining balance of the deferred gain 31 December 2021 2020 RMB million RMB million 48,344 274,915 76,182 57,723 43,204 294,176 106,635 44,499 2021 2020 RMB million RMB million 86,585 7,328 (1) 7,327 807 81,099 6,427 – 6,427 525 31 December 2021 2020 RMB million RMB million 189,354 186,246 – 20.5% 38,818 (1) 20.5% 38,180 from the Tower Assets Disposal (568) (717) Carrying amount of the interest in China Tower in the consolidated financial statements of the Group Fair value of China Tower calculated based on quoted price 38,250 25,374 37,463 34,625 232 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 10. INTERESTS IN ASSOCIATES AND JOINT VENTURES (continued) Shanghai Info-investment Current assets Non-current assets Current liabilities Non-current liabilities Operating revenues Profit for the year Other comprehensive income for the year Total comprehensive income for the year Dividend received from Shanghai Info-investment Reconcile to the Group’s interests in the associate: Net assets of the Shanghai Info-investment Non-controlling interests of Shanghai Info-investment The Group’s effective interest in Shanghai Info-investment The Group’s share of net assets of Shanghai Info-investment Carrying amount of the interest in Shanghai Info-investment in 31 December 2021 2020 RMB million RMB million 6,783 4,272 1,712 1,814 4,752 5,878 2,124 1,803 2021 2020 RMB million RMB million 1,470 663 – 663 18 982 641 (17) 624 14 31 December 2021 2020 RMB million RMB million 7,529 (258) 24.0% 1,745 6,703 (83) 24.0% 1,589 the consolidated financial statements of the Group 1,745 1,589 China Telecom Corporation Limited Annual Report 2021 233 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 10. INTERESTS IN ASSOCIATES AND JOINT VENTURES (continued) Aggregate financial information of the Group’s associates and joint ventures that are not individually material is disclosed below: The Group’s share of profit of these associates and joint ventures The Group’s share of total comprehensive income of these associates and joint ventures 2021 2020 RMB million RMB million 122 122 86 86 31 December 2021 2020 RMB million RMB million Aggregate carrying amount of interests in these associates and joint ventures in the consolidated financial statements of the Group 1,171 1,251 11. EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME 31 December 2021 2020 Notes RMB million RMB million Equity securities listed in the mainland China Unlisted equity securities (i) (ii) 942 274 1,216 838 235 1,073 Notes: (i) The above listed equity instruments represent ordinary shares of entities listed in the mainland China. These investments are not held for trading, instead, they are held for long-term strategic purposes. The directors of the Company have elected to designate these investments in equity instruments as at FVTOCI as they believe that recognising short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Group’s strategy of holding these investments for long-term purposes and realising their performance potential in the long run. (ii) The above unlisted equity securities represent the Group’s equity interests in various private entities established in the PRC. The directors of the Company have elected to designate these investments in equity instruments as at FVTOCI as they believe that the Group will hold these investments for long-term strategic purposes. 234 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 12. DEFERRED TAX ASSETS AND LIABILITIES The components of deferred tax assets and deferred tax liabilities recognised in the consolidated statement of financial position before offsetting are as follows: Deferred tax assets Deferred tax liabilities 31 December 31 December 31 December 31 December 2021 2020 2021 2020 RMB million RMB million RMB million RMB million Accrued salaries, wages and other benefits 1,416 930 – – Depreciation, write-off and impairment of property, plant and equipment, etc. Impairment losses of accounts receivable Subscriber points reward program Right-of-use assets and lease liabilities Equity instruments at fair value through 5,905 1,140 1,058 845 5,679 1,039 863 791 (30,202) (25,209) – – – – – – other comprehensive income – – (151) (137) Deferred tax assets/(liabilities) 10,364 9,302 (30,353) (25,346) As at 31 December 2021, the offsetting amount of deferred tax assets and deferred tax liabilities was RMB3,676 million (31 December 2020: RMB1,138 million). As at 31 December 2021, net deferred tax assets and deferred tax liabilities after offsetting were RMB6,688 million (31 December 2020: RMB8,164 million) and RMB26,677 million (31 December 2020: RMB24,208 million), respectively. China Telecom Corporation Limited Annual Report 2021 235 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 12. DEFERRED TAX ASSETS AND LIABILITIES (continued) The movement of deferred tax assets and deferred tax liabilities are as follows: Recognised in consolidated Balance as at statement of Balance as at 1 January comprehensive Disposal of 31 December 2021 income RMB million RMB million subsidiaries RMB million 2021 RMB million Accrued salaries, wages and other benefits Depreciation, write-off and impairment of property, plant and equipment, etc. Impairment losses of accounts receivable Subscriber points reward program Right-of-use assets and lease liabilities Deferred tax assets Depreciation, write-off and impairment of property, 930 5,679 1,039 863 791 9,302 487 255 121 195 54 1,112 plant and equipment, etc. (25,209) (5,007) Equity instruments at fair value through other comprehensive income Deferred tax liabilities (137) (25,346) (15) (5,022) (1) (29) (20) – – (50) 14 1 15 1,416 5,905 1,140 1,058 845 10,364 (30,202) (151) (30,353) 236 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 12. DEFERRED TAX ASSETS AND LIABILITIES (continued) Recognised in consolidated Balance as at statement of Balance as at 1 January comprehensive 31 December 2020 income 2020 RMB million RMB million RMB million Accrued salaries, wages and other benefits 802 128 930 Depreciation, write-off and impairment of property, plant and equipment, etc. Impairment losses of accounts receivable Subscriber points reward program Right-of-use assets and lease liabilities Deferred tax assets Depreciation, write-off and impairment of property, 4,256 1,067 708 744 7,577 1,423 (28) 155 47 1,725 5,679 1,039 863 791 9,302 plant and equipment, etc. (18,844) (6,365) (25,209) Equity instruments at fair value through other comprehensive income Deferred tax liabilities 13. OTHER ASSETS Contract costs Installation fees Other long-term prepaid expenses and receivables (234) (19,078) 97 (6,268) (137) (25,346) 31 December 2021 2020 Note RMB million RMB million (i) 1,436 – 5,825 7,261 1,151 16 5,385 6,552 Note: (i) Contract costs capitalised as at 31 December 2021 and 2020 mainly relate to the cost of installing terminal equipment at subscribers’ homes for the provision of Smart Family services of the Group. The amount of capitalised costs recognised in profit or loss during the year ended 31 December 2021 was RMB1,584 million (2020: RMB1,234 million). There was no impairment in relation to the opening balance of capitalised costs or the costs capitalised during the year. China Telecom Corporation Limited Annual Report 2021 237 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 14. JOINT OPERATION On 9 September 2019, the Group entered into a framework cooperation agreement (the “Cooperation Agreement”) with China United Network Communications Corporation Limited (“China Unicom”) to co-build and co-share certain 5G access network. Pursuant to the Cooperation Agreement, the Group and China Unicom delineate and designate the regions to jointly construct and operate one 5G access network nationwide. In certain regions, the 5G access network is constructed, operated and maintained by China Unicom, while the Group operates its 5G business relying on China Unicom’s network; whereas in other regions where the 5G access network is constructed, operated and maintained by the Group, China Unicom operates its 5G business relying on the Group’s network. Pursuant to the Cooperation Agreement, the Group and China Unicom co-share 5G spectrum resources while the 5G core network is respectively constructed, operated and maintained by each party. Both parties jointly ensure an unified standard on network planning, construction, operation, maintenance and service quality in the 5G network co-build and co-share regions, and assure the same service level be delivered. The 5G network co-build and co-share arrangement is agreed by the Group and China Unicom through coordination and promotion institution jointly established by both parties, in order to set up the relevant mechanism, system and rules with unanimous consensus reached by both parties. The main function of such joint coordination and promotion institution is to carry out joint network planning and investment decision, project initiation and acceptance and other related works, such as the determination of the location of 5G base stations and the types of equipment to be used, and coordinate the operation and maintenance of 5G co- build and co-share network in order to ensure the effective implementation of the Cooperation Agreement. For example, the timing, scale and location of the 5G base station construction, selection of equipment and appointment of maintenance suppliers across all regions are all negotiated and agreed by both parties with unanimous consensus. Under the joint operation, the business and branding of each party continue to operate independently, and the subscribers to the services are owned by each party, respectively. Revenues derived from each party’s subscribers are recognised by each party independently; cost and expenses are assumed by each party respectively; while assets constructed by each party and the related liabilities are recognised and assumed by each respective party. 238 China Telecom Corporation Limited Annual Report 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2021 15. INVENTORIES Materials and supplies Goods for resale 16. ACCOUNTS RECEIVABLE, NET Accounts receivable, net, are analysed as follows: Third parties China Telecom Group China Tower Other telecommunications operators in the PRC Less: Allowance for credit losses Note: 31 December 2021 2020 RMB million RMB million 410 3,417 3,827 484 2,833 3,317 31 December 2021 2020 Note RMB million RMB million (i) 25,067 1,889 9 475 27,440 (5,051) 22,389 23,688 1,784 23 441 25,936 (4,434) 21,502 (i) China Telecommunications Corporation together with its subsidiaries other than the Group are referred to as “China Telecom Group”. China Telecom Corporation Limited Annual Report 2021 239 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 16. ACCOUNTS RECEIVABLE, NET (continued) As at 31 December 2021 and 2020, the gross carrying amounts of accounts receivable from contracts with customers amounted to RMB27,339 million, and RMB25,836 million. Ageing analysis of accounts receivable from telephone and Internet subscribers based on the billing dates is as follows: Current, within 1 month 1 to 3 months 4 to 12 months More than 12 months Less: Allowance for credit losses 31 December 2021 2020 RMB million RMB million 7,164 1,683 1,620 1,079 11,546 (2,690) 8,856 7,068 1,601 1,481 921 11,071 (2,438) 8,633 Ageing analysis of accounts receivable from other telecommunications operators and enterprise customers based on dates of rendering of services is as follows: Current, within 1 month 1 to 3 months 4 to 12 months More than 12 months Less: Allowance for credit losses 31 December 2021 2020 RMB million RMB million 6,041 2,963 3,486 3,404 15,894 (2,361) 13,533 5,331 2,785 3,801 2,948 14,865 (1,996) 12,869 As at 31 December 2021 and 2020, included in the net balance of the Group’s accounts receivable are debtors with an aggregate carrying amount of RMB1,790 million and RMB1,694 million, respectively, which are past due as at the reporting date. Details of impairment assessment of accounts receivable for the year ended 31 December 2021 and 2020 are set out in Note 40. 240 China Telecom Corporation Limited Annual Report 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2021 17. CONTRACT ASSETS Gross carrying amount: Third parties China Telecom Group Less: Provision for impairment loss 31 December 2021 2020 RMB million RMB million 792 139 931 (19) 912 564 49 613 (9) 604 Contract assets mainly arise from contracts for the provision of industrial digitalisation services. The Group classifies these contract assets as current because the Group expects to realise them in its normal operating cycle which is generally within a year. 18. PREPAYMENTS AND OTHER CURRENT ASSETS Amounts due from China Telecom Group Amounts due from China Tower Amounts due from other telecommunications operators in the PRC Other receivables Less: Provision for impairment loss Prepayments in connection with terminal equipment purchases Prepaid expenses and deposits Value-added tax recoverable Note (i) 31 December 2021 2020 RMB million RMB million 2,756 63 207 4,404 (508) 4,843 3,184 9,636 24,585 1,189 138 204 6,569 (508) 6,080 2,994 8,501 25,167 Note: (i) As at 31 December 2021, amounts due from China Telecom Group included a short-term loan of RMB2,000 million granted to China Telecom Group by Finance Company, and an impairment allowance recognised at RMB40 million. The interest rate of the loan is 3.43% per annum. China Telecom Corporation Limited Annual Report 2021 241 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 19. CASH AND CASH EQUIVALENTS Cash at bank and in hand Time deposits with original maturity within three months 20. SHORT-TERM AND LONG-TERM DEBTS Short-term debts comprise: Loans from banks – unsecured Super short-term commercial papers – unsecured Loans from China Telecom Group – unsecured Total short-term debts 31 December 2021 2020 RMB million RMB million 71,757 1,524 73,281 23,193 491 23,684 31 December 2021 2020 RMB million RMB million 2,821 – – 2,821 4,831 11,999 11,164 27,994 The weighted average interest rate of the Group’s total short-term debts as at 31 December 2021 was 3.7% (31 December 2020: 2.8%) per annum. As at 31 December 2021, the Group’s loans from banks and other loans bear interest at rates ranging from 3.3% to 4.4% (31 December 2020: 3.3% to 4.4%) per annum, and are repayable within one year; as at 31 December 2020, super short-term commercial papers bear interest at rates ranging from 1.6% to 2.5% per annum, which were fully repaid in 2021; the loans from China Telecom Group bear interest at rate of 3.1% (31 December 2020: 3.1%) per annum, and were fully repaid in 2021. 242 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 20. SHORT-TERM AND LONG-TERM DEBTS (continued) Long-term debts comprise: Interest rates and final maturity 2021 2020 RMB million RMB million 31 December Bank loans – unsecured Renminbi denominated (Note (i)) Interest rates ranging from 1.08% to 1.20% per annum with maturities through 2036 6,179 6,975 US Dollars denominated Interest rates ranging from 1.25% to 2.00% per annum with maturities through 2028 185 224 Euro denominated Interest rate of 2.30% per annum with maturities through 2032 Other loans – unsecured Renminbi denominated Medium-term notes – unsecured (Note (ii)) Company bonds – unsecured (Note (iii)) Loans from China Telecom Group – unsecured Renminbi denominated (Note (iv)) Total long-term debts Less: Current portion Non-current portion 114 6,478 1 5,150 2,046 – 13,675 (6,280) 7,395 152 7,351 1 4,996 2,000 11,000 25,348 (1,126) 24,222 China Telecom Corporation Limited Annual Report 2021 243 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 20. SHORT-TERM AND LONG-TERM DEBTS (continued) Long-term debts comprise: (continued) Notes: (i) The Group obtained long-term RMB denominated government loans with below-market interest rates ranging from 1.08% to 1.20% per annum through banks (the “Low-interest Loans”). The Group recognised the Low-interest Loans at their fair value on initial recognition, and accreted the discount to profit or loss using the effective interest rate method. The difference between the fair value and face value of the Low-interest Loans was recognised as government grants in accrued expenses and other payables and other non-current liabilities. (ii) On 22 January 2019, the Group issued a three-year RMB denominated medium-term note, amounting to RMB3,000 million, with interest rate of 3.42% per annum, and incurred issuing costs of RMB3 million. The medium-term note is unsecured and is repayable on 21 January 2022. On 19 March 2019, the Group issued a three-year RMB denominated medium-term note, amounting to RMB2,000 million, with interest rate of 3.41% per annum and incurred issuing costs of RMB3 million. The medium-term note is unsecured and is repayable on 18 March 2022. (iii) (iv) On 10 March 2020, the Group issued three-year RMB denominated company bonds, amounting to RMB2,000 million, to qualified investors on Shanghai Stock Exchange, with interest rate of 2.90% per annum. The company bonds are unsecured and are repayable on 9 March 2023. On 25 December 2017, the Group obtained long-term RMB denominated loans, amounting to RMB40,000 million, from China Telecommunications Corporation, with interest rate of 3.8% per annum, which are repayable within 3 to 5 years. The Group fully repaid these loans amounting to RMB3,000 million, RMB13,700 million, RMB12,300 million and RMB11,000 million in 2018, 2019, 2020 and 2021 respectively. The aggregate maturities of the Group’s long-term debts subsequent to 31 December 2021 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 31 December 2021 2020 RMB million RMB million 6,280 3,103 1,028 995 647 1,622 13,675 1,126 17,081 3,009 984 952 2,196 25,348 The Group’s short-term and long-term debts do not contain any financial covenants. As at 31 December 2021, the Group had unutilised credit facilities amounting to RMB276,483 million (31 December 2020: RMB244,326 million). 244 China Telecom Corporation Limited Annual Report 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2021 21. ACCOUNTS PAYABLE Accounts payable are analysed as follows: Third parties China Telecom Group China Tower Other telecommunications operators in the PRC 31 December 2021 2020 RMB million RMB million 89,299 21,015 3,914 667 83,254 19,272 4,344 708 114,895 107,578 Amounts due to China Telecom Group and China Tower are payable in accordance with contractual terms which are similar to those terms offered by third parties. Ageing analysis of accounts payable based on the due dates is as follows: 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 31 December 2021 2020 RMB million RMB million 20,293 23,965 36,338 34,299 17,261 24,451 30,965 34,901 114,895 107,578 China Telecom Corporation Limited Annual Report 2021 245 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 22. ACCRUED EXPENSES AND OTHER PAYABLES 31 December 2021 2020 Note RMB million RMB million Amounts due to China Telecom Group Amounts due to China Tower Amounts due to other telecommunications operators in the PRC Accrued expenses Advanced payment received in respect of contribution from non-controlling interests (i) Value-added tax payable Deposits and rental receipt in advance Accrued salaries, wages and other benefits 15,249 1,596 22 24,041 – 1,029 5,777 8,051 55,765 11,279 1,192 34 31,356 978 600 5,807 5,807 57,053 Note: (i) For the year ended 31 December 2020, E-surfing Pay, a then subsidiary of the Company, received RMB978 million advanced payment in respect of contribution from non-controlling interests. 23. CONTRACT LIABILITIES Third parties China Telecom Group China Tower 31 December 2021 2020 RMB million RMB million 70,713 63,629 198 3 217 3 70,914 63,849 Majority of contract liabilities as at 31 December 2020 was recognised as operating revenues for the year ended 31 December 2021. 246 China Telecom Corporation Limited Annual Report 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2021 24. LEASE LIABILITIES Within one year Within a period of more than one year but not more than two years Within a period of more than two years but not more than five years Within a period of more than five years Less: Current portion Non-current portion 25. SHARE CAPITAL Registered, issued and fully paid 77,629,728,699 A shares (31 December 2020: 67,054,958,321 ordinary domestic shares) of RMB1.00 each 13,877,410,000 overseas listed H shares of RMB1.00 each 31 December 2021 2020 RMB million RMB million 13,809 8,779 14,447 5,367 42,402 (13,809) 28,593 13,192 12,585 11,138 3,732 40,647 (13,192) 27,455 31 December 2021 2020 RMB million RMB million 77,630 13,877 91,507 67,055 13,877 80,932 For the year ended 31 December 2021, the Company completed the A Share Offering and the total number of the shares issued in the A Share Offering was 10,574,770,378 shares at an offering price of RMB4.53 per share. On 20 August 2021, all 67,054,958,321 domestic shares of the Company were converted into the same number of A shares. China Telecom Corporation Limited Annual Report 2021 247 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 26. RESERVES The Group Capital reserve RMB million (Note (i)) Share premium RMB million Surplus reserves RMB million (Note (iii)) General risk reserve RMB million (Note (v)) Other reserves RMB million (Note (ii)) Exchange reserves RMB million Retained earnings RMB million Total RMB million Balance as at 1 January 2020 17,504 10,746 78,043 23 Total comprehensive income for the year Share of associates and joint ventures’ other changes in reserves Dividends (Note 37) Appropriations to statutory surplus reserve (Note (iii)) Appropriations to general risk reserve (Note (v)) – (36) – – – – – – – – – – – 1,811 – Balance as at 31 December 2020 17,468 10,746 79,854 Total comprehensive income for the year Issuance of shares upon A Shares Offering, net of issuing expenses Contribution from non-controlling interests Disposal of subsidiaries Share of associates and joint ventures’ other changes in reserves Dividends (Note 37) Appropriations to statutory surplus reserve (Note (iii)) Appropriations to general risk reserve (Note (v)) – – 463 – (42) – – – – 36,941 – – – – – – – – – – – – 2,423 – Balance as at 31 December 2021 17,889 47,687 82,277 – – – – 33 56 – – – (3) – – – 44 97 615 (294) – – – – 321 5 – – (28) – – – – (625) (312) 165,272 271,578 20,850 20,244 – – – – – (9,262) (1,811) (33) (36) (9,262) – – (937) (233) 175,016 282,524 25,948 25,720 – – – – – – – – – 31 – 36,941 463 – (42) (8,439) (8,439) (2,423) (44) – – 298 (1,170) 190,089 337,167 248 China Telecom Corporation Limited Annual Report 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2021 26. RESERVES (continued) The Company Capital reserve RMB million (Note (i)) Share premium RMB million Surplus reserves RMB million (Note (iii)) Other reserves RMB million (Note (ii)) Retained earnings RMB million (Note (iv)) Total RMB million Balance as at 1 January 2020 28,839 10,746 78,043 Total comprehensive income for the year Share of associates and joint ventures’ other changes in reserves Dividends (Note 37) Appropriations to statutory surplus reserve (Note (iii)) – (36) – – – – – – Balance as at 31 December 2020 28,803 10,746 Total comprehensive income for the year Issuance of shares upon A Shares Offering, net of issuing expenses Share of associates and joint ventures’ other changes in reserves Dividends (Note 37) Appropriations to statutory surplus reserve (Note (iii)) – – (42) – – – 36,941 – – – Balance as at 31 December 2021 28,761 47,687 – – – 1,811 79,854 – – – – 2,423 82,277 429 (297) – – – 132 45 – – – – 138,312 18,112 – (9,262) (1,811) 145,351 24,234 – – (8,439) (2,423) 256,369 17,815 (36) (9,262) – 264,886 24,279 36,941 (42) (8,439) – 177 158,723 317,625 China Telecom Corporation Limited Annual Report 2021 249 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 26. RESERVES (continued) Notes: (i) Capital reserve of the Group mainly 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; (b) the difference between the consideration paid by the Group for the entities acquired, from China Telecommunications Corporation, which were accounted for as equity transactions, and the historical carrying amount of the net assets of these acquired entities; and (c) the difference between the consideration paid by the Group for the acquisition of non-controlling interests and the carrying amount of the non-controlling interests acquired. 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 and the Company represent primarily the change in the fair value of investment in equity instruments at FVTOCI and the deferred tax liabilities recognised due to the change in fair value of those investment in equity instruments. (iii) The surplus 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 lower of the amount determined under the PRC Accounting Standards for Business Enterprises and the amount determined under IFRSs, 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 years ended 31 December 2021 and 2020, the net profit of the Company determined in accordance with the PRC Accounting Standards for Business Enterprises and IFRSs are the same. For the year ended 31 December 2021, the Company transferred RMB2,423 million (2020: RMB1,811 million), being 10% of the year’s net profit, to this reserve. As at 31 December 2021, the amount of statutory surplus reserve was RMB36,198 million (31 December 2020: RMB33,775 million). The Company did not transfer any discretionary surplus reserve for the years ended 31 December 2021 and 2020. As at 31 December 2021 and 2020, the amount of discretionary surplus reserve was RMB46,079 million. 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 statutory surplus reserve balance after such issue is not less than 25% of the registered capital. (iv) (v) 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 of the Company’s retained earnings determined in accordance with the PRC Accounting Standards for Business Enterprises and the amount determined in accordance with IFRSs. As at 31 December 2021, the amount of retained earnings available for distribution was RMB158,723 million (31 December 2020: RMB145,351 million), being the amount determined in accordance with IFRSs. Final dividend of approximately RMB15,569 million in respect of the financial year 2021 proposed after the end of the reporting period has not been recognised as a liability in the consolidated financial statements at the end of the reporting period (Note 37). Pursuant to “Requirements on Impairment Allowance for Financial Institutions” (Caijin [2012] No. 20) issued by the Ministry of Finance of the PRC effective on 1 July 2012 (the “Requirements”), the Group’s subsidiaries, mainly Finance Company, establish a general risk reserve within equity, through appropriation of retained earnings, to address unidentified potential losses relating to risk assets. The general risk reserve balance should not be less than 1.5% of the ending balance of risk assets, as defined in the Requirements. 250 China Telecom Corporation Limited Annual Report 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2021 27. OPERATING REVENUES Previously, the Group presented operating revenues as revenues from contracts with customers and revenues from other sources. Revenues from contracts with customers include revenues derived from voice, internet, information and application services, telecommunications network resource and equipment services and sales of goods and others. As a result of the deepening of the Group’s “Cloudification and Digital Transformation” strategy, the Group re-categorised the presentation of revenues in 2021. The new presentation categorises operating revenues into service revenues and sales of goods and others. Service revenues include revenues derived from mobile communications services, wireline and Smart Family services, Industrial Digitalisation services and other services. This change in presentation has no effect on reported operating revenues, operating expenses, net profits or net assets for any of the years presented. The comparative figures have been reclassified to conform to current year’s presentation. Disaggregation of revenue Type of goods or services Service revenues Mobile communications service revenues Wireline and Smart Family service revenues Industrial Digitalisation service revenues Other service revenues Sales of goods and others Total operating revenues Revenue from customer contracts Revenue from other sources and others Total operating revenues Timing of revenue recognition A point in time Over time Total operating revenues 2021 2020 Notes RMB million RMB million (i) (ii) (iii) (iv) (v) 402,827 184,157 113,522 98,945 6,203 36,725 439,552 431,910 7,642 439,552 31,332 408,220 439,552 373,798 175,564 109,018 83,968 5,248 19,763 393,561 387,991 5,570 393,561 16,141 377,420 393,561 China Telecom Corporation Limited Annual Report 2021 251 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 27. OPERATING REVENUES (continued) Notes: (i) (ii) (iii) Represent primarily the aggregate amount of mobile communications service fees, mobile Internet access service fees, caller ID service fees, short messaging service fees, etc., charged to customers for the provision of mobile services. Represent primarily the aggregate amount of wireline communications service fees, broadband Internet access service fees, e-Surfing HD service fees and Smart Family applications service fees charged to customers for the provision of wireline services. Represent primarily the aggregate amount of fees charged to customers for the provision of Internet datacentre services, cloud services, digital platform services, dedicated Internet access services, etc. (iv) Represent primarily the aggregate amount of revenues from property rental and other revenues. (v) Represent primarily revenues from sales of mobile terminal equipment as well as wireline communications equipment and government grant. As at 31 December 2021 and 2020, the aggregated amount of the transaction price allocated to the remaining performance obligations under the Group’s existing contracts represents revenue expected to be recognised in the future when service is provided over the contract terms over the next 1 to 3 years. 28. NETWORK OPERATIONS AND SUPPORT EXPENSES 2021 2020 Note RMB million RMB million Operating and maintenance Utility Network resources usage and related fee (i) 79,380 16,209 25,318 12,435 70,943 14,637 22,766 11,171 133,342 119,517 Others Note: (i) Network resources usage and related fee includes the variable lease payments not depending on an index or a rate and fee for non- lease components in respect of communications towers and related assets lease and fee in respect of the short-term leases and leases of low-value assets, variable lease payments not depending on an index or a rate and fee for non-lease components in respect of the usage of network resources provided by third parties. 252 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 29. PERSONNEL EXPENSES Personnel expenses are attributable to the following functions: Network operations and support Selling, general and administrative 30. OTHER OPERATING EXPENSES Interconnection charges Cost of goods sold Donations Others 2021 2020 RMB million RMB million 48,575 27,480 76,055 43,260 22,729 65,989 2021 2020 Notes RMB million RMB million (i) (ii) (iii) 12,858 30,415 12 1,803 45,088 12,050 15,440 13 1,571 29,074 Notes: (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 telecommunications networks. (ii) Cost of goods sold primarily represents cost of communications equipment sold. (iii) Others mainly include tax and surcharges other than value-added tax and income tax. 31. TOTAL OPERATING EXPENSES Total operating expenses for the year ended 31 December 2021 were RMB408,605 million (2020: RMB364,921 million) which include auditor’s remuneration in relation to audit and non-audit services (excluding value-added tax) of RMB57 million and RMB7 million respectively (2020: RMB72 million and RMB3 million). China Telecom Corporation Limited Annual Report 2021 253 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 32. NET FINANCE COSTS Interest expense on short-term and long-term debts Interest expense on lease liabilities Less: Interest expense capitalised* Net interest expense Interest income Foreign exchange losses Foreign exchange gains 2021 2020 RMB million RMB million 1,110 1,399 (105) 2,404 (1,104) 386 (393) 1,293 1,981 1,566 (114) 3,433 (582) 1,018 (855) 3,014 *Interest expense was capitalised in construction in progress at the following rates per annum 3.0%-4.5% 3.0%-4.4% 33. INCOME TAX Income tax in the profit or loss comprises: Provision for PRC income tax Provision for income tax in other tax jurisdictions Deferred taxation 2021 2020 RMB million RMB million 3,606 215 3,895 7,716 1,532 135 4,640 6,307 254 China Telecom Corporation Limited Annual Report 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2021 33. INCOME TAX (continued) A reconciliation of the expected tax expense with the actual tax expense is as follows: Profit before taxation Expected income tax expense at statutory tax rate of 25% Differential tax rate on mainland China subsidiaries’ and branches’ income Differential tax rate on other subsidiaries’ income Non-deductible expenses Non-taxable income Effect of change in tax rate Others Income tax expense 2021 2020 Notes RMB million RMB million (i) (i) (ii) (iii) (iv) (v) (vi) 33,864 8,466 27,387 6,847 (495) (70) 1,036 (522) – (699) 7,716 (306) (47) 915 (576) (29) (497) 6,307 Notes: (i) (ii) Except for certain subsidiaries and branches which are mainly taxed at the preferential rate of 15%, the provision for mainland China income tax is based on a statutory rate of 25% of the assessable income of the Company, its mainland China subsidiaries and branches as determined in accordance with the relevant income tax rules and regulations of the mainland China. Income tax provisions of the Company’s subsidiaries in Hong Kong and Macau Special Administrative Regions of the PRC, and in other countries are based on the subsidiaries’ assessable income and income tax rates applicable in the respective tax jurisdictions which range from 8% to 35%. (iii) Amounts represent miscellaneous expenses in excess of statutory deductible limits for tax purposes. (iv) Amounts represent share of profits of associates and joint ventures and miscellaneous income which are not subject to income tax. (v) Hainan branch of the Company obtained approval from tax authority to adopt the preferential income tax rate of 15% since 2020. Accordingly, deferred tax assets and deferred tax liabilities that were expected to be recovered or settled after 31 December 2019 were adjusted to reflect the change in tax rate. The overall effect of change in tax rate amounting to RMB29 million was credited to the consolidated statement of comprehensive income. (vi) Amounts primarily represent settlement of tax filing differences of prior year annual tax return and other tax benefits such as additional tax deduction from research and development expenses. China Telecom Corporation Limited Annual Report 2021 255 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 34. DIRECTORS’ AND SUPERVISORS’ REMUNERATION The following table sets out the remuneration of the Company’s directors and supervisors: 2021 Executive directors Ke Ruiwen Li Zhengmao Shao Guanglu Liu Guiqing Zhu Min1 Chen Zhongyue2 Non-executive director Chen Shengguang Independent non-executive directors3 Tse Hau Yin, Aloysius Xu Erming Wang Hsuehming Yeung Chi Wai, Jason Supervisors Sui Yixun4 Zhang Jianbin Dai Bin Xu Shiguang You Minqiang4 Salaries, Directors’/ allowances Retirement supervisors’ and benefits Discretionary scheme Share-based fees RMB in kind RMB bonuses5 contributions payments RMB RMB RMB Total RMB thousand thousand thousand thousand thousand thousand – – – – – – – 450 250 245 245 – – – – – 234 234 211 209 209 44 – – – – – 235 222 195 112 – 352 359 317 313 313 – – – – – – 688 747 690 338 – 1,190 1,905 4,117 119 119 114 102 95 11 – – – – – 100 100 98 80 – 938 – – – – – – – – – – – – – – – – – 705 712 642 624 617 55 – 450 250 245 245 1,023 1,069 983 530 – 8,150 256 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 34. DIRECTORS’ AND SUPERVISORS’ REMUNERATION (continued) 1 2 3 4 5 6 Madam Zhu Min resigned as an executive director, executive vice president, chief financial officer, secretary of the board and authorised representative of the Company on 27 December 2021. Mr Chen Zhongyue resigned as an executive director of the Company on 19 January 2021. The independent non-executive directors’ remunerations were for their services as directors of the Company. Mr Sui Yixun (“Mr Sui”) and Mr You Minqiang (“Mr You”) resigned from position as supervisors of the Company on 17 December 2021. The resignation of Mr Sui and Mr You shall take effect on the date of election of the proposed supervisors at an extraordinary general meeting of the Company to be convened on 22 March 2022. Prior to that, Mr Sui and Mr You will continue to carry out their duties as supervisors. The discretionary bonuses of the executive directors and supervisors were determined based on the Group’s performance. During the Reporting Period, the Company also settled the bonus for the year 2020, including RMB416 thousand for Ke Ruiwen, RMB381 thousand for Li Zhengmao, RMB343 thousand for Shaoguang Lu, RMB369 thousand for Chen Zhongyue and RMB364 thousand for each of Liu Guiqing and Zhu Min. The remuneration of all directors and supervisors were calculated based on their respective actual terms of office within this year. None of the directors or supervisors received any inducements for joining the Company or compensation for loss of office, or waived or agreed to waive any emoluments during this year. China Telecom Corporation Limited Annual Report 2021 257 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 34. DIRECTORS’ AND SUPERVISORS’ REMUNERATION (continued) Salaries, Directors’/ allowances Retirement supervisors’ and benefits Discretionary scheme Share-based fees RMB in kind RMB bonuses8 contributions payments RMB RMB RMB Total RMB thousand thousand thousand thousand thousand thousand 2020 Executive directors Ke Ruiwen Li Zhengmao1 Shao Guanglu1 Liu Guiqing Zhu Min Chen Zhongyue2 Wang Guoquan3 Gao Tongqing4 Non-executive director Chen Shengguang Independent non-executive directors7 Tse Hau Yin, Aloysius Xu Erming Wang Hsuehming Yeung Chi Wai, Jason Supervisors Sui Yixun Zhang Jianbin Dai Bin5 Xu Shiguang You Minqiang5 Yang Jianqing6 Ye Zhong6 – – – – – – – – – 477 250 261 261 – – – – – – – 221 129 116 197 197 199 181 17 – – – – – 227 214 110 118 – – – 527 434 436 464 464 468 447 16 – – – – – 494 494 202 335 – – – 73 48 46 59 52 71 42 8 – – – – – 49 49 26 33 – – – – – – – – – – – – – – – – – – – – – – – – 821 611 598 720 713 738 670 41 – 477 250 261 261 770 757 338 486 – – – 8,512 1,249 1,926 4,781 556 258 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 34. DIRECTORS’ AND SUPERVISORS’ REMUNERATION (continued) 1 2 3 4 5 6 7 8 9 Mr Li Zhengmao and Mr Shao Guanglu was appointed as executive directors of the Company on 26 May 2020. Mr Chen Zhongyue resigned as an executive director of the Company on 19 January 2021. Mr Wang Guoquan resigned as an executive director of the Company on 4 December 2020. Mr Gao Tongqing resigned as an executive director of the Company on 17 January 2020. Mr Dai Bin and Mr You Minqiang was appointed as supervisors of the Company on 26 May 2020. Mr Yang Jianqing and Mr Ye Zhong retired as supervisors of the Company on 26 May 2020. The independent non-executive directors’ remuneration were for their services as directors of the Company. The discretionary bonuses of the executive directors and supervisors were determined based on the Group’s performance. The remuneration of all directors and supervisors were calculated based on their respective actual terms of office within this year. None of the directors or supervisors received any inducements for joining the Company or compensation for loss of office, or waived or agreed to waive any emoluments during this year. 35. INDIVIDUALS WITH HIGHEST EMOLUMENTS AND SENIOR MANAGEMENT REMUNERATION (a) Five highest paid individuals None of the five highest paid individuals of the Group for the years ended 31 December 2021 and 2020 were directors of the Company. The aggregate of the emoluments in respect of the five (2020: five) individuals (non-directors) are as follows: Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions 2021 2020 RMB thousand RMB thousand 5,321 4,977 479 8,248 2,423 46 10,777 10,717 China Telecom Corporation Limited Annual Report 2021 259 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 35. INDIVIDUALS WITH HIGHEST EMOLUMENTS AND SENIOR MANAGEMENT REMUNERATION (continued) (a) Five highest paid individuals (continued) The emoluments of the five (2020: five) individuals (non-directors) with the highest emoluments are within the following bands: RMB0 – RMB1,000,000 RMB1,000,001 – RMB1,500,000 RMB1,500,001 – RMB2,000,000 More than RMB2,000,001 2021 2020 Number of Number of individuals individuals – – 1 4 – – 4 1 None of these employees received any inducements for joining the Company or compensation for loss of office, or waived any emoluments during the years presented. (b) Senior management remuneration The emoluments of the Group’s senior management are within the following bands: RMB0 – RMB1,000,000 RMB1,000,001 – RMB1,500,000 RMB1,500,001 – RMB2,000,000 2021 2020 Number of Number of individuals individuals 18 – – 21 – – 260 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 36. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY For the year ended 31 December 2021, the consolidated profit attributable to equity holders of the Company includes a profit of RMB24,234 million which has been dealt with in the stand-alone financial statements of the Company. For the year ended 31 December 2020, the consolidated profit attributable to equity holders of the Company includes a profit of RMB18,112 million which has been dealt with in the stand-alone financial statements of the Company. 37. DIVIDENDS Pursuant to a resolution passed at the Board of Directors’ meeting on 17 March 2022, a final dividend of RMB0.170 per share (pre-tax) totalling approximately RMB15,569 million for the year ended 31 December 2021 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 2021. Pursuant to the shareholders’ approval at the Annual General Meeting held on 7 May 2021, a final dividend of RMB0.104269 (equivalent to HK$0.125) per share (pre-tax) totalling RMB8,439 million in respect of the year ended 31 December 2020 was declared, and paid on 1 June 2021. Pursuant to the shareholders’ approval at the Annual General Meeting held on 26 May 2020, a final dividend of RMB0.114441 (equivalent to HK$0.125) per share (pre-tax) totalling RMB9,262 million in respect of the year ended 31 December 2019 was declared, and paid on 31 July 2020. 38. EARNINGS PER SHARE The calculation of basic earnings per share for the years ended 31 December 2021 and 2020 is based on the profit attributable to equity holders of the Company of RMB25,948 million and RMB20,850 million, respectively, divided by the weighted average number of 84,442,405,521 shares and 80,932,368,321 shares in issue. The amount of diluted earnings per share equals basic earnings per share as there were no potential ordinary shares in existence for the years presented. China Telecom Corporation Limited Annual Report 2021 261 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 39. COMMITMENTS AND CONTINGENCIES Capital commitments As at 31 December 2021 and 2020, the Group had capital commitments as follows: Contracted for but not provided Property Telecommunications network plant and equipment Contingent liabilities 31 December 2021 2020 RMB million RMB million 1,831 18,942 20,773 1,202 18,997 20,199 (a) The Group assessed and concluded that no material contingent liabilities were assumed by the Group with assistance of the PRC lawyers. (b) As at 31 December 2021 and 2020, 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. 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 based on such assessment, believes that any resulting liabilities will not have a material adverse effect on the financial position, operating results or cash flows of the Group. 262 China Telecom Corporation Limited Annual Report 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2021 40. FINANCIAL INSTRUMENTS Financial assets of the Group include cash and cash equivalents, bank deposits and restricted cash, equity instruments at fair value through other comprehensive income, accounts receivable, financial assets at fair value through profit or loss and financial assets included in prepayments and other current assets. Financial liabilities of the Group include short-term and long-term debts, accounts payable and financial liabilities included in accrued expenses and other payables. (a) Fair Value Measurements Based on IFRS 13, “Fair Value Measurement”, the fair value of each financial instrument is categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows: • Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments • Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data • Level 3: fair values measured using valuation techniques in which any significant input is not based on observable market data The fair values of the Group’s financial instruments (other than long-term debts and financial instruments measured at fair value) approximate their carrying amounts due to the short-term maturity of these instruments. The listed equity securities investments included in the Group’s equity instruments at fair value through other comprehensive income are categorised as level 1 financial instruments. As at 31 December 2021, the fair value of the Group’s listed equity securities investments is RMB942 million (31 December 2020: RMB838 million) based on quoted market price on PRC stock exchanges. The Group’s investments in unlisted equity securities, included in equity instruments at fair value through other comprehensive income, are classified as financial instruments categorised as level 3. China Telecom Corporation Limited Annual Report 2021 263 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 40. FINANCIAL INSTRUMENTS (continued) (a) Fair Value Measurements (continued) The fair value of long-term debts is estimated by discounting future cash flows using current market interest rates offered to the Group for debts with substantially the same characteristics and maturities. The fair value measurement of long-term debts is categorised as level 2. The interest rates used by the Group in estimating the fair values of long-term debts, having considered the foreign currency denomination of the debts, ranged from 2.9% to 4.9% (31 December 2020: 2.9% to 4.9%). As at 31 December 2021 and 2020, the carrying amounts and fair values of the Group’s long-term debts were as follows: 31 December 2021 31 December 2020 Carrying amount Fair value Carrying amount Fair value RMB million RMB million RMB million RMB million Long-term debts 13,675 13,444 25,348 25,294 During the year, there were no transfers among instruments in level 1, level 2 or level 3. (b) Risks The Group’s financial instruments are exposed to three main types of risks, namely, credit risk, liquidity risk and market risk (which mainly 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) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. For the Group, this arises mainly from deposits it maintains at financial institutions and credit it provides to customers for the provision of telecommunications services. 264 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 40. FINANCIAL INSTRUMENTS (continued) (b) Risks (continued) (i) Credit risk (continued) Cash and cash equivalents, short-term bank deposits and restricted cash To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large state-owned financial institutions in the PRC with acceptable credit ratings. The credit risks on bank balances are limited because the counterparties are banks with high credit ratings. Accounts receivable and contract assets arising from contracts with customers For accounts receivable and contract assets, management performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on accounts receivable and contract assets. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. In addition, the Group performs impairment assessment under ECL model on trade balances individually or based on provision matrix. Furthermore, the Group has a diversified base of customers with no single customer contributing more than 10% of revenues for the years presented. The Group measures loss allowances for accounts receivable and contract assets at an amount equal to lifetime ECL, which is calculated using a provision matrix, or individually assessed for those debtors with significant balances or credit-impaired debtors. As different loss patterns were indicated during the analysis of the Group’s historical credit loss experience between telephone and Internet subscribers and enterprise customers, the following tables provide information about the Group’s exposure to credit risk and ECL for accounts receivable and contract assets from telephone and Internet subscribers and enterprise customers, respectively, as at 31 December 2021 and 2020: China Telecom Corporation Limited Annual Report 2021 265 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 40. FINANCIAL INSTRUMENTS (continued) (b) Risks (continued) (i) Credit risk (continued) Accounts receivable and contract assets arising from contracts with customers (continued) Accounts receivable from telephone and Internet subscribers: Current, within 1 month 1 to 3 months 4 to 6 months 7 to 12 months Over 12 months Current, within 1 month 1 to 3 months 4 to 6 months 7 to 12 months Over 12 months 31 December 2021 Expected Gross carrying Loss loss rate amount allowance % 2% 20% 60% 80% 100% RMB million RMB million 7,164 1,683 692 928 1,079 11,546 133 329 407 742 1,079 2,690 31 December 2020 Expected Gross carrying Loss loss rate amount allowance % 2% 20% 60% 80% 100% RMB million RMB million 7,068 1,601 561 920 921 132 317 333 735 921 11,071 2,438 266 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 40. FINANCIAL INSTRUMENTS (continued) (b) Risks (continued) (i) Credit risk (continued) Accounts receivable and contract assets arising from contracts with customers (continued) Accounts receivable and contract assets from enterprise customers: 1 to 6 months 7 to 12 months 1 to 2 years 2 to 3 years Over 3 years 1 to 6 months 7 to 12 months 1 to 2 years 2 to 3 years Over 3 years 31 December 2021 Expected Gross carrying Loss loss rate amount allowance % 3% 21% 65% 97% 100% RMB million RMB million 7,299 1,068 948 364 467 182 223 619 355 467 10,146 1,846 31 December 2020 Expected Gross carrying Loss loss rate amount allowance % 2% 22% 67% 100% 100% RMB million RMB million 6,031 1,120 685 347 324 124 232 445 333 324 8,507 1,458 As at 31 December 2021, the loss allowance for accounts receivable and contract assets was RMB5,051 million and RMB19 million (2020: RMB4,434 million and RMB9 million), respectively. Loss allowance of RMB517 million as at 31 December 2021 (2020: RMB547 million), which was not calculated collectively in the above tables, was made individually on debtors with significant balances or credit-impaired debtors. China Telecom Corporation Limited Annual Report 2021 267 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 40. FINANCIAL INSTRUMENTS (continued) (b) Risks (continued) (i) Credit risk (continued) Accounts receivable and contract assets arising from contracts with customers (continued) Expected loss rates are based on actual loss experience over the past 1 to 3 years. These rates are adjusted to reflect differences between economic conditions during the period over which the historical data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the receivables. Movement in the loss allowance account in respect of accounts receivable is as follows: At beginning of year Impairment losses for ECL Amounts written off At end of year (ii) Liquidity risk 2021 2020 RMB million RMB million 4,434 1,689 (1,072) 5,051 4,692 1,382 (1,640) 4,434 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. 268 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 40. FINANCIAL INSTRUMENTS (continued) (b) Risks (continued) (ii) Liquidity risk (continued) The following table sets out the remaining contractual maturities at the end of the reporting period of the Group’s financial liabilities and lease 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 end of the reporting period) and the earliest date the Group would be required to repay: 31 December 2021 Total More than More than contractual Within 1 year but 2 years but Carrying undiscounted 1 year or less than less than More than amount cash flow on demand 2 years 5 years 5 years RMB million RMB million RMB million RMB million RMB million RMB million 2,821 13,675 2,870 15,038 2,870 6,415 114,895 114,895 114,895 35,111 42,402 34 35,241 46,068 34 35,241 15,193 12 – 3,218 – – 9,556 22 – 3,201 – – 15,560 – 208,938 214,146 174,626 12,796 18,761 – 2,204 – – 5,759 – 7,963 31 December 2020 Total More than More than contractual Within 1 year but 2 years but Carrying undiscounted 1 year or amount cash flow on demand less than 2 years less than 5 years More than 5 years RMB million RMB million RMB million RMB million RMB million RMB million 27,994 25,348 28,417 27,805 28,417 1,410 107,578 107,578 107,578 56,775 40,647 56,775 43,896 56,775 14,449 258,342 264,471 208,629 – 17,838 – – 13,363 31,201 – 5,609 – – 12,110 17,719 – 2,948 – – 3,974 6,922 Short-term debts Long-term debts Accounts payable Accrued expenses and other payables Lease liabilities Other non-current liabilities Short-term debts Long-term debts Accounts payable Accrued expenses and other payables Lease liabilities Management believes that the Group’s current cash on hand, expected cash flows from operations and available credit facilities from banks (Note 20) will be sufficient to meet the Group’s working capital requirements and repay its borrowings and obligations when they become due. China Telecom Corporation Limited Annual Report 2021 269 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 40. FINANCIAL INSTRUMENTS (continued) (b) Risks (continued) (iii) Interest rate risk The Group’s interest rate risk exposure arises primarily from its short-term debts 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 closely monitoring the change in the market interest rate. The following table sets out the interest rate profile of the Group’s debts at the end of the reporting period: 31 December 2021 31 December 2020 Effective interest Effective interest rate % RMB million rate % RMB million 3.6 2.1 3.7 2,146 13,675 15,821 675 675 16,496 95.9% 2.7 2.7 3.3 22,719 25,348 48,067 5,275 5,275 53,342 90.1% Fixed rate debts Short-term debts Long-term debts Variable rate debts Short-term debts Total debts Fixed rate debts as a percentage of total debts Management does not expect the increase or decrease in interest rate will materially affect the Group’s financial position and result of operations because the interest rates of 95.9% (31 December 2020: 90.1%) of the Group’s short-term and long-term debts as at 31 December 2021 are fixed as set out above. 270 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 40. FINANCIAL INSTRUMENTS (continued) (b) Risks (continued) (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 mainly relates to bank deposits and borrowings denominated primarily in US dollars, Euros 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 89.6% (31 December 2020: 73.0%) of the Group’s cash and cash equivalents and 98.2% (31 December 2020: 99.3%) of the Group’s short-term and long-term debts as at 31 December 2021 are denominated in Renminbi. Details of bank loans denominated in other currencies are set out in Note 20. 41. 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 debts to total assets ratio. For this purpose the Group defines total debts as the sum of short-term debts and long-term debts. Total debts do not include balance of deposits received by Finance Company from China Telecom Group amounting to RMB13,016 million and lease liabilities amounting to RMB42,402 million as at 31 December 2021 (31 December 2020: RMB9,826 million and RMB40,647 million). As at 31 December 2021, the Group’s total debt-to-total assets ratio was 2.2% (31 December 2020: 7.5%), which is within the range of management’s expectation. Except Finance Company is subject to certain capital requirements imposed by China Banking and Insurance Regulatory Commission, neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. China Telecom Corporation Limited Annual Report 2021 271 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 42. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated statement of cash flows as cash flows from financing activities. Short-term debts RMB million Long-term debts RMB million Lease liabilities RMB million Dividend payable RMB million Other payables in respect of certain equity transactions RMB million Deposits with Finance Company RMB million (Note (i)) Total RMB million Balance as at 1 January 2020 Financing cash flows Foreign exchange loss New leases Acquisition of non-controlling interests Distribution to non-controlling interests Dividends declared Others Balance as at 31 December 2020 Financing cash flows Foreign exchange loss New leases Disposal of subsidiaries Acquisition of non-controlling interests Distribution to non-controlling interests Dividends declared Others 42,527 (14,533) – – – – – – 27,994 (23,473) – – (1,700) – – – – Balance as at 31 December 2021 2,821 36,495 (11,400) (13) – – – – 266 25,348 (12,091) (18) – – – – – 42,146 (12,738) (16) 13,561 – – – (2,306) 40,647 (14,035) (8) 17,080 (42) – – – 436 13,675 (1,240) 42,402 – (9,304) 4,098 5,728 – – – 42 9,262 – – (8,551) – – – – 116 8,439 – 4 – – – – – – 9,826 3,190 – – – – – – – 13,016 – 977 – – 1 – – – 978 – – – – (978) – – – – 125,266 (41,270) (29) 13,561 1 42 9,262 (2,040) 104,793 (54,960) (26) 17,080 (1,742) (978) 116 8,439 (804) 71,918 Notes: (i) (ii) As at 31 December 2021, the balance of deposits with Finance Company amounting to RMB13,016 million (31 December 2020: RMB9,826 million) were included in amounts due to China Telecom Group in accrued expenses and other payables (Note 22). For the year ended 31 December 2021, other than the net financing cash outflows totalling RMB54,960 million (2020: RMB41,270 million) as presented above, other primary financing activities include proceeds from A Shares Offering in 2021 (net of issuing expenses) of RMB47,516 million (2020: nil), and Finance Company, a subsidiary of the Company, placed statutory deposit reserves amounting to RMB177 million (2020: RMB837 million) at the People’s Bank of China which was included in the balance of short-term bank deposits and restricted cash as at 31 December 2021. 272 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 43. RELATED PARTY TRANSACTIONS (a) Transactions with China Telecom Group The Group is a part of companies under China Telecommunications Corporation, a company owned by the PRC government, and has significant transactions and business relationships with members of China Telecom Group. The principal transactions with China Telecom Group are as follows. These transactions constitute continuing connected transactions under the Listing Rules and the Company has complied with the relevant disclosure requirements under Chapter 14A of the Listing Rules. Further details of these continuing connected transactions are disclosed under the paragraph “Continuing Connected Transactions” in the “Significant Events”. Notes 2021 RMB million 2020 RMB million Construction engineering and design services Receiving ancillary services Interconnection revenues Interconnection charges Receiving community services Net transaction amount of centralised services Property lease income Property lease related expenses Addition to right-of-use assets Interest expense on lease liabilities Provision of IT services Receiving IT services Purchases of telecommunications equipment and materials Sales of telecommunications equipment and materials Internet applications channel services Interest expense on loans from China Telecom Group* Consideration received from disposal of subsidiaries Payment and digital finance related services Others* Net deposit by China Telecom Group with Finance Company* Interest expense on the deposit by China Telecom Group with Finance Company* Short-term loans granted by Finance Company to China Telecom Group Interest income from loans granted by Finance Company to China Telecom Group (i) (ii) (iii) (iii) (iv) (v) (vi) (vii) (vii) (vii) (viii) (viii) (ix) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xv) (xv) (xv) 15,869 22,613 52 131 3,899 962 50 636 240 17 1,186 3,548 4,105 3,901 60 356 4,072 802 218 3,190 182 2,000 1 15,046 18,903 54 123 3,682 268 45 581 335 16 556 2,653 3,567 2,070 73 975 – – 243 5,728 82 – – China Telecom Corporation Limited Annual Report 2021 273 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 43. RELATED PARTY TRANSACTIONS (continued) (a) Transactions with China Telecom Group (continued) * These transactions are conducted on normal commercial terms or better and are fully exempted from compliance with the reporting, announcement, independent shareholders’ approval and/or annual review requirements under Rules 14A.76 or 14A.90 of the Listing Rules. Notes: (i) (ii) (iii) (iv) (v) Represent construction and engineering as well as design and supervisory services provided by China Telecom Group. 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 received and receivable from/paid and payable to China Telecom Group for interconnection of local and domestic long distance calls. Represent amounts paid and payable to China Telecom Group in respect of cultural, educational, health care and other community services. Represent net amount shared between the Company and China Telecom Group for costs associated with centralised services. The amount represents amounts received or receivable for the net amount of centralised services. (vi) Represent amounts of property lease fee received and receivable from China Telecom Group for leasing of properties. (vii) Represent amounts in respect of the leasing of properties from China Telecom Group. Property lease related expenses include the fee for short-term leases, leases of low-value assets, variable lease payments not depending on an index or a rate and fee for non-lease components. (viii) Represent IT services provided to and received from China Telecom Group. (ix) (x) (xi) Represent the amount of telecommunications equipment and materials purchased from/sold to China Telecom Group and commission paid and payable for procurement services provided by China Telecom Group. Represent amounts received and receivable from China Telecom Group in respect of Internet applications channel services, including the provision of communications channel and applications support platform and billing and deduction services, etc. Represent interest paid and payable to China Telecom Group with respect to the loans from China Telecom Group (Note 20). (xii) Represent consideration received in respect of disposal of subsidiaries from China Telecom Group. (xiii) Represent amounts paid and payable to China Telecom Group in respect of payment and digital finance related services. (xiv) Represent amounts paid and payable to China Telecom Group primarily for usage of certain mobile communications network facilities located in Xizang Autonomous Region, certain inter-provincial transmission optic fibres within its service regions and certain land use rights. (xv) Represent amounts related to financial services provided by Finance Company to China Telecom Group, including lending service, deposit service and other financial services. 274 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 43. RELATED PARTY TRANSACTIONS (continued) (a) Transactions with China Telecom Group (continued) Amounts due from/to China Telecom Group are summarised as follows: Accounts receivable Contract assets Prepayments and other current assets Total amounts due from China Telecom Group Accounts payable Accrued expenses and other payables Contract liabilities Lease liabilities Short-term debts Long-term debts Total amounts due to China Telecom Group 31 December 2021 2020 RMB million RMB million 1,889 139 2,716 4,744 21,015 15,249 198 501 – – 36,963 1,784 49 1,189 3,022 19,272 11,279 217 489 11,164 11,000 53,421 Amounts due from/to China Telecom Group, other than short-term debts, long-term debts and deposit with Finance Company included in accrued expenses and other payables (Note 42(i)), bear no interest, are unsecured and are repayable in accordance with contractual terms which are similar to those terms offered by third parties. The terms and conditions associated with short-term debts and long-term debts due to China Telecom Group are set out in Note 20. China Telecom Corporation Limited Annual Report 2021 275 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 43. RELATED PARTY TRANSACTIONS (continued) (b) Transactions with China Tower The principal transactions with China Tower are as follows. These transactions do not constitute connected transactions under the Listing Rules. Tower assets lease related expenses Addition to right-of-use assets Interest expenses on lease liabilities Provision of IT services 2021 2020 Notes RMB million RMB million (i) (i) (i) (ii) 11,438 2,829 630 31 10,746 3,645 805 31 Notes: (i) Represent amounts in respect of the lease of tower assets. Tower assets lease related expenses include the variable lease payments not depending on an index or a rate and fee for non-lease components. (ii) Represent IT and other ancillary services provided to China Tower. Amounts due from/to China Tower are summarised as follows: Accounts receivable Prepayments and other current assets Total amounts due from China Tower Accounts payable Accrued expenses and other payables Contract liabilities Lease liabilities Total amounts due to China Tower 31 December 2021 2020 RMB million RMB million 9 45 54 3,914 1,596 3 13,806 19,319 23 138 161 4,344 1,192 3 19,798 25,337 Amounts due from/to China Tower bear no interest, are unsecured and are repayable in accordance with contractual terms which are similar to those terms offered by third parties. 276 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 43. RELATED PARTY TRANSACTIONS (continued) (c) 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 The above remuneration is included in personnel expenses. 2021 2020 RMB thousand RMB thousand 10,289 1,032 11,321 8,727 628 9,355 China Telecom Corporation Limited Annual Report 2021 277 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 43. RELATED PARTY TRANSACTIONS (continued) (d) Transactions with other government-related entities in the PRC The Group is a government-related enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the People’s Republic of China through government authorities, agencies, affiliations and other organisations (collectively referred to as “government-related entities”). Apart from transactions with parent company and its fellow subsidiaries (Note 43(a)) and China Tower (Note 43(b)), the Group has transactions that are collectively but not individually significant with other government-related entities, which include but not limited to the following: • • • • • rendering and receiving services, including but not limited to telecommunications services sales and purchases of goods, properties and other assets lease of assets depositing and borrowing 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 government-related. 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 procurement policies and approval processes for purchases of products and services, which do not depend on whether the counterparties are government-related entities or not. The directors of the Company believe the above information provides appropriate disclosure of related party transactions. 278 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 44. INFORMATION ABOUT THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY 31 December 2021 2020 Note RMB million RMB million ASSETS Non-current assets Property, plant and equipment, net Construction in progress Right-of-use assets Goodwill Intangible assets Investments in subsidiaries 9 Interests in associates and joint ventures Equity instruments at fair value through other comprehensive income Deferred tax assets Other assets Total non-current assets Current assets Inventories Income tax recoverable Accounts receivable, net Contract assets Prepayments and other current assets Short-term bank deposits and restricted cash Cash and cash equivalents Total current assets Total assets 404,882 415,515 44,018 60,288 29,877 18,093 30,716 40,901 921 6,196 6,832 47,319 58,702 29,877 16,810 16,045 39,873 865 7,802 4,569 642,724 637,377 1,391 419 19,178 600 16,598 14 50,812 89,012 1,431 232 18,614 443 17,546 1,617 12,104 51,987 731,736 689,364 China Telecom Corporation Limited Annual Report 2021 279 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 44. INFORMATION ABOUT THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY (continued) LIABILITIES AND EQUITY Current liabilities Short-term debts Current portion of long-term debts Accounts payable Accrued expenses and other payables Contract liabilities Income tax payable Current portion of lease liabilities Total current liabilities Net current liabilities Total assets less current liabilities Non-current liabilities Long-term debts Lease liabilities Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities Equity Share capital Reserves Total equity Total liabilities and equity 31 December 2021 2020 Note RMB million RMB million 28,421 6,280 56,403 1,126 105,447 102,528 41,921 63,439 196 13,555 259,259 36,292 57,506 87 12,896 266,838 (170,247) (214,851) 472,477 422,526 7,395 28,168 26,400 1,382 63,345 24,222 27,010 23,915 1,561 76,708 322,604 343,546 91,507 317,625 409,132 731,736 80,932 264,886 345,818 689,364 26 280 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 45. POST-EMPLOYMENT BENEFITS PLANS As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by municipal, autonomous regional and provincial governments for its employees. The Group is required to make contributions to the retirement plans at rates ranging from 14% to 20% of the salaries, bonuses and certain allowances of the employees, while the PRC government resolved to waive certain proportion of such contributions during the specific period affected by Covid-19 in order to help enterprises withstand the pandemic and stabilise employment for the year ended 31 December 2020. 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. Other than the above, the Group also participates in supplementary defined contribution retirement plans managed by independent external parties whereby the Group is required to make contributions to the retirement plans at fixed rates of the employees’ salaries, bonuses and certain allowances. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. During the year ended 31 December 2021, no forfeited contributions may be used by the Group to reduce the existing level of contributions (2020: nil). The Group’s contributions for the above plans for the year ended 31 December 2021 were RMB9,042 million (31 December 2020: RMB6,599 million). The amount payable for contributions to the above defined contribution retirement plans as at 31 December 2021 was RMB737 million (31 December 2020: RMB746 million). 46. SHARE APPRECIATION RIGHTS The Company implemented a share appreciation rights plan for members of its management to provide incentives to these employees. Under this plan, share appreciation rights are granted in units with each unit representing one H share. No shares will be issued under the share appreciation rights plan. Upon exercise of the share 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 share 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 Group recognises compensation expense of the share appreciation rights over the applicable period. In November 2018, the Company approved the granting of 2,394 million share appreciation right units to eligible employees. Under the terms of this grant, all share appreciation rights had a contractual life of five years from date of grant and an exercise price of HK$3.81 per unit. A recipient of share appreciation rights may exercise the rights in stages commencing November 2020. As at each of the third, fourth and fifth anniversary of the date of grant, the total number of share appreciation rights exercisable may not in aggregate exceed 33.3%, 66.7% and 100.0%, respectively, of the total share appreciation rights granted to such person. China Telecom Corporation Limited Annual Report 2021 281 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 46. SHARE APPRECIATION RIGHTS (continued) In March 2021, the Company approved the adoption of the Phase II Incentive Scheme for Share Appreciation Rights and the granting of approximately 2.4 billion share appreciation right units to eligible employees. Under the terms of this grant, all share appreciation rights had a contractual life of five years from date of grant and an exercise price of HK$2.686 per unit. At the balance sheet date, the Company used the Binomial Model to determine the fair value of the share appreciation rights. The model inputs to determine the fair value of share appreciation rights granted included the closing price at the grant date, exercise price, years to maturity, expected volatility, risk-free interest rate, dividend payout ratio, the lower price limit on expected exercise date and expected turnover rate. Movements in the number of share appreciation rights for the years presented are as follows: As at 1 January Granted Forfeited Exercised Expired As at 31 December 2021 2020 2,317,800,000 2,326,135,000 2,401,745,000 – (2,985,000) (8,335,000) – – – – 4,716,560,000 2,317,800,000 During the year ended 31 December 2021 and 2020, no share appreciation right units were exercised. For the year ended 31 December 2021, compensation expense of RMB505 million was recognised by the Group in respect of share appreciation rights. For the year ended 31 December 2020, compensation expense of RMB101 million was reversed by the Group in respect of share appreciation rights. As at 31 December 2021, the carrying amount of the liability arising from share appreciation rights was RMB571 million (31 December 2020: RMB65 million). 282 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 47. ACCOUNTING ESTIMATES AND JUDGMENTS 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 judgments and estimates on historical experience and on other factors that the management believes to be reasonable and which form the basis for making judgments 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 judgments 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 3. Management believes the following significant accounting policies involve the most significant judgments and estimates used in the preparation of the consolidated financial statements. Provision of ECL for accounts receivable The Group uses provision matrix to calculate ECL for the accounts receivable. The provision rates are based on customer’s past history of making payments when due and current ability to pay by groupings of various debtors that have similar loss patterns. The provision matrix is based on the Group’s historical credit loss experience taking into consideration reasonable and supportable forward-looking information that is available without undue cost or effort. The historical loss rates are reassessed annually, and changes in the forward- looking information are considered. The Group has taken into account various macroeconomic scenarios in consideration of forward-looking information of enterprise customers, and applied weightings of the following three economic scenarios as well as related forward-looking factors. For the years presented, the weighting of “Neutral”, “Positive”, and “Negative” scenarios is 60%, 20% and 20%, respectively. The Group regularly monitors and reviews the related assumptions used in calculation of ECL, which include the risk of economic slowdown, changes of external market environment and technological environment and customers’ conditions, Retail Price Index (“RPI”), Producer Price Index (“PPI”) and Gross Domestic Product (“GDP”), etc. In addition, accounts receivable with significant balances or credit-impaired are assessed for ECL individually. The provision of ECL is sensitive to changes in estimates. The information about the ECL and the Group’s accounts receivable are disclosed in Notes 40 and 16. China Telecom Corporation Limited Annual Report 2021 283 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 47. ACCOUNTING ESTIMATES AND JUDGMENTS (continued) Impairment of goodwill and 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 3(h). The carrying amounts of the Group’s long- lived assets, including property, plant and equipment, intangible assets with finite useful lives, construction in progress, right-of-use assets and contract costs 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 reporting period. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and fair value less costs of disposal. 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 fair value 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 judgment 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. For the year ended 31 December 2021, no significant provision for impairment loss was made against the carrying value of long-lived assets. For the year ended 31 December 2020, provision for impairment loss of RMB5,042 million was made against the carrying value of property, plant and equipment (Note 4), mainly based on the impairment test on the 3G Assets on the basis of each individual asset. In determining the recoverable amount of the assets within the cash-generating unit, significant judgments were required in estimating future cash flows, level of revenue, amount of operating costs and applicable discount rate. 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. Furthermore, the financial budgets, growth rate and discount rate are subject to greater uncertainties in the current year due to uncertainty on how the Covid-19 pandemic may progress and evolve and volatility in financial markets. Depreciation and amortisation Property, plant and equipment and intangible assets with finite useful lives are depreciated and amortised 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 and amortisation 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 take into account anticipated technological changes. The depreciation and amortisation expense for future periods is adjusted if there are significant changes from previous estimates. 284 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 48. POSSIBLE IMPACT OF NEW AND AMENDMENTS TO STANDARDS ISSUED BUT NOT YET EFFECTIVE FOR THE ANNUAL ACCOUNTING PERIOD ENDED 31 DECEMBER 2021 Up to the date of issue of the consolidated financial statements, the IASB has issued the following new and amendments to standards which are not yet effective and not early adopted by the Group for the annual accounting period ended 31 December 2021: IFRS 17 “Insurance Contracts” Amendments to IAS 16 “Property, Plant and Equipment” – Property, Plant and Equipment: Proceeds before intended use Amendments to IFRS 3 “Business Combinations” – Reference to the Conceptual Framework Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” – Onerous Contracts – Cost of Fulfilling a Contract Annual Improvements to IFRS Standards 2018-2020 Amendments to IAS 1 “Presentation of Financial Statement” – Classification of Liabilities as Current or Non-current Amendments to IAS 1 “Presentation of Financial Statement” and IFRS Practice Effective for accounting periods beginning on or after 1 January 2023 1 January 2022 1 January 2022 1 January 2022 1 January 2022 1 January 2023 Statement 2 “Making Materiality Judgements” – Disclosure of Accounting Policies 1 January 2023 Amendments to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” – Definition of Accounting Estimates Amendments to IAS 12 “Income Taxes” – Deferred Tax related to Assets and Liabilities arising from a Single Transaction Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in associates and joint ventures” 1 January 2023 1 January 2023 – Sale or contribution of assets between an investor and its associate or joint venture To be determined The Group is in the process of making an assessment of the impact that will result from adopting the new and amendments to standards issued by the IASB which are not yet effective for the accounting period ended on 31 December 2021. So far the Group believes that the adoption of these new and amendments to standards is unlikely to have a significant impact on its financial position and the results of operations. China Telecom Corporation Limited Annual Report 2021 285 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2021 49. EVENTS AFTER THE REPORTING PERIOD On 7 May 2021, The New York Stock Exchange LLC (the “NYSE”) filed the Form 25 with the US Securities and Exchange Commission (the “SEC”) and the delisting of the Company’s American Depositary Shares (the “ADSs”) became effective on 18 May 2021. On 9 September 2021, the board of directors of the Company resolved to terminate the ADS Program which became effective on 8 December 2021 (U.S. Eastern time). In light of the delisting of the ADSs and the termination of the ADS Program, the Company has filed a Form 15F with the SEC on 25 February 2022 to deregister the ADSs and terminate its reporting obligations under the U.S. Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”). The Company’s reporting obligation under the U.S. Exchange Act has been suspended immediately upon such filing. The deregistration and termination of reporting obligation is expected to become effective 90 days after the filing, unless withdrawn by the Company or objected to by the SEC. 50. PARENT AND ULTIMATE HOLDING COMPANY The parent and ultimate holding company of the Company as at 31 December 2021 is China Telecommunications Corporation, a state-owned enterprise established in the PRC. 286 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS DIFFERENCES BETWEEN CHINESE ACCOUNTING STANDARD AND IFRSs Amount attributable to the shareholders of the parent company stated in the financial statements prepared in accordance with Chinese Accounting Standard Adjustments as required by IFRSs Profit Net Assets for the year as at ended 31 December 31 December 2021 2021 RMB million RMB million 428,681 25,952 (7) (4) Amount attributable to equity holders of the Company stated in the financial statements prepared in accordance with IFRSs 428,674 25,948 China Telecom Corporation Limited Annual Report 2021 287 SECTION IX FINANCIAL REPORTS FINANCIAL SUMMARY (Amounts in million except for per share data) Results of operation Operating revenues Year ended 31 December 2021 RMB 2020 RMB 2019 RMB 2018 RMB 2017 RMB 439,552 393,561 375,734 377,124 366,229 Depreciation and amortisation (92,965) (90,240) (88,145) (75,493) (74,951) Network operations and support (133,342) (119,517) (109,799) (116,062) (103,969) Selling, general and administrative (61,155) (55,059) (57,361) (59,422) (58,434) Personnel expenses (76,055) (65,989) (63,567) (59,736) (56,043) Other operating expenses (45,088) (29,074) (27,792) (37,697) (45,612) Impairment loss on property, plant and equipment Operating expenses Operating profit Net finance costs – (5,042) – – – (408,605) (364,921) (346,664) (348,410) (339,009) 30,947 28,640 29,070 28,714 27,220 (1,293) (3,014) (3,639) (2,708) (3,291) Investment income and others Share of profits of associates and joint ventures 2,244 1,966 60 30 38 1,701 1,573 2,104 147 877 Profit before taxation 33,864 27,387 27,034 28,148 24,953 Income tax Profit for the year (7,716) (6,307) (6,322) (6,810) (6,192) 26,148 21,080 20,712 21,338 18,761 288 China Telecom Corporation Limited Annual Report 2021 SECTION IX FINANCIAL REPORTS Year ended 31 December 2021 RMB 2020 RMB 2019 RMB 2018 RMB 2017 RMB FINANCIAL SUMMARY (Amounts in million except for per share data) Other comprehensive income for the year Items that will not be reclassified subsequently to profit or loss: Change in fair value of investments in equity instruments at fair value through other comprehensive income 20 (385) 604 (324) Deferred tax on change in fair value of investments in equity instruments at fair value through other comprehensive income (15) 97 (147) 82 – – Items that may be reclassified subsequently to profit or loss: Change in fair value of available-for-sale equity securities Deferred tax on change in fair value of available-for-sale equity securities Exchange difference on translation of financial statements of subsidiaries – – – – – – – – (400) 100 outside mainland China (233) (312) 102 154 (259) Share of other comprehensive income of associates and joint ventures – (4) (2) (7) 7 Other comprehensive income for the year, net of tax (228) (604) 557 (95) (552) Total comprehensive income for the year 25,920 20,476 21,269 21,243 18,209 Profit attributable to Equity holders of the Company 25,948 20,850 20,517 21,210 18,617 Non-controlling interests Profit for the year 200 230 195 128 144 26,148 21,080 20,712 21,338 18,761 Total comprehensive income attributable to Equity holders of the Company 25,720 20,244 21,074 21,115 18,065 Non-controlling interests 200 232 195 128 144 Total comprehensive income for the year 25,920 20,476 21,269 21,243 18,209 Basic earnings per share (RMB) Diluted earnings per share (RMB) 0.31 0.31 0.26 0.26 0.25 0.25 0.26 0.26 0.23 0.23 China Telecom Corporation Limited Annual Report 2021 289 SECTION IX FINANCIAL REPORTS FINANCIAL SUMMARY (Amounts in million except for per share data) As at 31 December of the year 2021 RMB 2020 RMB 2019 RMB 2018 RMB 2017 RMB Financial condition Property, plant and equipment, net 415,981 418,605 410,008 407,795 406,257 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 51,456 48,425 59,206 66,644 73,106 167,437 164,050 160,735 115,938 110,281 75,210 52,150 33,092 50,924 24,419 48,763 23,480 49,525 22,510 49,040 762,234 715,096 703,131 663,382 661,194 265,072 271,142 264,661 258,920 275,408 65,994 77,779 83,430 60,363 59,089 331,066 348,921 348,091 319,283 334,497 holders of the Company 428,674 363,456 352,510 343,069 325,867 Non-controlling interests 2,494 2,719 2,530 1,030 830 Total equity 431,168 366,175 355,040 344,099 326,697 Total liabilities and equity 762,234 715,096 703,131 663,382 661,194 290 China Telecom Corporation Limited Annual Report 2021 SHAREHOLDER INFORMATION 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 while its A shares were listed on the Shanghai Stock Exchange on 20 August 2021. Stock Code The Stock Exchange of Hong Kong Limited 728 Shanghai Stock Exchange 601728 Share Price Performance 2021 Share Price HK$ per H Share RMB per A Share High 3.24 Low 1.82 Close 2.60 High 6.52 Low 4.13 Close 4.33 Number of issued shares: (as at 31 December 2021) Market capitalisation: (as at 31 December 2021) 91,507,138,699 HK$448.4 billion China Telecom Corporation Limited Annual Report 2021 291 SHAREHOLDER INFORMATION 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 2021. 600 500 400 300 200 100 0 China Telecom (+79%) HSI (+137%) MSCI (+147%) 2 0 0 2 / 1 1 3 0 0 2 / 1 1 4 0 0 2 / 1 1 5 0 0 2 / 1 1 6 0 0 2 / 1 1 7 0 0 2 / 1 1 8 0 0 2 / 1 1 9 0 0 2 / 1 1 0 1 0 2 / 1 1 1 1 0 2 / 1 1 2 1 0 2 / 1 1 3 1 0 2 / 1 1 4 1 0 2 / 1 1 5 1 0 2 / 1 1 6 1 0 2 / 1 1 7 1 0 2 / 1 1 8 1 0 2 / 1 1 9 1 0 2 / 1 1 0 2 0 2 / 1 1 1 2 0 2 / 1 1 292 China Telecom Corporation Limited Annual Report 2021 SHAREHOLDER INFORMATION Distribution of Shares and Shareholdings The share capital of the Company as at 31 December 2021 was RMB91,507,138,699, divided into 91,507,138,699 shares of RMB1.00 each. As at 31 December 2021, the share capital of the Company comprised: Percentage of the Total Number of Shares in Issue (%) 84.83 63.20 6.14 2.34 1.06 1.05 11.04 15.17 100.00 Number of Shares 77,629,728,699 57,836,695,761 5,614,082,653 2,137,473,626 969,317,182 957,031,543 10,115,127,934 13,877,410,000 91,507,138,699 Total Number of A Shares: held by: China Telecommunications Corporation Guangdong Rising Holdings Group Co., Ltd. Zhejiang Provincial Financial Development Co., Ltd. Fujian Investment & Development Group Co., Ltd. Jiangsu Guoxin Group Limited Others Total Number of H Shares: Total 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 2021: Name of Shareholder GIC Private Limited Number of Shares 1,945,047,702 Percentage of the Total Number of H Shares in Issue (%) 14.02 China Telecom Corporation Limited Annual Report 2021 293 SHAREHOLDER INFORMATION Dividend History Financial Year Ex-Dividend Date Approval Date Payment Date Shareholder Dividend per Share 2002 Final 2003 Final 2004 Final 2005 Final 2006 Final 2007 Final 2008 Final 2009 Final 2010 Final 2011 Final 2012 Final 2013 Final 2014 Final 2015 Final 2016 Final 2017 Final 2018 Final 2019 Final 2020 Final 2021 Final 16 May 2003 20 June 2003 10 July 2003 HKD0.00837* 1 April 2004 3 May 2004 20 May 2004 21 April 2005 25 May 2005 23 June 2005 20 April 2006 23 May 2006 15 June 2006 26 April 2007 29 May 2007 15 June 2007 28 April 2008 30 May 2008 16 June 2008 23 April 2009 26 May 2009 30 June 2009 22 April 2010 25 May 2010 30 June 2010 18 April 2011 20 May 2011 30 June 2011 5 June 2012 30 May 2012 20 July 2012 4 June 2013 29 May 2013 19 July 2013 4 June 2014 29 May 2014 18 July 2014 1 June 2015 27 May 2015 17 July 2015 30 May 2016 25 May 2016 15 July 2016 26 May 2017 23 May 2017 21 July 2017 31 May 2018 28 May 2018 27 July 2018 3 June 2019 29 May 2019 26 July 2019 1 June 2020 26 May 2020 31 July 2020 11 May 2021 7 May 2021 1 June 2021 HKD0.065 HKD0.065 HKD0.075 HKD0.085 HKD0.085 HKD0.085 HKD0.085 HKD0.085 HKD0.085 HKD0.085 HKD0.095 HKD0.095 HKD0.095 HKD0.105 HKD0.115 HKD0.125 HKD0.125 HKD0.125 31 May 2022 19 May 2022 18 July 2022 RMB0.170** * ** 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 19 May 2022. ANNUAL REPORTS Our annual reports in both English and Chinese are now available through the Internet at https://www.chinatelecom-h.com. 294 China Telecom Corporation Limited Annual Report 2021 SHAREHOLDER INFORMATION 2021 Annual Report Survey Annual Report is a key communication channel between shareholders and the Company. Last year, we received around 100 questionnaires of “Your Views on Annual Report 2020”. 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 contribute HK$50 to a charitable organisation for each questionnaire received. In this regard, we have given a sum of HK$10,000 to the charitable organisation, WWF, in 2021. In addition, we have already implemented the suggestion of allowing shareholders to choose means of receipt and language of corporate communication to enhance environmental protection and cost savings. We value and are eager to keep hearing your comments on our annual report 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 Annual Report 2021”, 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. Annual General Meeting To be held at 10 a.m. on 19 May 2022 in China Telecom Museum, Haidian District, Beijing, PRC and Island Shangri-La, Central, Hong Kong. Registered office Address: 31 Jinrong Street Xicheng District Beijing PRC 100033 (8610) 5850 1800 (8610) 6601 0728 Tel: Fax: Any enquiries relating to the strategic development or operations of China Telecom Corporation Limited, please contact the Investor Relations Department: Investor Relations Department Tel: (852) 2877 9777/(8610) 5850 1508 IR Enquiry: (852) 2582 0388 Fax: Email: (852) 2877 0988/(8610) 5850 1531 ir@chinatelecom-h.com China Telecom Corporation Limited Annual Report 2021 295 SHAREHOLDER INFORMATION Any enquiries relating to your shareholding, for example transfers of shares, change of name or address, loss of share certificates, please contact the share registrars: H share registrar Computershare Hong Kong Investor Services Limited Address: Shops 1712-1716, 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Tel: Fax: Hong Kong (852) 2862 8555 (852) 2865 0990 Website: www.computershare.com/hk/contact A share registrar China Securities Depository and Clearing Corporation Limited Shanghai Branch Address: No.188 South Yanggao Road Tel: Website: Pudong New Area Shanghai (86) 4008-058-058 http://www.chinaclear.cn/zdjs/shfgs/branch_BSH.shtml 296 China Telecom Corporation Limited Annual Report 2021 CORPORATE CULTURE Corporate Mission Let the customers fully enjoy a new information life Strategic Goal Be a world-class integrated information services provider Core Value Comprehensive innovation, pursuing truth and pragmatism, respecting people and creating value all together Operation Philosophy Pursue mutual growth of corporate value and customer value Service Philosophy Customer First Service Foremost Code of Corporate Practice Keep promise and provide excellent service for customers Cooperate honestly and seek win-win result in joint innovation Operate prudently and enhance corporate value continuously Manage precisely and allocate resources scientifically Care the staff and tap their potential to the full Reward the society and be a responsible corporate citizen Corporate Slogan Connecting the World

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